Lecture 8 Flashcards
Standard 6
Conflicts of Interest
Standard 6 (A)
Avoid or Disclose conflicts
Avoid or disclose conflicts meaning
Must make full disclosure of any conflict of interest
Causes of conflicts of interest
Self interest
Fraud
Misunderstanding
Slippery Slope
Misunderstanding (Conflict of interest)
Everyone is doing is, therefore, must be normal or acceptable
Slippery Slope (Conflict of interest)
Small favours lead to a need for payback
Types of conflicts of interest
Apparent
Potential
Actual
Apparent conflict of interest
People have an apparent conflict due to position/responsibility but it doesn’t mean that they are acting for personal benefit
Potential conflict of interest
Judgment may appear less reliable due to biases
Actual conflict of interest
Acts of self-interest over those of the client
Ways to manage conflict of interest
Avoid
Disclose
Report
Standard 6 (B)
Priority of Transactions
Priority of transactions meaning
1) Client
2) Employer
3) Employee
True or False - In all cases, the client’s interest come first.
True
Standard 6 (C)
Referral Fees
Referral Fees meaning
Must disclose any compensation or benefits received from products/services to employers and clients
Family Accounts
No preferential treatment should be given to family members that are clients
Standard 7
Responsibilities as a CFA Member
Standard 7 (A)
Conduct as a participant in CFA institute
Conduct as participants in CFA institute programs meaning
As a CFA members, must avoid any behavior that tarnishes the reputation of CFA
Standard 7 (B)
Reference to CFA
Reference to CFA
Members must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute
Staggered Board
Board that is divided into classes and only one class of directors is eligible for elections
Inside Directors
Directors who are management
Outside Directors
Directors that have no affiliation with management
Grey Directors
Directors who aren’t execs but have ties to execs
Professional Directors
Retired individuals but are still board directors
Compensation Committee
Board committee that sets the compensation for CEO and other execs
Audit Committee
In charge of hiring external auditor and overseeing the internal audit controls of the firm
Nominating Committee
Board committee that nominates new directors to the board
Entrenched
Directors and execs that become secure enough that they do not fear being replaced even if they do a poor job
Incumbents
Non-management directors and execs that the board nominates for re-election
Proxy fight
Fight over the proxies to elect directors
Dissident
Shareholder(s) that criticize current slate of director nominees and offers an alternative slate
Activist Shareholder
Shareholders who pressure the firm to change strategy and corporate governance practices in order to increase investment returns
Clawback Provisions
Compensation must be returned if it was based on faulty financial reports
Golden parachute
Large compensation amount given to executives should the executive be dismissed due to a takeover or merger
Golden handcuffs
Incentives given to discourage resignation
Golden coffins
Generous death benefits given to top execs
