In any firm, the balance of power between stockholders and managers is a function of a number of factors internal as well as external. Events can cause the power to shift towards managers or towards stockholders or leave the balance unchanged.


Evaluate how the following event would alter the balance of power. The firm's share stock, which is currently followed by no analysts, is added to the list of followed companies at four investment banks.


a. The firm decides to expand its BOD from 11 to 22 and allows the CEO to pick the additional members.

b. An activist investor manages to get the three of his nominees to the BOD at the expense of management nominees.

c. A closely held firm (insider holds 40% of the 100 000 shares) issues 500 000 new non-voting shares to the public to raise fresh capital.

d. The state passes a law against hostile takeovers.