Slides 4 Flashcards

1
Q

Who are shareholders?

A

The legal owners of business corporations, also called stockholders or investors.

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2
Q

What are the types of shareholders?

A

Individual shareholders and institutional investors

Examples of institutional investors include pension funds, mutual funds, insurance companies, and university endowments.

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3
Q

What is the primary objective of stock ownership?

A

To produce a greater return over the long run than other investments, such as bonds or cash.

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4
Q

How do shareholders make money?

A
  • When the price of the stock rises (capital appreciation)
  • When they receive their share of the company’s earnings (capital dividends)
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5
Q

What are the different objectives of shareholders?

A
  • Long-term appreciation
  • Short-term returns
  • Capital gains
  • Dividend income
  • Social or ethical objectives
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6
Q

What are the major legal rights of shareholders?

A
  • To receive dividends, if declared
  • To vote on board members, major mergers, charter changes, and stockholder proposals
  • To receive annual reports on the company’s financial condition
  • To bring shareholder suits against the company and officers
  • To sell their own shares of stock to others
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7
Q

What is corporate governance?

A

The system by which companies are directed and controlled.

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8
Q

What is the role of the board of directors?

A

To establish corporate objectives, develop policies, and select top-level personnel.

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9
Q

What is the typical size of a corporate board?

A

Typically between 9 and 11 members.

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10
Q

What is a one-tier system in corporate governance?

A

A governance structure with one board that includes both executive and non-executive directors, common in the US.

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11
Q

What is a two-tier system in corporate governance?

A

A governance structure with two separate boards: an executive board and a supervisory board, common in many EU countries.

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12
Q

What are key functions of the board of directors?

A
  • Approving salaries and benefits of top managers (Compensation committee)
  • Recommending candidates for officers and directors (Nominating committee)
  • Reviewing financial reports and appointing auditors (Audit committee)
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13
Q

What are key features of effective boards?

A
  • Select outside directors to fill most positions
  • Hold open elections for board members
  • Appoint an independent lead director
  • Diversify board membership
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14
Q

What is the agency problem?

A

The conflict arising from the separation of ownership and control in modern corporations.

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15
Q

What is an agency relationship?

A

A contract where the principal delegates authority to an agent to fulfill a task.

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16
Q

What are safeguard mechanisms in agency relationships?

A
  • Contracts
  • Controls
  • Incentives
  • Guarantees
17
Q

What is pay-for-performance in executive compensation?

A

A method where executives are compensated based on company performance, often through stock options.

18
Q

What regulates financial disclosure and insider trading?

A

Government agencies such as the Securities and Exchange Commission (SEC) in the US.

19
Q

What is shareholder activism?

A

The rise of institutional investors advocating for changes to promote their economic and social objectives.

20
Q

What are the learning objectives in this management course?

A
  • Identifying different kinds of shareholders and understanding their objectives and legal rights
  • Knowing how corporations are governed and the role of the board of directors
  • Analyzing executive compensation and its implications
  • Evaluating ways stockholders can promote their objectives
21
Q

What were the reasons for Parmalat’s collapse?

A

Failures in business strategy, corporate governance mechanisms, and the CEO’s inability to separate family and company interests.

22
Q

True or False: Individual shareholders only seek long-term capital gains.