We transition from defining governance and its origins as well as looking at the Board of Directors structure and management compensation issues. We now concern ourselves with specific “agents” or “influences” or “players” who shape the reality of applying corporate governance in the firm. These players, for example, include accountants who audit the firm, lenders who impose loan covenants, rating agencies who perform debt risk assessment, security analysts who work either for a retail broker or for a mutual fund and the increasing influence of activist investors wanting changes in the firm.
I would suggest that you pick one of these parties and discuss their role in shaping corporate governance. For example, the material presented at the beginning of the course concerning BlackRock is an example of a potential activist investor who can use their shares to influence decisions of the Board regarding firm direction or policies. Activists have been around for a long time but were much easier to ignore when they had only a few shares; owning a significant number of shares and being able to influence other large owners gives you a great deal more influence.
Your interest lies in understanding how any ONE of these parties impacts the actual governance process of the firm. Companies do not operate in a vacuum where they have a clean piece of paper to write and adopt a governance policy. Instead, they have to accommodate a number of external “influences” who may or may not agree on the shape or implementation of the governance policy. You also want to address the inherent conflict of interest for many of these “influences” when they are paid by the same party they are judging. For example, an audit for a publicly held firm by one of the “Big Four” accounting firms will easily run into the eight figure range (McDonald’s for example, paid EY about $14 million for their audit last year) which creates a major conflict of interest since you want to do a correct audit but you would not want to endanger a contract of that size. How does the “influencer” deal with the conflict of interest and how does the firm put pressure on them to make the “right” judgement call?