Chapter Ten
Corporate Management
Shareholders’ Rights and
Responsibilities
Shareholder: An owner of a corporation;
also called stockholder
Voting Rights
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Straight voting: voting in which each share of record
has one vote (also called statutory voting)
Cumulative voting: method of voting in election for
directors in which each share carries as many votes as
there are directors being elected
Class voting: voting by a class of stock as a separate
unit.
Contingent voting: voting rights that exist only upon the
occurrence of some event.
Disproportionate voting: voting rights held by a class
that is disproportionate to voting rights of other classes
Nonvoting stock: stock that carries no voting
Directors
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Directors are those who manage a corporation
Piercing the Veil
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Holding individual shareholders liable for corporate
obligations
Three most frequent examples of conduct that leads
to piercing of the veil:
 Commingling
of Assets
 Lack of Formalities
 Inadequate Capitalization
Suspected Causes of Corporate
Scandals
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Excessive compensation
Expensing of stock options
Board conflicts of interest
Lack of accounting oversight
Euphoria and hype
Lack of regulatory oversight
Greed
Provisions of the American Recovery
and Reinvestment Act of 2009
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Some of the provisions in the American Recovery and Reinvestment
Act of 2009 (the Obama administration’s ‘‘stimulus bill’’) include the
following measures, aimed at promoting the long-term health of
American companies:
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Pay caps on senior officers of companies that receive massive
government assistance.
Compensation provisions that restrict additional compensation to
executives to the form of stock that can only be redeemed by the
executives after federal bailout money is repaid.
Provisions allowing shareholders whose companies have received
federal bailout funds to provide advisory votes on executive
compensation, namely, ‘‘say on pay’’ votes.
Provisions allowing the government to review bonuses and compensation
paid to senior executives at companies who received federal bailout
money to determine whether such payments should be recaptured or
clawed back.
Titles of Officers
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President
Vice President
Secretary
Treasurer
Other officers
 Chief
executive officer (CEO)
 Chairman
 Chief financial officer
Key Features of Corporate
Management
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Corporations involve three groups of people:
shareholders, directors, and officers.
Although shareholders own the corporation, they do
not manage it, and their participation primarily takes
the form of voting to elect (or remove) directors and
extraordinary actions.
There are two types of shareholder meetings: annual
meetings and special meetings.
Slide 1 of 4
Key Features of Corporate
Management
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Shareholders often vote by proxy.
Shareholders may enter into agreements to pool their
votes or otherwise concentrate their voting power.
Shareholders may initiate action against the
corporation; direct actions allege direct harm to a
shareholder while derivative actions allege the
corporation has sustained harm and has failed to
enforce its own cause of action.
Slide 2 of 4
Key Features of Corporate
Management
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Although shareholders ordinarily have no liability for
corporate obligations, they may be liable if they
disregard the corporate entity by commingling assets,
failing to observe corporate formalities, or
undercapitalizing the corporation.
Directors manage the corporation and are elected by
shareholders; they meet in regular meetings or
special meetings.
Directors and shareholders may act without a formal
meeting if they unanimously consent in writing to take
action.
Slide 3 of 4
Key Features of Corporate
Management
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Directors have fiduciary duties to their corporation
but will usually be protected from liability under the
business judgment rule so long as there is some
reasonable business purpose for their actions, and
they did not act illegally or with gross negligence.
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