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MGST 451 > Short review Q2 > Flashcards

Short review Q2 Flashcards

1
Q

why is it so hard to find a new ceo

A
  • small labour pool for difficult position
  • difficult/demanding high stakes position
  • hard to evaluate skills through an internview
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2
Q

CEO have higher what compared to the average population

A

cognitive, non-cognitive and emotional and psychological stability

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3
Q

have internal candidates ever been ceo before?

A

no

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4
Q

have external possibly been ceos

A

yes

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5
Q

pros of an internal ceo

A
  • known leadership style, culture and corporate fit
  • less expensive
  • great in times of stability
  • can groom/train for the specific position by addressing weaknesses
  • quicker onboarding
  • shows contiuity and stability
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6
Q

internal ceo tend to ____-perform external ceo

A

out

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7
Q

cons of internal ceo

A
  • no previous ceo experience
  • need to commit to the plan long in advance
  • more of the same thing
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8
Q

what is heir apparent and list 2 negatives

A

candidate promoted to position of COO or president
- responsibilities but be clearly differentiated from ceo
- can be stuck in the position for too long

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9
Q

what is the horse race and give 4 features of it

A

company promotes 2 or more candidates and lets them fight it out for the position
- no advance commitment to a candidate
- hiring is ublic
- different factions who support different candidates form
- losers will resign and company will suffer a brain drain

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10
Q

when was an external ceo traditionally hired and what is going on now

A

was traditionally hired in time of underperofrmance, now hired even in good perfromance

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11
Q

list 3 pros of an external hire

A
  • best when company needs a diretion and strategic change
  • might have previous ceo experince
  • no previous work baggage to bring
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12
Q

list 3 cons of an external hire

A
  • very expensive
  • high risk of poor fit
  • longer onboarding and getting acquanted with new copmpany
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13
Q

why is succession planning important

A
  • reduces hiring costs
  • reduces anxiety
  • prepared for crisis
  • shows tranparency in planning
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14
Q

how is succession planning done

A

ongoing procces of having internal and external candidates

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15
Q

who is responsible for finding new ceo

A

nominating nd compensating committee

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16
Q

why fire a ceo

A
  • failed m&a
  • poor perfromance
  • misconduct
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17
Q

why might a ceo perfrom bad and not be fired

A
  • small candidate pool
  • very expensive
  • comapny not prepared with succession plant
  • committe/boad dont care
  • planned retirement soon
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18
Q

what is the purpose of compensation

A
  • attract
  • maintain
  • motivate
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19
Q

why are some board memebers not sufficiently effective at setting compensation

A
  • lack of independance
  • not engaged
  • lack of power relative to ceo
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20
Q

what is included in a compensation package and is it st or lt

A

salary s-t
bonus s-t
equity in company l-t
- stock options
- restricted stock
- perquisites

21
Q

what are the categories of bonus

A
  • giaranteed bonus
  • min/max amounts
  • based on financial or non-fin amounts
  • discretionary
22
Q

what are stock options

A

right to buy shares in the future at a fixed rate. price is usually what is is on grant date

23
Q

stock options v_____ and e______

A

vest and expire

24
Q

what is vesting

A

whne the stock is “earned” over time

25
Q

what is optimal contracting

A

Efficient process of pay competition and market foces. Efficient negotiation between
Principal and candidates for CEO. Value that CEO creates is shared equitably among
shareholders, stakeholders and CEO

26
Q

what is rent extraction

A

Choosing CEO compensation is not an efficient process. It is a market failure to be efficient
and CEOs extort influence on Board of Directors

27
Q

what are the three steps in deciding on compensation

A
  • comp. committee designs structure of compensation with amounts from BoD, and consults HR and Finance
  • package is voted on and approved by INDEPENDENT directors
  • shareholders must then approve salary and equity based comp. based on “say on pay”
28
Q

what is the target ownership plan

A

plan that dictates that a CEO must have a set amount of their salary as equity in the company

29
Q

what are three positives of the target ownershipp plan

A
  • incluences risk taking
  • aligns interest
  • reduces agency costs `
30
Q

in what ways is an inclination in risk taking acted upon (4 wayss)

A
  • increase spenidign on R&D
  • reduce diversification
  • more leverage
  • spend on expansions
31
Q

How can management act negatively in increased risk taking

A
  • can manipulate accounting records
32
Q

how can manipulation of accounting happen

A
  • inflate earings to achieve bonus
  • manipulate timing of grants
  • manipulate timing of sensitive info being released
33
Q

maniulation in accounting increases a_______ c_____

A

agency costs

34
Q

what is used to mitigate accouting maniulation

A

clawback provisions

35
Q

hedging allows for diversification without

A

immediate selling of your equity

36
Q

what causes the want for hedging

A

concentrated positions in the company such as your portfolio having a high % of the stock, which makes you want to diversify

37
Q

what are the positives of hedging

A
  • might be tax advatageous
  • minimizes public outlash that would happen if selling
38
Q

what are negatives of hedging

A
  • lowers inscentive to perform
  • giving too many S/O creates the opportunity for a CEO to be risk averse and hedge his position
39
Q

it is ______ to short sell

A

illegal

40
Q

it is _______ to buy puts

A

legal

41
Q

do all coampnies allow hedigng

A

no

42
Q

what is pledging

A

essentially using your equity in the company as collateral for a loan

43
Q

what are the posistives of pledging

A
  • lower interest rates
  • can diversify while holding position in comapny
  • tax advantageous
44
Q

what are hte negatives of pledging

A
  • chages inscentive structur
45
Q

pledging transactions deserve _________ considerations

A

special

46
Q

what is the difference between CEO and regualr e ployees when it comes to pledging

A

often ceo not allowed to pledge but employees can

47
Q

is the tipper punishable in an insider trade even if they dont trade

A

yes

48
Q

what is the blackout trading window

A

certain period, usually 50 days, where certain empoyees are not allowed to buy or sell any shares. this is done before earnings, product, acqusition annoucenemnts

MGST 451 (5 decks)

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