Chapter 12

Corporate Governance and Business Ethics

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Learning Objectives

Describe the shared value creation framework and its relationship to competitive advantage.

Explain the role of corporate governance.

Apply agency theory to explain why and how companies use governance mechanisms to align interests of principals and agents.

Evaluate the board of directors as the central governance mechanism for public stock companies.

Evaluate other governance mechanisms.

Explain the relationship between strategy and business ethics.


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The Shared Value Creation Framework

Provides guidance to managers.

Helps reconcile gaining and sustaining competitive advantage with corporate social responsibility.

Creates a larger “pie” to benefit shareholders and stakeholders.


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Public Stock Company: Four Benefits

Limited liability for investors.

Transferability of investor ownership through stock.

Legal personality, with rights and obligations.

Separation of legal ownership and management control.


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The public stock company enjoys these four characteristics that make it an attractive corporate form.



The Public Stock Company

Exhibit 12.1


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