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 each of the

following events would alter the balance of power. (1/2 point each)

a. CalPers, the California Employees Pension fund with a history of activism, buys 5% of

the outstanding stock in the firm.

qManagement Power increases

qStockholder Power increases

qNo Effect

b. The corporate charter is changed so that only one-third of the board of directors gets

replaced each year, instead of the entire board.

qManagement Power increases

qStockholder Power increases

qNo Effect

c. The firm’s stock, which is currently followed by no analysts, is added to the list of

followed companies at four investment banks.

qManagement Power increases

qStockholder Power increases

qNo Effect

d. The CEO exercises her right to convert 10 million options she was granted as part of

compensation packages in prior years.

qManagement Power increases

qStockholder Power increases

qNo