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LESSON L060074: The Governance and Operations of a Corporation
Objectives
1. Analyze the corporation governance and
management structure, and examine the
role/duties of the shareholders, board of
directors, and management.
2. Distinguish between the types of corporation
stock, and define dividend.
3. Identify major U.S. and worldwide stock
exchanges, and describe their role.
4. Describe how to purchase stock in a publicly
traded company.
Terms
•Callable stock
•Chairman
•Chief executive officer
•Chief financial officer
•Chief operations officer
•Common stock
•Dividends
•Governance
•Inside directors
•Management team
•No-load stock
•Outside directors
•Preferred stock
•Stock
•Stockbroker
•Stock exchanges
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Governance is the relationship
between all the stakeholders in
a company.
The corporation governance is
defined by the corporate
charter, bylaws, formal policy,
and rule of law.
A. Governance involves:
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1. Shareholders
2. Directors
3. Management
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B. Governance exists for the
interests of stockholders or
shareholders.
C. Many corporations have a
two-tier corporate hierarchy.
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1. The first tier is the board of
directors, and they are elected by
shareholders of the corporation.
2. The second tier is the upper
management, and they are hired by
the board of directors.
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D. Board of directors
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1. The board of directors is elected by the shareholders.
2. It is composed of two types of representatives.
 a. One representative may be a chief executive officer, chief
financial officer, manager, or any other person who works
for the company on a daily basis.
 b. The other representative is chosen externally and is
considered independent from the company.
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3. The role of the board
 a. The board monitors the managers of a corporation.
 b. The board acts as an advocate for stockholders.
 In essence, the board of directors tries to make sure that
shareholders’ interests are well served.
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4. Board members can be divided into three categories.
 a. The chairman is technically the leader of the corporation.
 (1) He or she is responsible for running the board smoothly and
effectively.
 (2) The chairman is elected from the board of directors.
 (3) Duties typically include:
 (a) Maintaining strong communication with the chief
executive officer and high-level executives
 (b) Formulating the company’s business strategy
 (c) Representing management and the board to the general
public and shareholders
 (d) Maintaining corporate integrity
 b. Inside directors are the
second tier, upper managers
who are responsible for
approving high-level budgets
prepared by upper management.
 (1) They implement and
monitor business strategy.
 (2) They approve core corporate
initiatives and projects.
 (3) They usually are shareholders or high-level management
from within the company.
 (4) They help provide internal perspectives for other board
members.
 (5) They are referred to as executive directors if they are part
of the company’s management team.
 c. Outside directors are the second tier,
upper managers, but they are not directly
part of the management team.
 (1) They have the same responsibilities as
the inside directors in determining strategic
direction and corporate policy.
 (2) They are not usually shareholders.
 (3) They are not directly part of the
management team.
 (4) They are to provide unbiased and
impartial perspectives on issues brought to
the board.
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E. The management team is the second tier of the
company and is responsible for the day-to-day
operations.
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1. The chief executive officer (CEO) is the top manager
and is responsible for the entire operations of the
corporation; he or she reports directly to the chairman of
the board of directors.
 a. The CEO is responsible to implement the board decisions
and initiatives.
 b. The CEO often times is the company president.
 c. The CEO is considered one of the inside directors.
 d. The CEO may also be chairman of the board.
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2. The chief operations officer
(COO) is a top manager related to
marketing sales, production, and
personnel.
 a. The COO is responsible for day-
to-day activities.
 b. The COO provides feedback to
the CEO.
 c. The COO is also referred to as the
senior vice-president.

3. The chief financial officer (CFO) is the top manager
related to financial data and performance.
 a. The CFO reports to the CEO.
 b. The CFO prepares budgets and monitors
expenditures and costs.
 c. The CFO presents information directly to
the board of directors.
 d. The CFO checks the corporation’s financial
health and integrity.
 e. The CFO is also referred to as a senior vice-president.
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Stock is a way to measure the claim or ownership
position on a corporation’s assets and profits.
A. Common stock is ownership in the corporation
and a claim on dividends.
Dividends are profits made by the corporation,
which are then paid to stockholders.
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1. Common stock allows for one vote per share to elect
the board of directors and variable dividend shares.
 However, dividends are never guaranteed.

2. Common stocks entail the most risk because if a
company goes bankrupt, the common stockholders are
the last people to receive their money.
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B. Preferred stock is ownership in a
company that has fixed dividends
forever.
1. This stock usually does not come
with the same voting rights.
 2. In the event of a corporation bankruptcy, preferred
shareholders are paid before the common shareholders
(but after debt holders).
 3. Preferred stock may also be callable.

 With callable stock, the corporation has the option to
purchase the shares from the shareholders at any time
(usually for a premium).
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There are more than 60 stock exchanges around the
world.
A. North American stock exchanges
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1. New York Stock Exchange (NYSE)—most popular
2. Alberta Stock Exchange
3. Montreal Stock Exchange
4. Toronto Stock Exchange
5. Vancouver Stock Exchange
6. Winnipeg Stock Exchange
7. Canada Stockwatch
8. Mexican Stock Exchange
9. AMEX, United States
10. NASDAQ, United States
11. The Arizona Stock Exchange, United States
 12. Chicago Stock Exchange, United States
 13. Chicago Board Options Exchange, United States
 14. Chicago Board of Trade, United States
 15. Chicago Mercantile Exchange, United States
 16. Kansas City Board of Trade, United States
 17. Minneapolis Grain Exchange, United States
 18. Pacific Stock Exchange, United States
 19. Philadelphia Stock Exchange, United States
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B. There are three stock exchanges in Africa.
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1. Ghana Stock Exchange in Ghana
2. Johannesburg Stock Exchange in South Africa
3. The South African Futures Exchange (SAFEX) in
South Africa
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C. The most popular European exchanges
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1. EASDAQ, Belgium
2. Copenhagen Stock Exchange, Denmark
3. Paris Stock Exchange, France
4. Athens Stock Exchange, Greece
5. Madrid Stock Exchange, Spain
6. Swiss Exchange, Switzerland
7. FTSE International (London Stock Exchange), United
Kingdom
8. London Metal Exchange, United Kingdom
9. London International Financial Futures and Options
Exchange, United Kingdom
10. Frankfurt Stock Exchange, Germany
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D. Middle-East exchanges are located in:
1. Israel
 2. Jordan
 3. Lebanon
 4. Palestine
 5. Turkey
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E. Notable South
American stock
exchanges
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1. Bermuda Stock
Exchange, Bermuda
2. Rio de Janeiro Stock
Exchange, Brazil
3. Cayman Islands Stock
Exchange, Cayman
Islands
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F. Asian stock exchanges
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1. Stock Exchange of Hong Kong, Hong Kong
2. Hong Kong Futures Exchange, Hong Kong
3. Nagoya Stock Exchange, Japan
4. Osaka Securities Exchange, Japan
5. Tokyo Grain Exchange, Japan
6. Tokyo International Financial Futures Exchange
(TIFFE), Japan
7. Tokyo Stock Exchange, Japan
8. Korea Stock Exchange, Korea
9. Sydney Stock Exchange, Australia
10. National Stock Exchange of India
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G. Role of stock exchanges
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1. Stock exchanges are
organizations that provide the
trading of corporation stocks
and dividends.
2. Stock exchanges can set the
prices of commodities.
3. The role of all exchanges is to
set the price of commodities or
to set the worth of corporations
in the free market system.
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Ways to purchase stock
A. Stock can be purchased
directly from the company.
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Several companies offer
no-load stock, which refers
to the consumers’ ability to
purchase stock directly from the company.
Campbell Soup Company has a direct stock option as do
many agricultural corporations.
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B. Stock can be purchased through a dividend reinvestment plan (DRIP).
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The purchaser is able to enroll dividends into more stock.
C. Stock can be purchased from a broker service.
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An example is Scot Trade.
Companies like these allow for the purchase of any
corporation stock over the Internet for a flat fee.
The company then buys stock on the buyer’s behalf and
sends the owner the certificate.
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D. Stock can be purchased from a
broker firm or stockbroker.
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A stockbroker is a regulated
professional who buys and sells
shares from corporations or in
exchanges on behalf of the investor.
An advantage is that stockbrokers
often provide advice and monitor the
investments.
Stockbrokers will charge a flat fee or
require a percentage of the money
invested.
REVIEW
•How does the corporation governance
and management structure incorporate
the roles of shareholders, a board of
directors, and a CEO?
•What are the types of stock, and what is
a dividend?
REVIEW
•What are the major stock exchanges,
and what are their roles?
•How do you purchase stock in a publicly
traded company?