(6) Corporate governance costs build up including internal controls tomonitor management.

　　(7) Transaction costs theory is similar to agency theory to ensure thatcompany managers pursue shareholder’s best interests rather than their own.

　　Stakeholder theory

　　(1) Stakeholder theory is based on companies being so large that theyare not only responsible to their shareholders, but have a significant impacton society.

　　(2) Stakeholders affect or be affected by companies include:shareholders, employees, customers, suppliers, creditors, community,government, and environment etc.

　　(3) Stakeholder theory may be the necessary outcome of agency theory.Agency theory is a narrow form of stakeholder theory. Both of them have thepurpose of aligning divergent interests.

　　Role & Responsibilities of Board ofdirectors

　　(1) Promote the success of the company

　　(2) Direct and supervise the company affairs

　　(3) Provide entrepreneurial leadership

　　(4) Enable risk to be assessed/managed and a prudent/effective controlsystem

　　(5) Set company’s strategic aims

　　(6) Ensure necessary financial and human resources in place for meetingobjectives

　　(7) Review management performance.

　　(8) Set the company’s values and standards

　　(9) Ensure company’s obligations to its stakeholders are met

　　(10) Monitoring the CEO

　　(11) Manage potential conflicts of interests

　　(12) Ensure effective communication internally and externally

　　Unitary boards vs. two-tier boards

　　Advantages/disadvantages of unitary boards

　　(Advantages)

　　(1) It is a structure that permits much more involvement. Alldirectors, including executive directors and non-executive directors, have theequal legal responsibilities for the management of the company.

　　(2) Non-executive directors are empowered. They bring not only theindependent scrutiny to the boards, but their own expertise and perspectivesand, which is valuable for the decision-making and management of company.

　　(3) Accountability is enhanced. Under a cabinet-like arrangement, alldirectors are equally accountable. Meanwhile wider viewpoints provided by boarddiscussion suggest better decisions.

　　(4) Reduce the likelihood of abuse of power by a small number of seniordirectors and protect against fraud and malpractice.

　　(Disadvantages)

　　(1) It is awkward to ask non-executive director or independent directorto be both manager or monitor.

　　(2) It requires non-executive director to spend much time on attendingboarding meeting or the commitment required to obtain sufficient knowledge.

　　Advantages/disadvantages of two-tier boards

　　(Advantages)

　　(1) Separating clearly and formally between those monitoring and thosebeing monitored. In other words, between those managing the company and thosewho own the company or control it for the benefit of shareholders.

　　(2) Taking account of the needs of stakeholders and allow widerinvolvement of stakeholders. The supervisory board has worker’s representativeswho are important stakeholders of the company.

　　(3) There is direct power over the management through the right toappoint members of the management. Meanwhile it allows effective guards againstmanagement inefficiency and fraud.

　　(4) Encouraging transparency and independence of thought, discussionand decision within the company.

　　(Disadvantages)

　　(1) There is confusion over authority and therefore a lack of accountability.

　　(2) The management board may restrict the information passed on to thesupervisory board.

　　(3) There is dilution of power through stakeholder involvement.

　　(4) There is bureaucracy and slower decision-making.