Analysis Of Shareholder Binding Vote Rule

To the extent of prevention of corporate failure, I argue that three ASX principles and recommendations could halt the demise of Dick Smith. Firstly, the 2nd principle which is “Structure the board to add value” by structuring the board with a majority of independent directors would prevent CEO dominance because some suggest that independent outside directors can reduce the influence of dominant individuals (ASX, 2014, p. 17). In accordance with Gallagher and Bennie (2015, p. 20), the independent directors are likely to focus on the company’s objectives and not to make decision relying on others. Furthermore, an addressing of independent directors would reduce the reliance on management, and create the effectiveness on monitoring (Dechow et al. 1996 cited in Christensen, Kent, and Stewart (2010)), as well as capability to lessen the conflict of interest between managers and shareholders (Hardjo & Alireza, 2012, p. 4). Thus, DSE’s board would be more active to monitor the CEO’s performances because independent directors pay attentions to the interest of company (Gallagher & Bennie, 2015, p. 20) and shareholders (Hardjo & Alireza, 2012, p. 4)

I agree with the advisory votes provision of the Dodd-Frank Act, because it serves as a valuable means of gauging the pulse of the collective shareholders’ interests. Since executive compensation is an important tool intended to align the interests of both the corporation and the shareholders, a system of assessing the shareholders’ interests is necessary – without it, the shareholders’ interests are in many ways left to speculation. Given the varied geographical locations of the shareholders and the regulations governing their ability to interact with one another, the advisory votes mandate affords the shareholders a collective voice and provides the board of directors with valuable feedback.

The statement explains the company’s compensation philosophy and what the compensation program centers around. According the company’s philosophy, the compensation for named executive officers is made up of three components; salary, stock options, and performance-based bonuses. The fourth proposal to vote on is proposed by a stockholder. Southwest Regional Council of Carpenters Pension fund who is the beneficial owners of less than 100 shares, proposes for a director election majority vote standard. The company lists reasons as to why that is not a good fit for the board and recommends shareholders to vote against the proposal. The proxy statement lists three other stockholder proposals to vote on, if they are presented at the upcoming annual meeting. The board recommends that the shareholders vote against all the three proposals and gives explanations for what is best for the

The second compensation package was not well designed nor did it help define what the corporate strategy would be. For a second time the compensation package focused on maximizing shareholder’s wealth and didn’t take into consideration the stakeholder’s position at all. Dunlap’s package was deeply weighted in company options ($3.75M). In fact it was weighted heavier than before. The stock grants were

To explore the impact activists are having on executive compensation programs, we reviewed proxy statements the year after an activist investor was elected to the Board to analyze changes to compensation program design that was potentially driven by the activist?s input. Among the companies that added activists to their Board since 2013, the most common changes were to incentive plan design:

Many years ago stock options were rarely used as incidental benefits for top executives. Nowadays, compensating employee whit stock options has become an increasingly common practice. Before the year 1996, only the intrinsic value method was used to record these transactions. This method distorted the issuer’s reported financial condition and results of operations, which could lead to inappropriate decisions taken by investors. Followed by the increased use of employee stock options and the surrounding controversy of its recording method, on the year 1996 the fair value method was introduced to be used as an alternative to the intrinsic method and on 2004 the intrinsic value method was completely discontinued. The Fair value method

As of October 2013 the ‘Enterprise and Regulatory Reform Bill’ was amended by parliament under the proposal of Vince Cable , the new powers gave shareholders a binding vote on executive compensation , this meant that any changes in executive pay required a 50% shareholders approval. Before this shareholders votes on such matters were advisory , this meant even if there was a vote against executive pay they could still be increased regardless. This is significant as it shows a change in peoples perception on the role of shareholders within a company and leads to the point if this is correct.

This newspaper article brings out a good practical example of the law of disqualification of directors in the United Kingdom. Craig Whyte has been disqualified from being a director for 15 years; the maximum number of years a director can be disqualified, because he failed to avoid conflict of interest. The article sets out details of his offenses which include failure to consult other directors on business decisions, making the club enter into a deal which made it fund its own shares, avoid tax obligations and lastly failed to disclose that he was already banned from being a director for 7 years in the year 2000. However, the exact sections of the law under which he is convicted are not mentioned.

We believe the new incentive system was needed and reasonable because the accounting-based incentive system, where EPS was a measure of performance, raised valid concerns. The first being an agency problem. This existed within the old system as manager’s interests were not aligned with those of stockholders. EPS had improved steadily at a rate of 9% annually; however, the share price had increased only slightly in comparison. Therefore, the company’s stockholders had hardly benefited. The second issue was the use of subjectivity in granting bonus awards. These awards were given out even when their entity had not performed well. Managers began “politicking”, meaning they would try and convince their evaluators they performed better than the results had shown.

In 2010, president Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, which mandated that all public firms in the US hold advisory votes on Say On Pay(SOP) at first annual shareholders meetings held in 2011. This act did not only made SOP a compulsory item also put the hot-button trigger of economic reform. SOP is a non-binding proposal included in a company’s proxy materials that calls for an annual shareholder advisory vote on a company’s executive compensation program (Krus, Morgan, & Ginsberg, 2010).

The compensation has changed drastically and will continue to change in correlation to the cultural change in the market place. Prior research finds that financial analysts often issue biased earnings forecasts to please firm management (Ke & Yu, 2006). Companies started looking hard at who is part of the compensation pool and what type of compensation will be the best to facilitate the retention of the best. The problem companies face is how to keep the best in their mist but at the same time not fall under the same issues that Sarbanes-Oxley try to fight off. The Sarbanes-Oxley challenge has prompted some public companies to all but do away with stock

Burberry has been faced with a huge salary and investors against the company's remuneration report after voting 52.7%, to the new value of Christopher Bailey, CEO of nearly 15 million pounds last year, a one-time stock awards. Remuneration report vote is not binding, but investors just over 16%, also voted against the company's remuneration policy in the company's annual shareholders' meeting in central London. Talks investor groups, including PIRC and the Investment Management Association (IMA) chorus report their concerns about the British fashion house's remuneration policy.

From the point of view of ‘absentee shareholders’ one of the important disadvantages is their vulnerability to exploitation, injury by those in the management or proper operational control.

Regulation’s regarding rule making that supports better stockholder governance grows with improved attention on better stockholder rights for voting. The resent past observed new requirements that prohibit ‘street-name’ nominees from being eligible to enroll in the corporation's Dividend Reinvestment and Cash Investment Plan. If an investor wants to participate in such plans they must first become the shareholder of record. As of June 2003, mutual funds are mandated to publicly reveal their voting rules and registers (2004). The SEC likewise reviews its proposals constantly in order to afford noteworthy stockholders the right to use corporation proxy notes to appoint a director whereas in the past stockholders formerly obtained stockholder consent for a proposal that was not brought into action by the corporation.

The basic principal relating to the administration of the affairs of a company is that “the will of the majority is supreme”. The general rule is that the decisions of the majority shareholders in a company bind the minority. 1 In a world that recognizes ‘simple majority rules’, minority shareholders of companies are by default vulnerable to oppression,