Corporate governance: a case study of Freeport McMoran

Hello. My name is Michael McDonald. Today's lecture, it's entitled Corporate Governance, A Case Study of Freeport McMoRan.

When people think about corporate governance, they generally think about it as an intangible factor that occurs in a company and it helps to make the company more attractive for investors. But they have a hard time putting their finger on exactly what corporate governance is. So it's useful anytime we're talking about corporate governance to start out talking about what it is and why it matters. Technically, corporate governance refers to any processes or functions that a company has that allow it to effectively govern itself. That is, to make workers do what they're supposed to do, to make managers do what they're supposed to do, and to make the whole company work for the benefit of the owners. In the case of most big corporations, that means shareholders. These structures that form the core of corporate governance are used to assign rights and responsibilities to different members of the corporation and that helps to keep operations running smoothly. Again, the key here is not that owners or managers are bad or don't have a seat at the table, at the company. Everyone agrees that owners and managers, just like customers, are stakeholders at the company, but companies are supposed to be run for the benefit of their owners. That's why they're formed and that's the incentive that owners have to invest capital in them. So to the extent that corporate governance is malfunctioning, it undermines the functioning of the entire economic system because investors and owners are less likely to contribute capital to the upkeep of that company in the future or to forming new companies, etc. Thus, having good corporate governance procedures in place at a corporate level are critical. And having legal structures in place that allow companies to have good corporate governance, that is, those legal structures come at a national level, that's also critical. The shareholders don't work for a company directly, so they can't necessarily monitor employees or managers and make sure that they're behaving properly. Instead, that role falls to corporate governance.