L24 - Introduction to Corporate Law

Question 1

Describe the roles of the main stakeholders in a company

Answer 1

• Shareholders
o Own the company through equity
o Annual general meeting – elect board, approve the accounts/dividends, appoint external auditor
o Extraordinary general meeting – modify Articles of Incorporation
• Board of Directors
o Manages the company through 4-8 meetings per year
o Elects Chairman of Board and Executive Committee (sometimes CEO is Chairman but this is poor CG)
o Composed of sub-committees – audit & risk, remuneration (proposals on compensation of directors, executives, stock options), nomination
o Approves annual budget, business plan, strategic plan
o Approves major investments
o Approves internal regulations
o Some directors should be independent – haven’t recently worked for company, held interest in company, been a director for too long, or have significant shares
• Executive Committee
o Day to day management
o Split responsibilities along geographic areas or topics (corporate, finance, corporate development, operations, sales & marketing, etc.)
• External Auditor
o Auditor’s statement to shareholders
o Valuation of company
o Rotated to another partner in same firm (start w/data but potential bias & company allegiance) or new firm (start afresh but no biases)
• Internal Auditor
o Internal checks & balances
o Audit plan and reports to audit committee
• Govt/Regulatory Authorities
• Customers and Suppliers
• Investment Analysts

Question 2

Compare their varying levels of responsibility

Answer 2

• Ultimately all power is with shareholders, but they are not involved in day to day operations and can only have an impact on a very large scale → must pick the right people to coordinate in their interests

Question 3

Explain their interaction

Answer 3

• Shareholders select board which selects executives
• Shareholders select auditor
• Auditor reports to shareholders but works with executives