Corp Governance Flashcards
GRC
Governance
Risk
Compliance
What are the four board committees?
- Nom & Gov
- Compensation
- Audit
- Finance & Capital
How are members of the board of directors selected?
At least once a year, a corporation holds an election for shareholders to vote for the directors.
A person gets one vote for each share they own.
The election is often held in connection with the annual shareholder meeting. In advance of that meeting, the shareholders are given information relative to information that will be discussed in that meeting.
What is the document that is sent to shareholders for the annual shareholder meeting? What does it include?
Proxy statement
Includes important items to be voted on:
- election of directors
- approval of external audit firm
- approval of executive compensation
- specific proposals by shareholders
What is done with the proxy statement? What is it labeled as?
It’s filed on the SEC website as DEF 14A.
(Pronounced deaf)
Available to view on the EDGAR database (pronounced Ed gur)
DEF = definitive
14A = section 14A of the Securities Exchange Act of 1934
What’s the difference between executive and non-executive directors?
Executive (Inside) directors are members of the board who are full-time managers in the corporation
- examples: CEO and CFO
Non-executive (outside) directors are members of the board who are not full time employees of the corporation
What does the Nom & Gov committee do?
Identifies new candidates for the board of directors
Must be non-executive directors/independent directors
The NYSE requires these three board committees to be composed of independent directors
- Nominating committee
- Audit committee
- Compensation committee
What is an independent director?
A director who does not have any business relationship with the corporation (no employment, consulting, supplier relationship, etc.)
Is always a non-executive director, but not always vice versa
Specific tasks of the Nominating committee? How and what do they do?
- evaluate the performance of existing board members
How:
- uses surveys from other board members
- interviews by the chair
- evaluation by outside consulting company
What:
- board meeting attendance
- meeting prep
- involvement in committee assignments
Can be asked to voluntarily leave, or they are just not nominated at next shareholders vote
What are the primary purposes of the audit committee?
Oversight of financial reporting, auditing, compliance with laws
Explain the relationship between external auditors and the audit committee
The audit committee is a buffer between the external auditor and company management.
The external auditors must report to the audit committee.
If the external auditors find troubling issues, they are reported directly to the audit committee.
Publicly traded companies are required to report the compensation of their five highest paid executives on what?
DEF 14A proxy statement
What does “Say on Pay” mean?
It’s the shareholders approval of the executive compensation plan
What are proxy advisory firms?
Companies that advise shareholders on how to vote in corporate elections (helps them understand proposals, etc.)
———————-
ISS and Glass Lewis = top 2 in the US
Clients are investors like pension funds and mutual funds
Because of their influence, companies are careful to gain their favor by responding to information requests, etc.
