Question

We rely on shareholders to impose morality in the global marketplace, but are mistaken, for many corporations have no qualms about operating cartels, rigging interest rates, avoiding tax, selling horse meat as beef, or ripping off the customer through fuel and energy pricing.
Institutionalized abuses enable companies to meet stock market profit expectations, and their own.
Profit-related executive pay has grown from 60 times that of the average worker to almost 180 times since the 1990s.
1. Discuss the claim that “We rely on shareholders to impose morality in the global marketplace” in the context of alternative theories of corporate governance.
2. Identify one or more solutions to this problem of relying on shareholders to impose morality in the marketplace.
3. Assess the advantages and disadvantages of each of the solutions that you identify.

Solution Preview

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1. Corporate governance is referring to the system by which the organization is directed and controlled, which also outlines the distribution of responsibilities, rights, rules and procedures for making decisions among shareholders and managers. In a broader sense, the term corporate governance includes the relationships with company’s stakeholders and could be defined as the design of institutions that induce or force management to internalize the welfare of stakeholders, as defined by Tirole (2001)....

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