Corporate Governance: Meaning, Objectives, Principles and Need; Agency Theory and Stakeholder Approach (Overview) Questions

Question 1

Define corporate governance.

Accepted Answer

Corporate governance is the system by which a company is **directed and controlled** to ensure **accountability**, **fairness**, and **transparency** (concept).

Question 2

Who are "principals" and "agents" in agency theory? (One line.)

Accepted Answer

**Principals** are owners/shareholders and **agents** are managers/executives who run the company on their behalf (concept).

Question 3

Transparency is a principle of corporate governance. (True/False)

Accepted Answer

True. **Transparency** means timely, true and adequate disclosure of information (concept).

Question 4

Write any one objective of corporate governance.

Accepted Answer

One objective is ensuring **accountability** of management/board and protecting investor confidence (any one) (concept).

Question 5

State any one principle of corporate governance.

Accepted Answer

**Accountability** (answerability for decisions and performance) is a key principle of corporate governance (concept).

Question 6

Stakeholder approach focuses only on shareholders. (True/False)

Accepted Answer

False. The **stakeholder approach** considers responsibilities to employees, customers, suppliers, government and society along with shareholders (concept).

Question 7

Explain any three objectives of corporate governance (exam points).

Accepted Answer

Any three objectives:

- ensure **accountability** of management and board (concept)
- improve **transparency** through disclosure and reporting (concept)
- protect investor/shareholder interests and build confidence (concept)
- reduce fraud and conflicts of interest through oversight (concept)

Write any three points.

Question 8

Explain any three principles of corporate governance (exam points).

Accepted Answer

Any three principles:

- **Transparency**: timely and true disclosure (concept)
- **Fairness**: equitable treatment of stakeholders/shareholders (concept)
- **Accountability**: answerability for decisions and performance (concept)
- **Responsibility**: compliance and responsible conduct (concept)

Write any three with 1-line explanation.

Question 9

Why is corporate governance needed? Write any three reasons (use a small table).

Accepted Answer

Corporate governance is needed because (any three) (concept):

| Reason | Explanation |
|---|---|
| Separation of ownership & management | owners need monitoring mechanisms |
| **Agency conflicts** | managers may act in self-interest |
| Trust and capital access | better disclosures improve investor confidence |
| Fraud prevention | controls/audits reduce misconduct |

Write any three points.

Question 10

Explain agency theory and the agency problem (overview) with a simple flowchart.

Accepted Answer

**Agency theory** describes the relationship where shareholders (**principals**) hire managers (**agents**) to run the firm (concept).

**Agency problem** arises when agents pursue self-interest (perks, earnings manipulation) rather than owners’ interests (concept).

Flowchart:

```text
Shareholders (Principals) -> hire -> Managers (Agents) -> possible self-interest -> Need for monitoring/controls
```

Question 11

Differentiate agency theory and stakeholder approach (any three points) using a table.

Accepted Answer

Differences (concept):

| Basis | **Agency theory** | **Stakeholder approach** |
|---|---|---|
| Focus | shareholders (owners) | multiple stakeholders |
| Main issue | principal–agent conflicts | balancing interests/responsibilities |
| Emphasis | monitoring, incentives, disclosures | sustainability, fairness, stakeholder engagement |

Any three differences are sufficient.

Question 12

List any three key mechanisms of corporate governance (use a small table).

Accepted Answer

Any three key mechanisms (concept):

| Mechanism | Role |
|---|---|
| **Board oversight** | monitors management and sets direction |
| Audit & **internal controls** | prevent/detect fraud and improve reporting |
| **Disclosures** | ensure transparency to investors/regulators |
| Policies/codes | code of conduct, whistleblowing (overview) |

Write any three with one-line role.

Question 13

Explain corporate governance: meaning, objectives and principles (exam-style) with a table.

Accepted Answer

### Meaning
**Corporate governance** is the system of **direction and control** to ensure accountability, fairness and transparency (concept).

### Objectives (any four)
- protect investors/shareholders
- ensure **accountability** of management/board
- improve **transparency** via disclosures
- reduce fraud and conflicts of interest (concept)

### Principles (table)

| Principle | Meaning (concept) |
|---|---|
| **Transparency** | timely and accurate disclosure |
| **Accountability** | answerability for performance |
| **Fairness** | equitable treatment |
| **Responsibility** | compliance and responsible conduct |

Conclusion: Strong governance builds trust and supports sustainable performance (concept).

Question 14

Explain agency theory and how corporate governance mechanisms reduce agency problems (exam-style) using a table.

Accepted Answer

### Agency theory (brief)
Shareholders (**principals**) appoint managers (**agents**) to run the firm. Conflicts arise when agents act in self-interest (concept).

### How governance reduces agency problems (table)

| Mechanism | How it helps (concept) |
|---|---|
| **Board oversight** | monitors management decisions |
| Audit & internal controls | detects misreporting and fraud |
| Incentives/ESOPs | aligns manager goals with owners |
| Disclosures | reduces information asymmetry |

Conclusion: Governance reduces agency costs by improving monitoring, alignment and transparency (concept).

Question 15

Explain stakeholder approach and its importance in corporate governance (exam-style) with a table of stakeholders and expectations.

Accepted Answer

### Stakeholder approach (meaning)
The stakeholder approach says firms have responsibilities to **multiple stakeholders** (not only shareholders) and should balance interests for sustainable governance (concept).

### Stakeholders and expectations (table)

| Stakeholder | Typical expectation (concept) |
|---|---|
| **Employees** | fair pay, safe workplace |
| **Customers** | quality, safety, honest information |
| **Suppliers** | timely payment, fair contracts |
| **Society/Government** | compliance, taxes, environment |
| **Shareholders** | returns, transparency |

Conclusion: Stakeholder-focused governance improves legitimacy, trust and long-term performance (concept).

Corporate Governance: Meaning, Objectives, Principles and Need; Agency Theory and Stakeholder Approach (Overview)

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