Answered: To what extent do corporate officers…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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To what extent do corporate officers control the activities
of a corporation?

Expert Solution

Step 1

A company is controlled by its shareholders and theoretically has a considerable degree of power over corporate activities as a group. However, in most situations, shareholders do not exert power of day-to-day activities or any of the most effective types of decisions. Shareholders may vote their shares at the stakeholders' meeting, which would be usually held once per year, but special meetings may be called at any time. Shareholder interests are regulated by the rules of state corporations and company by-laws.

Step 2

Shareholders' proposals
Any shareholder of a company has the right to recommend a plan of action to the corporation. Although the resolution is usually non-binding, it is a strong sign of shareholder opinion. In the case that the Board or the officers object to the course of action, they may opt not to enforce the plan, Also though it enjoys support from the majority of the shareholders. In the last decade, though, the boards have been more open to shareholder initiatives and are increasing the proportion that they have incorporated.
Disclosure and Transparency
In a small or large company, where the management is isolated from the owners, the question of accountability and disclosure is of utmost importance. In larger companies, boards also set up internal audit committees responsible for controlling and reporting on particular company elements. In recent years, these boards have been more prominent. Shareholders in certain high-profile listed corporations have continued to seek greater standards of transparency and oversight of audit committees, their membership and obligations. The consequence is more disclosure in the company's accounts and more information for shareholders.
Derived Actions
If the shareholder feels that the management of the company breaches its responsibilities to the company or its owners, the shareholder may attempt to make a formal proposal to the board of directors or to invoke a shareholder resolution to suspend or replace the directors. However, if he is in a minority position, he can also institute a derivative action against the directors on behalf of the company. This case alleges that the company has been negatively impacted by the violation of obligation by the directors and that any recovery goes straight to the corporation. It may be an efficient way to drive the company in a different direction and to chastise the directors or officers who have been in inappropriate.

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