Part I CBC Video Case

These questions are based on Canadian Broadcasting Corporation videos that accompany the textbook. In addition to whatever in-class use your instructor may have given them, they're available on this website for online viewing. If directed to do so by your instructor, you can answer the discussion questions online and email the results.
     These videos are intended only for students using the 4th Canadian Edition of Fundamentals of Corporate Finance. To view the video, you'll require a password. Refer to page 472 in your textbook and use the first word appearing in the main text column as both 'username' and 'password.' Use of the word is case-sensitive.
     The free RealPlayer plug-in is required in order to view the videos. If needed, the plug-in can be downloaded from Real.

Inside the Boardrooms of the Nation
Canada Inc. and its Gatekeepers: Modern corporations are complex and sophisticated systems aimed at providing society with products and services while creating value for their owners–the shareholders. At the dawn of modern capitalism, the very owners of the business managed its operation. As society progressed and the magnitude and scope of economic activity grew, the sheer size of the modern corporation made it impossible for shareholders to continue to run the operations of the firm. A new breed of professional–the manager–made its grand entrance. The manager had the knowledge and was given the power to run the business in the best interest of its owners. From now on, the shareholders would step back and let the manager create value for them.
     The rise of the professional CEO, however, has its own shortcomings. Once in control, who can guarantee that the manager will do his or her best? What can millions of shareholders–living in more than one country and owning a tiny fraction of a firm's capital–do in order to keep the manager in line? One solution is to elect yet another set of professionals to keep an eye on the manager. They are called directors and they are supposed to act on the best interest of the shareholders as well as monitoring the manager. What happens when the directors themselves fail to do their job properly?
     This video segment alludes to one of the most challenging issues in modern corporate finance: the agency problem. Shareholders entrust directors to watch over the shoulder of the manager and make sure their wealth is preserved and increased. However, directors are human beings and some of them happen to be managers as well. It does not take long to realize that forming an elite of sorts and offering each other conditional support would make life easier for everyone, directors and managers alike. In this game, the shareholders would get the short end of the stick. There is no easy answer to alleviating this problem. Each possible approach has its own merits and shortcomings. After all, the agency problem is irreducible, and our best hope is to merely minimize it.

Additional Resources:
SEDAR
The Canadian Performance Reporting Initiative

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View Inside the Boardrooms of the Nation

1		What are the less desirable consequences arising from allowing the same directors to sit on a multitude of corporate boards?
2		What are the advantages to having insiders on the board of directors?
3		Would a board composed exclusively of outside directors be optimal?
4		This video segment raises the issue of the conflicts of interests in our nation's boardrooms. Explain why this matter is nothing else than a classical agency problem.