Slide- CH 11

• Owners


  Also referred to as investors or shareholders, key stakeholders in a capitalist system who provide a major portion of the capital to finance corporations
• Owners of Canadian Business

  • Investors
  • Entrepreneurs
  • Employees and managers
  • Customers or consumers
  • Producers
  • Ownership through mutual funds
  • Ownership through pension funds
  • Corporate ownership
  • Private equity firms
  • Venture capital companies
  • Not-for-profit organization ownership
  • Government ownership
• Dual-class stock


  More than one type of share or stock with different voting rights and dividend payments issued by a single corporation
• Non-voting shares


  Common shares without voting privileges
• Restricted shares


  Some limit on voting; sometimes called uncommon shares
• Passive shareholders


  Those who do not attempt to influence the affairs of the corporation even though they have a legal right to do so
• Active shareholders


  Those who participate in the governance to the full extent allowed by the law
• Worker capitalism


  Describes employee ownership as workers are turned into capitalists through stock ownership
• Employee Ownership


  • Increases morale
  • Increases company loyalty
  • Motivates employees, leading to higher productivity
  • Sometimes can save failing firms
• Employee Ownership


  • Jobs and often savings and pensions depend on fate of firm
  • Employees seldom have majority ownership
  • Management may still not relinquish control to employees
• Actions of other stakeholders - for example governments, other corporations, and self-regulatory organizations - influence the owner stakeholder
• Investor owners have limited influence in making the corporation more socially responsible
• Mutual funds can be purchased that invest in corporations considered to have a social, ethical and environmental focus or objective
• Some pension plans have revised their investment strategy to acquire stock of socially responsible corporations
• Cooperatives have been leaders in institutionalizing ethics and responsibilities
• Accountability for economic, social, and environmental responsibilities has become common among publicly traded corporations
• Accountability dilemma


  1. Government-owned corporations may be in conflict with social objectives in the national interest; 2. Consequences of evaluating performance based on commercial criteria (that is, profits); 3. Degree of autonomy that should be granted the corporations and their managements; and 4. Techniques for controlling and evaluating the commercial corporations
• Responsible investment (RI)


  Approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns
• Responsible Investment Criteria


  • poor employee/labour relations
  • failure to promote racial and sexual equality and affirmative action programs
  • the manufacture of controversial weapons
  • involvement in the nuclear industry
  • use of fossil fuels, especially coal
  • the manufacture of "sin" products such as alcohol or tobacco
  • the conducting of business in repressive regimes
  • the violation of human rights
  • failure to involve Indigenous Peoples
  • environmentally damaging operations, for example, those that pollute
  • unsafe goods and services, questionable marketing practices, and exploitive marketing in developing countries
  • use of animals in product testing
  • involvement in gambling and pornography
  • factory farm production of animals
  • genetically modified product
  • child or forced labour
• Challenges to ascertaining a socially responsible investment: Data relied upon are sketchy and the research is selective, Ratings not completely objective, Claims of the growing financial impact are questionable, No coherent case has been made for why the criteria used for social responsibility are better at effecting social change, General approach of social investment advocates is one of vindication of the true believer, not investigation
• Shareholder democracy


  Exercise of power of owners to ensure they are treated fairly and enjoy equally the privileges and duties of ownership
• Basic shareholder rights


  • Voting power on major decisions
  • Transfer to ownership when desired
  • Entitlement to dividends
  • Accessibility to accurate and timely financial information
• Stakeholders attempting to ensure shareholder rights

  • Governments
  • Self-Regulatory Agencies and Organizations
  • Shareholder Activists
• Corporate governance


  Processes, structures, and relationships through which the shareholders, as represented by a board of directors, oversee the activities of the corporation
• Responsibilities of the Board of Directors

  • Monitor corporation's activities and performance
  • Power to select, evaluate, and terminate CEO/top managers
  • Provide shareholders with financial and other statements
  • Planning for longer term (strategic planning process)
  • Ensuring continuity and succession in the management team
  • Evaluating and approving major transactions and ventures
• Fiduciary duties


  Obligations owed by directors to shareholders that are prescribed by laws or regulations
• Independent (unrelated) director


  Director who is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director's ability to act in the best interests of the corporation
• Recruitment of women and minorities to boards is receiving increased attention
• Institutional investors and organizations advocating for gender representation on boards have set a 30% goal by 2022
• Say-on-pay


  Ability of shareholders to vote on the remuneration of executives
• "CEO pay ratio"


  Ratio of the compensation of the corporation's chief executive officer (CEO) to the median compensation of the corporation's employees
• Corporate governance reform has focused on disclosure and transparency: Financial reporting, Disclosure of how board functions, Management information circular
• Audit committee


  Oversees the internal and external accounting auditing function to ensure that financial statements accurately and appropriately represent the condition of the corporation and that regulated disclosures are made
• Evaluation of board performance one of most challenging governance reforms to implement
• The Globe and Mail - "Board Games: Annual Corporate Governance Rankings" evaluates: Board composition and diversity, Independence of directors and management, Board evaluation and director assessment, Committee structure, Compensation of the CEO and directors, Board output, Shareholder engagement
• National Instrument 58-101, Clause 5, requires that corporations disclose the following in relation to ethical business conduct: Disclose whether board has adopted written code, Describe steps the board takes to ensure directors exercise independent judgment, Describe steps board takes to encourage and promote a culture of ethical business conduct
• Questions directors are encouraged to ask about the corporation's ethics management

  • What is the strategy to manage ethics?
  • Who is responsible for ethics in our company?
  • Are people in our firm equipped to recognize and resolve moral dilemmas?
  • Are people in our firm provided with a safe opportunity to discuss ethical issues of concern?
  • Do we reward or punish ethical integrity and moral courage if it has a negative impact on the bottom line?