Lecture 6 Flashcards
What is the goal of the firm? How?
To create value for shareholders. Maximize price of existing common stock.
How to influence stock price?
Good decisions = higher stock price. Bad decisions = lower stock price. Perceptions of future.
The role of management is to act as a…
Moderator and arbitrator between conflicting interest groups or stakeholders and objectives.
Who has contractual claims against the company?
Creditors, managers, employees, customers.
Who has residual claims against the company?
Shareholders.
Stakeholder vs. Shareholder?
Stakeholders: any constituent group that has invested interest in that company. Shareholders: owns shares in the company.
What are the 6 corporate governance functions tied to oversight?
MAC MIE
Managerial
Advisory
Compliance
Monitoring
Internal Audit
External Audit
What is Oversight?
Board of Directors to oversee management.
What is Managerial?
Running the company.
What is (Legal and) Advisory?
Advice.
What is Compliance?
Laws, regulations, standards.
What is monitoring?
Shareholders can elect in/out management or Board of Directors.
What is internal audit?
Provides consultation, assurance.
What is External Audit?
Provides credibility.
What are proxies?
An agent legally authorized to act on behalf of another party. Shareholders not attending a company’s annual meeting may choose to vote their shares by proxy by allowing someone else to cast votes on their behalf.
More info:
The proxy discloses important information about issues to be discussed at an annual meeting, lists the qualifications of management and board members, serves as a ballot for elections to the board of directors, lists the largest shareholders of a company’s stock and provides detailed information about executive compensation.
