Corporate Governance and Board
Name the three types of directors and their differences
Grey director
Inside director
Outside director
Which direct actions can shareholders take to prevent expropriation or misuse of company resources?
Shareholder voice
Shareholder approval
Proxy Contest
Activist funds
What is the goal of the Sarbanes-Oxley Act?
It aims to improve accuracy of financial reporting of corporations
What is a captured board?
Monitoring duties have been compromised by connections or loyalties to management
What is backdating? What is its effect?
the practice of choosing the grant date of a stock op tion retroactively, so that the date of the grant would coincide with a date when the stock price was at its low for the quarter or for the year. By backdating the option in this way, the executive effectively receives a stock option that is already in-the-money, with a strike price equal to the lower price on the supposed grant date
Which legal system gives the most and the least amount of investor protection?
Most: British
Least: Scandinavian
More likely to fire CEOs for poor performance
Fewer value-destroying acquisitions
Better shareholder-aligned decisions in acquisitions
Stock price increases upon addition of independent board members
Dissatisfied with a CEO, a group of shareholders try to elect a new board of directors by gathering votes from other shareholders before the annual meeting?
Which direct action method are the shareholders using here?
Proxy contest
Name three clauses of the Dodd-Frank Act
Independent Compensation Committees: US exchanges require only independent board members on compensation committees with full authority
Nominating Directors: Large shareholders (owning ≥ 3% stock for ≥3 years) can nominate board candidates on the firm's proxy statement
Votes on Pay: Shareholders get a nonbinding vote every 3 years on CEO, CFO, and top executives' compensation; firms must formally respond to results
Clawback Policies: Firms can reclaim up to 3 years of incentive pay if an accounting restatement occurs
Pay Disclosures: Firms must reveal the CEO-to-median employee pay ratio, link between executive pay and performance, and hedging policies
Insider trading: restrictions on managers exploiting privileged information for profitable trades to ensure fairness for outside investors