Chapter 3: Corporate Governance: Conflicts, Mechanisms, and Risks

In this section

• Principal–Agent Conflicts and Agency Costs
  Principal–Agent Conflicts and Agency Costs (CFA Level 1): Principal–Agent Problem, Common Agency Costs, and Monitoring Costs. Key definitions, formulas, and exam tips.
• Internal Governance Mechanisms (Board of Directors, Compensation Policies)
  Internal Governance Mechanisms (Board of Directors, Compensation Policies) (CFA Level 1): Board of Directors, Composition and Role, and Board Dynamics: Independence vs. Management. Key definitions, formulas, and exam tips.
• External Governance Mechanisms (Market for Corporate Control, Regulators)
  External Governance Mechanisms (Market for Corporate Control, Regulators) (CFA Level 1): Market for Corporate Control, Hostile Takeovers as a Governance Tool, and Takeover Defenses. Key definitions, formulas, and exam tips.
• Risks of Weak Governance and Benefits of Effective Governance
  Risks of Weak Governance and Benefits of Effective Governance (CFA Level 1): Why Weak Governance is Risky, Visualizing the Consequences of Weak Governance, and Benefits of Effective Governance. Key definitions, formulas, and exam tips.
• Corporate Governance Codes of Best Practice
  Corporate Governance Codes of Best Practice (CFA Level 1): Major Codes and Their Foundational Principles, OECD Principles of Corporate Governance, and UK Corporate Governance Code. Key definitions, formulas, and exam tips.
• Executive and Board Compensation Structures
  Executive and Board Compensation Structures (CFA Level 1): Need for Balanced Compensation, Key Components of Executive Compensation, and Base Salary. Key definitions, formulas, and exam tips.
• Board Diversity and Composition
  Board Diversity and Composition (CFA Level 1): Dimensions of Board Diversity, Rationale for Board Diversity, and Board Composition Essentials. Key definitions, formulas, and exam tips.
• Board Committees (Audit, Compensation, Nominating)
  Board Committees (Audit, Compensation, Nominating) (CFA Level 1): Role of Board Committees in Corporate Governance, Audit Committee, and Key Responsibilities. Key definitions, formulas, and exam tips.
• Board Evaluations and Succession Planning
  Board Evaluations and Succession Planning (CFA Level 1): Board Evaluations: Why They Matter, Approaches to Board Evaluation, and Key Steps in the Board Evaluation Process. Key definitions, formulas, and exam tips.