Markets, Governance and Ethics
Essex Business School
Postgraduate: Level 7
Monday 13 January 2020
Friday 20 March 2020
10 October 2019
Requisites for this module
MBA N20012 The Essex MBA,
MBA N20E24 The Essex Executive MBA,
MBA N20E36 The Essex Executive MBA
The managerial economics module covers two important aspects of organisations: the economics of corporate architectures as well as their governance and control. We apply economic-contracting and transactions-cost approaches to the study of these two aspects of organising.
Though the range of questions that can be covered is broad, we focus on three topical ones: Can we design the contracts of employees, managers, shareholders and bondholders to reduce the disparate tensions that are forever threatening to pull an organization apart without straight-jacketing them? Are expansion phases merely manifestations of empire-building by top managers or offer real gains in innovation and in human capital? Can we identify excessive risk taking while ensuring suitable risks are not avoided? These merely serve to illustrate but three of a myriad of tradeoffs that managers of successful organizations need to make: concepts and tools from economics can provide one guide, and we study these guides.
Organisations operate amongst forces that confine their structures, rules, norms, habits, inertia and momentum. Corporate architecture is an umbrella term for all these forces. The architecture provides guidance, at the same time as imposing restrictions, on how the corporation can be governed. The primary focus, of this course, is on applying the concepts, tools and methods developed within economics towards the coordination and administration of an organisation’s activities.
The three-part approach to the economic analysis of architecture is: first, decide who should decide, second, decide the rewards for deciding ‘well’ and third, decide who has decided ‘well’. We have enclosed the word ‘well’ in quotes – determining what it means to decide ‘well’ requires agreement on the objective of corporations. I will assume the agreed objective is to maximise the value to the shareholders of the corporation. Nevertheless, deciding a suitable objective for an organisation is a role for political economy and then for corporate law, which brings us naturally to the second important aspect we shall cover - systems of corporate governance.
The notion of governance and control in an organisation is best illustrated by an array of events that occur infrequently in the life of organisations but with large consequences when they do. The topics cover the entire cycle from birth to death. Events such as incorporating a firm (birth), an entrepreneur seeking external capital from banks or venture capitalists (growth), conducting an initial public request for resources and listing on public exchanges (premier league), engaging in mergers and acquisitions (expansion), performing restructuring activities (redirection), and experiencing distress or even ending it all, via liquidation (death). We study the latter three in this module and examine them from the perspectives of contracts and transactions costs.
Sustainable enterprises need to balance risks and returns and choose appropriate trade-offs carefully and corporate governance is a means to achieve a balance between risk levels and return that is sustainable for the organisation and society more broadly. The central question of corporate governance is: In whose interests should a corporation be run? We examine the main corporate governance systems used globally so as to study the different balances between risk and return that underlie them and how these systems differently spread the risk among corporate stakeholders.
We seek to describe and explain the transaction cost approach to understanding the coordination and administration of organised activities. The aims are two-fold. Firstly, we aim to describe the perspectives of contracting (explicit, implicit or incomplete), agency costs and asymmetric information, which are core devices developed in economics, that help garner insights into important resource choices that senior managers cannot but confront if they are to suitably govern their organizations. The larger framework for these choices is the corporate governance system in which the choices are embedded and it is the second aim to describe the political economy associated with the risk distributions among stakeholders of corporations in such systems.
The course has four outcomes.
First, you should be able to employ economic concepts to describe the conflicts of interest inherent in corporations and explain how, in resolving such conflicts, the administration that minimises transactions costs gains competitive advantage.
Second, you should be able to describe the control mechanisms that can reduce such conflicts and explain the complementarities among these mechanisms.
Third, you should be able to describe the concepts of agency and signalling, as well as, explain how these two concepts help analyse important events in corporate governance and control, such as executive compensation, mergers and acquisitions, reorganisations and liquidations.
Finally, you should be able to describe the different macroeconomic and associated corporate governance systems prevalent globally and the political economy associated with the different risk distributions among the stakeholders in these broad macroeconomic settings.
Skills for Your Professional Life (Transferable Skills)
Case discussions and class activities will help develop the following transferable skills:
a) Critical thinking skills that help in making financial and economic decisions.
b) Intra-personal and inter-personal communication skills - through discussion of cases and presentations during class.
c) Identify relevant information from case papers, investment reports and macroeconomic data.
d) Interpret micro- and macro-economic information for decision-making.
There will be ten three-hour sessions, which are distributed over a week in the spring term. The anticipated content of the lectures is described in this course outline. In general, you are expected to do some (by no means all) relevant reading and preparation before the associated lecture. While we will go through some of the material in class, it is strongly recommended, however, that these should not be the only times you encounter the reading material. More material than is needed to understand the lectures is included in the teaching programme (see separate distribution). This larger set of papers and chapters will be useful for you when you reach the stage where you need to prepare essays for the examination. Furthermore, three textbooks on corporate architecture are listed in the textbook section and are there to give you three different styles of explanation, should one not gel with you, try the other two.
This module does not appear to have any essential texts. To see non-essential items, please refer to the module's reading list.
Assessment items, weightings and deadlines
|Coursework / exam
Module supervisor and teaching staff
Dr Hardy Thomas
Dr Bidit Dey
Brunel University London
Available via Moodle
Of 30 hours, 30 (100%) hours available to students:
0 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).
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