Corporate Governance Shareholder Rights & Activism 1 — Questions and Answers
Question 1: What is 'say on pay' as established by the Dodd-Frank Act?
- A mandatory shareholder vote to approve executive compensation packages (Correct answer)
- A rule allowing employees to set CEO salaries
- A disclosure requirement for all employee wages
- An SEC rule capping executive bonuses
Correct answer: A mandatory shareholder vote to approve executive compensation packages
Say on pay gives shareholders an advisory (non-binding) vote on the executive compensation packages disclosed in the proxy statement.
Question 2: What is proxy access in corporate governance?
- Management's right to cast votes on behalf of retail shareholders
- A shareholder's right to include director nominees in the company's proxy materials (Correct answer)
- The SEC's authority to override shareholder votes
- An institutional investor's right to attend all board meetings
Correct answer: A shareholder's right to include director nominees in the company's proxy materials
Proxy access allows qualifying shareholders to nominate director candidates and have them included in the company's proxy statement at the company's expense.
Question 3: Which type of shareholder resolution is binding on the board if approved?
- Precatory resolution
- Advisory resolution
- Mandatory resolution
- Bylaw amendment (Correct answer)
Correct answer: Bylaw amendment
Shareholder-approved bylaw amendments are legally binding on the corporation and must be implemented by the board, unlike precatory resolutions which are advisory.
Question 4: What is an 'activist investor' in corporate governance?
- An investor who files quarterly 13-F reports with the SEC
- A shareholder who acquires a significant stake and advocates for governance or strategic changes (Correct answer)
- A pension fund that votes against all management proposals
- An institutional investor that supports all ESG initiatives
Correct answer: A shareholder who acquires a significant stake and advocates for governance or strategic changes
Activist investors acquire meaningful ownership stakes and publicly or privately push for changes in governance, strategy, or capital allocation.
Question 5: Under SEC Rule 13D, a shareholder must file a Schedule 13D within how many days of acquiring beneficial ownership exceeding 5%?
- 5 calendar days
- 10 calendar days (Correct answer)
- 20 business days
- 30 calendar days
Correct answer: 10 calendar days
Under SEC Rule 13D, shareholders who cross the 5% beneficial ownership threshold must file a Schedule 13D within 10 calendar days.
Question 6: What is a 'no-action letter' in the context of shareholder proposals?
- A letter from the SEC confirming it will not take enforcement action if a company omits a shareholder proposal from its proxy (Correct answer)
- A letter from the board rejecting an activist investor's demands
- A notice from proxy advisors recommending abstention
- A consent solicitation waiving a shareholder vote
Correct answer: A letter from the SEC confirming it will not take enforcement action if a company omits a shareholder proposal from its proxy
Companies can request a no-action letter from the SEC Staff seeking confirmation that excluding a shareholder proposal from the proxy would not violate Rule 14a-8.
Corporate Governance Shareholder Rights & Activism 1
What is 'say on pay' as established by the Dodd-Frank Act?