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MGMT 466 - Ch 10
Corporate Governance
22
Management
Undergraduate 4
12/10/2009

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Term
corporate governance
Definition
__ is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations
Term
agency relationship
Definition
a __ exists when one or more persons hire another person as decision-making specialists to perform a service
Term
managerial opportunism
Definition
__ is the seeking of self-interest with guile
Term
agency costs
Definition
__ are the sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because government mechanisms cannot guarantee total compliance by the agent
Term
ownership concentration
Definition
both the number of large-block shareholders and the total percentage of shares they own define __
Term
large-block shareholders
Definition
__ typically own at least 5% of a corporation's issued shares
Term
institutional owners
Definition
__ are financial institutions such as stock funds and pension funds that control large-block shareholder positions
Term
board of directors
Definition
the __ is a group of elected individuals whose primary responsibility is to act in the owners' interests by formally monitoring and controlling the corporation's top-level executives
Term
insiders
Definition
__ are the firm's CEO and other top-level managers
Term
related outsiders
Definition
__ are individuals not involved with the firm's day-to-day operations, but who have a relationship with the company
Term
outsiders
Definition
__ are individuals who are independent of the firm in terms of day-to-day operations and other relationships
Term
1. increase the diversity of the backgrounds of board members 2. the strengthening of internal management and accounting control systems 3. the establishment and consistent use of formal processes to evaluate the board's performance 4. the creation of a "lead director" role that has strong powers with regard to the board agenda and oversight of nonmanagement board member activities 5. modification of the compensation of directors, especially reducing or eliminating stock options as a part of the package
Definition
5 changes used for accountability and improved performance
Term
executive compensation
Definition
__ is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentive compensation, such as stock awards and options
Term
market for corporate control
Definition
the __ is an external governance mechanism that becomes active when a firm's internal controls fail. People buy firms that are undervalued
Term
1. poison pill 2. corporate charter amendment 3. golden parachute 4. litigation 5. greenmail 6. standstill agreement 7. capital structure change
Definition
7 defense strategies against takeovers
Term
poison pill
Definition
__ is preferred stock in the merged firm offered to shareholders at a highly attractive rate of exchange
Term
corporate charter amendment
Definition
__ is an amendment to stagger the elections of members to the board of directors of the attacked firm so that all are not elected during the same year, which prevents a bidder from installing a completely new board in the same year
Term
golden parachute
Definition
__ is lump-sum payments of cash that are distributed to a selected group of senior executives when the firm is acquired in a takeover bid
Term
litigation
Definition
__ is lawsuits that help a target company stall hostile attacks; areas may include antitrust, fraud, and inadequate disclosure
Term
greenmail
Definition
__ is the repurchase of shares of stock that have been acquired by the aggressor at a premium in exchange for an agreement that the aggressor will no longer target the company for takeover
Term
standstill agreement
Definition
__ is a contract between the parties in which the pursuer agrees not to acquire any more stock of the target firm for a specified period of time in exchange for the firm paying the pursuer a fee
Term
capital structure change
Definition
__ is dilution of stock, making it more costly for a bidder to acquire; may include employee stock option plans (ESOPs), recapitalization, new debt, stock selling, share buybacks
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