Question

1.What is corporate governance?

type L1

-Describe the separation of ownership and control and the conflicting of interests between the shareholders (owner or principal) and manager (agents) in a corporation. -The owner- principal of firms establishes appropriate incentives for agents and impose a mechanism to oversee management agents. This mechanism is called corporate governance - A more broad definition of corporate governance: Corporate governance refers to the set of systems, principles and processes by which a company is governed

2. What is agency problem?

L1

-Addressing the issue of conflicting of interest between the owners and management-agents of firms. - Describe the possible of expropriation of the shareholders value by the agents since the men in control of a corporation can operate it in their own uses. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal - Give some example of agency problems

3.What are the major OECD (Organisation for Economic Co-operation and Development)principles of corporate governance?

-The OECD Principles of Corporate Governance were originally developed in by the OECD Council Meeting at Ministerial level on 27-28 April 1998. Content of OECD principles + Ensuring the Basis for an Effective Corporate Governance Framework + The Rights of Shareholders and Key Ownership Functions: secure methods of ownership registration, convey or transfer shares, obtain information on a timely and regular basis, participate and vote in general shareholder meetings, elect and remove members of the board, share in the profits of the corporation + Equitable treatment of shareholders + Roles of shareholders in Corporate Governance + Disclosure and transparency: timely and accurately; include (financial report, policy) + Responsibility of the board

L3

4.How do you think about the possible implication of OECD corporate governance framework in Vietnam?

L3

- Students use the 6 major core issues of OECD corporate governance framework (as mentioned in question 2) and describe the possible implication in Vietnam, focusing on: + OECD is corporate governance in market developed countries. +Vietnam can implement, step by step while transforming to market economy. +Increasing agency problems in Vietnam +Give example: explain the legal frame work in Vietnam: corporate laws and securities laws which provide legal enforcement to improve corporate governance. Explain the market enforcement that encourage corporation to improve corporate governance in competition. Note: this question is a group presentation question which provided opportunities for students prepared and discussed in class already.

5. How corporate governance mechanism is changed when a state owned company is privatized? Please give one example in Vietnam.

L2

Student is requested to explain the new corporate governance mechanisms when firm is privatized. The issues of compare can be varied according to: Ownership structure, Objectives of business, Legal framework, political influence, Agency problems, property rights, Financial reporting, investor protection, employees, Capital raising, BOD representative, takeover, possible to enter stock market. Student gives one example of changing in corporate governance of firm when privatized in Vietnam.

There were several scandals of some big US corporation (such as Enron and WorldCom) and auditing agent. What these scandals had in common was skewed reporting of selected financial transactions. For instance, companies such as Enron, WorldCom and Tyco covered up or misrepresented a variety of questionable transactions, resulting in huge losses to stakeholders and a crisis in investor confidence The US government enacted the law to improve corporate governance. The major intend of this laws is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. 1. What is the major intension of Sarbanes-Oxley Act?
L3

The SarbanesOxley Act is a United States federal law that set new or enhanced corporate governance standards for all U.S. public company boards, management and public accounting firms.

2.What is stakeholder theory?

L2

The agency problems outlined above are between shareholders and managers, and between minority shareholders and controlling shareholders. Stakeholder theory has emerged because of the increasingly important influence of other stakeholders on the performance of firms, who may be government, shareholders, political groups, customers, suppliers, trade associations, employees and communities. Corporate governance plays the role of ensuring that the interests of all parties are at least taken into consideration when achieving the economic and social goal of a corporation. The OECD corporate governance principals (2004) emphasize the importance of accountability to all stakeholders.

3. How do you think about the relationship between corporate governance and corporate financial performance?

Effective corporate governance produces high financial performance: + Ensure the profit maximization of firm
L2

+ Effective investor protection providing capital for development

+ Effective board and well- functioning of Board in providing effective leadership, incentives and supervision. + Improve transparency, disclosure, high quality of financial reporting

4. What is the difference between creditor rights and shareholders rights? Content II

L2

Compare the following issues: + paid and secured interests versus residual rights + voting + liquidating + Control rights

5. How can outside investors do to monitor and influence a companys management? Give one example of how outside investors did influence companys managers in Vietnam.

L2

What is the outsider investors (shareholders): An outside investor is a person who owns shares in a companys stock but is not in any way able to control the direction or management of the company. The power of shareholders is presented via the number of shares they owned Big and small shareholders have different interests and resources: Small shareholder own small amount of stock => benefit to personal wealth from improve stocks performance is much smaller than the cost of forcing a change => less incentive to be an activist Large or block shareholders have more incentive to be a SH activist. They also have greater influence in GSM. How to do: claim BODs, Vote in GSM, proposal, laws, getting information, proxy fights, shareholders lawsuits. - Describe the possible of expropriation of the shareholders value by the agents since the men in control of a corporation can operate it in their own uses. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal. -The shareholders of firms establish appropriate incentives for agents and impose a mechanism to oversee management agents. This mechanism is called corporate governance

1. How does investor protection matter to corporate governance?

L2

-So investors (or shareholder) protection is the most important intend of corporate

governance.

2. Explain the role of board of directors in corporate L3 governance?

BODs is the representatives of shareholders in a corporation, The BODs are voted by GSM. BOD is a legal body in corporate structure. Function of BOD: Appointing CEOs, vote for major operating and financial proposals and decisions; to make sure the firms activities and financial conditions are accurately reported to shareholders. BOD plays the primary role in setting corporate governance framework to protect interests of shareholders.

3. What is the differences between the role of BOD and CEOs, How BOD can improve its roles?

L3

BODs: Elected by the shareholders, Control major decisions on behalf of the shareholders, setting corporate governance framework to protect interests of shareholders CEOs: Appointed by the BOD (agent); day-to-day control over the firms decisions; The BOD can improve its role by: Try to balance to number of members and the proportion of insiders and non-insiders Provide leadership, Set up effective mechanisms for monitoring managers Aligning executive incentives with shareholder desires

4. What is ownership structure? How it matter to corporate governance?

L2

-What is ownership structures: the proportion of shares or ownership -Explain the different between the big shareholders and small shareholders in terms of interests, power to influence, and more incentive to join in BODs and monitor the CEOs -How it matter: Big SHs More Small SHs less

Related interests

Power to influence Disclosure Investor protection Financial structure of company (externally)

More power to join BODs and voting right Low incentives Low Bank model(when company need capital mobilization, it asks for banks support)

Less and difficult to join BODs High incentives High Market model(when company need capital mobilization, it issues stock to stock market)

5. What are the major issues of corporate governance in State Owned Enpterprises (SOEs)? Give an example of corporate governance problems in SOEs in Vietnam.

L2

Decision making power More concentration More decentration The major issues of corporate governance in SOEs: objectives, principal and agents, property rights issues, disclosure, laws governing, appointing BODs, CEOs, incentives, other influence of stakeholders, for examples: -Objective: SOEs have profit objective and political objectives =>conflicts between interested parties -Agency problem: SOEs have double agency problem: conflict between the interests of managers and owners; and conflicts between the interests of many layers of bureaucrats and the citizens. -Property right: ownership is government => residual claim is not clearly => less incentive. -The lack of transparency: SOEs are lack of transparency Independent director is Non-executive director; Apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated

1. What is an independent director? 2. What is business ethics?

L3 L5

-Business ethics: is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. - It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.

3.What are internal and external auditors; what arecorporate governance issues of auditing?

L4

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. External auditor are accountants from outside the firm, who performs an audit in accordance with specific laws or rules on the financial statements of a company, government entity or organization, and who is independent of the entity being audited. Corporate governance of auditing: +Auditors perform as consultants when proving consulting services => reduce the independent +Corporate financial reports considered as the primary source of information in the evaluation of a company are highly complex => it is difficult to SHs, investors to check and evaluate + boiler plate audit reports => investors do not obtain fact situation of firms

4. What are the major contents and implications of Sarbanes Oxley Act?

L4

- Main contains and implication : + The legislation establishes a nonprofit corporation which will operate under SEC discretion, to oversee the audit of public companies and to protect the interests of investors and the general public by improving audit report accuracy + Attempt to protect investors by isolating the relationships among auditors, consultants, and the public company being audited + Increase the monitoring ability and responsibilities of BODs and improves their credibility by making BODs more independent and more responsible for audits + make executive actions more transparent to shareholders by requiring the disclosure of offbalance-sheet transactions and decrease time that an executive has to report company stock trades to the SEC + Makes it easier to prosecute executive criminal behavior in future (spelling out new definition of criminal behaviors, ..)

5. Compare corporate governance mechanisms of SOEs and Private Company ? Please give one example of corporate governance issues of SOEs in Vietnam. 1. What are ownership structures and minority shareholders?

L2

L2

What is ownership structure: the proportion of shares or ownership; -Describe small and big shareholders; -Minority shareholders are shareholders who have minority stakes in a company that is controlled by a majority shareholder.

2. What are the roles of independent director? 3. What are the major corporate governance issues of independent directors?

L3

-Role of independent director: Provide independent opinion, protect interests of minority shareholders: What is most important is judgement of an independent director is independent in real sense. There should not be any conflict of interest with his personal interest in making decision.

L3

4. How can executive compensation align the interests of managers with the

L4

- Independent directors may not keeping a balance power - Independent directors may have low incentives; Independent director doesnt work as he should do - Independent directors are notactually independent because of various relationship not regulated -Not clear legal requirement about responsibilities of independent directors -Recruitment of independent directors is difficult -Independent directors do not function effectively in a company that has high concentration in ownership structure Discuss compensation as an internal mechanism to align interest of managers and sharehodlers Explain there types of executive compensation: base salary, stock option, stock grants; Discuses pro and con of each Type of executive compensation in aligning interest of managers

interests of shareholders?

and shareholders: - Base salary (Pro: not aligning incentives and performance sustainable strategy, easy to budget;con: not aliging with the performance of the company and shareholders interest) - Stock option (Pro: aligning personal interests employees with performance; con: short term strategy, risky business) Stock grants (Pro: align the interests of employees and shareholders; con: short

term strategy, risky business) 5. What is the influence of legal systems on corporate governance mechanisms amongst countries? Give some comments on how the legal system of Vietnam matter to corporate governance. 1. What is the role of credit rating agencies?

L3

-There are basically two kinds of legal system that influence on corporate governance mechanisms amongst countries: civil law and common law A Credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves or financial strength. Credit ratings are used by investors, issuers, investment banks, broker-dealers, and governments A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay back a loan) altogether: small governments, startup companies, hospitals, and

L5

2. What is transparency in corporate governance? 3.What is the different between agency theory and stakeholder theory?

L2

transparency or access to information has the similar meaning. Transparency is the result of information being available. In corporate governance, transparency means accessible to information of related corporate shareholders and other stakeholders

L3

Compare
Agent Agency theory Principle-agent Stakeholder theory Principle

 Objective Maximize the profit

Employee Social citizen

Reasonable profit Various social objectives Multiple responsibility with Employee

Obligation

Principle gets all, that shareholders have all residual rights

Reputation Develop the brand=>>increase the profit

Better environment Social citizen

Think more about social impact

4. What is the difference between the bank-model of corporate governance and market model of corporate governance?

L3

Compare some of the typical issues:

Bank model Capital structure Shares proportion of biggest owner Biggest owner power Financial providers capital source: banks and funds Large Market model capital source: stock market Small

Very power Banks and funds

Normal Shareholders, large number of shareholders

Level of disclosure and transparency Law system

Low

High

civil law

common law

5. In what ways can managers harm the interests of stockholders? Give some examples of managers who could harm the interests of stockholders in Vietnam.

-Principal agent problems, issues of conflicting of interests

L1

-Describe the possible of expropriation of the shareholders value by the agents since the men in control of a corporation can operate it in their own uses. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal -How to do, the Manager can: + Providing wrong information for purposes + Short term action + Use company resources for their owned interests + Risk business stock + use firms assets for their own personal use. +Others: Shirking (i.e. not working hard); Hiring friends; Consuming excessive perks; Building empires; Taking no risks or chances to avoid being fired; Taking excessive risk to earn large bonuses; Having a short-run horizon if the managers is near retirement Student give some examples of manager could harm the interests of stockholders in Vietnam based on the framework discussed.

1.What is the differences between principalagent problem between concentration ownership structure and dispersion ownership structure?

L2

-Concentration ownership structure: large shareholder taking control of management, they may use this control of board to have tunneling activities, non-transparency, low level of shareholder protection,. -Dispersion ownership structure: No incentive of small shareholders to monitoring the company, manager act on their owned interest without effective

control and supervision from minority shareholders. 2.What is the most common form of shareholder activism?
L2

-Incentives of shareholders -Types of shareholder activism: Vote in GSM, shareholder proposals, Proxy fights; Shareholders lawsuits; claim of shareholders on the media

3. What are corporate governance issues of credit rating agencies? Name some of credit rating agencies? 4.Describe the separation of ownership and control. How that separation of comes about and why it leads to problems?

L5
L1

Corporate governance issues: rating agent does not act independently base on their adjustment, providing biased information, manipulating information, give some examples. -Describe the separation of ownership and control and the conflicting of interests between the shareholders (owner or principal) and manager (agents) in a corporation. - Describe the possible of expropriation of the shareholders value by the agents since the men in control of a corporation can operate it in their own uses. =>opportunistic behavior on the part of the agent that works against the welfare of the owner-principal -Weak supervision, the Manager can: + Providing wrong information for purposes + Short term action + Use company resources for their owned interests + Risk business stock + use firms assets for their own personal use. +Others: Shirking (i.e. not working hard); Hiring friends; Consuming excessive perks; Building empires; Taking no risks or chances to avoid being fired; Taking excessive risk to earn large bonuses; Having a short-run horizon if the managers is near retirement -Explain the different agency problems of Concentration ownership structure and Dispersion ownership structure

L2 5.What is ownership structure? Describe how ownership structure matters to corporate governance? Give one example of how the change in ownership structure matters to corporate governance of (a) firm(s) in Vietnam.

-What is ownership structure: the proportion of shares -Explain the different agency problems of Concentration ownership structure and Dispersion ownership structure matter to corporate governance: +Concentration ownership structure: large shareholder taking control of management and act for their owned interests how to fix this, the corporate governance mechanisms are adjusted to: Improve of legal protection to minority shareholders, enhancement of transparency and effective enforcement of market regulators. Improve transparency and disclosure. Listing on the securities market is another important method to improve corporate governance +Dispersion ownership structure: No incentive of small shareholders to monitoring the company, manager act on their owned interest without effective control and supervision from minority shareholders how to fix this, the corporate governance mechanisms are adjusted to: align the interests of managers and shareholders. Improve supervise management performance on their behalf. Boards of directors and supervisors are established to control and monitor the interests of the shareholders. Takeover - this mechanism is usually implemented in liquid capital markets More Shareholder activism activities

1.What is stakeholder theory on corporate governance of firm?

L3

Stakeholder theory has emerged because of the increasingly important influence of other stakeholders on the performance of firms. Stakeholders may be government, shareholders, political groups, customers, suppliers, trade associations, employees and communities. They argue that all persons or groups have equal rights to claim for the residuals of firm. Corporate governance plays the role of ensuring that the interests of all parties are at least taken into consideration when achieving the economic and social goal of a corporation. Stakeholder theory suggests a corporate governance model that monitors profit for shareholder and social responsibility for other stakeholders such as employees, government or community.

2.What is shareholders activism? How does it matter to corporate governance of firm? Content II

L2

Shareholder activism is a way in which shareholders can influence a corporation's behavior by exercising their rights as owners. Although shareholders don't run a company, there are ways for them to influence the board of directors and management. By these efforts they can have influence on corporate governance of the firm. -Types of shareholder activism: Vote in GSM, shareholder proposals, Proxy fights; Shareholders lawsuits; claim of shareholders on the media, sell stock

3. Compare corporate governance mechanisms between the firms listing and the firm not listing in stock market?

L3

Mechanisms

Objective Liquidity of stock Financial providers

Compan ies outside the stock market Less Less Bank or current shareholders

Companies inside the stock market

More supervision of market on profit maximization More Large number of shareholders, raising capital from stock market. Corporate law Security law

Government: Law

Corporate law

Disclosure of information Ownership Risk of being acquired

Less Limited in the number of shareholders Less

More More open to outside investors More

Civil law + maximize social profit

Common law + maximize individual profit. +Target of corporate governance is maximize + High protection of employee benefits (retire profit for shareholders, high protection of salary, social benefit), low protection of minority shareholders interests minority shareholders interest So under the Civil law => weaker investor protection=> high ownership concentration=> less development of stock market. Under the Common law => stronger investor 4. What is the influence of legal systems on minority investor protection amongst countries? How it influence the development of capital markets? L4 - The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders. - Corporate social responsibility is an implementation of Stakeholder theory in corporate governance of firms - Student discusses the major benefits (sustainable business development, brand development, protection => low ownership

concentration=> more development of stock market.

5. What are the major benefits and difficulties of implementing corporate social responsibility L5 in Vietnam?

1. What is investor protection and why investor protection is important in corporate governance?
L2

corporate culture) and major difficulties (budgets, social and business awareness), give examples. -Investor protection defines the entity of efforts and activities to observe, safeguard and enforce the rights and claims of a person in his role as an investor; -Describe the conflicting of interests between the shareholders (owner or principal) and manager (agents) in a corporation and the possible of expropriation of the shareholders value by the agents - Corporate governance is a mechanism to protect shareholders from the expropriation of the shareholders value by the agents The investor has more confident because effective corporate governance structure can ensure: -the rights of shareholders and key ownership functions -the equitable treatment of shareholders -the appropriate role of stakeholders in corporate governance -disclosure and transparency -the accountabilities and responsibilities of the Board -weaker investor protection=> less development of stock market==> borrowing capital from bank market for development. -stronger investor protection => more development of stock market raising money from stock market for capital need. Companies outside the stock market Changes inside the Mechanisms stock market Objective Less More supervision of market on profit maximization Liquidity of stock Financial providers Less Bank or current shareholders More Large number of shareholders, raising capital from stock market. Corporate law

2. How does an effective corporate governance structure improve investor confidence?

L2

3.How investor protection matter to corporate finance structure of a company?

L2

4. Explain the changes in corporate governance mechanism when a firm listing in stock market?

L4

Government Law:

Corporate law

Disclosure of information Less Ownership Limited in the number of shareholders

Security law More

More open to outside investors

Risk of being acquired

Less

More

- No particular principals and the principals have no incentive to monitor -Double agency problems associated with management agents in state firms agent problems in SOEs of Vietnam.and bureaucrats in the government administration structure who play the role of the original principals.

5. What are principal agent problems in State owned enterprises (SOEs)? Please give one example about the principal L2

+The fist agency problem if between the state ownership representatives and manager +The second agency problem is from bureaucrats. They are actually the second order agents of the true owners the citizen who exercise ownership rights in reality, but who are not residual claimants. This explain the weak corporate governance in SOE Student gives one example about the principal agent problems in SOEs of Vietnam. The mechanisms integrate internal-firm level governance and external-macro level institutions. The core internal-firm level governance relates to the key issues of cooperation of participants pursuing their own interests: principals, managers and other Shareholders. The external-macro level links the internal governance with external enforcements such as

1.What are internal and external corporate governance mechanisms?

competition in product and capital markets, take over market, role of bankers, legal and government policies.
L1

Differences Paid Voting right

Sharehol ders Dividends, after the creditors are paid Yes The owners, control the firm

Creditors Interests, creditors are paid first Usually not The lenders of the firm. When the firms are in bad financial distress, the control may be transferred to creditors Priority rights in the liquidation. Rights to transfer of bonds. May also have the right to redeem debt securities in exchange for stock.

2. Please explain the major internal and external corporate governance mechanisms? Compare the differences between creditor rights and shareholders rights?
L1

Control right When the corporations assets are liquidated Liquidity

The last to receive the liquidated corporation's assets Rights to the transfer of stock

Minority shareholders are shareholders who have minority stakes in a company that is controlled by a majority shareholder.

4. What is minority investor and the importance of minority investor protection in development of securities market?

Minority investor protection in corporate governance has important role because: - Minority investor determine the floating of shares and they will sell off if they do not believe on growth and profitable of the company;
L2

5. Is takeover a good or

- If there is low protection for Minority investor, the Minority investor will not invest and firms listing in stock market cannot get the benefits from listing in stock market such as acquiring capital and increasing in stock prices low development of capital market. Corporate governance issues of
takeover:

bad corporate governance mechanism? Give one example in Vietnam and explain.

Impact on the ownership rights Shareholders are and wealth of the shareholders wealthier if synergy is committed Affect the stock price The promotion and the value of the entities

of

efficient

restructuring

The low protection of minority shareholders (voting restrictions and discrimination against minorities) Equity holders vulnerability is higher compared to other Shareholders. Share prices of bidder corporate firms can fall when acquisition announced markets to Managers resistance takeovers threatening positions to Low liquidity of equity

The positions of the BoD, The reposition Executives and employees better managers The differences of interests The reduction among managers and shareholders agency conflicts of the target and bidder

of Threats to the employees of the target and bidder between bidder The conflicts of interests the managers and

shareholders of the target and

Information disclosure and Higher public transparency information disclosure because of better management system. Culture Similar culture backgrounds create a better working environment.

Low public information disclosure because the information of target is under the control of bidder. Different culture requires time to adapt.