lesson 20

Question 1

shareholders used to be ______.
now with _______, ______ hold most shares.

Answer 1

• group of individuals, sometimes families that owned vast majority of shares in corporate america.
• universal recognition of the wisdom of long-term investing in stocks
• large organizations

Question 2

large institutions that now own over 70% of stock in US

Answer 2

pension plans, banks, foundations, mutual funds, ETFs, hedge funds, insurance companies

Question 3

after 2008 financial crisis, many things were discovered

Answer 3

1. many CEOs and high-level corporate officers had been paid millions in annual salaries and bonuses without any regard to success of company
2. even when they were fired they received multi-millions in severance
3. often they packed BoD with friends and others who would vote them high salaries

Question 4

shareholder rights

Answer 4

1. right to info
2. right to approve corporate changes
3. right to protection of minority shareholders
4. right to vote

Question 5

rights to information greatly depend on

Answer 5

whether corporation is public or private

Question 6

public vs private corporation right to information

Answer 6

private - regulated by state law, often the right to info is limited
public - required to disclose more info and under model rules, upon request by shareholder, must disclose:
1. financial statements
2. accounting records
3. minutes of board meetings
4. shareholder lists
only requirement is that shareholder be acting in good faith and for a proper purpose

Question 7

ABC corp manufactures boots and sells them, XYZ company sells western apparel and desires to expand product line into boots. James heads a charitable foundation that holds investments, reads that XYZ may make an offer to purchase shares of ABC from current shareholders. To determine whether or not he should sell his shares to XYZ, he requests copies of financial records from ABC.
- Is he entitled to receive them?
- If he is seeking financial info to use ABC’s customer lists to form his own boot manufacturing business, is this okay?
- If he is seeking info because he believes that BoD mismanaged corp by giving large raises and bonuses to officers in spite of ABC losing money, is that legitimate purpose?

Answer 7

yes, no, yes

Question 8

what do shareholders have a right to vote on vs no right?

Answer 8

do not have the rights to be involved in day-to-day decisions made by corp, even major decisions shareholders. when decision is so significant and affects future of corp itself, shareholders have right to vote on corporate changes

Question 9

corporate changes that shareholders can vote on

Answer 9

dissolution, amendments to articles, amendments to bylaws, mergers, sale of assets

Question 10

dissolution

Answer 10

company cannot voluntarily dissolve at behest of officers/directors, requires majority vote of shareholders

Question 11

amendments to articles

Answer 11

although directors may desire changes to charter and may recommend them, changes may only occur after majority vote of shareholders

Question 12

amendments to bylaws

Answer 12

directors can amend bylaws without shareholder approval and shareholders may amend without approval of directors. if there’s a conflict, majority of shareholders prevail.

Question 13

mergers

Answer 13

in most situations, both companies vote on merger. in some circumstances, the acquiring company shareholders may not need to vote if transaction is minor. but in all mergers a majority of shareholders of company that is acquired will need to vote.

Question 14

sale of assets

Answer 14

shareholders do not have to approve of the sale of most assets. for major sales, like HD selling 80% of their stores, vote is required

Question 15

shareholders have the right to vote for

Answer 15

annual meeting, election of directors

Question 16

annual meeting

Answer 16

most corporations are required to hold an annual meeting at which all shareholders are allowed to attend. at the meeting BoD are elected.

Question 17

quorum

Answer 17

number that is set by the board as minimum number of people that must be present in order to vote, must be done before business is conducted

Question 18

proxy

Answer 18

allows person to vote for another. shareholders will sign proxy card and deliver it to the proxy who will present the card at the annual meeting

Question 19

election of directors

Answer 19

in the past virtually all directors could be elected by plurality of the vote (more than opponent). now, most require majority. shareholders have to vote for slate or not vote, slate almost always elected.

Question 20

large public corporations are required to have a certain number of

Answer 20

independent directors

Question 21

independent directors

Answer 21

not employed by corporation, do not have relationship with CEO or high-level officials.
- must constitute majority of board
- must constitute all of audit committee
- must constitute all of compensation committee
- must constitute all of corporate governance committee
- must constitute all of nominating committee

Question 22

studies show that corporations that have female and minority members of their BoD:

Answer 22

1. higher earnings
2. stock prices
3. return on equity
4. profitability
5. fewer corporate scandals

Question 23

what percent of board members of S&P 500 companies are women?
what percent of S&P companies have at least one woman on their board?

Answer 23

32%
90%

Question 24

many institutional shareholders (mutual funds, ETFs, foundations) will vote against

Answer 24

a slate of BoD if they fail to have a reasonable number of women and minority candidates