M2 - U1 - Class 16 - Corporate Governance

Question 1

wall street movie - What is this occasion? What kind of event is this?

Answer 1

Stakeholder meeting.

Question 2

wall street movie - Who are these two individuals? Mr. Cromwel and Gordon Gekko

Answer 2

The CEO and chairman
The largest stockholder for this company

Question 3

wall street movie - What is Gordon Gekko angry about? What is he arguing?

Answer 3

They’re not doing anything. The company is losing money but managers are getting paid and spending lavishly. The managers don’t own stocks so they don’t own the company but the stockholders do. Gekko is a stockholder.

Question 4

wall street movie - Why is Gekko saying “Greed is good”? Why is it relevant to this occasion?

Answer 4

He can make a lot of money and maximize profits for stockholders because he is greedy. He has made billions for shareholders. He is saying that the shareholders aren’t greedy enough.

Question 5

basic setup of company

Answer 5

shareholders
board of directors
ceo
cfo, coo, cto, evp, counsel

Shareholders own the company
Board of directors are not employees of the company, they are managers of other things. Their job is to monitor the CEO

Three groups
Shareholders
Board of Directors
Manager

Question 6

main thing to remember

Answer 6

A “company” is NOT just one person!
In and out of a company, there are different groups with different interests: shareholders, managers, employees, and so forth

milton friedman

Question 7

main questions - who control corporations

Answer 7

Helps us with understanding if things are ethical
Shareholders

Question 8

main questions - whose benefits should corporations serve

Answer 8

shareholders

Question 9

main questions - what is the purpose of corporations

Answer 9

maximize profits

Question 10

what is corporate governance

Answer 10

“Who among the various participants in the corporate enterprise controls what, who makes what decisions, and who has what responsibilities for and what claims against the revenues and assets of the company… Corporate governance is about setting up rules that determine these things.”

Question 11

corporate governance

Answer 11

Corporate governance “refers to the whole set of legal, cultural, and institutional arrangements that determine what publicly traded corporations can do, who controls them, how that control is exercised, and how the risks and returns from the activities they undertake are allocated.”

Question 12

who owns apple

Answer 12

“Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company.” (Gordon Gekko)

Question 13

notes on who owns apple

Answer 13

Top left image shows how much individuals own stocks in Apple
Tim Cook is 5th or 6th on list
Large Corps own most (1st and 2nd)
Art Levinson is owner of the board

How much is Tim Cook’s stockholm worth?
Shares owned x price
567 million USD

What percentage of Apple does Tim Cook own?
(own/shares on the market x stock closed cost) x100
(567M/(15.73B x 173)) x100
0.02%

How much is Art Levinson’s stockholm worth?
779 million USD

What percentage of Apple does Art Levinson own?
(own/shares on the market x stock closed cost) x100
(779M/(15.73B x 173)) x100
0.02%

Question 14

separation of ownership and control

Answer 14

Publicly traded companies issue financial securities (bonds and shares) to raise money
There are fundamental differences between bondholders and shareholders

Unlike bondholders, shareholders have (1) variable, residual claims, and (2) certain “control” rights

Variable - changes. Shareholders have variable returns

Residual - left over (receive money after)

Control rights - not full control but partial control. Shareholders can control managers to an extent. Bondholders/creditors don’t control your business; they won’t lend you money if it’s a risk but they can’t stop you from doing anything.

Question 15

like a box of chocolates

Answer 15

You’ll never know what you’re gonna get… like investing
You don’t know what happens in the future
Shareholders own rights not a part of the company

Question 16

separation of ownership and control

Answer 16

Publicly traded companies issue financial securities (bonds and shares) to raise money
There are fundamental differences between bondholders and shareholders
Unlike bondholders, shareholders have (1) variable, residual claims, and (2) certain “control” rights
Actual control of the company is in the hands of managers who are (in most cases) not “owners”

Question 17

fundamental issue of corporate governance

Answer 17

separation of ownership and control

Question 18

berle and means model

Answer 18

Theoretical model vs what scholars found

Securities markets
Concentration of wealth and power in corporate America and were worried shareholders were controlling corporations but in reality the stock market is scattered
Investors used to be scattered now they’re in groups

Question 19

discussion - 1. What is corporate governance?

Answer 19

Rules laws etc. about who owns the corporation

Question 20

discussion - 2. What does “separation of ownership and control” mean?

Answer 20

The people who run the company doesn’t mean they own the company

Question 21

discussion - 3. What does it mean when someone says “shareholders are the residual claimants”?

Answer 21

Shareholders receive remaining profits after everyone else
Theirs is variable and everyone else’s is fixed

Question 22

discussion - 4. What did Berle and Means find in the 1930s?

Answer 22

Shareholders have different interests and are dispersed/scattered
Individual shareholders are small dispersed and scattered

Question 23

discussion - 5. How has the ownership structure of corporations changed since the Berle and Means’ era?

Answer 23

Institutional investors have risen and consolidated huge amounts of stock ownership

Question 24

discussion - 6. Who owns Apple? Who controls Apple?

Answer 24

Big money management investors and corps who own the stocks
CEO etc makes decisions