Week 5: Shareholder Rights and ESG Implications Flashcards
What is the best scenario in finance?
Managers can concentrate on stock price maximization as the sole objective and don’t worry about any other side effects.
Which 6 assumptions do we need for the best scenario in finance?
- Making managers (decision makers) and employees into shareholders
- Manager’s and shareholders’ interests are aligned
- Debt-holders are fully protected
- Efficient markets
- Timely and honest information disclosure
- Minimizing social costs
How can shareholders influence managers?
a. Annual meeting (stockholders can voice views on management and vote on changes to corporate, charters and bylaws)
b. Board of directors (body that advises & oversees the executives of publicly traded firm -> obligated to ensure that managers are looking out for shareholders’ interests, can ask tough questions on operational decisions, change the top executives, some major decisions need board’s approval)
c. Corporate finance: Compensation contract design (executives & directors), Audit & financial filings
What is the role of shareholders?
- Vote (veto, approve, suggest)
- Sue
- Sell (high ability to sell, low voting rights)
Quorum rule
minimum number of shares to hold a meeting (default 1/3th of shares)
Name the 3 types of meetings
(regular) annual meetings (main event: electing directors)
special meetings
written consent (remote meeting but in writing)
What is simple majority?
majority of shares at meeting
What is absolute majority?
majority of outstanding shares
What is super majority?
varies, the threshold is defined in bylaws (usually 67% - 95% of outstanding shares)
What kind of voting shares do you have?
General: 1 share = 1 vote
Controlling shares: 1 share = n votes
non-voting shares: 1 share = 0 vote
What kind of statute does a company have and why is it important?
Internal company statutes: bylaws, charters, etc (voluntary)
External statutes: jurisdiction law
Important for voting information
What kind of owners do you have?
Record holder (share directly from firm)
Can vote
Beneficial owner (share through broker, can register at firm to become registered owner)
Can vote by proxy (brokers may vote on your behalf)
What is a shareholder proposal?
Shareholders can initiate proposals (actively engage) by submitting recommendation or requirement that suggest a company to take particular action (which would be considered at SH meeting), SP needs to comply with procedures in US SEC Rule 14a-8
Not binding in US, but are in Europe
What does the board of directors do?
advises & oversees executives of a publicly traded firm.
What does an independent board entail?
Independent director must not have a material relationship with company or a related company that conducts business with the company
