Chapter 4 Ethics Part 2

Front 1

Personal Liability

Back 1

Individual directors can be held personally liable for losses that area caused by their failure to meet appropriate standards for effective reporting and monitoring.

Front 2

Poison Pill

Back 2

Intended to discourage or prevent a hostile takeover. Example: when a hostile suitor acquires more than a certain percentage of a company's stock, the poison pill provides that other shareholders be able to purchase shares, thus diluting the suitor's holdings and making the acquisition prohibitively expensive (difficult to swallow)

Front 3

Proxy Process

Back 3

method by which the shareholders elect boards of directors. Provides that power and authority, and control to flow downward from the shareholders (owners)

Front 4

Public Issues Committee

Back 4

A formal committee that responds to public or social issues. The committee should be sensitive to social issues, provide policy leadership, and monitor management's performance on these issues.

Front 5

Public Securities Litigation Reform Act of 1995

Back 5

A law intended to rein in excessive levels of private securities litigation.

Front 6

Risk Arbitrage

Back 6

The opportunistic buying and selling of companies that appear on the verge of being taken over by other firms.

Front 7

Role of the SEC

Back 7

To promote shareholder democracy in the United States. Is responsible for protecting investor interests

Front 8

Sarbanes-Oxley Act (SOX)

Back 8

Amends the securities laws to provide a better protection for investors in public companies by improving the financial reporting of companies. The issues of auditor independence is at the center of SOX

Front 9

Separation of Ownership from Control

Back 9

The survival of an organization in which decision agents do not bear a major share of the wealth effects of their decisions

Front 10

Shareholder Activism

Back 10

A new phenomenon. It uses an equity stake in a corporation to put public pressure on its management. The goals of activist shareholders range from financial (increase of shareholder value through changes in corporate policy, financing structure, cost cutting, etc.) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.)

Front 11

Shareholder Ballot Access

Back 11

Provides shareholders with the opportunity to propose nominees for the board of directors

Front 12

Shareholder Lawsuit

Back 12

Lawsuits filed against the board of directors or companies by the Shareholders

Front 13

Shareholder Resolutions

Back 13

Initiated by large institutional investors that own large blocks of stock or by other activist groups that have significant financial backing. Most have a number of signatures and majority vote to be put into affect. Usually is in reference to a social concern

Front 14

Shareholders

Back 14

The owners of a corporation

Front 15

Spring-loading

Back 15

Granting of a stock option at today's price but with the inside knowledge that something good is about to happen that will improve the stock's value.

Front 16

Stock Options

Back 16

an option giving the holder, usually an officer or employee, the right to buy stock of the issuing corporation at a specific price within a stated period.

Front 17

Tax Gross-up

Back 17

An employee has to pay taxes on the reimbursements received from the company for relocation expenses. The gross-up is the amount that the employer gives in addition to the actual expenses incurred to help cover these taxes.

Front 18

Transparency

Back 18

The full, accurate, and timely disclosure of information.