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Summary 5

* Recent enforcement efforts by the Securities and Exchange Commission have focused on improving the accuracy and transparency of financial information provided to investors. * They have also focused on curbing insider trading, which undermines fairness in the marketplace by benefiting those with illicitly acquired information at the expense of those who do not have it. *Some believed that the SEC had not acted vigorously enough to prevent the financial crisis, however, and said that new regulations were needed.

Proxy

*Because most corporations today are large, typically only a small portion of stockholders vote in person. Those not attending are given an opportunity to vote by absentee ballot, called a proxy.

critics about stock options

*Critics have highlighted a danger of equity-based compensation: that unscrupulous executives may become so fixated on the value of their options that they will do anything to increase the stock price, even if this involves unethical accounting practices.

Summary 2

*In the modern system of corporate governance, boards of directors are responsible for setting overall objectives, selecting and supervising top management, and assuring the integrity of financial accounting. * The job of corporate boards has become increasingly difficult and challenging, as directors seek to balance the interests of shareholders, managers, and other stakeholders. *Reforms have been proposed to make boards more responsive to shareholders and more independent of management.

Summary 4

*Shareholders have influenced corporate actions by forming organizations to promote their interests and by filing lawsuits when they feel they have been wronged. *They have also organized under the banner of social investment. *These efforts have included screening stocks according to social and ethical criteria, and using the voting process to promote share holder proposals focused on issues of social responsibility.

Summary 3

*Some observers argue that the compensation of top U.S. executives is justified by performance, and that high salaries provide a necessary incentive for innovation and risk taking in a demanding position. *Critics, however, believe that it is too high. *In this view, high pay hurts firm competitiveness and undermines employee commitment.

Summary 1

Individuals and institutions own shares of corporations primarily to earn dividends and receive capital gains, although some have social objectives as well. Shareholders are entitled to vote, receive information, select directors, and attempt to shape corporate policies and action.

Insider trading

Insider trading occurs when a person gains access to confidential information about a company's financial condition and then uses that information, before it becomes public knowledge, to buy or sell the company's stock. *Since others do not know what an inside trader does, the insider has an unfair advantage

Institutional investors

Institutions, such as pensions, mutual funds, insurance companies, and university endowments, also own stock. *For example, mutual funds such as Fidelity Contrafund and pensions such as the California Public Employees Retirement System buy stock on behalf of their investors or members. *They are sometimes call "wall street" investors.

Executive Compensation

Setting executive compensation is one of the most important functions of the board of directors. * The emergence of the modern, publicly held corporation in the late 1800s effectively separated ownership and control. *That is, owners of the firm on longer managed it on a day-to - day basis; this task fell to hired professionals. *An important mechanism for aligning the interests of the corporation and its stockholders with those of its top managers is executive compensation.

Shareholder lawsuits

Shareholder lawsuits may be initiated to check many abuses, including insider trading, an inadequate price obtained for the company's stock in a buyout (or a good price rejected), or failure to disclose material information in a timely manner.

Social Investment

Social Investment is another movement of growing importance among activist shareholders, sometimes also called social responsibility investment. *This refers to the use of stock ownership as a strategy for promoting social objectives. *This can be done in two ways: through stocks according to various social criteria, and by using the corporate governance process to raise issues of concern.

Social responsibility shareholder resolutions

Social responsibility shareholder resolutions is a resolution on an issue of corporate social responsibility placed before stockholders for a vote at the company's annual meeting. *Another important way in which shareholders have been active is by sponsoring social responsibility shareholder resolutions.

Stock options

Stock options represent the right (but not obligation) to buy a company's stock at a set price (called teh strike price) for a certain period. *The option becomes valuable when, and if , the stock price rises above this amount. *Grants of stock and stock options are often seen as a way to align executives' interests with those of shareholders. *The idea is that executives will work hard to improve the company's performance, because this would lift the stock and increase the value of their compensation.

Board of directors

The board of directors plays a central role in corporate governance. *The board of directors is 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. *Boards typically meet in full session around six times a year.

Securities and Exchange Commission (SEC)

The major government agency protecting stockholders' interests is the Securities and Exchange Commission (SEC). *Established in 1934 in teh wake of the stock market crash and the Great Depression, its mission is to protect stockholders' rights by making sure that stock markets are run fairly and that investment information is fully disclosed. *The agency, unlike most in government, generates revenue to pay for its own operations. (The revenue comes from fees paid by companies listed on the major stock exchanges.)

Corporate governance

The term corporate governance refers to the process by which a company is controlled, or governed. *Just as nations have governments that respond to the needs of citizens and establish policy, so do corporations have systems of internal governance that determine overall strategic direction and balance sometimes divergent interests.

Say-on-pay

Under the so-called say-on-pay provisions of the Dodd-Frank Act, which went into effect in 2011, public companies must hold shareholder votes on executive compensation at least once every three years. *Many voluntarily now do so annually *Although such say-on-pay referendums are not binding on management, they provide a mechanism for shareholders to voice displeasure over excessive compensation.

Stockholders

or shareholders, are the legal owners of business corporations. *By purchasing shares of a company's stock, they become part owners. *For this reason, stockholders have a big stake in how well their company performs. *They are considered one of the market stakeholders of the firm. *two types of stockholders; individual and institutional.