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1Chapter 4 Financial Goals and Corporate Governance 1. Business Ownership. What are the predominant ownership forms in global business? Business ownership can first be divided between state ownership and private ownership. State ownership, public ownership, is probably the largest globally. Private ownership, where a business is owned by an individual, partners, a family, or a collection of private investors, is business that is owned generally for more singular purposes like profit. 2. Business Control. How does ownership alter the control of a business organization? Is the control of a private firm that different from a publicly traded company? Privately controlled companies—a single individual or family—is often characterized by top-down control, where the owner is active in more of the daily strategic and operational decisions made in the firm. The publicly traded firm, where management acts as an agent of the owner, often has more decentralized decision making and may use more consensus based direction. 4. Corporate Goals: Shareholder Wealth Maximization. Explain the assumptions and objectives of the shareholder wealth maximization model. The Anglo-American markets are characterized by a philosophy that a firm’s objective should be to maximize shareholder wealth. Anglo-American is defined to mean the United States, United Kingdom, Canada, Australia, and New Zealand. This theory assumes that the firm should strive to maximize the return to shareholders—those individuals owning equity shares in the firm, as measured by the sum of capital gains a

nd dividends, for a given level of risk. This in turn implies that management should always attempt to minimize the risk to shareholders for a given rate of return. 5. Corporate Governance Models. What is corporate governance? How do corporate governance models differ from one country to the other? Corporate governance refers to the set of rules, relationships, practices, and processes by which a company is directed and controlled in order to mitigate agency risks. There are different models of corporate governance. The stakeholder capitalism model is associated with the non-Anglo-American markets and tries to balance the interests of multiple stakeholders such as share-holders, employees, the management, producers, suppliers, clients, and society at large. The Anglo-American model emphasizes shareholders’ interests. 12. Governance Regimes. What are the four major types of governance regimes and how do they differ? The four major corporate governance regimes are (1) market-based, characterized by dispersed ownership and a separation of ownership from management; (2) family-based, where ownership and management are often combined; (3) bank-based, where government frequently controls bank lending practices, restricting the growth rate of industry, and sometimes combined control between family and government; and (4) government affiliated, where government exclusively directs business activity with little minority interest or influence. Exhibit 4.6 details the four regimes as well as providing a sampling of representative countries characterized by these regimes.