1. Week 5 Corporation Ownership Faisal AlSager MGT 427 - Corporate Governance

2. Objectives ✤ To understand the properties of fractionated ownership ✤ To have a background about the effects of takeovers on corporate governance

3. 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

4. Why do we need corporate governance? ✤ Because of the rise of many issues: ✤ takeovers ✤ junk bonds ✤ growth of institutional investors

5. Transferability? ✤ Shareholders should sell to each other ✤ This makes the market efficient ✤ In Takeovers: one group of transfers power to another

6. 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

7. 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

8. 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?”

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