Fannie Mae and Freddie Mac

1. Based on the information provided in Illustration Capsule 2.4, explain how corporate governance at Freddie Mac failed the enterprise’s shareholders and other stakeholders.

The board was politically appointed and it did not estimate the financial risks. Furthermore, it did not track the decisions of the CEO and did not exercise effective monitoring to the accounting standards. Besides that, the board approved a compensation plan that let executives to obtain performance bonuses based on the manipulated earnings.

2. Which important obligations to shareholders were fulfilled by Fannie Mae’s board of directors?

Its importance in dealing with the issues of accountability and fiduciary duty. THey essentially advocated the implementation of policies to protect shareholders. In addition. the key focus is the economic efficiency view, with a strong emphasis on welfare of shareholders .

3. What is your assessment of how well Fannie Mae’s compensation committee handled executive compensation at the government-sponsored mortgage giant?

The results showed that the relationship between the company’s performance and executive compensation have failed to find significant relationships among the executives’ remuneration and firm performance. The Low average wages of pay-performance alignment do not imply that this form of governance control is inefficient, where not every firm experiences the same levels of agency conflict. Also, the external and internal monitoring devices may be more effective.