4. Corporate governance: Methods for influencing management's decisions

Internal and external corporate governance provisions and activities can take many forms, including restricted voting rights.

QUESTION: Which of the following best describes this provision?

A. This charter provision automatically cancels the voting rights of any shareholder who agrees to sell their shares to an acquiring firm.

B. This provision automatically cancels the voting rights of any shareholder who owns more than a specified amount of a target company's stock.

C. This anti-takeover provision limits the voting rights of certain classes of shares, such as Class A versus Class B shares.

QUESTION:

If you were designing the composition and acceptable practices for the board of directors of a new corporation, which of the following practices would you suggest be implemented?Check all that apply.

A. The charter should require the inclusion of a poison pill provision.

B. Senior managers should borrow capital in such amounts that a firm's risk of bankruptcy increases dramatically, since this strategy causes managers to underinvest in risky, positive-NPV projects.

C. Management's compensation should consist of a cash salary and a bonus that is linked to the firm's performance and the value of its common shares.

D. The board of directors should consist of fewer than ten members.