M2 - U1 - Class 16 - Corporate Governance Flashcards
(24 cards)
wall street movie - What is this occasion? What kind of event is this?
Stakeholder meeting.
wall street movie - Who are these two individuals? Mr. Cromwel and Gordon Gekko
The CEO and chairman
The largest stockholder for this company
wall street movie - What is Gordon Gekko angry about? What is he arguing?
They’re not doing anything. The company is losing money but managers are getting paid and spending lavishly. The managers don’t own stocks so they don’t own the company but the stockholders do. Gekko is a stockholder.
wall street movie - Why is Gekko saying “Greed is good”? Why is it relevant to this occasion?
He can make a lot of money and maximize profits for stockholders because he is greedy. He has made billions for shareholders. He is saying that the shareholders aren’t greedy enough.
basic setup of company
shareholders
board of directors
ceo
cfo, coo, cto, evp, counsel
Shareholders own the company
Board of directors are not employees of the company, they are managers of other things. Their job is to monitor the CEO
Three groups
Shareholders
Board of Directors
Manager
main thing to remember
A “company” is NOT just one person!
In and out of a company, there are different groups with different interests: shareholders, managers, employees, and so forth
milton friedman
main questions - who control corporations
Helps us with understanding if things are ethical
Shareholders
main questions - whose benefits should corporations serve
shareholders
main questions - what is the purpose of corporations
maximize profits
what is corporate governance
“Who among the various participants in the corporate enterprise controls what, who makes what decisions, and who has what responsibilities for and what claims against the revenues and assets of the company… Corporate governance is about setting up rules that determine these things.”
corporate governance
Corporate governance “refers to the whole set of legal, cultural, and institutional arrangements that determine what publicly traded corporations can do, who controls them, how that control is exercised, and how the risks and returns from the activities they undertake are allocated.”
who owns apple
“Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company.” (Gordon Gekko)
notes on who owns apple
Top left image shows how much individuals own stocks in Apple
Tim Cook is 5th or 6th on list
Large Corps own most (1st and 2nd)
Art Levinson is owner of the board
How much is Tim Cook’s stockholm worth?
Shares owned x price
567 million USD
What percentage of Apple does Tim Cook own?
(own/shares on the market x stock closed cost) x100
(567M/(15.73B x 173)) x100
0.02%
How much is Art Levinson’s stockholm worth?
779 million USD
What percentage of Apple does Art Levinson own?
(own/shares on the market x stock closed cost) x100
(779M/(15.73B x 173)) x100
0.02%
separation of ownership and control
Publicly traded companies issue financial securities (bonds and shares) to raise money
There are fundamental differences between bondholders and shareholders
Unlike bondholders, shareholders have (1) variable, residual claims, and (2) certain “control” rights
Variable - changes. Shareholders have variable returns
Residual - left over (receive money after)
Control rights - not full control but partial control. Shareholders can control managers to an extent. Bondholders/creditors don’t control your business; they won’t lend you money if it’s a risk but they can’t stop you from doing anything.
like a box of chocolates
You’ll never know what you’re gonna get… like investing
You don’t know what happens in the future
Shareholders own rights not a part of the company
separation of ownership and control
Publicly traded companies issue financial securities (bonds and shares) to raise money
There are fundamental differences between bondholders and shareholders
Unlike bondholders, shareholders have (1) variable, residual claims, and (2) certain “control” rights
Actual control of the company is in the hands of managers who are (in most cases) not “owners”
fundamental issue of corporate governance
separation of ownership and control
berle and means model
Theoretical model vs what scholars found
Securities markets
Concentration of wealth and power in corporate America and were worried shareholders were controlling corporations but in reality the stock market is scattered
Investors used to be scattered now they’re in groups
discussion - 1. What is corporate governance?
Rules laws etc. about who owns the corporation
discussion - 2. What does “separation of ownership and control” mean?
The people who run the company doesn’t mean they own the company
discussion - 3. What does it mean when someone says “shareholders are the residual claimants”?
Shareholders receive remaining profits after everyone else
Theirs is variable and everyone else’s is fixed
discussion - 4. What did Berle and Means find in the 1930s?
Shareholders have different interests and are dispersed/scattered
Individual shareholders are small dispersed and scattered
discussion - 5. How has the ownership structure of corporations changed since the Berle and Means’ era?
Institutional investors have risen and consolidated huge amounts of stock ownership
discussion - 6. Who owns Apple? Who controls Apple?
Big money management investors and corps who own the stocks
CEO etc makes decisions
