Corporate Governance

CFA Level I
#1

I don’t see how the finder’s fee hurts shareholders and/or creates a conflict of interests. The committee charged with recommending a compensation package for members of a firm’s board of directors has recommended that in addition to compensation of $1 0,000 for each board meeting attended, board members will be able to use one of the firm’s corporate jets up to twice each year and will receive a finder’s fee of 0.1% if they identify an acquisition target that the firm acquires while the member is still on the board. Are these policies consistent with good corporate governance practices? Use of Jet Finder’s fees A. Yes Yes B. No Yes C. Yes No D. No No

#2

B? Execs will just bring up any M&A/Deal/Project just to get the finder’s fee even if the project isnt exactly in the best interests of the firm.

#3

chad17 Wrote: ------------------------------------------------------- > B? > > Execs will just bring up any M&A/Deal/Project just > to get the finder’s fee even if the project isnt > exactly in the best interests of the firm. That was my initial thought. BUT, don’t management and/or shareholders have a say in M&As? My interpretation is a small incentive increases shareholder value (but obviously we should consider the finder fee cost vs cost of finding the same deal through another source).

#4

Is using company jet a good corporate governance practice? I thought that using company assets by board was not a good idea. If the use of jet had been to attend the board meeting, it would have been a different case (to encourage attendance), but this isn’t mentioned. So isnt D correct?

#5

D Board members can’t use company assets for personal use. Can’t receive additional compensation for recommending deals otherwise they might recommend bad deals just to receive additional compensation.

#6

The answer is D. Using jet would be waste of resources. Finders fee will create a conflict of interest as a lot of M&A do not increase shareholders’ value.

#7

lwebb01 Wrote: ------------------------------------------------------- > D > > Board members can’t use company assets for > personal use. > > Can’t receive additional compensation for > recommending deals otherwise they might recommend > bad deals just to receive additional compensation. Note finder’s fee is if the company accepts the deal

#8

D. This is what is known as “greenmail” I have to thank Northeastern for offering a Corp. Gov class!-Both practices are unacceptable.

#9

To quote Inigo Montoya, “I do not think that means wht you think it means”. Greenmail typically refers to payments maid to a potential acquirer to go away. Carl Icahn is a good example - he often takes a significant stake in a company and either threatens a takeover or starts demanding o0ther changes. The board buys his shares out at a premium to make him go away. The term might also be used in other ways, but I’m not aware of it.