Corporate Governance and Ethics

Chapter 10

Stakeholders' Roles and Responsibilities

INTRODUCTION

SHAREHOLDERS

INSTITUTIONAL INVESTORS

MUTUAL FUNDS

HEDGE FUNDS

INVESTOR ACTIVISTS

EMPLOYEE MONITORING

SUMMARY

KEY TERMS

REVIEW QUESTIONS

DISCUSSION QUESTIONS

NOTES

INTRODUCTION

Shareholders and other stakeholders, including employees, customers, creditors, suppliers, and society, by being attentive and engaged, play an important role in corporate governance. The discussion in this chapter is based on the modern model of corporate governance presented in Chapter 2, which suggests that the primary goal of corporate governance is to provide appropriate mechanisms for ensuring shareholder value creation while protecting the interests of other stakeholders. The monitoring function of corporate governance can be achieved through the direct participation of investors in business and financial affairs of corporations or through intermediaries such as securities analysts, institutional investors, and investment bankers. Institutional investors are regarded as important monitors of public companies, their corporate governance, and their financial disclosures because they own more than half of all U.S. public securities. Large public pension funds (PPFs) are also expected to be actively involved in monitoring public companies because they hold about 10 percent of the total U.S. equity market. This chapter presents the important role that investors and other stakeholders can play in improving corporate governance effectiveness. ...