Los 22.b Flashcards
(20 cards)
What is corporate governance?
Corporate governance is the system of internal controls and procedures by which companies are managed, aiming to manage and minimize conflicts of interest among stakeholders.
Example:
It defines the rights and responsibilities of shareholders, management, and the board — like making sure executives don’t misuse company resources for personal benefit.
What is stakeholder management?
Stakeholder management is the process of understanding, communicating with, and balancing the interests of all groups affected by the company’s actions.
Example:
A company regularly meeting with labor unions to address worker concerns shows good stakeholder management.
How do stakeholders gather information about a company?
Through public reports like annual reports, proxy statements, public notices, and, for private companies, direct investor communications.
What is the purpose of transparency in corporate reporting?
To reduce information asymmetry and allow stakeholders to evaluate if company actions align with their interests.
What happens at a company’s annual general meeting (AGM)?
Management presents audited financial statements, discusses performance, addresses shareholder questions, and shareholders vote on important issues.
Example:
At an AGM, shareholders might vote on re-electing board members or approving an external auditor.
What is proxy voting?
Proxy voting allows a shareholder to authorize someone else to vote on their behalf at the meeting, either giving them instructions or discretion.
Example:
An investor who can’t attend the AGM gives their investment advisor a proxy to vote according to their instructions.
What are ordinary resolutions vs extraordinary resolutions?
Ordinary resolutions require a simple majority (like electing directors), while extraordinary resolutions handle major changes (like mergers) and often require a higher approval threshold.
Example:
Approving a merger would need an extraordinary resolution at a special shareholder meeting.
What is a shareholder activist?
An activist pressures companies to make changes that they believe will enhance shareholder value, through tactics like lawsuits, public campaigns, or proposing board changes.
Example:
A hedge fund pushes a tech company to spin off an unprofitable division to boost stock prices.
What is a proxy contest?
A:
A proxy contest happens when activists solicit shareholder proxies to vote against current management’s proposals.
Example:
An activist group tries to replace several board members by winning proxy votes from other shareholders.
What is a hostile takeover?
A takeover bid made directly to shareholders without management’s consent, often incentivizing managers to better align with shareholder interests.
Example:
Company A attempts to buy Company B by offering shareholders a premium, even though Company B’s management opposes it.
What is a poison pill in corporate governance?
A defense mechanism where companies issue cheap shares to existing shareholders to dilute a hostile bidder’s stake.
Example:
A firm triggers a poison pill provision when an unwanted acquirer tries to buy more than 20% of its shares.
What document outlines bondholder rights and company obligations?
The bond indenture.
Example:
A bond indenture might restrict a company from taking on too much additional debt without bondholder approv
What is the purpose of a creditor committee?
To protect creditor interests when a company faces financial distress or bankruptcy.
Example:
During bankruptcy, a group of large bondholders may form a committee to negotiate repayment terms with the company.
What are the typical responsibilities of an audit committee?
Overseeing financial reporting, internal controls, recommending external auditors, and reviewing audits.
Example:
An audit committee investigates allegations of accounting fraud within the company.
What does the nominating/governance committee do?
Oversees corporate governance practices, board nominations, ethics policies, and compliance with laws and regulations.
Example:
They vet and recommend new independent board members for election.
What is the role of a compensation committee?
It recommends executive pay packages and oversees employee benefit plans.
Example:
A compensation committee approves a new stock option plan for senior executives.
What additional board committees may exist based on industry?
Risk committees (finance) and investment committees (insurance).
Example:
A bank’s risk committee defines acceptable levels of exposure to financial market volatility.
How do employees manage relationships with employers?
Through labor laws, employment contracts, unions, and sometimes representation on boards.
Example:
Workers at a large manufacturing firm elect representatives to sit on the supervisory board.
How do customers and suppliers manage relationships with companies?
Through contracts, and increasingly, through public pressure (e.g., social media campaigns).
Example:
A boycott by customers forces a clothing company to improve its labor practices overseas.
