CH11 - Responsible Ownership and Governance Flashcards
credit union def
def = not-for-profit financial institution that accepts deposits, make loans, and provides a wide array of other financial services and products.
different types of shares + the rights they give to shareholders (3)
1) Dual-class stock: more than one type of share / stock with different voting rights and dividend payments is issued by a single corporation
2) non-voting shares: common shares without voting privileges
3) restricted shares: some limit on voting; sometimes called uncommon shares
active vs passive shareholders
passive -> those who do not attempt to influence the affaires of the corporation even though they have a legal right to do so
active -> those who participate in the governance to the full extent allowed by the law
worker capitalism def
def = employee ownership as workers are turned into capitalists though stock ownership (employees own shares)
employee ownership pros
- increases morale
- increases company loyalty
- motivates employees = higher productivity
- sometimes can save failing firms
- worker capitalism
employee ownership cons
- jobs and often savings and pensions depend on fate of firm
- employees seldom have majority ownership
- management may still not relinquish control to employees
issues of ownership (ethical and responsibility)
1- actions of other stakeholders (e.g. governments, other corps, self-regulation orgs) influence the owner stakeholder
2- investor owners have limited influence in making the corp more socially responsible
3- mutual funds can be purchased that incest in corps considered to have a social, ethical and environmental focus or objective
4- some pension plans have revised their investment strategy to acquire stock of socially responsible orgs
5- cooperatives have been leaders in institutionalizing ethics and responsibilities
6- accountability for economic, social and environmental responsibilities have become common among publicly traded corps
“accountability dilemma” for corps owned by the government
- gov-owned corps may be in conflict with social objectives in the national interest
- consequences of evaluating performance based on commercial criteria (that is, profits)
- degree of autonomy that should be granted the corporations and their managements
- techniques for controlling and evaluating the commercial corps
responsible investment (RI) def
def = approach to investing that aims to incorporate environmental, social and governance (ESF) factors into investment decisions, to better manage risk and generate sustainable, long-term returns
3 possible approaches to RI decisions
1- positive screening: investing in corporations with good social and environmental records
2- negative screening: identifying objectionable corps
3- best-of-sector: compares and ranks corporations within an industry
organization promoting RI in Canada
Responsible Investment Association
(some) activities considered socially irresponsible/unethical
- poor employee/labour relations
- involvement in the nuclear industry
- use of fossil fuels (esp. coal)
- the conducting of business in repressive regimes
- violation of human rights
challenges to ascertaining a socially responsible investment
- data relied upon are sketchy / research is selective
- ratings not completely objective
- screenings are tainted by anachronistic, contradictory, idiosyncratic and ideologically constructed notions of social responsibility
- claims of the growing financial impact are questionable
- no coherent case has been made for why the criteria used for social resp. are better at effecting social change
- general approach of social investment advocates is one of vindication of the true believer, not investigation
shareholder democracy def
def = exercise of power of owners to ensure they are treated fairly and enjoy equally the privileges and duties of ownership
basic shareholder rights
- voting power of major decisions
- transfer to ownership when desired
- entitlement to dividends
- accessibility to accurate and timely financial information
stakeholders attempt /actors to ensure shareholder rights (3)
1- governments (e.g. Canada Business Corporations Act)
2- Self-Regulatory Agencies and Organizations (e.g. stock exchanges, securities exchange commissions)
3- shareholder activists
(e.g. small investor protection association)
corporate governance def
def = processes, structures, and relationships through which the shareholders, as represented by a board of directors, oversee the activities of the corporation
=> concerned with the intrinsic nature, purpose, integrity, and identity of the institution, with a primary focus on the entity’s relevance, continuity, and fiduciary aspects
board of directors def and role
def = group of individuals elected by shareholders to govern or oversee the corporation’s affairs
-> monitor the corp’s activities and performance
-> power to select, evaluate and terminate CEO/top managers
-> provide shareholders with financial and other statements
-> planning for longer term (strategic planning)
-> evaluating and approving major transactions and ventures
fiduciary duties def
def = obligations owed by directors to shareholders that are prescribed by law or regulations
independent (unrelated) director
def = director who is free from any interest and any business or other relationship with could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the corporation
board diversity
recruitment of women and minorities is receiving increased attention
-> 2014: Canadian Securities Administrators (CSA) issued the Disclosure of Corporate Governance Practice rule; required corporation to disclose
- corporate governance practices including the number of women on boards of directors and in executive officer positions
- policies relating to the identification and nomination of women directors
- targets for women on boards and in executive officer positions
-> institutional investors and organizations advocating for gender representation on boards have set a 30% goal by 2022
stats about the board of directors (minorities and women)
2016
-> 1/5 executives were women
-> 1/5 women executives were immigrants
-> 1/10 women executives belonged to a visible minority group
-> 1/100 women executives were indigenous
issues regarding compensation of executives (why increasing attention)
- importance of disclosure and transparency
- securities regulation requires disclosure of executive compensation in publicly traded corporations
say-on-pay
ability of shareholders to vote on the remuneration of executives
