Corporate Governance Shareholder Rights & Activism 2 — Questions and Answers
Question 1: What does 'cumulative voting' allow shareholders to do?
- Cast multiple votes per share proportional to dividends received
- Concentrate all votes on a single director candidate to elect minority representation (Correct answer)
- Vote on executive compensation on a cumulative multi-year basis
- Pool votes across multiple share classes to elect independent directors
Correct answer: Concentrate all votes on a single director candidate to elect minority representation
Cumulative voting lets shareholders multiply their shares by the number of directors being elected and concentrate all those votes on one or a few candidates.
Question 2: Which proxy advisory firm is most widely used by institutional investors in the US?
- Glass Lewis
- Institutional Shareholder Services (ISS) (Correct answer)
- Egan-Jones
- MSCI
Correct answer: Institutional Shareholder Services (ISS)
Institutional Shareholder Services (ISS) is the largest proxy advisory firm, providing voting recommendations to institutional shareholders globally.
Question 3: What is a 'consent solicitation' in corporate governance?
- A process allowing shareholders to act by written consent without a formal meeting (Correct answer)
- A request for board approval of a major acquisition
- An SEC investigation into proxy disclosures
- A vote conducted entirely by digital proxy
Correct answer: A process allowing shareholders to act by written consent without a formal meeting
Consent solicitations allow shareholders to act by written consent, enabling activist investors to make governance changes without waiting for the annual meeting.
Question 4: What is the purpose of a 'majority voting' standard for director elections?
- Requiring directors to receive more than 50% of votes cast to be elected (Correct answer)
- Requiring unanimous board approval for director nominations
- Mandating shareholder approval for all executive hires
- Requiring a supermajority of shareholders to remove a director
Correct answer: Requiring directors to receive more than 50% of votes cast to be elected
Under majority voting, a director must receive more than half of the votes cast to be elected, making it harder for unpopular directors to win uncontested races.
Question 5: What is a 'dual-class share structure'?
- A capital structure where certain shares carry more voting rights than others (Correct answer)
- A requirement to issue both common and preferred stock simultaneously
- A board structure with two separate classes of directors
- A system where voting rights are tied to dividend payments
Correct answer: A capital structure where certain shares carry more voting rights than others
Dual-class structures give certain shares (typically held by founders) multiple votes per share, allowing founders to retain control after an IPO.
Question 6: Under SEC Rule 14a-8, what is the minimum ownership threshold for a shareholder to submit a proposal for inclusion in the proxy?
- $2,000 worth of shares held for at least three years (Correct answer)
- 1% of outstanding shares held for at least one year
- $25,000 worth of shares held for at least one year
- 5% of outstanding shares held for at least six months
Correct answer: $2,000 worth of shares held for at least three years
SEC Rule 14a-8 requires shareholders to have continuously held at least $2,000 of shares for at least three years to submit a proposal.
Corporate Governance Shareholder Rights & Activism 2
What does 'cumulative voting' allow shareholders to do?