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Siemens Saddled with Scandals (B): Governance Codes and Corporate Incentives



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Code : GOV0030

Year :
2007

Industry : Not Available

Region : US Germany

Teaching Note: Available

Structured Assignment : Available

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Introduction: Until the 19th century, business was mostly a solitary exercise. Then, partnering with others – and also forming an un-incorporated body (where somemanaged the business and others provided funds) – ushered in. Investors naturally stalked the business activities. By the mid-19th century, business became corporations and nothing was the same again.

Concept of corporation is a creation and imagination of common law. Laws related to the creation and performance of a legal entity, separate from the owners, nevertheless had many legal property rights of a real person – to contract, to sue and be sued, to own property, and to employ. It started with the public companies and soon found favour with the private ones. The possibility to transfer shares of the company gave the company the continuity of life beyond the life of its founder. The option of limiting the owner’s liability to their equity investment encouraged many businesses to access capital from outside investors. Next, the shares of many of these companies were listed on various stock exchanges. The shareholders were becoming numerous and geographically diverse. Soon their links with the management of their companies became remote.

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Adam Smith, in The Wealth of Nations (1776), wrote, “The directors of companies, being managers of other people’s money than their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own...


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