Buisness and Society Ch.13 Flashcards
(28 cards)
Who are the legal owners of business corporations?
Shareholders (also called stockholders or investors)
Shareholders are the individuals or entities that own shares in a corporation.
What are individual shareholders?
People who directly own shares of stock issued by companies
Individual shareholders can be contrasted with institutional investors.
Name some examples of institutional investors.
- Pension funds
- Mutual funds
- Insurance companies
- University endowments
Institutional investors manage large pools of money and invest on behalf of others.
What percentage of the value of all U.S. stocks did institutions account for in 2019?
62 percent
This statistic highlights the significant role of institutional investors in the stock market.
What trend was observed regarding stock ownership among U.S. households in 2020?
Slightly over half of all U.S. households owned stocks
This ownership could be direct or through mutual funds.
Which age group is more likely to own stocks, older working-age adults or young adults under 30?
Older working-age adults (50-64)
They are twice as likely to own stocks compared to younger adults.
What is the primary objective of stock ownership?
To produce a greater return over the long run than other investments
This includes comparisons to bonds or cash.
How do shareholders make money?
- When the price of the stock rises (capital appreciation)
- When they receive their share of the company’s earnings
Shareholders benefit from both capital gains and dividends.
What are the two types of market conditions that shareholders experience?
Bull markets and bear markets
Bull markets indicate rising prices, while bear markets indicate falling prices.
Do shareholders constitute a uniform group?
No
Shareholders have varied objectives and investment strategies.
What are some objectives that different shareholders may seek?
- Long-term appreciation
- Short-term returns
- Capital gains
- Social or ethical objectives
Different shareholders have different investment goals.
What are the major legal rights of shareholders?
- To receive dividends
- To vote on board members
- To vote on major mergers and acquisitions
- To vote on charter and bylaw changes
These rights empower shareholders to influence company governance.
What does corporate governance refer to?
The process by which a company is controlled or governed
It involves the relationships among the stakeholders in a company.
What is the role of the Board of Directors?
To establish corporate objectives, develop policies, and select top-level personnel
They are elected by shareholders to represent their interests.
What is a key characteristic of most board members?
Most are outside directors (not managers of the company)
This helps ensure impartiality in governance.
What is the OECD’s role in corporate governance?
Issued principles of corporate governance to serve as a benchmark worldwide
OECD represents 37 nations and aims to improve corporate governance.
What issue arose with the separation of ownership and control in corporations?
The agency problem
This occurs when managers might act in their own interests rather than those of the shareholders.
What is a criticism of the current executive compensation system?
Executive pay has become excessive
Critics argue that it does not align with company performance.
What is the purpose of pay-for-performance approaches?
To link executive compensation to the value of the company’s stock
This aims to align executives’ interests with those of shareholders.
What are U.S. rules regarding executive compensation disclosure?
Corporations must disclose top five executives’ compensation and the rationale for it
Public companies must also hold shareholder votes on executive compensation at least once every three years.
What is shareholder activism?
The use of stock ownership to promote social, environmental, and governance objectives
This activism can influence corporate policies and practices.
What is stock screening?
The use of ESG screens to select companies for investment
This approach considers environmental, social, and governance factors.
What is a shareholder resolution?
A resolution on an issue of corporate social responsibility placed before shareholders for a vote
These resolutions can address social issues not related to the company’s ordinary business.
What rights do shareholders have if they believe they have been harmed by company actions?
They have the right to bring lawsuits
Shareholder lawsuits are a means to check abuses by company officers or directors.
