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Board Of Directors

Board of directors

A board of directors, also called board of trustees, board of governors, board of managers, or board of curators, is a group of individuals who govern the affairs of a corporation. Board members in most legal jurisdictions have specific fiduciary duties whereby they must act for the benefit of the corporation. A board is either self-perpetuating or elected by the members of the corporation. In the case of an incorporated joint-stock company, the board is almost always elected by the members (shareholders) of the company. Individuals can be members of the board of directors of multiple corporations at one time. The main duties of the board are to choose the chief executive officer and other officers to run the day-to-day operations of the corporation and to exercise high-level oversight. Typically corporate boards are involved in issues of ownership, strategy, financing, and mergers and acquisitions. The actual power held by the board of directors varies widely from corporation to corporation. In some, the board of directors form a powerful body to which senior management is subservient. Other times, the board is a formality which merely rubber stamps decisions of the CEO and senior management. The board is run by the chairman of the board. Often the CEO serves concurrently as the chairman. Some hold that this is inappropriate in a publicly-traded joint-stock company, for, they contend, it gives management too much power over the board, which is supposed to provide oversight of management. Larger boards are partitioned into several committees with specific tasks. For example, a compensation committee is commonly formed to make decisions regarding salary and stock allocations for top management (and sometimes for the entire employee pool). Others might include an audit committee, a legal affairs committee, and a mergers and acquisitions committee. A board will often consist of executive and non-executive directors. Executive directors play an active part in running the company, while non-executive directors are only there to offer advice. It is widely considered good management practice to create a board of directors with persons with expertise from diverse backgrounds and to have outside directors or non-executive directors who can provide a perspective on a situation which is independent from management. For example it is extremely common for a good percentage of the boards of most large corporations to be from academia, especially business schools. Sometimes relatives of powerful politicians are selected to serve on boards, such as when Hillary Clinton served on the board at Arkansas-based Wal-Mart while her husband, Bill, was Governor of Arkansas.

Failures

While the primary responsibility of boards is to ensure that the corporation's management is performing its job correctly, actually achieving this in practice can be difficult. In a number of "corporate scandals" of the 1990s, one notable feature revealed in subsequent investigations is that boards were not aware of the activities of the managers that they hired, and the true financial state of the corporation. A number of factors may be involved in this tendency:
- Most boards largely rely on management to report information to them, thus allowing management to place the desired 'spin' on information, or even conceal or lie about the true state of a company.
- Boards of directors are part-time bodies, whose members meet only occasionally and may not know each other particularly well. This unfamiliarity can make it difficult for board members to question management.
- CEOs tend to be rather forceful personalities. In some cases, CEOs are accused of exercising too much influence over the company's board.
- Directors may not have the time or the skills required to understand the details of corporate business, allowing management to obscure problems.
- The same directors who appointed the present CEO oversee their performance. This makes it difficult for some directors to dispassionately evaluate the CEO's performance.
- Directors often feel that a judgement of a manager, particularly one who has performed well in the past, should be respected. This can be quite legitimate, but poses problems if the manager's judgement is indeed flawed.
- All of the above may contribute to a culture of "not rocking the boat" at board meetings. Because of this, the role of boards in corporate governance, and how to improve their oversight capability, has been examined carefully in recent years, and new legislation in a number of jurisdictions, and an increased focus on the topic by boards themselves, has seen changes implemented to try and improve their performance.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act (SOX) has introduced new standards of accountability on the board of directors. Members now risk large fines and prison sentences in the case of accounting crimes. Internal controls are now the direct responsibility of directors. This means that the vast majority of public companies now have hired internal auditors to ensure that the company adheres to the highest standards of internal controls. Additionally, these internal auditors are required by law to report directly to the audit board. This group consists of board of directors members where more than half of the members are outside the company and one of those members outside the company is an accounting expert.

Corporation

A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as "moral persons;" they may also go by the name "AS" (anonymous society) or something similar, depending on language (see below). In colloquial usage, "corporation" usually refers to a commercial entity set up in accordance with a governmental framework. Churches (mainly in US, but not so much in other countries, where Churches have a different status), interest groups (both can form as not-for-profit corporations or can exist as voluntary associations), cities and townships (often chartered as public corporations), among others, may also have historically lengthy corporate identities.

Legal status

The law typically views a corporation as a fictional person, a legal person, or a moral person (as opposed to a natural person); United States law recognises this as corporate personhood. Under such a doctrine (obviously a legal fiction), a corporation enjoys many of the rights and obligations of individual citizens, such as the ability to own property, sign binding contracts, pay taxes, have certain constitutional rights, and otherwise participate in society. (Note that corporations do not possess all the rights appertaining to individuals: in most jurisdictions, for example, a corporation cannot vote.) In common law countries, the classic statement of this principle is found in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915], where Lord Haldane said: :"My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation." The most salient features of incorporation include: #Limited Liability. Unlike in a partnership, stockholders of a corporation hold no liability for the corporation's debts and obligations: see leading case in common law, Salomon v. Salomon & Co.. As a result their "limited" potential losses cannot exceed the amount which they paid for the stock. Not only does this allow corporations to engage in risky enterprises, but limited liability also forms the basis for trading in corporate stock. Without the limitation on the amount that an investor can lose, the time and effort required to determine whether the stock could wipe the investor out would render the stock market very illiquid (as one can observe in the very illiquid market for partnership interests). A lender can, however, require a personal guarantee on a loan to a corporation, thus introducing personal liability. #Perpetual Lifetime. The assets and structure of the corporation exist beyond the lifetime of any of its shareholders, officers or directors. This allows for stability of capital, which thus becomes available for investment in projects of a larger size and over a longer term than if the corporate assets remained subject to dissolution and distribution. This feature also had great importance in the medieval period, when land donated to the Church (a corporation) would not generate the feudal fees that a lord could claim upon a landholder's death. In this regard, see Statute of Mortmain. #Profit Maximization. In Anglo-American jurisdictions, business corporations are generally required to serve the best interests of the shareholders, a rule that courts have generally interpreted to mean the maximization of share value, and thus profits. Corporate directors are prohibited by corporate law from sacrificing profits to serve some other interest. Originally this included such areas as environmental protection, or the improvement of the welfare of the community. For example, when Henry Ford cut dividends and reduced car prices in order to increase the number of people who could afford to buy his cars, his brother-in-law, Mr. Dodge, a shareholder, sued him for having harmed profitability: Dodge v. Ford Motor Company, 170 N.W 688 (Mich.S.C. 1919). Mr. Dodge succeeded and went on to form his own car company with the proceeds of the suit. However, modern law by statutes and court decisions holds that a corporation does have an implied authority to make charitable contributions to society.

Ownership and control

Humans and other legal entities (such as trusts and other corporations) can hold shares. When no stockholders exist, a corporation may exist as a "non-stock corporation", a "membership corporation", or similar — this second type of corporation counts as a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not vouchsafed to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals. Typically, a board of directors governs a corporation on the stockholders' behalf. The board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the CEO, president, treasurer, and other titled officers are chosen by the board to manage the affairs of the corporation. Corporations can also be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a control interest analogous to that of a shareholder, including one or more seats on the board of directors. Creditors are not said to "own" the corporation as shareholders do, but can outweigh the shareholders in practice, especially if the corporation is experiencing financial difficulties and cannot survive without credit. Shareholders in a corporation are said to have a "residual interest." Should the corporation end its existence, the shareholders are the last to receive its assets, following creditors and others with interests in the corporation. This can make investment in a corporation risky; however, the risk is outweighed by the corporation's limited liability, which ensures that the shareholder will only be liable for the amount they invested.

Formation

Historically, corporations were created by special charter of state governments. Today, corporations are usually registered with a state, and become regulated by the laws enacted by that state. Registration is the main prerequisite to the corporation's assumption of limited liability. As part of this registration, it must designate the principal address of the corporation (where to contact it in the event of legal process), and often an agent or other legal representative of the corporation. Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions. The law of the state in which a corporation operates will regulate most of its internal activities, as well as its finances. If a corporation operates outside its home state, it is often required to register with other governments as a foreign corporation, and is almost always subject to laws of its host state pertaining to employment, crimes, contracts, civil actions, and the like.

Naming

Corporations generally have a distinct name. Historically, corporations were named after their membership: for instance, "The President and Fellows of Harvard College." Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership. In Canada, this possibility is taken to its logical extreme: many smaller Canadian corporations have no names at all, merely numbers (e.g., "Ontario 123-4567 Limited"). In most countries, corporate names include the term "Corporation", or an abbreviation that denotes the corporate status of the entity. See Types of corporations for a full list. These terms, known as words of limitation, obviously vary by jurisdiction and language. Their use puts all persons on constructive notice that they have to deal with an entity whose liability remains limited, in the sense that it does not reach back to the persons who constitute the entity; one can only collect from whatever assets the entity still controls at the time one obtains a judgment against it. Certain jurisdictions do not allow the use of the word "company" alone to denote corporate status, since the word "company" may refer to a partnership or to a sole proprietorship, or even, archaically, to a group of not necessarily related people (for example, those staying in a tavern).

Unresolved issues

The nature of the corporation continues to evolve, both through existing corporations pushing new ideas and structures, and governments regulating them in response to new situations. A current question is that of diffused responsibility: for example, if the corporation is found liable for a death, then how should the blame and punishment for this be allocated across the shareholders, directors, management and staff of the corporation? The present law diffuses this responsibility. One may think that the owners of the business - the shareholders - should be ultimately responsible for such circumstances, but the modern corporation may have many millions of small-scale shareholders who know nothing about its business activities. Worse still, traders - especially hedge funds - may rapidly turn over their partial ownership of a corporation many times a day. One suggestion is that the directors should be passed the burden of moral and legal responsibility as part of their job of representing the shareholders. This is currently an active area of debate.

Origins

Etymology

The word "corporation" derives from the Latin corpus (body), representing a "body of people"; that is, a group of people authorized to act as an individual (Oxford English Dictionary). The word universitas also used to refer to a group of people but now refers specifically to a group of scholars (see University). In the United Kingdom and Republic of Ireland, the term corporation was also used for the local government body in charge of a borough. This style was replaced in most cases with the term council in the United Kingdom in 1973, and in the Republic of Ireland in 2001. The sole exception is the Corporation of London which retains the title.

Pre-modern corporations

Corporations have been present in some forms as far back as Ancient Rome. Although devoid of some of the core characteristics by which corporations are known today, they nonetheless were enterprises, sanctioned by the state, with a form of shareholders who invested money for a specific purpose. With the collapse of the Roman Empire, the rise of Christianity and the influx of Germanic tribes, the Roman conception of the corporation merged with other views. Germanic tribes, for example, maintained that a group entity in and of itself could have a separate identity from that of its members. These influences came together in the body of canon law built around the conception of the church as corporate structure in the Middle Ages. Different theories of the church as corporate body were favored by different individuals but all agreed on one key component: that the church was more than just its members and could maintain an existence perpetually, regardless of the death of any individual member. This, together with discussion as to the relationship between the head of a corporation (such as the Pope) and its members, contributed not only to the development of modern corporations and corporate theory but also set the stage for many ideas that would come to fruition during the enlightenment. Kenneth Pomeranz, an economic historian, argues that the need to perform pseudo-governmental operations (such as the waging of war) accounts for the development of this economic structure in Europe but not in China or in the Middle East. Older corporate entities gained incorporation as "the person/people of xx". This reflected the people who made up the "body" and also emphasised their legal identity. The law classifies a corporation either as a corporation sole (one person) or as a corporation aggregate (any other number). Examples include (the link gives the legal name; the nickname appears in brackets with the nature of the corporation)
- The Governor and Company of the Bank of England (Bank of England — corporation aggregate)
- The Chancellor Masters and Scholars of the University of Cambridge (Cambridge University — corporation aggregate)
- The President and Fellows of Harvard College (Harvard College — corporation aggregate)
- Her Majesty the Queen in Right of New Zealand (New Zealand Government — corporation sole)
- The Archbishop of Canterbury (corporation sole)
- The Dean, Chapter and Students of the Cathedral Church of Christ in Oxford of the Foundation of King Henry VIII (Christ Church, Oxford — corporation aggregate) Using strict definitions, universities and colleges count as corporations since they merely comprise groups of people.

Development of modern commercial corporations

college, dating from 7 November 1623, for the amount of 2,400 florins]] Early corporations of the commercial sort were formed under frameworks set up by governments of states to undertake tasks which appeared too risky or too expensive for individuals or governments to embark upon. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, reportedly obtained a charter from King Magnus Eriksson in 1347. Many European nations chartered corporations to lead colonial ventures, such as the Dutch East India Company, and these corporations came to play a large part in the history of corporate colonialism. In the United States, government chartering began to fall out of vogue in the mid-1800s. Corporate law at the time was very restrictive and very closely regulated by the states. Forming a corporation usually required an act of legislature. Investors generally had to be given an equal say in corporate governance, and the corporation's activities were tightly restricted to its express purposes. Many private firms in the 19th century avoided the corporate model for these reasons (Andrew Carnegie formed his steel operation as a limited partnership, and John D. Rockefeller set up Standard Oil as a trust). Eventually, state governments began to realize the economic value of providing more permissive corporate laws. New Jersey was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. Delaware followed, and soon became known as the most corporation-friendly state in the country; even today, most major public corporations are set up under Delaware law. The 20th century saw a proliferation of enabling law across the world, which helped to drive economic booms in many countries before and after World War I. After World War II, and especially starting in the 1980s, many countries with large state-owned corporations moved toward privatization, the selling of publicly-owned services and enterprises to private, normally corporate, ownership. Deregulation - reducing the public-interest regulation of corporate activity - often accompanied privatization as part of an ideologically laissez-faire policy. Another major postwar shift was toward conglomerates, in which large corporations purchased smaller corporations to expand their industrial base. Japanese firms developed a horizontal conglomeration model, the keiretsu, which was later duplicated in other countries as well. While corporate efficiency (and profitability) skyrocketed, small shareholder control was diminished and directors of corporations assumed greater control over business, contributing in part to the hostile takeover movement of the 1980s and the accounting scandals that brought down Enron and WorldCom following the turn of the century. More recent corporate developments include downsizing, contracting-out or out-sourcing, off-shoring and scoping down activities to core business, as information technology, global trade regimes, and cheap fossil fuels enable corporations to reduce labour costs, transportation costs and transaction costs, and thereby maximize profits. For a history of corporations that is “pro-corporate”, see John Micklethwait and Adrian Wooldridge, The Company: a Short History of a Revolutionary Idea (New York: Modern Library, 2003). For a history of corporations that is “critical”, see Joel Bakan, The Corporation. The pathological pursuit of profit and power (Toronto: Viking Canada, 2004).

Types of corporations

For-profit and non-profit

Main article: non-profit organization In modern economic systems, the corporate conventions of governance commonly appear in a wide variety of business and non-profit activities. Though the laws governing these creatures of statute often differ, the courts often interpret provisions of the law that apply to profit-making enterprises in the same manner (or in a similar manner) when applying principles to non-profit organizations — as the underlying structures of these two types of entity often resemble each other.

Closely-held and public

The institution most often referenced when the word "corporation" is used, as in the title of the movie The Corporation, is a public or publicly traded corporation, the shares of which are traded on a public market (e.g., the New York Stock Exchange or Nasdaq) designed specifically for the buying and selling of shares of stock of corporations by and to the general public. Most of the largest businesses in the world are publicly traded corporations. However, the majority of corporations are said to be closely held, privately held or close corporations, meaning that no ready market exists for the trading of ownership interests. Many such corporations are owned and managed by a small group of businesspeople or companies, although the size of such a corporation can be as vast as the largest public corporations. The affairs of publicly traded and closely held corporations are similar in many respects. The main difference in most countries is that publicly traded corporations have an additional burden of complying with securities laws, which (especially in the U.S.) grant further rights to stockholders to protect them from fraud or unfairness in connection with the sale and purchase of stock. The publicly traded corporation must usually follow much more stringent disclosure requirements, and sometimes additional procedural obligations in connection with major transactions (e.g. mergers) or events (e.g. elections of directors).

Multinational corporations

Following on the success of the corporate model at a national level, many corporations have become transnational or multinational corporations: growing beyond national boundaries to attain sometimes remarkable positions of power and influence in the process of globalising. The typical "transnational" or "multinational" may fit into a web of overlapping ownerships and directorships, with multiple branches and lines in different regions, many such sub-groupings comprising corporations in their own right. Growth by expansion may favour national or regional branches; growth by acquisition or merger can result in a plethora of groupings scattered around and/or spanning the globe, with structures and names which do not always make clear the structures of ownership and interaction. In the spread of corporations across multiple continents, the importance of corporate culture has grown as a unifying factor and a counterweight to local national sensibilities and cultural awareness.

National features

There are various types of corporations throughout the world.

United States

In the United States, several corporate forms exist; the name of "corporation" generally applies to a business, run for profit, to which one of the states of the United States has granted a corporate charter. American corporations often charter as a Delaware Corporation in Delaware, which charges no tax on activities outside the state and has courts experienced in commercial law. Corporations set up for privacy or asset protection often charter in Nevada, which allows setting them up with no record of who owns them. The federal government of the United States usually does not grant corporate charters, except for some special instances such as Amtrak and Freddie Mac and banks and credit unions which opt not to receive charters from their home states. Historically, most U.S. states issued charters for fixed lengths of time (for example, a manufacturing corporation might receive a charter good for 40 years), and only by an act of the legislature. In theory, a limited charter forced corporations to remain accountable to government (that is, to the community) for the special privileges granted to them. Investors protested that it actually led to unhealthy amounts of political payoffs and graft. Most states now charter unlimited-term corporations for a small fee, and possibly for a yearly tax. Legally, corporations are accorded some corporate personhood, i.e. Constitutional rights similar to those held by persons. The U.S. Supreme Court ruled on this question in the 1886 case Santa Clara County v. Southern Pacific Railroad. Many countries around the world now have corporate laws based upon state laws from the United States. For example, corporations in Japan are organized under a variant of the corporate law of Illinois, and corporations in Saudi Arabia follow corporate laws copied from New York. The oldest corporation in the United States, and the oldest in North America, is the President and Fellows of Harvard College (also known as the Harvard Corporation), chartered in 1650.

Canada

In Canada both the federal government and the provinces have corporate statutes, and thus a corporation may have a provincial or a federal charter. Many older corporations in Canada stem from Acts of Parliament passed before the introduction of general corporation law. The oldest corporation in Canada, and second oldest in North America, is the Hudson's Bay Company, chartered in 1670. Federally recognized corporations are regulated by the Canada Business Corporations Act

German-speaking countries

Germany, Austria and Switzerland recognize two forms of corporation: the Aktiengesellschaft (AG), analogous to public corporations in the English-speaking world, and the Gesellschaft mit beschränkter Haftung (GmbH), similar to (and an inspiration for) the modern limited liability company.

Corporate taxation

In many countries, including the United States and United Kingdom, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate. Such a system is sometimes referred to as "double taxation," because any profits distributed to shareholders will eventually be taxed twice. One solution to this (as in the case of UK tax system) is for the recipient of the dividend to be entitled to a tax credit which addresses the fact that the profits represented by the dividend have already been taxed. The company profit being passed on is therefore effectively only taxed at the rate of tax paid by the eventual recipient of the dividend. Where a double taxation system exists, the additional tax burden is often an incentive for smaller businesses to organize in the form of a partnership, limited liability company, or other type of entity that is not separately taxed. Such entities are often called "pass-through entities." In the United States, business corporations owe taxes according to two basic categories. A "C corporation" must pay corporate taxes, while "S corporations" pay no corporate taxes but instead pass profits and losses directly to their owners (the stockholders) who declare such profits and losses as part of their personal taxable income. An S corporation must generally have no more than 100 stockholders, who must be natural persons (not other corporations or entities), must reside in the United States, and must consent to the classification; moreover, the S corporation can only issue a single class of stock. As a result of these restrictions, all publicly traded corporations and many larger close corporations have C corporation status. Certain kinds of investment companies are also exempt from corporate income taxes, provided they distribute almost all of their income to shareholders in the form of dividends or capital gains distributions.

Other commercial entities

Several other forms of business entity exist under the laws of various countries. These include:
- Partnership
- Limited partnership (LP)
- Limited liability partnership (LLP)
- Limited liability company (LLC)
- Sole proprietorship

Quotes

- Corporations have neither bodies to be punished, nor souls to be condemned, they therefore do as they like. —Lord Thurlow
- An ingenious device for obtaining individual profit without individual responsibility. —"Corporation" as defined by Ambrose Bierce in The Devil's Dictionary
- The opinion of the Court, after mature deliberation, is that this [a corporate charter] is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States. —Chief Justice John Marshall, Dartmouth College v. Woodward (1819).

External links

- [http://www.econlib.org/library/Enc/Corporations.html Corporations] — article by Robert Hessen
- [http://www.company-formation-glossary.co.uk Company Formation Glossary]
- [http://www.ukcorporator.co.uk/guidance/G59.php Standard UK Company Formation Configurations]
- [http://www.gangsofamerica.com/ Gangs of America by Ted Nace] — A free book on historical and legal bases of Corporations Category:Business law Category:Corporations law Category:Legal entities Category:Types of companies ko:주식회사 ja:株式会社

Joint stock company

A joint stock company is a special kind of partnership. Such a company has a common capital called the stock. The partners in the company are called shareholders, since they receive shares for their contributions to the stock. Shares express ownership interest and decision making power in the company, and shareholders are free to transfer their shares to someone else without needing consent of the other shareholders. While a normal partnership also has ownership interest, the difference is that in a partnership, interest can only be transferred to someone else if all the partners agree to it. A share also represents how much of the profit each shareholder receives. Since a joint stock company is not necessarily a corporation, a share also represents how much of the loss each shareholder is liable for. As an example, a shareholder holding a 20% share in the company would receive 20% of the company's profits but would also be liable for 20% of the company's debt if it could not be satisfied with company funds. A for-profit corporation is a joint stock company, except that the shareholders have no liability towards the corporation's debts. The joint stock company was a financing model that allowed companies to raise large amounts of capital while lowering risk by diversifying contributed capital among multiple ventures. Europeans, initially the British, trading with the Near East for goods, pepper and calico for example enjoyed spreading the risk of trade over multiple sea voyages. The joint stock company became a more viable financial structure than previous guilds or state regulated companies. Transferrable shares often earned positive returns on equity, which is evidenced by investment in companies like the British East India Company, which used the financing model to manage trade in India. Joint stock companies paid out divisions, dividends, to its shareholders by diviing up the profits of the voyage in the proportion of shares held. Divisions were usually cash, but when working capital was low and it was detrimental to the survival of the company, divisions were either postponed or paid out in remaining cargo which could be sold by shareholders for profit in the market. It also made it affordable to support early colonists in America. Jamestown, for instance, was financed by the Virginia Company. It is because of Joint stock companies that the colonization and settlement of America were made possible.

Similar business entities

- In Italy, a joint stock company is called a società per azioni (S.p.A.)
- In Germany, Austria, and Switzerland, a similar entity is the Aktiengesellschaft (AG)
- In France, Belgium, and Luxembourg, a similar entity is the societé anonyme (S.A.)
- In the Netherlands, a similar entity is the naamloze vennootschap (N.V.)
- In Estonia, a similar entity is the aktsiaselts (AS)
- In the Spanish language, such a company is referred to as a sociedad anónima (S.A.)
- In Romania, such an entity is known as a societate anonimă (SA)
- In Poland, such an entity is known as a spółka akcyjna (SA)
- In Japan, such an entity is known as kabushiki gaisha (KK)
- In Lithuania, such an entity is known as an uždaroji akcinė bendrovė (UAB) Category:Legal entities Category:Types of companies

List of people on multiple governing boards

The following is a list of people on multiple governing boards. This scope includes the board of trustees, the board of governors, and the board of directors of companies, corporations, universities, colleges, and other organizations or institutions.

7 boards

- Sam Nunn - Center for Strategic and International Studies, ChevronTexaco, Coca-Cola Company, Dell Computer, General Electric, Internet Security Systems, and Scientific-Atlanta

5 boards

- Peter Godsoe - Barrick Gold Corporation, Fairmont Hotels and Resorts, Onex Corporation, Rogers Communications, and Sobeys

4 boards

- Don Mazankowski - ATCO Ltd., Power Corporation of Canada, Shaw Communications, and Weyerhaeuser

3 boards

- Charlene Barshefsky - American Express, Estée Lauder Companies Inc., and Intel
- Derek Burney - CanWest Global Communications, Quebecor World Inc., and Shell Canada
- Richard Currie - Bell Canada Enterprises, CAE, and Petro-Canada
- Anthony Fell - Bell Canada Enterprises, CAE, and Loblaw Companies Ltd.
- Vernon Jordan Jr. - American Express, Dow Jones & Company, and Lazard Ltd.
- Gary L. Wilson - CB Richard Ellis, Northwest Airlines, and The Walt Disney Company

2 boards

- James Cash, Jr. - General Electric, Microsoft
- George Cohon - Astral Media, Royal Bank of Canada
- Paul Godfrey - Astral Media, CanWest Global Communications
- Ed Lumley - Bell Canada Enterprises, Magna International
- Brian Mulroney - Barrick Gold Corporation, Quebecor Inc.
- Dick Olver - BAE Systems, Reuters
- Richard Parsons - Estée Lauder Companies Inc., Time Warner
- Paul Pressler - Estée Lauder Companies Inc., Gap, Inc.
- Robert Prichard - George Weston, Ltd., Onex Corporation
- Robert D. Walter - American Express, Viacom

Ownership

Ownership is the state or fact of exclusive possession or control of some thing, which may be an object or some kind of property. Some consider the term to be closely associated with the idea of private or public wealth. It is also claimed by some (principally among the political left), that the exclusivity of ownership underlies much social injustice, and facilitates tyranny and oppression on an individual and societal scale.

Some concepts

There are many consequences of the idea of ownership, both positive and negative; the 'moderate' view is that a degree of ownership is necessary for the proper operation of society, but that it can also lead to great injustice and doom if taken too far. There are also many people who disagree with this view. A simple example of an argument against strict ownership is the case where person A owns medicine which would cure an illness that person B suffers from, but person A demands an unjustifiably high price for that medicine, which person B cannot afford. Almost any known practice of morality or system of ethics would say that unless there are very exceptional circumstances, person A should give person B the medicine, or at least lower the price. But ownership allows person A to set any price he or she wishes, or even to flatly refuse to give out any drugs, despite the fact that such refusal would lead to many unnecessary deaths. Indeed, person A can have socially accepted physical force used by law enforcement officers in the event person B attempts to obtain the medicine without consent (see theft). Some political philosophers see this inherent ambivalence of the concept of ownership as a microcosm of an unequal world where many people are starving, and where others struggle with the problems of excess. See social justice for more on this class of concern. At a less extreme level, exclusive ownership tends to not reduce the utilisation of capital. For example, in a society favouring exclusive ownership, every house in a neighbourhood may own a lawn mower which they use once a week. In a society which promotes shared use, far fewer lawnmowers could do the same job. On the other hand, exclusive ownership tends not to mean that resources are not destroyed through overuse, and capital objects are not maintained, since the owner has an interest in their long-term future. (See Doom.)

Socialism and Communism

Socialism and Communism hold that individual ownership of the means of production is detrimental to the interest of the majority of individuals (particularly the working class, as well as most of what is usually called the middle class), and therefore they advocate some form of public ownership over the means of production. This may be manifested in a variety of ways, from worker-owned companies to nationalized companies under the control of a democratic state which purportedly represents the common good. Socialist ideas have influenced the economic systems of most industrialized countries, to varying degrees. In the majority of cases, this has taken the form of introducing a few limited socialist elements into an otherwise capitalist economy, for the purpose of promoting social justice, alleviating or even eliminating poverty, guaranteeing access to education and healthcare for all citizens, etc. Nationalizations have been limited to "the commanding heights" of the economy (e.g. heavy industry) and utilities (e.g. gas, electricity, and so on). The policy of combining a capitalist economy with extensive socialist aspects is known as social democracy. There have also been a number of countries, usually falling within the category of so-called "communist states", which have had fully nationalized economies. However, the issue of who actually owned the means of production in those countries remains controversial, because they did not have democratic governments. In the absence of democracy (i.e. when the people have no control over the government), it can be argued that the government forms an elitist oligarchy - and therefore, any means of production owned by such a government are the de facto private property of the oligarchs, not the public property of the people. For these reasons, as well as many others, a large number of communists (and the vast majority of socialists) usually disavow any connection between 20th century "communists states" (often referred to as "stalinist states") and the kind of socio-economic system they are trying to achieve.

Societies Without Ownership

Some societies, notably some Native American ones, appeared to exist without the concept of personal ownership. Members of a society would feel free to take any objects they had need of, and expect them to be taken by others. When these societies were encountered by European settlers they behaved in their usual way, which led to the Europeans regarding the natives as thieves. This can be seen as a complex irony, since the notion of "thief" is a European, property-related term, and of course European settlers were taking the land of the native Americans without discussion or consultation: the question naturally arises here of "Who was the real thief?" Thus, when the native Americans sold Manhattan to European settlers for an insignificant sum, the natives assumed everyone would continue to be allowed to use the land. They couldn't conceive of a European immigrant evicting a native. So the natives thought they were actually getting a good deal.

Ownership and Economics

Ownership is self-propagating: If an object is owned by someone, any additional goods produced by using that object will also be owned by the same person. Thus, the more a person can own or acquire through money, the more he or she will generate other things to be owned by him or her. Ownership is central to and facilitates the development of social systems such as capitalism. However, it remains a matter of dispute whether the effects of ownership - and our present capitalist system in general - are mostly positive or mostly negative. See the articles on capitalism and sustainable development for more on this.

Intellectual ownership

Ownership of ideas or plans or strictly sensory works is always a complicated issue. Use of patents and copyright laws in modern society has introduced ownership for non-material things usually on a temporary basis. This is a mixed blessing, providing reward to innovators, but also greatly restricting the free flow of ideas and information (a fact which, according to some critics, will hurt innovation in the long run). Contributors to open source projects agree to share ownership of their contribution through licensing, therefore allowing possibly thousands of other people to contribute to its improvement. See intellectual rights for a fuller discussion.

Corporate ownership

In business, corporate ownership is critical as it determines who controls the factors of production owned by that corporation and thus who owns the outputs: Companies or organisations usually own factories, or more generally, the capital, and the materials used to produce. They hire employees but they don't own employees - they do however control what is sometimes called human capital or have some exclusive right to individual capital (creativity, talent). Companies which issue stocks are officially owned by stockholders, CEOs are hired by them to run companies. CEOs themselves do not own the companies, even though they may have more control and involvement than the 'real' owners, the stockholders. Executives of small companies are often also stockholders. Whether they make major decisions like mergers, or whether they hold actual stock, line management makes daily decisions, and may not be directly answerable to the "real" owners - sometimes leading to cases of management usurpation of the powers normally attributed to owners. According to John Kenneth Galbraith and quite a few other economists back to Adam Smith, this obviates and reduces many of the benefits of tolerating a system of ownership in any society.

Land ownership

Land ownership presents special problems. Exclusive control of natural capital, right of way or migration routes of food animals, challenges most concepts of resource and rights sharing. It is often the divergence of views on ownership of land that creates what is called "class struggle" or what is called "colonialism", both of which refer to a power structure formed by a land ethic backed by some kind of brute force. In classical economics there is an ambiguous position taken with regard to land ownership. Many theorists seemed to consider it a necessary evil, and argued that it could not be defended if there was not some obligation to keep and improve the land. Marxist economics was founded on, and continues to argue for, land reform as a means of social justice. Also, both Marxist and anarchist theories of ownership agree on the idea that private ownership of land is illegitimate, since the land was not created by any human beings, and most property over land was originally established through the use of brute force. In the 20th century, the idea of ecological stewardship led to legal ways that land ownership could be rightfully restricted because of erosion, pollution, biodiversity and other concerns - which reduced the level of what came to be called nature's services to all in the locality. In addition, property tax increasingly was levied to pay for services offered by the state, which could not be refused (such as fire fighting). Geolibertarians do not believe that land can be owned by individuals.

Collective ownership

Emergency response, biotechnology, nanotechnology and terrorism presents serious challenges to the idea of exclusive control over resources or knowledge that may be required in some short period of time to avert some disaster, especially a synchronous failure which may be caused simply by timing problems. As such threats increase in depth and nature, it seems likely that (at least) ownership of natural capital and instructional capital will be increasingly held by communal, and not by private, bodies. For instance biopiracy of native plant varieties used in sustainable agriculture are increasingly recognized as "belonging to" cultures or even ecosystems from which they originated. Communalizing of intellectual rights and instructions is further evidenced by # the 2003 agreements to let developing nations access drugs to treat HIV, malaria and other conditions, for drastically lower prices than would apply if they were to pay full patent royalties # the patent pool by which China and MIT retain rights in instructions for the benefit of the institutions, not individuals, who produced them.

Information ownership

Infosocialists believe that individuals cannot "own" intellectual property.

Strategy

A strategy is a long term plan of action designed to achieve a particular goal, as differentiated from tactics or immediate actions with resources at hand. Originally confined to military matters, the word has become commonly used in many disparate fields, such as:
- Business strategy
- Chess strategy
- Economic strategy
- American football strategy
- Military strategy
- Marketing strategies
- Game theoretical strategy
- Strategic management
- Technology strategy
- Tennis strategy
- Trading strategy

Origins of the word

The word finds its roots in the French stratégie, which is ultimately derived from the Greek stratēgos, which referred to a 'military commander' during the age of Athenian Democracy.

Casual and Formal Interpretations of the concept

A strategy is typically an idea that distinguishes a course of action by its hypothesis that a certain future position offers an advantage for acquiring some designated gain. The description of the idea is generally prepared in prescriptive documentation.

Historic Texts On Strategy

The nature of historic texts differs greatly from area to area, and, while there are some potential parallels between various forms of strategy (noting, for example, the popularity of the Art of War as a business book), each domain generally has its own foundational texts, a brief mention of some of these follows:
- Political strategy
- The Prince published in 1532 by Niccolò Machiavelli
- Military strategy:
- The Art of War written in the 6th century BC by Sun-tzu
- On War by Carl von Clausewitz
- The Influence of Sea Power upon History by Alfred Thayer Mahan
- Economic strategy
- General Theory of Employment, Interest and Money published in 1936 by John Maynard Keynes
- Business strategy
- Competitive Strategy by Michael Porter
- "Strategy Concept I: Five Ps for Strategy" and "Strategy Concept II: Another Look at Why Organizations Need Strategies" by Henry Mintzberg

Financing

Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects. The term finance may thus incorporate any of the following:
- The study of money and other assets
- The management and control of those assets
- Profiling and managing project risks
- As a verb, "to finance" is to provide funds for business.

Examples of some basic financial concepts

The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their financial affairs, particularly the differences between income and expenditure and the risks of their investments. An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary, such as a bank or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders of different sizes to coordinate their activity. Banks are thus compensators of money flows in space since they allow different lenders and borrows to meet, and in time, since every borrower will eventually pay back. A specific example of corporate finance is the sale of stock by a company to institutional investors like investment banks, who in turn generally sell it to the public. The stock gives whoever owns it part ownership in that company. If you buy one share of XYZ inc, and they have 100 shares available, you are 1/100 owner of that company. You own 1/100 of anything on the asset side of the balance sheet. Of course, in return for the stock, the company receives cash, which it uses to expand its business in a process called "equity financing". Equity financing mixed with the sale of bonds (or any other debt financing) is called the company's capital structure. Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance ), etc., as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting.

Personal finance

Questions in personal finance revolve around
- How much money will be needed by an individual (or a family) at various points in the future?
- Where will this money come from (e.g. savings or borrowing)?
- How do I protect myself against unforeseen events?
- How can family assets be best transfered across generations (bequests and inheritance)?
- How do taxes (tax subsidies or penalties) affect personal financial decisions? Personal financial decisions involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement.

Business finance

In the case of a company, managerial finance or corporate finance is the task of providing the funds for the corporations' activities. It generally involves balancing risk and profitability. Long term funds would be provided by equity and long-term credit, often in form of bonds. These decisions lead to the company's capital structure. Short term funding or working capital is mostly provided by banks extending a line of credit. On the bond market, borrowers package their debt in the form of bonds. The borrower receives the money it borrows by selling the bond, which includes a promise to repay the value of the bond with interest. The purchaser of a bond can resell the bond, so the actual recipient of interest payments can change over time. Bonds allow lenders to recoup the value of their loan by simply selling the bond. Another business decision concerning finance is investment, or fund management. An investment is an acquisition of an asset in the hopes that it will maintain or increase its value. In investment management - in choosing a portfolio - one has to decide what, how much and when to invest. In doing so, one needs to
- Identify relevant objectives and constraints: institution or individual - goals - time horizon - risk aversion - tax considerations
- Identify the appropriate strategy: active vs passive - hedging strategy
- Measure the portfolio performance Financial management is duplicate with the financial function of the accounting profession. However, accounting is concerned with reporting of historical financial information, while the financial decision is directed toward the future of the firm.

Finance of states

Country, state, county, city or municipality finance is called public finance. It is concerned with
- Identification of required expenditure of a public sector entity
- Source(s) of that entity's revenue
- The budgeting process
- Debt issuance (municipal bonds) for public works projects

Financial economics

Financial economics is the branch of economics studying the interrelation of financial variables, s.a. prices, interest rates and shares as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance. It studies:
- Valuation - Determination of the fair value of an asset
- How risky is the asset? (identification of the asset appropriate discount rate)
- What cash flows will it produce? (discounting of relevant cash flows)
- How does the market price compare to similar assets? (relative valuation)
- Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation)
- Financial markets and instruments
- Commodities - topics
- Stocks - topics
- Bonds - topics
- Money market instruments- topics
- Derivatives - topics
- Financial institutions and regulation

Financial mathematics

Financial mathematics is the branch of applied mathematics concerned with the financial markets. Financial mathematics is the study of financial data with the tools of mathematics, mainly statistics. Such data can be movements of securities - stocks and bonds etc. - and their relations. Another large subfield is insurance mathematics.

External links

- For an in-depth finance glossary, see Glyn A. Holton's [http://www.riskglossary.com riskglossary]
- For finance theory and investing models, see [http://www.12manage.com/i_fi.html 12manage]
- For a Hypertextual Finance Glossary, see [http://www.duke.edu/~charvey/Classes/wpg/glossary.htm Prof. Campbell R. Harvey]
- For a Free Derivatives Valuation and Calculation site, see [http://www.derivativeone.com Financial Derivatives Valuation and Calculators]
- For material covering three areas in finance - corporate finance, valuation and investment management, see [http://pages.stern.nyu.edu/~adamodar/ Prof. Aswath Damodaran]
- For links to finance web sites, grouped by topic see [http://web.utk.edu/~jwachowi/wacho_world.html#Part%20I Web Sites for Discerning Finance Students], Prof. John M. Wachowicz
- For list of online brokerages, online trading resources see [http://www.peoplenmoney.com/online_brokers/online_brokers.html The most complete list of online brokers www.peopleNmoney.com]
- For articles on current corporate finance and investment issues, visit [http://www.oaktree-research.com Oaktree Research], a financial education portal
- The introductory finance web site at the University of Arizona, [http://www.studyfinance.com/ studyfinance.com]
- For illustrative (simpler) worked examples covering several of these topics see [http://www.teachmefinance.com teachmefinance]
- For introductory articles covering mathematical finance see [http://www.quantnotes.com/fundamentals/ quantnotes]
- For introductory articles, a full glossary and links to resources on behavioral finance see the [http://perso.wanadoo.fr/pgreenfinch/behavioral-finance.htm BF gallery]
- An extensive resource for mathematical and quantitative finance at [http://www.moneyscience.org moneyscience.org]
- For a English to Spanish Financial Dictionary [http://www.spanish-translator-services.com/dictionaries/finance-english-spanish/index.htm English to Spanish Dictionary of Finance Terms]
- For a Spanish to English Financial Dictionary [http://www.spanish-translator-services.com/dictionaries/finance-spanish-english/index.htm Spanish to English Dictionary of Finance Terms]
- For introductory articles and advanced discussion of finance with a focus on investing, see [http://www.investopedia.com investopedia].
- ja:金融 th:การเงิน

Rubberstamp (politics)

Rubber stamp, is a political metaphor referring to an institution that has little power and rarely disagrees with more powerful organs, though usually it formally has much greater power. For example, in a dictatorship, the parliament may be little more than a rubber stamp of approval on the dictator's decrees. Conversely, in a constitutional monarchy, the monarch is typically a rubber stamp to an elected parliament, even if he or she legally possesses considerable reserve powers and/or disagrees with the parliament's decisions. Rubberstamp is also an artificial verb referring to the above mentioned adjective. Category:Politics

Chairman of the board

The phrase Chairman of the Board has several meanings:
- Chairman of the Board is the term used to denote the leader of a corporation's board of directors. See Chairman.
- American singer Frank Sinatra (1915-1998) is referred to by the nickname "The Chairman of the Board."
- Chairman of the Board is the title of a 1998 movie starring Courtney Thorne-Smith and Carrot Top.
- "Chairmanoftheboard" is a race horse that won the Cane Pace in 1985. In medieval times the head of the household was the only member with a chair (with arms); all others sat on a bench. The "board" refers to the table.

Committee

A committee is a (relatively) small group that can serve one of several functions:
- Governance: in organizations too large for all the members to participate in decisions affecting the organization as a whole, a committee (such as a Board of Directors) is given the power to make decisions. A committee of this type is a form of a deliberative assembly.
- Coordination: individuals from different parts of an organization (for example, all senior vice presidents) might meet regular to discuss developments in their areas, review projects that cut across organizational boundaries, talk about future options, etc. Where there is a large committee, it's common to have smaller committees with more specialized functions - for example, Boards of Directors of large corporations typically have an (ongoing) audit committee, finance committee, compensation committee, etc.
- Research and recommendations: committees are often formed to do research and make recommendations on a potential or planned project or change. For example, an organization considering a major capital investment might create a committee of several people to review options and make recommendations to upper management or the Board of Directors. Such committees are typically dissolved after issuing recommendations (often in the form of a final report).
- Project management: while it is generally considered poor management to give operational responsibility to a committee to actually manage a project, this is not unknown. The problem is that no single person can be held accountable for poor performance of the committee, particularly if the chairperson of the committee is seen as a facilitator. It is common for a chairperson to organize a committee meeting through an agenda, which is usually distributed in advance. The chairperson is responsible for running meetings: keeping the discussion on the appropriate subject, recognizing members (calling on them to speak) [often omitted in smaller committees], and calling for votes after a debate has taken place [formal voting is normally only done in committees involved in governance]. Governance committees often have formal processes (for example, they might follow Roberts Rules of Order); other types of committees typically operate informally, with the chairperson being responsible for deciding how formal the committee processes will be. Minutes, a record of the discussion and decisions of the meeting, are often taken by a person designated as the secretary of the committee; they may be legally obligatory (again, typically for governance committees). For committees that meet regularly, the minutes of the most recent meeting are often circulated to committee members before the next meeting. Committees may meet on a regular basis, often weekly or yearly, or meetings may be called irregularly as the need arises. During an emergency, a committee may meet more than once per day, or sit in permanent session, as, for example, ExComm (the President's Executive Committee) did during the Cuban missile crisis. A committee that is a subset of a larger committee is called a subcommittee. [Where the larger group has a name other than "committee" - for example, "Board" or "Commission", the smaller group(s) would be called committee(s), not subcommittee(s)] For organizations where the Board of Directors is large - say 20 people or more - it's common to have an Executive Committee, of Board members, which is authorized to make some decisions on behalf of the entire Board. Committees, both permanent and ad hoc (unofficial), appear both in representative democracies and in non-democratic structures. They may bear titles such as Commission, Board, Council, Presidium, or Politburo. Unofficial committees often get unflattering labels such as junta, camarilla or cabal. Committees are a necessary aspect of organizations of any significant size (say, more than 15 or 20 people). They keep the number of participants managable; with larger groups, either many people do not get to speak (and feel left out), or discussions are quite lengthy (and many participants find them duplicative and often boring). Committees are a way to formally draw together people of relevant expertise from different parts of an organization who otherwise would not have a good way to share information and coordinate actions. They may have the advantage of widening viewpoints and sharing out responsibilities. Their disadvantages appear in the possibilities for procrastination, undesirable compromises in order to build consensus, and groupthink, where (valid) objections or disconfirming evidence is either not voiced or is ignored. Moreover, the need to schedule a meeting, get enough committee members together to have a quorum, and debate until a majority agrees on a course of action, can result in undesirable delays in taking action. (A common joke, in organizations, is that when someone doesn't want to make an unpopular decision, he/she creates a committee to study the question.) Some famous committees include:
- Committee of Public Safety
- Central Committee (of a Communist party)
- House Un-American Activities Committee and other U.S. Congressional committees Notable subcommittees include:
- Subcommittee on Human Rights of the Committee on Foreign Affairs of the European Parliament Category:Meetings Category:Parliamentary law Category:Politics

Mergers and acquisitions

The phrase mergers and acquisitions or M&A refers to the aspect of corporate finance strategy and management dealing with the merging and acquiring of different companies as well as other assets. Usually mergers occur in a friendly setting where executives from the respective companies participate in a due diligence process to ensure a successful combination of all parts. Historically, though, mergers have often failed to add significantly to shareholder value. On other occasions, acquisitions can happen through hostile takeover by purchasing the majority of outstanding shares of a company in the open stock market. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeover. One form of protection against hostile takeover is the so-called "poison pill". See Delaware corporations.

Financing M&A

Technically, what differentiates a merger from an acquisition is how it is financed. Various methods of financing an M&A deal exist:

Merger

A "merger" or "merger of equals" is often financed by an all stock deal (a stock swap). An all stock deal occurs when all of the owners of stocks of either company get the same amount of stock in the new combined company. The term "demerger" is sometimes used to indicate the effective opposite of a merger, where one company splits into two, the second often being a separately listed stock company if the parent was a stock company.
Acquisition
An acquisition (of un-equals, one large buying one small) can involve a cash and debt combination, or just cash, or a combination of cash and stock of the purchasing entity, or just stock. The Sears-Kmart acquisition is an example of a cash deal. In addition, the acquisition can take the form of a purchase of the stock or other equity interests of the target entity, or the acquisition of all or substantially all of its assets.
High-yield
In some cases, a company may acquire another company by issuing high-yield debt (high interest yield, "junk" rated bonds) to raise funds (often referred to as a leveraged buyout). The reason the debt carry a high yield is the risk involved. The owner can not or does not want to risk his own money in the deal, but third party companies are willing to finance the deal for a high cost of capital (a high interest yield). The combined company will be the borrower of the high-yield debt and it will be on its balance sheet. This may result in the combined company having a low shareholders' equity to loan capital ratio (equity ratio).
Examples
In a 1985 merger between Pantry Pride and Revlon, Pantry Pride had to issue 2.1 billion dollars of high-yield debt to buy Revlon. The target Revlon was worth 5 times the acquirer.
Motives behind M&A
These motives are considered to add shareholder value:
- Economies of scale: This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to theoretically the same revenue stream, thus increasing profit.
- Increased revenue/Increased Market Share: This motive assumes that the company will be absorbing a major competitor and increasing its power (by capturing increased market share) to set prices.
- Cross Selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.
- Synergy: Better use of complementary resources.
- Taxes: A profitable company can buy a loss maker to use the target's tax write-offs.
- Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smooths the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below). These motives are considered to not add shareholder value:
- Diversification: While this may hedge a company against an downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to acchieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger.
- Overextension: Tend to make the organization fuzzy and unmanageable.
- Manager's hubris: Oftentimes the executives of a company will just buy others because doing so is newsworthy and increases the profile of the company.
- Empire Building: Managers have larger companies to manage and hence more power
- Manager's Compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders); although some empirical studies show that compensation is rather linked to profitablity and not mere profits of the company.
- Bootstrapping: Example: how ITT executed its merger.
M&A and Investment Banking
Historically, Investment Banks (intermediaries which assist companies in selling ownership of themselves as stock or borrowing money directly from investors in the form of bonds) have been closely associated with merger and acquisition activity since a merger or acquisition is a sales opportunity for the Investment Bank. If the company wants to merge with another, it must attain a fair market value for its shares to be swapped which would involve an investment bank. If it wants to buy the other company with borrowed money, it would most likely borrow directly from investors in the form of bonds through a private placement, engineered by the investment bank. Thus, Investment Banks position themselves to act as advisors on mergers and aqusitions and usually charge large fees for doing so. This system however, gives an incentive to Investment Banks to try to stimulate as much M&A activity as possible, even though the result might not be good for the shareholders of the acquiring company, possibly a conflict of interest. The amount of influence this has is unclear since this activity is usually secret and since the majority of merger proposals do not go through.
M&A marketplace difficulties
No marketplace currently exists for the mergers and acquisitions of privately-owned small to mid-sized companies. Market participants often wish to maintain a level of secrecy about their efforts to buy or sell such companies. Their concern for secrecy usually arises from the possible negative reactions a company's employees, bankers, suppliers, customers and others might have if the effort or interest to seek a transaction were to become known. This need for secrecy has thus far thwarted the emergence of a public forum or marketplace to serve as a clearinghouse for this large volume of business. At present, the process by which a company is bought or sold can prove difficult, slow and expensive. A transaction typically requires six to nine months and involves many steps. Locating parties with whom to conduct a transaction forms one step in the overall process and perhaps the most difficult one. Qualified and interested buyers of multimillion dollar corporations are hard to find. Even more difficulties attend bringing a number of potential buyers forward simultaneously during negotiations. Potential acquirers in industry simply cannot effectively "monitor" the economy at large for acquisition opportunities even though some may fit well within their company's operations or plans. An industry of professional "middlemen" (known variously as intermediaries, business brokers, and investment bankers) exists to facilitate M&A transactions. These professionals do not provide their services cheaply and generally resort to previously-established personal contacts, direct-calling campaigns, and placing advertisements in various media. In servicing their clients they attempt to create a one-time market for a one-time transaction. Many but not all transactions use intermediaries on one or both sides. Despite best intentions, intermediaries can operate inefficiently because of the slow and limiting nature of having to rely heavily on telephone communications. Many phone calls fail to contact with the intended party. Busy executives tend to be impatient when dealing with sales calls concerning opportunities in which they have no interest. These marketing problems typify any private negotiated markets. The market inefficiencies can prove detrimental for this important sector of the economy. Beyond the intermediaries' high fees, the current process for mergers and acquisitions has the effect of causing private companies to initially sell their shares at a significant discount relative to what the same company might sell for were it already publicly traded. An important and large sector of the entire economy is held back by the difficulty in conducting corporate M&A (and also in raising equity or debt capital). Furthermore, it is likely that since privately-held companies are so difficult to sell they are not sold as often as they might or should be. Previous attempts to streamline the M&A process through computers have failed to succeed on a large scale because they have provided mere "bulletin boards" - static information that advertises one firm's opportunities. Users must still seek other sources for opportunities just as if the bulletin board were not electronic. A multiple listings service concept has not been applicable to M&A due to the need for confidentiality. Consequently, there is a need for a method and apparatus for efficiently executing M&A transactions without compromising the confidentiality of parties involved and without the unauthorized release of information. One part of the M&A process which can be improved significantly using networked computers is the improved access to "data rooms" during the due diligence process.
Levels and flows
Worldwide Completed Mergers & Acquisitions reported by Thomson Financial ([http://www.thomson.com/financial/investbank/fi_investbank_league_tablearchive_mergers.jsp]) ($ trillion)
- 2004: 1.516 (Q4 2004 report)
- 2003: 1.149 (Q4 2003 report)
- 2002: 1.337 (Q4 2003 report) 1.316 (Q4 2002 report)
- 2001: 2.186 (Q4 2002 report) Worldwide Announced Mergers & Acquisitions
- 2004: 1.949 (Q4 2004 report)
- 2003: 1.333 (Q4 2003 report)
- 2002: 1.207 (Q4 2003 report) 1.230 (Q4 2002 report)
- 2001: 1.701 (Q4 2002 report)
Merger
In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons.
Classifications of mergers

- Horizontal mergers take place where the two merging companies produce similar product in the same industry.
- Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.
- Conglomerate mergers take place when the two firms operate in different industries. A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an IPO.
Issues
The occurrence of a merger often raises concerns in anti-trust circles. Devices such as the Herfindahl index can analyze the impact of a merger on a market and what, if any, action could prevent it. Regulatory bodies such as the European Commission and the United States Department of Justice may investigate anti-trust cases for monopolies dangers, and have the power to block mergers. The completion of a merger does not ensure the success of the resulting organization; indeed, many (in some industries, the majority) mergers result in a net loss of value due to problems. Correcting problems caused by incompatibility—whether of technology, equipment, or corporate culture— diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities at one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting employee culture. These problems are similar to those encountered in takeovers. For the merger to not be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate.
Major Mergers & Acquisitions since 1990
Acquirer and target, announcement date, deal size, share and cash payment.
United States

- AOL Time Warner; America Online and Time Warner (US$166 billion excluding debt, Stock: 100%, Cash: 0%) ([http://www.pbs.org/newshour/bb/business/aol_time_index.html PBS coverage], [http://money.cnn.com/2000/01/10/deals/aol_warner/ CNN])
- ExxonMobil; Exxon and Mobil Oil (Dec. 1998, $77 billion, Stock: 100%, Cash: 0%) ([http://www.sunsonline.org/trade/process/followup/1998/12030298.htm Suns Online], [http://money.cnn.com/1998/12/01/deals/exxon/ CNN])
- Citigroup; Citicorp and Travelers Group (1999, $73 billion, Stock: 100%, Cash: 0%) ([http://www.cs.cornell.edu/ugrad/travelers.htm Cornell], [http://www.citigroup.com/citigroup/fin/faq.htm#01 Citigroup FAQ])
- J.P. Morgan Chase, Bank One (announced January 14, 2004) ($59 billion, Stock: 100%, Cash: 0%) ([http://www.snl.com/bank/manda/20040114.asp SNL])
- Procter & Gamble buy Gilette (2005, $54 billion) ([http://www.thestreet.com/stocks/manufacturing/10205915.html])
- Bank of America; with FleetBoston Financial (2003, $47 billion) ([http://www.cbsnews.com/stories/2003/10/27/national/main580134.shtml])
- MCI Communications; with WorldCom; created MCI WorldCom (1997) ($44 billion, Stock: 100%, Cash: 0%) ([http://www.usdoj.gov/atr/public/press_releases/1998/1829.htm Department of Justice], [http://global.mci.com/about/news/news2.xml?newsid=6051&mode=long&lang=en&width=530&root=/about/ MCI.com])
- ChevronTexaco; Chevron and Texaco ($35 billion) ([http://www.eia.doe.gov/emeu/finance/mergers/ctindex.html])
- DaimlerChrysler; Daimler Benz and Chrysler (Announced May 1998 - Final 1998) ($35 billion) ([http://www.cnn.com/WORLD/americas/9805/07/benz.chrysler.merger/])
- Vivendi Universal; Vivendi and Seagram (agreed 19 June 2000) ($32 billion, Stock: 100%, Cash: 0%) ([http://www.adetocqueville.com/cgi-binloc/searchTTC.cgi?displayZop+4652 The Tocqueville Connection], [http://www.stblaw.com/Lists/list24.htm Law firm])
- Hewlett-Packard; with Compaq (Announced Sept. 2001 - Final May 2002) ($25 billion) ([http://news.com.com/2009-1001-272520.html?legacy=cnet])
- Walt Disney Company; with Capital Cities/ABC (1995) ($19 billion)
- Kmart; with Sears, Roebuck (Announced Nov. 17, 2004) ($11 billion, 55% stock, 45% cash) ([http://www.investorguide.com/cgi-bin/stockarchives.cgi?date=111704 Investorguide])
- Monsanto; with Pharmacia & Upjohn
- NBC Universal; NBC and Universal
- Pfizer; with Warner-Lambert
- Total; with Petrofina, and Elf Aquitaine
- JDS Uniphase; with SDL
- Union Pacific Railroad; with Southern Pacific Railroad
- Sprint; with Nextel
- Verizon; Bell Atlantic, GTE, and AirTouch Cellular
- G4; with TechTV, purchased for $300 Million by Comcast.
Europe

- Vodafone; with Mannesmann (completed February 2000) ($130 billion) ([http://www.telecomvisions.com/current/man.php])
- BP; with Amoco (completed August 1998) ($110bn)
Japan

See also

- [http://en.wikibooks.org/wiki/Wikiversity:Mergers_and_Acquisitions Wikiversity:Mergers and Acquisitions]: The Wikiversity Graduate Level Department offering courses on Mergers and Acquisitions
- Divestiture
- Multiple voting rights
- Poison pill
- Takeover
- Spin off (the opposite of a merger)
Accounting

- Pooling of interests
- Purchase acquisition
Data

- Thomson Financial League Tables
Lists

- List of bank mergers
External links

Academic Research Institutions

- [http://www.manda-institute.org Institute of Mergers, Acquisitions and Alliances (MANDA)]
Blogs

- [http://www.buyoutblog.com Buyout Blog]
- [http://ukbusiness.blogspot.com Breaking News on UK Businesses For Sale, Divestments & Acquisitions]
Merger Direct

- [http://www.mergerdirect.com Direct process of merger and acquisition transactions (M&A]
European Union market

- [http://news.ft.com/cms/s/f4c1628c-401c-11d9-bd0e-00000e2511c8.html FT.com / World / US - EU agrees rules to ease cross-border mergers - November 26 2004]
- [http://money.cnn.com/services/tickerheadlines/djh/200411251414DOWJONESDJONLINE000741.htm EU Approves Rules For Cross-Border Mergers - November 25, 2004]
- [http://www.ceps.be/Article.php?article_id=101 CEPS Articles] - The Challenge of the 13th
Legislation in American and European Jurisdictions

- [http://www.dbj.co.at/phps/start.php?noie=&lang=de&content=publikationen_show.php&navi=publikationen&publikation_nr=236 - Article on Austrian Merger Control law]
- [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=628182 Control Premiums and Minority Discounts in Mergers and Acqusitions]
Notes and references
#

Board of directors

Failures

Sarbanes-Oxley Act

See also

Corporation

Legal status

Ownership and control

Formation

Naming

Unresolved issues

Origins

Etymology

Pre-modern corporations

Development of modern commercial corporations

Types of corporations

For-profit and non-profit

Closely-held and public

Multinational corporations

National features

United States

Canada

German-speaking countries

See also

Corporate taxation

Other commercial entities

Quotes

Further reading

See also

Lists

Documentary

External links

Joint stock company

Similar business entities

List of people on multiple governing boards

7 boards

5 boards

4 boards

3 boards

2 boards

See also

Ownership

Some concepts

Socialism and Communism

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Ownership and Economics

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Land ownership

Collective ownership

Information ownership

See also

Strategy

Origins of the word

Casual and Formal Interpretations of the concept

Historic Texts On Strategy

See also

Financing

Examples of some basic financial concepts

Personal finance

Business finance

Finance of states

Financial economics

Financial mathematics

See also

External links

Rubberstamp (politics)

Chairman of the board

Committee

Mergers and acquisitions

Financing M&A

Merger

Acquisition

High-yield

Examples

Motives behind M&A

M&A and Investment Banking

M&A marketplace difficulties

Levels and flows

Merger

Classifications of mergers