acfi 701 corporate governance hw

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Quiz Governance

  1. You make investment decisions. After you have done your financial analysis and screening of company XYZ, but before investing in its corporate stock, you decide to examine issues around the firm’s governance. You discover that XYZ is completely compliant with the CalPers Test for Board Independence.

Would you now have any concerns about the board, or has that “box been checked”? If you have concerns, what would they be and how would you investigate them? All information necessary to answer this question is in the class PowerPoint. (2pts)

  1. Consider Alphabet (parent of Google). If “search”, the core Google business, is the high ROA/ROE business, how does or does not Alphabet’s overall corporate strategy of diversification compare to the R P Sherer story discussed in class? You’ll need a sense of Google’s product strategy and to think of how it is or is not similar to the R P Sherer product history. (2 pts)
  1. Find and read Alphabet’s corporate governance guidelines. Do you think they are appropriate and comprehensive? Why or why not? (2 pts)
  1. Alphabet has three classes of stock, A shares: GOOGL, B shares (which are owned by insiders and do not trade on the public markets), and C shares: GOOG. Class A shares get 1 vote, B shares get 10 votes and C shares get no voting rights. (C shares are a result of a stock split of A shares. Class A shareholders – at the time of the split – were given a C share, but it came with no voting rights.) There are ~300 million A shares outstanding, ~50 million B shares, and ~350 million C shares. For what it’s worth, the company continues to issue C shares to finance acquisitions and reward employees.

(a) Look at the prices of A and C shares. Is there a premium to hold A shares vs. C shares? What is the value, in dollars, of the voting power that comes with A shares? This answer requires a limited amount of investigation. (2 pts)

(b) What does the multi-class share arrangement say about shareholder voting power? How does this impact your view of the power of management, the board, and shareholders? Sufficient insights to answer this are found in the readings on Canvas. (2 pts)