Business Orgs Final Terms
1. Sell their shares
3 Ways Shareholder Can Exercise its
2. Voting
Power
3. Suing company's directors for breach of fiduciary duties
United States federal law enacted after Enron to mandate certain
practices in financial record keeping and reporting for corporations.
Know 3-4:
● Conflict of Interest Transactions
● Officers and Directors Removal
Sarbanes Oxley Act (SOX) ● Lawyers Responsibilities
● Real Time Disclosure
● Off Balance Sheet Transactions Disclosure
● Whistleblower Protection: establishes a private right of action for
whistleblowers for wrongful discharge and allows them to collect
compensatory damages.
, Business Orgs Final Terms
created in response to the 2008 crisis. Need for greater disclosure so
we can catch issues like those bundled mortgage back securities and
avoid future financial crises.
Dodd Frank Act and Consumer ○ Federalized several aspects of corporate governance that used to b
Protection Act part of state law
○ Provides authority to the SEC to permit shareholder proxy access to
nominate directors (shareholders can petition to put a director nomin
on the proxy statement)
document containing the information the Securities and Exchange
Commission (SEC) requires companies to provide to shareholders so
Proxy Statement
can make informed decisions about matters that will be brought up at
annual or special stockholder meeting.
, Business Orgs Final Terms
*** MAIN TAKEAWAY*** : Dodd Frank required greater disclosure to
shareholders. The proxy statements need to be complete and accura
and should provide all MATERIAL information that shareholders wo
Dodd Frank Main Takeaway want to know before voting on something.
■ Materiality: ask “would a reasonable shareholder want to know this
information before voting on the issue?”
occurs when a shareholder or group of shareholders attempts to
influence the outcome of a corporate vote. A group built up of 5%-20
Proxy Contests
shares can effectuate significant change. This group has an agenda w
creates problems for CEO and BOD.
Shareholder rights plan (poison pill): simple mechanism that prevent
instigators from acquiring a certain level of stock in the firm. Usually w
Defenses Against Proxy Contests
by diluting a stockholder’s holdings once the stockholder acquires a
certain % of the company’s stock. --> UNOCAL TEST
, Business Orgs Final Terms
1. REASONABLE/COGNIZABLE THREAT -
Did the company objectively and reasonably believe that a legally
cognizable threat to corporate policy existed?
- Board should show that they conduct a good faith and reasonable
investigation into the threat
- Must be a threat to proper corporate objective - preserving corpor
culture alone is not a proper objective. Shareholder Primacy Norm sa
you need to look out for shareholders and maximize their wealth.
2. PROPORTIONAL -
Unocal Test (Poison Pills) Were the defensive actions proportional to the threat?
a. Board can satisfy this prong by showing that its defensive actions w
not draconian (too restrictive) and were within the range of
reasonableness under the circumstances
i. Coercive
ii. Preclusive
1. Sell their shares
3 Ways Shareholder Can Exercise its
2. Voting
Power
3. Suing company's directors for breach of fiduciary duties
United States federal law enacted after Enron to mandate certain
practices in financial record keeping and reporting for corporations.
Know 3-4:
● Conflict of Interest Transactions
● Officers and Directors Removal
Sarbanes Oxley Act (SOX) ● Lawyers Responsibilities
● Real Time Disclosure
● Off Balance Sheet Transactions Disclosure
● Whistleblower Protection: establishes a private right of action for
whistleblowers for wrongful discharge and allows them to collect
compensatory damages.
, Business Orgs Final Terms
created in response to the 2008 crisis. Need for greater disclosure so
we can catch issues like those bundled mortgage back securities and
avoid future financial crises.
Dodd Frank Act and Consumer ○ Federalized several aspects of corporate governance that used to b
Protection Act part of state law
○ Provides authority to the SEC to permit shareholder proxy access to
nominate directors (shareholders can petition to put a director nomin
on the proxy statement)
document containing the information the Securities and Exchange
Commission (SEC) requires companies to provide to shareholders so
Proxy Statement
can make informed decisions about matters that will be brought up at
annual or special stockholder meeting.
, Business Orgs Final Terms
*** MAIN TAKEAWAY*** : Dodd Frank required greater disclosure to
shareholders. The proxy statements need to be complete and accura
and should provide all MATERIAL information that shareholders wo
Dodd Frank Main Takeaway want to know before voting on something.
■ Materiality: ask “would a reasonable shareholder want to know this
information before voting on the issue?”
occurs when a shareholder or group of shareholders attempts to
influence the outcome of a corporate vote. A group built up of 5%-20
Proxy Contests
shares can effectuate significant change. This group has an agenda w
creates problems for CEO and BOD.
Shareholder rights plan (poison pill): simple mechanism that prevent
instigators from acquiring a certain level of stock in the firm. Usually w
Defenses Against Proxy Contests
by diluting a stockholder’s holdings once the stockholder acquires a
certain % of the company’s stock. --> UNOCAL TEST
, Business Orgs Final Terms
1. REASONABLE/COGNIZABLE THREAT -
Did the company objectively and reasonably believe that a legally
cognizable threat to corporate policy existed?
- Board should show that they conduct a good faith and reasonable
investigation into the threat
- Must be a threat to proper corporate objective - preserving corpor
culture alone is not a proper objective. Shareholder Primacy Norm sa
you need to look out for shareholders and maximize their wealth.
2. PROPORTIONAL -
Unocal Test (Poison Pills) Were the defensive actions proportional to the threat?
a. Board can satisfy this prong by showing that its defensive actions w
not draconian (too restrictive) and were within the range of
reasonableness under the circumstances
i. Coercive
ii. Preclusive
