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Midterm 2 Flashcards

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1
Q

What are 3 reasons for high CEO pay?

A
  • High levels of market demand for qualified CEOs
  • Performance Incentives
  • High Risk and Responsibility
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2
Q

What are 3 reasons against high CEO pay?

A
  • Lack of correlation with performance
  • CEOs don’t make that much of a difference
  • Lack of market demand and competition
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3
Q

What are the 5 aspects of a CEO?

A
  • Responsible for operations of a company
  • Praised when company succeeds
  • Criticised when company fails
  • Implementation of strategies
  • Ensuring the company runs efficiently (obsessed with cutting costs)
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4
Q

How do you become a CEO?

A

Must be selected and appointed by the Board of Directors - either internally or externally.

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5
Q

What is the organizational structure of a generic business?

A

Shareholders > Board of Directors > CEO/Executive Team > Employees

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6
Q

What do the Board of Directors do?

A
  • Evaluates company performance
  • Approve or reject mergers and acquisitions
  • Appointment and removal of officers
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7
Q

What is an acquisition?

A

A buyout of one company and incorporation into existing structure

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8
Q

What is a merger?

A

A partnership between two companies (e.g., Exonn and Mobil merging into ExonnMobil)

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9
Q

What are shares?

A

Units of equity ownership in a company

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10
Q

Who are the shareholders?

A

Anyone who owns shares or stocks in a company.

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11
Q

What rights do shareholders have?

A

They can vote on important corporate decisions and receive dividends.

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12
Q

What is a fiduciary duty?

A

The care given by an organization that makes financial choices on behalf of another party.

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13
Q

What are the 2 duties of fiduciary duty?

A
  1. Duty of Care
  2. Duty of Loyalty
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14
Q

What is the Duty of Care?

A

Acting with the care that an ordinarily prudent person in a similar position would exercise under similar circumstances

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15
Q

What is the Duty of Loyalty?

A

Acting in the best interest of the company and its shareholders, subordinating personal interests to those of the company

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16
Q

Where did fiduciary duty come from?

A

It’s derived from trust law and is centered around the “sole interest rule”

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17
Q

What is the “Sole Interest Rule”?

A

It requires fiduciaries to act solely and exclusively in the interest of the persons whom their fiduciary duties are owed

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18
Q

What is shareholder activism?

A

Efforts of shareholders to influence a company’s policies, practices, or decisions.

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19
Q

What are the 3 ways to do shareholder activism?

A
  • Shareholder Resolutions
  • Proxy Contests
  • Litigation
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20
Q

What are Shareholder Resolutions?

A

The submission of a proposal for consideration by all shareholders at the annual general meeting. It may push for strategic changes such as mergers, acquisitions, or divestitures.

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21
Q

What are Proxy Contests?

A

When an activist tries to gain control over a company’s board of directors to make changes to a company. This is done by persuading other shareholders to vote for their chosen candidate or proposal instead of the company’s management’s choice.

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22
Q

What is Litigation?

A

When an activist resorts to legal action to challenge specific corporate decisions, governance practices, or perceived breaches of fiduciary duty by the company’s leadership.

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23
Q

Does fiduciary duty shift between non-profit, private, and public companies? How?

A

Yes
Non-profit: Prioritize their mission over profits, can reject lucrative offers.
Private: Can reject lucrative offers based on long-term plan
Public: Must focus on maximizing profits, no flexibility on lucrative offers.

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24
Q

What is a hawk-dove game?

A

Game theory in economics

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25
What is a nash equilibrium?
When no party is incentivized to deviate from their current behaviour
26
What is hawkishness?
Having a militant attitude and advocating immediate vigorous action
27
What is dovishness?
One who takes a conciliatory attitude and advocates negotiations and compromise
28
If the other person is a hawk, it's better to be what?
A dove
29
What happens in a hawk vs hawk situation?
Too costly for both, so eventually, one backs down and plays dove.
30
What happens in a dove vs dove situation?
Temptation to switch to hawk always exists, because a hawk gains more if the other stays dove.
31
Is Dovishness moral/virtuous?
Yes, people view humility, meekness, quietude, asceticism, and obedience as moral (i.e., Cinderella)
32
Is Hawkishness moral/virtuous?
Yes, people value beauty, strength, courage, magnanimity, and leadership as moral (i.e., Mulan)
33
What is Uncorrelated Asymmetry?
A cue or event that distinguishes between the two players and creates a shared understanding about how each person should behave. (i.e., standing in line - "If I arrived first, I get to have the resource before you")
34
Why is Uncorrelated Asymmetry "uncorrelated"?
Because it isn't tied to the payoffs in the game (i.e., it isn't tied to who is hungrier and will benefit more from the food at a food truck)
35
Why is Uncorrelated Asymmetry "asymetrical"?
Because it differentiates the players (i.e., one person arrived first, the other second)
36
What is the primary duty of a nonprofit board?
Uphold mission and charitable purpose
37
What is the primary duty of a private for-profit board?
Act in the best interest of owners/shareholders
38
What is the primary duty of a public for-profit board?
Maximize shareholder value
39
What are mortgage-backed securities?
A bundle of mortgages that are sold to investors to reap the interest on said mortgages
40
What do subprime borrowers typically have?
- Lower credit scores - Late payments - Defaults on previous obligations
41
What are collateralized debt obligations
A bundled pool of loans that are soled to investors to reap the interest on said loans
42
What is shorting?
- Borrowing a share - Immediately selling the share - Wait - Buy the share back - Return the share to the original owner - Profit (hopefully)
43
Who is Michael Burry?
That one dude from the Big Short!
44
What is Crony Capitalism V1.0?
When businesses with close ties to the government receive preferential treatment
45
What is Stakeholder capitalism?
When businesses incorporate the interests of various stakeholders beyond just shareholders (i.e., Employees, suppliers, manufacturers, customers, communities, and the environment)
46
What is limited liability?
Refers to the legal protection that shields shareholders from personal liability for the company's debt. Essentially, you are only liable for the amount of money that you put in.
47
What did Milton Friedman advocate for?
ONLY for Shareholder Capitalism - If every company in the world did stakeholder capitalism, there would be little to no competition. - It violates the fiduciary duty to shareholders - It leads to a dilution of a company's focus on generating profits
48
What are the 3 drivers of stakeholder capitalism?
1. Executive Level 2. Consumer Level 3. Asset Manager Level
49
How does the executive level drive stakeholder capitalism?
- The CEO uses their seat of corporate power to focus on non-business related matters - Shareholders' resources are being misappropriated to advance a social agenda
50
How does the consumer level drive stakeholder capitalism?
- Consumers want to purchase from a company that "shares its values" - Leads companies to feel that they must couple their marketing with moral messaging
51
What are asset managers?
They manage a wide range of investment products, including mutual funds and ETFs
52
How does the asset manager level drive stakeholder capitalism?
- Demand that companies advance certain causes or it would be conditions for divestment - Asset managers use shareholder money to make this demand
53
What side of the political spectrum does conservatism lie on?
The right
54
What side of the political spectrum does liberalism lie on?
The left
55
What is a republican (in France)?
A left-wing party against the monarchy and a fan of free market
56
Are communists a fan of a free market (in France)?
No
57
Are left and right-wing points set in stone?
No! Protectionism has shifted from left to right
58
What are politics?
A by-product of group values and alliances
59
What are the 3 types of alliances?
1. Conservative Alliances 2. Revolutionary Alliances 3. Bridging Alliances
60
What are conservative alliances?
High-status individuals who want to conserve the status quo (i.e., the first triumvirate)
61
What are revolutionary alliances?
Low-status individuals who want to climb the hierarchy (i.e., Trade guilds)
62
What are bridging alliances?
Both high and low-status individuals coming together to confront a common enemy (i.e., French Revolution)
63
What are the 4 criteria for forming alliances?
1. Similarity 2. Transitivity 3. Interdependence 4. Stochasticity
64
What is Similarity?
All else equal, more similar individuals make better allies
65
What is Transitivity?
"A friend of yours is a friend of mine" and "The enemy of my enemy is my friend"
66
What is Interdependence?
The feeling of allegiance to people who are instrumental to their goals, and against those who threaten goals
67
68
What are the two ways to support allies in conflict?
- Defend allies' reputation - Attack rivals' reputation
69
What are the 3 propagandistic biases?
1. Perpetrator bias 2. Victim bias 3. Attributional bias
70
What is the perpetrator bias?
When your ally has done something wrong and you *downplay the effects*
71
What is the victim bias?
when your ally is a victim and you *amplify the perpetrator's action and the harm caused
72
What is the attributional bias?
When well-off people claim their success is from skill and not luck. Also when worse-off people claim their situation due to external causes and not their own
73
What is personality?
A set of behavioural, emotional, and cognitive tendencies displayed over time
74
What is factor analysis?
A technique used to reduce a large number of variables into fundamental categories
75
What are the big 5 personality traits?
Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism (OCEAN)
76
Out of the big 5 personality traits, which one is most predictive of success in both school and work?
Conscientiousness
77
Is the Meyers-Briggs personality test good?
No, it's meaningless
78
What are the 2 points under openness?
1. Intellect 2. Openness
79
What are 2 points under Conscientiousness?
1. Industriousness - hardworking and determined 2. Orderliness - being tidy, detailed, and able to follow rules
80
What are 2 points under Extraversion?
1. Enthusiasm - prone to express one's feelings 2. Assertiveness - prone to take charge
81
What are 2 points under Agreeableness?
1. Compassion - Care about other's problems and feel their emotions 2. Politeness - Respect authority and other's opinions
82
What are 2 points under Neuroticism?
1. Volatility - easily angered; moody 2. Withdrawal - Worry about things; overwhelmed
83
What are the 2 meta-components to personality?
1. Stability - refraining from a variety of behaviours associated with disruptive impulses (drug use and reactive aggression) 2. Plasticity - approach behaviours and exploration (such as creative expression and attending social events)
84
What personality traits affect Stability?
High in Agreeableness and Conscientiousness Low in Neuroticism
85
What personality traits affect Plasticity?
High in Extraversion and Openness
86
What are the 2 key neural modulators?
1. Dopamine 2. Seratonin
87
What is Dopamine, and what meta-trait is it linked to?
The feel-good chemical linked to plasticity
88
What is serotonin, and what meta-trait is it linked to?
The "that was good, i don't need any more" linked to stability
89
What are the 3 steps of the dopamine overload?
1. Big dopamine spike 2. Brain adjusts 3. Everyday life feels dull
90
How can you re-adjust your brain to be more receptive to dopamine?
Take part in Hormesis - the voluntary exposure to moderate levels of stress to upregulate dopamine receptors
91
92
Where can you find people with more extreme versions of the big 5 personality traits?
within developed countries with more urbanism
93
What does gender egalitarianism do to the differences in big 5 personality traits between sexes?
It will have a larger difference between males and females
94
What are cooperation puzzles?
In situations where selfish people may benefit, everyone can be better off by working together. (i.e., Being late to pick up the kids because you're enjoying time with your friends at the bar)
95
96
What is Hamilton's Rule?
rB > C r= genetic relatedness B = benefit to recipient C = cost to helper
97
What is the problem and solution to the Kinship cooperation puzzle?
How to care for your family -- Put family first
98
What is the problem and solution to the Mutualism cooperation puzzle?
How to coordinate efforts around a common goal-- Be loyal to your team
99
What is the problem and solution to the Exchange cooperation puzzle?
How to ensure people don't "free ride" -- Show gratitidue to those who help; Punish those who do wrong
100

COMM 105 (4 decks)

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