Week 5

Corporation OwnershipFaisal AlSager

MGT 427 - Corporate Governance

Objectives

✤ To understand the properties of fractionated ownership

✤ To have a background about the effects of takeovers on corporate governance

Fractionated Ownership

✤ Ownership in the modern corporation differs from traditional notion of ownership:

✤ Numerical: number of owners

✤ Legal: legal title holder (trustee) and beneficial owners (beneficiaries)

✤ Functional: different responsibilities

✤ Personal: separate personality

✤ The concepts of governance discount and governance premium

Why do we need corporate governance?

✤ Because of the rise of many issues:

✤ takeovers

✤ junk bonds

✤ growth of institutional investors

Transferability?

✤ Shareholders should sell to each other

✤ This makes the market efficient

✤ In Takeovers: one group of transfers power to another

Two-Tier Tender Offer

✤ A buyer offers premium per share over the market price to everyone who tendered until 51 percent is received

✤ The last 49 percent will be left asking for more

✤ They may get notes for the tender not payable for 15 years

Corporate Democracy

✤ Shareholders are seen as voters, board of directors as elected representatives, proxy solicitation as election campaigns, corporate charters and bylaws as constitutions and amendments

✤ They legitimate the growth of power in the hands of private individuals

To Sell or Not to Sell

✤ The problem of “collective choice”: What should I do? What are others going to do?

✤ “Should I sell or not?”

References

✤ Corporate Governance (4th Edition): Monks, R. and Minow, N. 2004. (Publisher: Wiley-Blackwell)