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WVU BCOR 320 - Rights of shareholders

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BCOR 320 1nd Edition Lecture 38 Chapter 20: Corporations cont:Rights of shareholders:◦ Right to vote Corporation must have at least one class of stock with voting rights Shareholder meetings - Norm for publicly traded companies◦ Proxies: The person whom a shareholder appoints to vote for her at a meeting of the corporation The document a shareholder signs appointing this substitute voter  Annual report: A document containing financial data  Securities and Exchange Commission (SEC) requires that public companies provide it to theirshareholders each year◦ Shareholder proposals Under SEC rules, any shareholder who has continuously owned for one year at least 1 percent of the company or $2,000 of stock: Can require that one proposal be placed in the company’s proxy statement to be voted on at the shareholder meetingElection & removal of directors: A nominating committee from the board of directors produces a slate of directors, with one name per opening◦ Leads to a complex and expensive process Disruptive to the company Plurality voting: To be elected, a candidate only needs to receive more votes than her opponent, not a majority of the votes cast◦ A traditional corporate voting method Majority voting systems - 79 percent of S&P 500 refuse to seat a director if:◦ Fewer than half of the shares that vote tick off her name on the ballot These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Independent directors – Sarbanes-Oxley Act (SOX) stipulates that all members of a board’s audit committee must be independent◦ At least one of these members must be a financial expert The NYSE and NASDAQ require that, for companies listed with them:◦ Independent directors must comprise a majority of the board◦ They must meet regularly on their own, without inside directors◦ Only independent directors can serve an audit, compensation, or nominating committees◦ Audit committees must have at least three directors who are financially literate Shareholder activists – A new development in corporate democracy◦ Advise institutional investors on how to vote their shares Proxy access – Required companies to include in their proxy material the names of board nominees selected by large shareholdersCompensation for officers and directors- Problem  Stock options Termination, retirement plans, and death benefits Lavish perks Directors, not shareholders, set executive compensation Shareholders bear the risk Benchmarking games The CEO gets all the credit The busier the directors, the higher the executive pay Most executives are above average Compensation consultants have conflicts of interestCompensation for officers and directors: The solution:◦ Proxy rules – Amended by the SEC to require more information about executive compensation Must include a summary table setting out the full amount of compensation for the five highest-earning executives SOX◦ Under SOX: A company Cannot make personal loans to its directors or officers Must follow through the so-called claw-back provision Dodd-Frank:◦ Requires that compensation committees for all corporations listed on a stock exchange must be composed solely of independent directors◦ Strengthens the claw-back provisions of SOX and extends it to three years◦ Requires ‘say on pay’◦ Requires companies to take a nonbonding shareholder vote◦ Shareholders have right to nonbinding vote in the event of merger or sale of company assets◦ Companies must disclose the relationship between financial performance andexecutive compensation ◦ Must disclose the CEO’s compensation and the median compensation of all other company employees Emerging growth companies◦ Have annual gross revenues of less than $1 billion ◦ Stock has been publicly traded for less than five years◦ Have issued less than $700 million publicly in traded stock◦ Have issued less than $1 billion in convertible debt in a three-year periodFundamental corporate changes: A corporation must seek shareholder approval before undergoing any of the following fundamental changes:◦ Mergers◦ Sales of assets◦ Dissolution◦ Amendments to the CharterRights to dissent: If a private corporation decides to undertake a fundamental change:◦ The Model Act and many state laws require the company to buy back the stock of any shareholders who object Referred to as dissenters’ rightRight to protection from other shareholders: Anyone who owns enough stock to control a corporation has a fiduciary duty to the minority shareholders◦ Minority shareholders – Those with less than a controlling interestEnforcing shareholders rights: Derivative lawsuits◦ Brought by shareholders to remedy a wrong that the board of directors has committed against the corporation Direct lawsuits◦ Shareholders are permitted to sue the corporation directly only if their own rights have been


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