Chapter 28: Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits Flashcards
Share class
Types of equity securities that have different voting rights—for example, an issuer may issue Class A shares that carry one vote per share and Class B shares that carry ten votes per share.
Dual-class structure
A capital structure that includes at least two classes of equity shares with unequal voting rights.
Annual general meeting (AGM)
A yearly meeting of the corporate board of directors and shareholders, typically held in person and digitally, during which votes on directors, compensation plans, shareholder resolutions, and any other matters properly brought forward at the meeting are held. Issuer management may also make presentations and hold events.
Extraordinary general meetings (EGMs)
Meetings besides an AGM of the corporate board and shareholders, typically held to deliberate and vote on urgent matters. Corporate charters and bylaws specify who can call an EGM and under what conditions.
Proxy voting
A form of casting a ballot in an election in which a voter authorizes a representative to vote on their behalf according to instructions. In corporate elections, proxy ballots are cast by shareholders that direct a representative, typically the corporate secretary, to enter their votes as instructed.
Shareholder activism
A range of actions by a corporation’s shareholders that are intended to result in some change in the corporation, typically a change in the board of directors, management, or business strategy.
Shareholder derivative lawsuit
A legal action by a shareholder on behalf of a company, not the shareholder personally, against a third party. Often, the third party is a director or manager who the shareholder believes has harmed the company.
Private placement
A sale of debt or equity securities to a small group of investors on an unregulated basis. The terms of the offering are negotiated by the issuer and investors.
Proxy contest
When a shareholder or group of shareholders campaigns for certain matters they have submitted to a shareholder vote, often a slate of directors who oppose the incumbent board and management. The incumbent board and management simultaneously campaign for their side.
Tender offer
A solicitation by a current or prospective shareholder to other shareholders to acquire a substantial percentage, including 100%, of shares at a specified price. This action is usually undertaken by a potential acquirer whose bid was rejected by the issuer’s board of directors, prompting the potential acquirer to appeal directly to shareholders.
Hostile takeover
When a potential acquirer seeks to acquire a company (the target) against the wishes of the target’s board of directors. Typically, a tender offer is used to carry out the _____, against which a board might use a poison pill in its defense.
Poison pill
Officially known as a shareholder rights plan, is a hostile-takeover defense adopted by boards of directors according to rules specified in the corporate charter. There are several types of poison pills. Generally, they allow shareholders, excluding the shareholder making the hostile bid and their affiliates, to buy newly issued shares at a discounted price. The share issuance would dilute the bidder’s ownership percentage, rendering it impossible for the bidder to attain control.
Bond indenture
A legal document between a bond issuer and investors that governs each party’s rights and responsibilities.
Ad hoc committee
A small group of lenders or bondholders who negotiate with an issuer on debt restructuring and refinancing before the issuer submits a final proposal to the wider group of all lenders and bondholders.
Employee stock ownership plan (ESOP)
A type of employee benefit plan in which a company sets up a trust fund to receive contributions of newly issued shares or cash to buy existing shares. Contributions are tax deductible up to certain limits. Shares in the trust fund are allocated to individual employees based on relative pay or a formula.
