lecture 3-4 notes

Question 1

Shareholders own stocks (type of corporate security) not the corporation

Some fundamental decisions for shareholders are:

Answer 1

appointment rights - indicate that shareholders vote on the selection (and removal) of directors one tier and two tier boards

Decision rights

Management proposals (veto/ratification)

shareholder proposal (initiation)

Question 2

Appointment rights
shareholders vote on the selection of directors

Answer 2

one tier and two tier boards (both allowed in NL)

Codetermination in germany

Question 3

Proxy contests/fights are

Answer 3

shareholder proposals that are solicited using their (shareholders) proxy materials at shareholders expense (e.g. to nominate own direcotrs)

Question 4

Tehre are two types of engagement tools:

Answer 4

formal: voting rights including shareholder proposals, forum rights, information rights

Informal: engagement behind the scenes, one on one

Question 5

Control enhancing mechanisms or so called controlling minority structure

Pyramid structure

Answer 5

A controlling minority shareholder holds a controlling stake in a holding company that, in turn, holds a controlling stake in an operating company

Question 6

Control enhancing mechanisms or so called controlling minority structure

Dual class firms

Answer 6

low and high voting shares

Loyalty (or fidelity) shares

(past) restrictions on dual class shares in listing rules

banning from indices

Question 7

Why control

Answer 7

private benefits of control - gain resulting from exercising control for controlling shareholders at the expense of non controlling shareholders

Opportunistic behavior; tunneling: transfer of resources out of a company to controlling shareholder

PBC are a necessary cost of incentivizing efficient monitoring and good performace

Control is needed to pursue and idiosyncratic vision (entrepreneurship)

Question 8

Minority shareholder protection

Answer 8

appointment and decision rights (including devaitions from OSOV)

minority shareholder appointment rights (cumulative voting, slate voting)

Majority of minority (MoM) decisions

Qualified ajority requirements, quorums

Question 9

Trusteeship strategy

Answer 9

independent directors

originated in the us

seeks to remove conflicts of interest ex ante

do not profit from opportunistic behavior

Not tied by financial incentives but motivated by ethical and reputational concerns

Question 10

Criticisms trusteeship strategy

Answer 10

arbitrary criteria

no conclusive evidence on effect on firm performance

Their role during the financial crisis has been criticized

What about their incentive structure