Lecture #8 Flashcards
What is important to remeber when communciating with your client? What shoudl you say?
Remember the client is paying you for your opinion
Past performance is not an indication of future performance and opinion is not fact. You must inform the client each time you make a recommendation
- When advising a client you must use the words “It is my opinion that…….”
What are the different ways of communciating with a client? What is the important thing to remeber when telling clients your reccomendation?
- Written report
- Telephone conversation (taped or not)
- Face to face
- Media broadcast
- E- mail/ text messaging transmission
- Tweets
YOU WILL NEED TO IDENTIFY CLIENTS THAT REQUIRE ADDITIONAL INFORMATION AND PROVIDE THAT TO THEM. Just telling a client your recommendation may not be enough
When you’re presenting your clients your analysis, remeber to state the “”?
limitations, such as:
- What information is available and what is not available
- What information was rejected in your analysis
- What third party information was used and how it was vetted
- Assumptions that you made to formulate your opinion
- Your personal bias
who is the board
The Board acts as an agent for shareholders, ensuring their interests are protected.
- Responsibilities include hiring/firing top executives, setting executive pay, hiring auditors, overseeing internal controls, handling control changes, and contributing to strategy.
- Outside (non-executive) directors give shareholders a voice and help ensure the firm is run to maximize shareholder wealth.
What is a businesses’s goal?
maximize shareholder wealth
what makes a good compensation structure
What Makes for Good Compensation Structure?
- Non-executive directors are compensated through:
- Annual retainer fees
- Per meeting fees
- Stock awards, options, and other equity-linked compensation
- Equity-linked compensation helps align directors’ interests with shareholders.
- However, if a director’s total compensation becomes too high, it can compromise their independence.
Please give a short definition for each of these
- Nominating committee that consists of all independent directors
- Cumulative voting
- Large blockholders / activists
- Proxy Fights
- Staggered boards
- Superior voting rights
Enhance Shareholder Rights:
- Nominating Committee (all independent): Ensures board candidates are chosen fairly, without CEO influence.
- Cumulative Voting: is a shareholder voting system used to elect a company’s board of directors. It gives minority shareholders more power to influence the election of at least one director.
- Large Blockholders / Activists: Investors with big stakes who push for changes to benefit all shareholders.
- Proxy Fights: Shareholders try to replace board members by convincing others to vote against management’s picks.
Diminish Shareholder Rights:
- Staggered Boards: Only a few board members are elected each year, making it hard to replace the whole board quickly.
- Superior Voting Rights: Some shares have more voting power than others, giving certain shareholders more control.
[EXAM] How can managers abuse the option grant system?
Managers can abuse stock option grants by manipulating the timing:
- Backdating: Picking a past date with a low stock price to give instant gains.
- Spring-loading: Granting options just before good news to benefit from a stock price jump.
These practices mislead investors about executive pay and are considered unethical.
Example: Barnes & Noble was involved in a backdating scandal (2006–2007), faced SEC action, paid $2.75M to settle lawsuits, and had to restate earnings.
Key tip: Be cautious if a company consistently gets “lucky” with grant timing.
what are Golden Parachutes, Golden Handcuffs, Golden Coffins ?
Golden Parachutes: Large severance packages given to executives if the company is taken over—can reduce resistance to takeovers.
* Example: At B&N, execs were promised 3x salary, $2M, and benefit costs.
Golden Handcuffs: Incentives (like bonuses or stock options) designed to keep executives from leaving the company.
Golden Coffins: Death benefits paid to the heirs of top executives who die while still employed.
Shareholder Rights & Takeovers – Key Points
1. If corporate governance fails and performance declines, the “” “” can step in—either replacing poor managers or offering investors a “” for their shares.
- Understand takeover tactics and defenses managers use to resist them.
- Poison Pill: A defense strategy where existing shareholders (not the acquirer) can buy shares at a discount, diluting the acquirer’s stake and making the takeover more difficult or expensive.
takeover market, premium
