Module Directory

This module covers two important aspects of organisations: the economics of corporate architectures as well as their governance and control.

This module will apply economic-contracting and transactions-cost approaches to the study of these two aspects of organising.

The aims of this module are:

• To assess 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 confronting senior managers so as to suitably govern their organizations.


• To describer the macroeconomic context and political economy perspective associated with the risk distributions among stakeholders of corporations.

By the end of this module, students will be expected to be able to:

1. 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.


2. Describe the control mechanisms that can reduce such conflicts and explain the complementarities among these mechanisms.


3. 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.


4. 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)

By the end of this module, the case discussions and class activities will help students develop the following transferable skills:

1. Critical thinking skills that help in making financial and economic decisions.


2. Intra-personal and inter-personal communication skills - through discussion of cases and presentations during class.


3. Identify relevant information from case papers, investment reports and macroeconomic data.


4. Interpret micro- and macro-economic information for decision-making.

This module addresses key principles of economics, and how they are applied in contemporary organisations. Managers need to be aware of, and be able to critically evaluate, basic economic concepts such as, supply and demand in markets, market structure, marginal and opportunity costs of organising within a firm, and explain the role of agency and information asymmetry in the transaction cost approach to understanding the coordination and administration of organised activities.

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 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.

The module will be delivered via:

• There are recorded and live teaching sessions. There are four recorded sessions, and they cover the foundation and technical material you need to understand to make best use of the main teaching sessions. These recorded sessions are a combination of readings, videos, lecture notes and quizzes, and are available on the Moodle page of the module.

• In the main teaching week, there are eight teaching sessions on every weekday except Wednesday. Teaching starts at 0900 each day and lasts till 1700, with breaks in between obviously. Overall, you should budget for 100 hours in total to the module. Of this total, the preparation and main sessions together comprise 44 hours. The remaining 56 hours are an estimate of the additional hours of your own time (typically spread over two weeks). The lectures and discussion of cases during the main teaching week comprise 28 hours, while 16 hours are for the recorded sessions and its associated readings and quizzes. The main teaching is distributed over four weekdays in one week.

  The preparatory sessions involve material for you to work through at your own pace but need to be completed AHEAD of the live sessions. Your answers to the quizzes and activities for these important preparatory sessions are recorded and while not formally assessed, they allow you and me the opportunity to observe your effort on reading papers and preparing notes.

  Students are expected to do some relevant reading and preparation before the associated lecture. While we cover relevant material in class, it is strongly recommended, however, that these should not be the only times you encounter the material. More material than needed to understand the lectures is included in the teaching programme. This larger set of papers, listed on Moodle, will be useful to prepare for the essay. Furthermore, textbooks are listed in the textbook section and give you different styles of explanation; should one not gel, try the others. The two main textbooks are BSZ and MR, covering similar material, while Cs relates to structure of legal jurisdictions and MM to corporate governance. As you will come to realise, several modules are, of course, inter-related. This module is related mainly to strategy and marketing, partly to human resources and minimally to accounting and finance. I will highlight some interfaces as we proceed. I would like you to engage with the issues rather than get engrossed in detail that quantitative aspects seek merely to illustrate. Marks are awarded mainly for comprehending and being able to convey concepts and issues aptly and not merely for correct computations. You may be called to present case précis in class. I will allocate you to groups and, though such presentations are not formally assessed, you will find, nonetheless, that an absence of satisfactory participation in these presentations can result in lesser than desirable performance on the module. Being able to critique an issue, rather than accept the status quo that is taught, is prized above all.