Weeks 4 & 5: Chapter 14

Question 1

Proxy

Answer 1

Absentee ballot

Question 2

Corporate governance

Answer 2

The process by which a company is controlled, or governed.

Question 3

Board of Directors

Answer 3

An elected group of individuals who have a legal duty to establish corporate objectives, develop broad policies, and select top-level personnel to carry out these objectives and policies. The board also reviews management’s performance to be sure the company is well run and stockholder’s interests are protected.

Question 4

Stock options

Answer 4

Sometimes used as executive compensation.Represent the right (but not obligation) to buy a company’s stock at a set price (called the strike price) for a certain period. This is seen as a way to align executives interests with those of the stockholders.

Question 5

Say-on-pay provisions

Answer 5

Part of the Dodd-Frank Act. Public companies must hold shareholder votes on executive compensation at least once every 3 years.

Question 6

Social Investment

Answer 6

The use of stock ownership as a strategy for promoting social objectives. This can be done in 2 ways: selecting stocks according to various social criteria, and by using the corporate governance process to raise issues of concern.

Question 7

Social Responsibility Shareholder Resolutions

Answer 7

A resolution on an issue of corporate social responsibility placed before stockholders for a vote at the company’s annual meeting.

Question 8

Shareholder lawsuits

Answer 8

May be initiated to check many abuses, including insider trading, an inadequate price obtained for the company’s stock in a buyout, or failure to disclose material info in a timely manner.

Question 9

Securities and Exchange Commission (SEC)

Answer 9

Its mission is to protect stockholders’ rights by making sure that stock markets are run fairly and that investment info is fully disclosed. They generate revenue to pay for their own operations through fees.

Question 10

Insider Trading

Answer 10

When a person gains access to confidential info about a company’s financial condition and then uses that info, before it becomes public knowledge, to buy or sell a company’s stock.