Glossary Of Issues/Questions To Ask At Board Meetings
QUESTIONS THAT MAY BE ASKED AT 1998 SHAREHOLDERS' MEETINGS
The annual meeting provides shareholders an opportunity to question
management on the performance of the company and provides management an
opportunity to present their views.
The purpose of this booklet is to assist management of public companies to
prepare for the annual meeting of shareholders. It contains examples of
questions that shareholders might ask, based on questions asked at annual
meetings in recent years and considering shareholder resolutions and SEC
no-action letters for the 1998 proxy season and current events. The questions
are organized into major categories, each of which includes questions that are
current additions (in capital letters) and questions from previous years that
are believed to be of continuing interest.
This booklet is intended to be a general reference guide for companies of
various sizes in many industries. Each company should consider these questions
as they relate to its own particular activities.
Economic conditions affecting both companies and shareholders can be
expected to generate many questions. Recent events, such as the restructurings
of various shapes and sizes; the unusually high level of merger activity; the
year 2000 problem; and other matters, as well as shareholders' continuing
interest in corporate profitability and governance, can also be expected to
Why hasn't the company's stock price increased in proportion to the
increase in the market overall? Why did the stock price of our competitor
increase more significantly?
How does the stock's price/earnings ratio and performance compare with
others in the industry? To the overall market?
Why does the company's stock sell at such a low price/earnings ratio?
What measures are being taken by the company to improve the stock's
What is the company's dividend policy? When can we expect an increase
in the dividend?
How does the company's dividend policy compare with other companies in our
Can shareholders have dividend payments deposited directly at a financial
institution they designate? Will they continue to receive other material sent to
shareholders with dividend payments (e.g., quarterly reports)?
Has the company considered a dividend reinvestment plan?
How many shareholders are enrolled in the dividend reinvestment plan? How
many shares of stock were issued under the plan last year?
Has the company considered offering stock at a discount through its
dividend reinvestment plan?
What is the possibility of resuming (starting) cash dividend payments?
Does the company provide coupons to shareholders to purchase the company's
products at reduced prices?
What percentage of stock is held by institutional investors? By
management and Board members? By employees?
Who are the 10 largest shareholders (including beneficial interests)?
How many shareholders does the company have and what is the change from
Were there any significant changes (increase/decrease) in the stock
holdings of a specific individual or corporate shareholder?
Do any of the executives or directors buy the company's stock in the open
market? Why not? How much? Why not more?
Explain the reason for the significant sell-off by insiders of their
Were the purchases of treasury shares made from private sources, officers
or directors, or in the open market?
As a large amount of our stock is owned by ________, do they have a
representative on our board of directors? What is their intention? Are they
present at today's meeting?
Will the company implement or continue a stock buyback program?
Why is the company expending funds for common stock buy-backs? What was the
average price paid? What does a buy-back accomplish for the shareholders?
Has the company considered listing its stock on the __________ stock
On which foreign stock exchange(s) is the company's stock listed? What are
the advantages of having the stock traded on a foreign exchange(s)?
Does the company plan to list its shares on any foreign exchange(s)?
Why are various classes of stock with different rights issued?
Are preemptive rights granted to holders of the company's stock in
connection with new stock and convertible debt offerings? Why not?
Have there been any changes in the bylaws during the year?
Why aren't all shareholders advised of changes in the bylaws?
Does the company have an investor relations department to respond to
Can shareholders send e-mail messages directly to the company's investor
relations department via the internet? Does the company have a web page on the
Has the company considered providing all shareholders with a Shareholder
Information booklet describing the company and explaining how to obtain various
company reports, how to participate in the dividend reinvestment plan, etc.?
What information, if any, has the company released to institutional
investors regarding planned expenditures (such as R&D and capital
expenditures), stated objectives (such as Return on Investment goals) or
information about corporate ethics, environmental issues and corporate
governance? Why can't this information be provided to all shareholders on the
company's internet site?
How can shareholders receive Form 10-Q/Form 10-K and other public filings
on a real-time basis?
How many times did company officials appear before investment analysts
during the year?
Has management met with institutional investors who hold significant
amounts of the company's stock? If so, what is the nature of the meetings held
with such investors and what kind of information is provided to them?
Is any information provided to financial analysts that is not released to
the press or sent to shareholders?
Are any brokerage houses known to be advising customers to buy/sell the
What are the company's views on the SEC's proposal for "plain English"
documents, including proxies? Why havent you implemented the plain
What proposals were submitted to management for inclusion in the proxy
statement but omitted? Why were they omitted? Who were the sponsors of the
Why doesn't the company disclose the sponsors of independent resolutions in
its proxy statements?
Is the proxy statement reviewed by the board of directors prior to being
mailed to shareholders?
How can shareholders present their views on management proposals in proxy
Why aren't examples of the company's products on display at the meeting?
Why doesn't the meeting include a tour of the company facility where the
meeting is being held?
Do the inspectors of election consist of company employees only? How often
are they rotated?
Why doesn't the company have independent outside inspectors of election?
Why doesn't the proxy statement state that shareholders have the right to
assign their proxies to another shareholder?
Has the company considered providing, at the annual meeting, written
responses to questions commonly asked by shareholders so as to conserve the time
of attendees and permit time for additional questions?
Why doesn't the company issue a report on the annual meeting?
Board of Directors
Does the company use a nominating committee comprised of persons other
than management to identify, screen and propose new board member candidates? Why
What attributes are considered essential for prospective board members? Is
specific industry knowledge and experience required?
Much has been written in the newspapers and business periodicals recently
about the independence and quality of a companys Board of Directors. What
prior or current relationships exist between the Chairman/CEO and the current
members of the Board?
Why is the number of directors being reduced/increased?
Does the board have a majority of outside directors? Why doesn't the
company have more outside directors?
What initiatives has the company taken to promote diversity within the
board of directors and executive management?
Does the company have a policy regarding the number of outside boards its
senior level executives can be on?
Why did _______ (director) resign?
Why doesn't the ballot provide space to vote for a director other than
Why aren't nominations for the Board accepted from the floor?
Has consideration been given to electing all directors annually rather than
using a staggered system?
Why doesn't the company allow cumulative voting rights for the election of
What requirements, if any, does the company have regarding minimum levels
of the company's stock to be owned by directors?
Do directors visit operating units and, if so, how frequently? Which
operating locations did the directors visit last year?
How much time do outside directors spend on company matters?
Why doesn't the board of directors meet more frequently than ___ times a
Why didn't the various board members mentioned in the proxy as attending
less than 75% of the board meetings have better attendance?
Are all directors present at this meeting? Why not?
Do the outside directors periodically meet independently of the other
directors? How often?
Have there been any disagreements between inside and outside directors?
Does the Board challenge management's decisions? What examples can you give
to demonstrate that the Board members are sufficiently independent and strong to
overrule management when necessary?
Has the board ever given after-the-fact approval of a transaction that was
initiated by management? Why didn't management obtain the Board's approval
before the fact?
Are the directors involved in the development of corporate strategies?
How is the performance of directors evaluated?
Have any officers or directors disposed of large blocks of the company's
stock during the year or have they sold the company's stock short? Describe the
What actions has management/the Board/the independent accountant taken to
meet their responsibilities for detecting fraud under the Private Securities
Litigation Reform Act of 1995?
What steps are taken to ensure the Audit Committee is independent of
What special qualifications, such as accounting background or industry
knowledge, do members of the Audit Committee possess that enable them to be
What background material and indoctrination do Audit Committee members
receive to help them meet their responsibilities?
Why aren't all the Audit Committee members outside directors?
How many Audit Committee meetings were held last year? Aren't at least
three meetings necessary?
How often does the Audit Committee report to the board of directors?
Does the Audit Committee approve the engagement of the independent
accountants, including the fees paid?
How many times last year did the Audit Committee meet with the independent
Does the Audit Committee review the scope of the audit?
Does the Audit Committee and independent accountants meet without
Does the Audit Committee discuss with the independent accountants the
procedures performed during the audit to search for possible "management
Is the possible effect on the independence of the outside accountants
considered in approving nonaudit services?
What criteria does management use to identify financial accounting or
reporting matters that should be discussed with the Audit Committee?
Does the Audit Committee review the accounting treatment of unusual
Does the Audit Committee review the quarterly reports before the company
releases them to the shareholders or to the public?
Does the Audit Committee meet with the Internal Audit Department? How
Code of Conduct
Does the company have a code of conduct? Why not? Does it apply, on a
worldwide basis, to all officers, employees and directors?
Will you please make available copies of the company's code of conduct?
How is the company's code of conduct communicated to employees and
How is the company's code of conduct communicated to employees of a newly
acquired company and enforced?
How is compliance with the code of conduct monitored?
Does the code of conduct require the board of directors/officers/senior
management to submit written statements of compliance annually?
Have any violations of the code of conduct been discovered this year? If
so, what has been done to correct the problem?
Are any company executives related to executives of competitors?
Are there family relationships between members of the board of directors
and members of management of the company?
Does the proxy statement describe all of the transactions between companies
in which directors and officers have interests and with which the company does
How does the company prevent former employees from using the company's
trade secrets or results of research?
With the recent announcement of mergers among Big 6 firms, do you see
such potential mergers having any impact on your present relationship with your
What assessments, if any, has the company made regarding the litigation
record of the independent accountants?
Has the company hired any employees from its independent accountants? At
What were the results of the latest (AICPA-mandated) peer review of the
company's independent accountants?
Why isn't the selection of the independent accountants ratified by the
How many years have the independent accountants been auditing the company?
What responsibility do the independent accountants assume for detecting
Did the independent accountants report any material weaknesses in or
reportable conditions regarding internal control? If so, have the matters been
Does the company engage different accounting firms for any of its
subsidiaries? Why? Were any of their reports qualified?
Are the quarterly financial statements reviewed by our independent
accountants before they are issued?
Why were the company's former independent accountants dismissed?
Were there any accounting disagreements with the company's former
independent accountants preceding the change in accountants? What was the nature
of the disagreements?
Have there been any significant disagreements with the company's present
Did management discuss any financial reporting issues with another firm of
independent accountants? Why? What was the issue and how was it resolved?
Why aren't representatives of the independent accountants present at this
What is senior managements view relative to independent accountants
providing consulting services to the company?
What impact will the newly created Independence Standards Board have on the
companys relationship with its independent accountants?
BUSINESS STRATEGY AND OPERATIONS
Why is operating profit from ___ (segment) more than that from ____
How much of the increase in sales last year was due to price increases and
how much was due to volume?
Is the company's growth rate comparable with others in the industry?
How does the company's profitability compare with changes in its revenues?
If net income has not increased proportionately with revenues, what factors
caused this situation?
How have the company's operations been affected by the strength of the U.S.
Who are the company's major competitors?
Why are the results of operations of ____ (competitor) so much better than
the company's results?
How does the company's return on investment compare with others in the
How will a merger between ____ and ____ (two major competitors) affect the
Who are the company's major customers?
Have there been any significant changes in the company's customer base? Did
the company gain/lose any major customers?
Will the takeover of ___ (major customer) affect the company's sales and
What is the total estimated market for __ (product/product line), and what
is the company's estimated share of this market?
Is the company's share of this market increasing or decreasing?
What was the performance of __ (product/product line) in terms of sales and
return on investment, as compared with the prior year? How much is invested in
Who is the low cost producer in our industry? What steps has the company
taken to seek the lowest costs possible?
How do the company's products compare in quality with competitive foreign
What measures is the company taking to prevent or minimize the likelihood
of a major product liability catastrophe (causing personal injury to customers
or employees) or a major product recall? How is the company satisfied as to the
safety of its products and manufacturing processes?
Did the company discontinue any products or services during the year? Why?
Why does the company continue to produce ______ as it has been unprofitable
for _____ years?
Has the company considered expanding into _____ and other related products?
How does the company monitor, manage and minimize customer complaints? How
does the company know it is developing products according to customer needs and
not just in response to comments of a few? How does the company know it is
improving its products/services?
Is the level of product complaints, returns, warranty costs, etc.,
increasing or decreasing?
What steps has the company taken to improve customer service?
Does the company have a customer hot-line?
Who are the company's key suppliers? Are there alternative sources?
How much was spent on research and development (R&D) last year and what
level of expenditure is budgeted for this year?
What new products have resulted from the company's R&D efforts?
How does the level of the company's R&D expenditures compare with
Are the company's R&D expenditures sufficient to maintain the company's
Is all R&D done in-house? If not, on what basis are R&D contracts
Has the company considered, or is it considering, outsourcing any of its
functions? What costs/benefits are derived or expected from this?
How is the company responding to the increasing popularity of the internet?
Does the company have its own "home page" and if so, what kind of
information is presented on it? What is the address? How is the address
communicated to shareholders?
Are any of the company's products or services available for sale on the
internet? How much in sales volume has been generated?
Has the company examined its healthcare plan provisions with a view towards
either curtailing benefits or at least attempting to control the escalation of
health care costs? If not, why not? If so, how are the employees being
compensated for such a curtailment? Are labor problems likely to result?
Has the company considered managed care programs? What other steps has the
company considered or implemented to control its healthcare costs?
Has the company adopted an employee "wellness" program? Why not?
What are the program features? Is the program free to our employees?
To what extent has the El Nino weather phenomenon had on the company?
Derivatives and Hedging
Are the company's policies and practices regarding the use of
derivative financial instruments and strategies related to short-term
investments subject to supervision and approval by the board of directors?
Does the company use highly-leveraged derivative financial instruments?
Please describe the objective and strategy for their use.
What controls are in place to ensure that trading activities undertaken by
company employees (or third parties on behalf of the company) involving
derivative financial instruments are controlled by management and are in
accordance with established policies and practices?
What risks are undertaken through the use of derivatives and other means
utilized to enhance yields on short-term investments? Are similar means used to
enhance yields related to assets in the company's pension and other employee
Has the company entered into any interest rate swaps to manage floating
Have interest-rate futures been used as part of the company's investment
Has the company incurred any losses as a result of investments in
derivative financial instruments? Why werent these losses recognized? What
is the company's exposure to losses from its current portfolio of derivative
financial instruments as a result of changes in interest rates, currency rates,
commodity prices or other indices? Can you quantify the amount of exposure?
How will the FASBs proposed Derivatives and Hedging accounting
standard impact the Company? As to banks, how will it impact the bank regulators
What is the latest thinking on Capital Hill relative to postponing final
issuance of this standard?
How has the Asian currency and stock market crisis impacted the
How extensive is the company's exposure to a similar crisis in other
emerging markets such as Latin America and Eastern Europe? What protective
measures have been taken by the company?
As Europe moves closer to economic and monetary union (EMU), what merger,
acquisition and restructuring activities are in the company's future?
Does the company monitor the human rights climate in countries in which the
company operates/conducts business?
Does the company favor import restrictions on competitive foreign goods?
Does the company assemble any of its products in, or acquire raw materials
from suppliers located in, any foreign countries? If so, how much does it spend
and why arent the products assembled in the United States?
Has the company considered shifting production to countries with lower
labor costs? How would this affect the company's labor relations?
What product or products is the company emphasizing in its offshore sales
What percentage of consolidated revenue and income from operations is
derived from foreign operations?
How does the profit margin on foreign operations compare with domestic
operations? Rate of return?
What are the company's major foreign markets?
Does the company plan to expand (close) any of its foreign operations?
What effect has the rise (decline) in the ______ (currency) had on the
What trends in the exchange rate does the company expect between the dollar
and a specific currency? How will that affect the value of the company's
investment or the results of its operations in that country?
How does the company hedge or protect itself relative to foreign currency
What percentage of the company's reported earnings comes from countries
where there are significant restrictions on foreign exchange in general or on
dividend remittances specifically?
What impact do changes in the value of the U.S. dollar have on the
company's program for importing foreign manufacturers goods and exporting
After adjustment for foreign exchange gains or losses, how does the
company's export activity compare with last year?
What is the company's position regarding U.S. and foreign tariff controls?
What effect has the economic situation in ________ (country) had on the
company's results of operations? How do you expect that situation to change in
the future and what will the effect be on the company's operations?
Are appropriate steps taken to protect employees from terrorism?
Does the company do business with both Israel and the Arab countries?
How does the company monitor its international operations to ensure that
corporate policies and procedures are followed? How does the company oversee
such operations to determine whether commitments (including trading activities)
entered into at such operations are approved by management and whether the
provisions of the Foreign Corrupt Practices Act are adhered to?
How much does the company have invested in China? What steps has the
company taken to protect its investment because of the change in the Chinese
Does the company plan to expand in China and other Asian markets? Does the
company plan to use a joint venture partner?
To what extent does the company buy products from China? To what extent
does the company sell products to China?
Is management aware of any instances in which Chinese companies have
illegally copied the company's products? To what extent is the company at risk
to competitors in other countries illegally copying its products? What steps has
the company taken to minimize this risk?
What are the company's current investment plans for the countries
comprising the former Soviet Union? How much does the company have invested in
those countries? What steps has the company taken to protect its investment in
the event that there is a change in government leaders?
What steps, if any, has the company taken to capitalize on the market
and/or investment opportunities now presenting themselves in Eastern Europe?
How long will it take for the company to see a return on its investments in
China, the countries comprising the former Soviet Union, or Eastern Europe?
Generally, what type of return does the company expect before making an
investment in such countries? How does the return to date on the company's
investments compare with the original estimate?
To what extent are the company's prospects dependent on emerging markets
(such as Latin America, Eastern Europe and the Far East)? How has the company
positioned itself to capitalize on opportunities in emerging markets while
assessing the risks involved with strategic investments in such areas?
Are any of our products produced by child labor or using other exploitative
labor practices either domestically or overseas?
Does the company have global policies or standards regarding unacceptable
workplace practices? Do they also apply to suppliers? How does the company
monitor compliance with these policies and standards?
If a single European currency is implemented, what will be the impact on
the company's European operations?
Did the company (does the company have plans to) undertake a "corporate
restructuring"? What operations, assets or lines of business are being
disposed of? What future operating benefits or other impact will result? When
would the effect be apparent?
How many employees will be laid-off as part of the restructuring? What is
the relative number of management employees versus operating employees who will
be affected? What impact will the company's plans have on the community?
The company also implemented a restructuring plan in 19__. Why is another
one needed? Was the last restructuring successful -- how is that success
What is the company doing to maintain employee morale and incentives for
growth in light of the restructuring?
Has the company reopened any operations that were previously shutdown? Have
all laid-off employees been rehired?
What is the future of the ______ operations? Would a loss result if it were
closed? How many employees would lose their jobs? Would these employees be given
termination benefits? How much would these benefits cost?
Did the company offer or pay special termination benefits to employees for
taking early retirement? If so, how much?
Mergers, Acquisitions and Dispositions
What parameters are used to identify acquisition candidates?
How will the proposed merger with _____ affect the company's operations?
Are representatives of ______ (the merging company) and their independent
Why was the proposed merger (joint venture) with ______ company abandoned?
Are there any significant mergers, acquisitions or joint ventures expected
in the near future?
IN LIGHT OF THE COMPANYS HIGH STOCK PRICE, WHY HASNT MANAGEMENT
CONSIDERED POTENTIAL ACQUISITION CANDIDATES?
What expertise does management have in these (new) lines of business?
Does the company use the services of an investment banking firm in
connection with acquisitions? Which firm? What do they do? How are their fees
How successful has the recently acquired _______ operation been?
Why was ______ division (subsidiary) sold? What were its sales and
earnings? What was the gain or loss on sale? Who was the purchaser? How will the
company use the proceeds?
Is the ______ division (subsidiary) scheduled for divestiture? What are its
sales and earnings?
Is the company perceived to be an acquisition target? Has the company
received any offers to be acquired and if so, how have management and the board
of directors responded to such offers?
Does a committee of outside directors independently consider each takeover
Would the board of directors recommend acceptance of a tender offer at an
amount in excess of current market price?
Have there been any merger proposals of which we have not been informed?
Why are shareholders not given an opportunity to vote on each merger
What percentage of the outstanding shares is required to approve a merger
Why did the board of directors recommend rejection of _____ company's
What was the cost of defeating _____ company's takeover attempt?
Does the company monitor changes in stock ownership to anticipate takeover
Have any significant acquisitions of the company's stock occurred lately?
If so, does the company have any plans to purchase the shares from these
Does the company have any "poison pill" arrangements or other
anti-takeover provisions in place to discourage a hostile takeover? Does such an
arrangement limit enhancement of shareholder value?
Why aren't all anti-takeover measures subject to shareholder approval?
Why did the company buy back the stock acquired by ____ (potential bidder)
at a premium? How do you justify the premium paid?
What measures would the company consider taking in order to avoid an
unsolicited takeover attempt?
IS OUR COMPANY POOLABLE? WHY NOT?
Please comment on the status of the company's labor relations.
What labor contracts expire in the current year?
What effect will new labor contracts have on operations and on earnings?
Will concessions be sought?
What will be (has been) the effect of _____ strike on the company's
How many employees have been laid off this year? Will they be recalled?
Are there any charges pending against the company that have been filed with
What is the company doing to increase its hiring and development of
Does the company participate in job training programs for minorities or the
Is the company considering providing "flextime" or child care
Does the company have employees who telecommute? How does the company
measure these employees' performance?
What percentage of employees are minorities (women)?
What percentage of employees in policy-making positions are minorities
What are the highest levels of management occupied by minorities (women)?
Give some examples.
Has the company experienced problems in the area of sexual harassment? What
policies and procedures are in place to prevent harassment? Is this issue
addressed in the company's code of conduct? Why not?
Will you please make available the company's statement of policy on sexual
How can you be satisfied that the attitude(s) that prevailed at Texaco (and
elsewhere) are not present or tolerated at our company?
What is being done to remove "glass ceiling" barriers to
advancement of women and minorities to executive positions?
What is the employee turnover rate? How does it compare with the industry
Does the company have adequate safety procedures in place at each operating
Are the safety procedures the same abroad as they are in the U.S.?
What is the company doing to ensure that the safety procedures are
Does the company offer health insurance benefits to gay partners of
employees? Why? Why not?
Liquidity and Capital Resources
What is the likelihood that the company's existing lenders will seek
to negotiate borrowing covenants or terms more restrictive to the company? How
will that affect the company?
Has the company been in default of any borrowing covenants, including those
for which it received a waiver from the lender?
What is the company's bond rating? What is being done to improve it?
How does it compare with other companies in our industry/or our size?
What credit lines does the company have available to it and at what
Can maturities of existing debt be met without additional (new) borrowings?
Does the company have plans to issue debt or stock in the near term?
How would the company be affected by an increase (decrease) in interest
How much is due from companies where restrictions exist on monetary
Legal Matters and Contingencies
Is the company a defendant to any securities litigation or shareholder
lawsuits? What is the nature of such litigation?
Is the company a party to any law suits or EPA actions stemming from
previous disposal practices?
Has the company had any difficulties with the Internal Revenue Service or
any state or foreign tax authority that are likely to significantly affect the
company's tax liabilities?
How does the number and magnitude of lawsuits pending against the company
compare with other companies in the same industry?
What were the terms of major litigation settlements this year?
Has the company increased in-house legal capabilities in an effort to
reduce legal costs?
Do the in-house legal staff promptly inform the board of directors of
existing or potential violations of laws or regulations?
Companies continue to have product recalls. Describe any significant
product recall our company had during the past year. Does internal control over
product quality operate effectively?
Why did the company expand its disclosure of environmental
contingencies? Has the company's financial exposure increased?
What measures has the company taken to identify environmental problems
(including but not limited to hazardous waste recycling, packaging, etc.) and
What effects have anti-pollution laws and remedies for environmental
problems had on capital expenditures, earnings and the competitive position of
Why does the company not publish a report on environmental compliance
Are all the company's products bio-degradable? Which are not?
Does the company engage in manufacturing processes or produce products that
have side effects that are known or thought to deplete the earth's ozone layer?
How are these controlled or monitored by the company?
Has the company considered reporting the results of its affirmative
action plan on an annual basis? Why not?
What requirements and/or policies does the company have to encourage
community involvement on the part of officers, directors, and employees?
Have any consumer groups recently criticized the company?
What was the effect on the local community of closing the _____ plant? What
termination benefits were given to the employees?
What is the company's policy regarding advertising on violent or sexually
oriented television programs? Advertising aimed at children?
Are there any suspected cancer-causing substances in the company's
What precautionary measures are taken to protect employees and the
surrounding community from risk of exposure to potentially dangerous chemicals?
Does the company use minority vendors?
What is the company's position with respect to drug testing of employees?
Does the company use or experiment with any animals in any sphere of its
operations? What measures is the company taking to ensure it will not be the
subject of animal rights lobbyists' protests or legislative measures?
Has the company lobbied for or against particular changes in the law?
Which ones and why?
Does the company have a political action committee? How does it function?
How many employees are participants? Who received funds from the political
Has the company hired any former government employees in executive
positions or retained their services as lobbyists, consultants, counsel, etc.?
Are there any officers or management employees on loan to governmental or
How many lobbyists does the company employ? What is the nature of their
activities? How much is spent annually on lobbying activities?
What was the amount of charitable contributions last year and who were
the largest recipients?
Will the company's level of contributions be increased or decreased in the
Of the company's $_____ in charitable contributions in the prior year, how
much went to organizations company directors (or officers) are affiliated with?
Why did the company contribute to _____ (organization)?
Does the company match employee charitable contributions?
Why doesn't the company poll its shareholders to determine who should
receive its charitable contributions?
Why aren't contributions decreased and dividends increased so stockholders
can give to the charities of their choice?
Does the company lend executives to academic, civic or charitable
Does the company have an internal audit department?
How does the number of people in the internal audit department compare with
other companies of our size?
Is the internal audit department head an officer? To whom does he report?
Does the internal audit staff include employees who specialize in reviewing
computerized information systems and controls?
Does the internal audit department meet with and make written reports to
the board of directors (Audit Committee)?
Does the internal audit department conduct operational audits and identify
opportunities for increasing productivity and reducing inefficiencies?
Are there any restrictions on the scope of the internal audit department's
Do the internal auditors visit foreign subsidiaries?
Has consideration been given to conducting a quality review of the internal
Does the company outsource its internal audit function to the company's
independent accountants? Has an evaluation been made as to whether this
arrangement would be advantageous? Has an evaluation been made as to whether
this arrangement impairs the independence of the company's external auditors?
Does the company's reporting system provide appropriate information
for timely identification of potential major financial or operational
Are the company's internal controls over financial reporting effective?
Are there safeguards in place to ensure that assets of the company (as well
as assets of the company's pension and other employee benefit plans) are not
Is there an ongoing self assessment program to review and revise internal
control as the company's operations change?
What effect has the downsizing/reengineering of our operations had on the
effectiveness of internal control over (production, product quality, financial
How does the company ensure that internal control at recently acquired
operations is adequate?
Are the internal control procedures over operations in foreign countries as
effective as the controls over domestic operations?
Does the company have a fraud prevention and detection program?
Has the company discovered any defalcations in the past year? What actions
did the company take against the perpetrators? Have they been publicized to
discourage similar wrongdoings?
Why doesn't the company and its external auditor provide shareholders with
a report on the company's internal controls?
Computerized Information Systems
Does the company have a Chief Information Officer?
How is the company keeping up with changes in information technology? Are
the company's management information systems "state-of-the-art," or
will significant investments have to be made to provide for information systems
needed to maintain the company's competitiveness?
Are all of the company's locations connected by computer networks? Do
employees regularly communicate by e-mail?
Are controls and security surrounding the company's computer operations
sufficient to preclude unauthorized telephone or other access to computer files,
alteration of records, loss or theft of company data and trade secrets, and
misappropriation of assets?
Has the company been a victim of computer fraud by employees or others?
What steps has the company taken to safeguard its information systems from
unauthorized access? How does the company protect its information systems from
Is the company vulnerable to "computer viruses"? What steps have
been taken to determine that the company adequately, and in a timely manner,
detects a virus and responds to a virus attack?
Did the independent accountants and/or internal auditors review the
computer systems and controls? What were the results of their review(s)?
Has the company developed a computer disaster recovery plan? Why not?
Are microcomputers linked with the company's mainframe computers? What
controls exist to prevent microcomputer users from gaining unauthorized access
to the mainframes?
Have microcomputer "hackers" succeeded in breaking into the
company's computer systems? How did this happen?
The year 2000 software problem continues to receive a great deal of public
attention in the news media and recent congressional inquiries. does the company
have any concerns over this potential problem?
Has the company started to change its information systems for the year
2000? What is the estimated cost to do so?
What is the budget for the year 2000 project and how much has been spent to
Has the company identified internal/external exposures associated with the
year 2000 problem?
Are plans in place to ensure that critical functions will continue in case
of failure due to year 2000? Have the contingency plans been tested?
Have the necessary resources (people, funding, hardware, etc) been
allocated to support the year 2000 effort? Has internal audit or third parties
provided assistance to the year 2000 effort?
Why didn't the company discuss the year 2000 situation in the company's
Describe the overall mission statement or strategy of the company and
identify businesses that are the "core" businesses in regard to that
strategy. Explain why the company has investments in operations that are
apparently not within the company's strategic plans.
What are the principal objectives in the company's business plan for the
next year? For the next five years?
Please discuss 2 or 3 issues that management has identified as critical to
the company at this time. What is being done to address them?
Please describe any new product programs or technological developments and
the expectations for them.
Will any pending or proposed federal or state legislation significantly
affect the company? How?
How has the company planned for orderly succession of top management
personnel? Is there a management development program in place for other
management levels within the company?
Please comment on the expected results for the current year. Are the
results for last year/first quarter of this year indicative of expected results
for this year?
What are projected sales, earnings and dividends for the next several
In what areas does the company expect its greatest growth? How will this
growth be achieved?
What is budgeted for capital expenditures this year and what are the major
How will these projects be funded?
What is an acceptable rate of return on new projects?
What is the company's current backlog and how does this compare with last
year? Why has it increased (decreased)?
What are the projected sales and profits for _____ (product, division,
subsidiary)? How will this be accomplished?
What are the growth prospects for _____ (product, division, subsidiary) in
Directors and Management
What was the aggregate amount of compensation paid to directors last
year? Fees? Stock? Options, Other?
Why aren't the details of director's compensation disclosed in the proxy
Are directors' fees adequate to attract qualified professionals?
Do directors receive fees if they do not attend meetings?
Has the company considered granting stock options to directors? Why not?
How is management's compensation determined?
Have the company's compensation policies changed since last year? Explain
how and why these changes were merited.
Is the company reexamining its executive compensation arrangements to
ensure that the level of compensation corresponds, to some degree at least, with
corporate results? Dividends? Shareholder returns? Various nonfinancial matters?
Who is on the Board's Compensation Committee? How are members selected for
What was the percentage increase in management's compensation this year,
including stock options and other noncash compensation?
How does that level of increase compare with the average increase in
compensation for all other employees?
How does it compare with other companies in our industry?
Our dividend increased/decreased ___% this year. How does this compare to
the changes in the senior executives' compensation for the year?
How do you justify increases in executive compensation considering the
company's earnings trend and the fact that dividends have not increased?
What key executives or employees have been lost due to inadequate
compensation? How do we know the company is not excessive in its levels of
What percent of executive compensation is paid in the form of stock
Do management's employment contracts contain non-compete clauses?
What part of executives' compensation is bonus? How is the amount of bonus
Are management incentive plans designed to achieve long-term goals as well
as short-term objectives?
Is there any plan to extend some type of variable, incentive-driven
compensation plan to lower management?
Do any retired officers have consulting agreements with the company? If so,
what are the terms of these agreements?
What is the breakdown of the chief executive officers compensation between
base salary and bonus? What was the percentage increase this year?
Why did the former CEO (COO, CFO, or senior executive) resign? What were
the terms of the termination settlement? Did the company buy back any stock that
the former officer held? If so, at what price?
Who reviews and approves executive expenses?
What perquisites ("perks") (apartments, club memberships, legal,
personal financial planning or other professional services, etc.) does the
company provide for executives?
What is the cost of providing these "perks"? How does this
compare with other companies?
How many airplanes does the company own or lease and what are the costs?
What control does the company maintain to prevent improper use of these
Are these airplanes used for personal travel and, if so, on what basis is
the company reimbursed?
Does the company have a policy concerning loans to directors, officers and
Are loans made to officers to exercise stock options?
What are the aggregate dollar amounts of all loans made to corporate
officers and directors?
Have any officers obtained loans with preferential terms from banks with
which the company does business?
Are officer employment contracts competitive with those offered by other
companies in this industry?
Do any officer employment contracts provide for advisory or consulting
services after retirement?
Do any employment contracts exceed five years?
Do officer employment contracts provide for substantial payments ("golden
parachutes") in the event of termination or significant changes in
ownership of the company's stock? Why aren't such contracts submitted to the
shareholders for approval?
Would any of the present "golden parachute" arrangements be
considered to be excessive under the Internal Revenue Code and therefore not
deductible for tax purposes?
A number of high profile companies have implemented shareholder value
initiatives, such as Economic Value Added (EVA) programs. Why hasnt senior
management implemented such a plan for the company?
Stock Option Plans
Why are stock options granted to top management/directors but not
offered to all employees?
What percentage of the company's domestic employees currently have stock
How often are stock options granted?
Does the company plan to increase the number of options outstanding?
Has the company considered amending or curtailing its stock option plans?
Does the company consider whether an employee has sold large amounts of
stock previously obtained from the exercise of options prior to granting new
How much dilution of common stock will occur as a result of the company's
new stock option plan?
Has the company ever taken action (through repricing or some other
mechanism) to mitigate a loss suffered by employees in the value of their
outstanding stock options as a result of a decline in the stock market?
Why did the company allow accelerated exercise of its options outstanding?
Was this right granted to all option participants? Why or why not?
WHAT, IF ANY, CHANGE IN CONTROL PROVISIONS WERE PUT INTO OPTION AND
FINANCIAL REPORTING DEVELOPMENTS
Under the new EPS rules (FAS 128), you are required to present basic
and diluted EPS. What are the reasons for the difference in these two EPS
HOW DO THE NEW EPS RULES DIFFER FROM THE OLD RULES?
WHAT EPS AMOUNT DOES THE STREET FOLLOW FOR THE COMPANY?
Do you expect the new Segment Reporting rules (FAS 131) to create a future
material change to the segment information the company reports?
Will the new rules for Software Revenue Recognition (SOP 97-2) have an
impact on future results of operations when effective?
How will the FASBs proposed Derivatives and Hedging accounting
standard impact the company? Will the company change its approach to risk
management as a result of the new standard?
Adoption of a new accounting method for Stock-Based Compensation, (FAS
123), reduced reported net income $X per share, and presumably also reduced our
stock price. Why did the company adopt the new accounting method?
Do any of the accounting proposals that take effect in 1997 (market risk
disclosures, environmental remediation liabilities, earnings per share) or are
likely to be issued and effective for 1998 (derivatives and hedging, segment
disclosure, comprehensive income, start up costs) contain requirements that will
cause a significant change in reported income or result in significant new
Accounting and Reporting
The financial statements disclose in the note on stock
options/compensation a pro forma net income amount that is X% less than reported
net income. What is the meaning of this pro forma net income?
What is the company's present position on the desirability of international
accounting standards? Would international accounting standards make it
easier/more difficult for the company to raise capital?
Can we expect the company to disclose more forward looking information in
annual reports now that the SEC has established "safe harbor"
protection against law suits?
Why does the company not expand the information disclosed in Management's
Discussion and Analysis to include more analytical and forward-looking
information about the company and its current problems and what management is
doing to solve them?
Are there any proposed FASB or SEC pronouncements that would significantly
affect the company's financial statements?
What is the companys revenue recognition policy? How does that policy
compare with industry standards and the policies used by its competitors?
HAS THE SEC QUESTIONED YOUR ACCOUNTING AT ANY TIME DURING THE YEAR?
Why doesn't the company send copies of its quarterly reports on Form 10-Q
to all shareholders?
Why isn't segment information provided in the quarterly reports to
What is the book value per share of common stock? Why isn't it disclosed in
the annual report?
How does the company view the question of information overload in financial
Would you describe the company's accounting practices as generally liberal
Does the company follow accounting practices prevalent in its industry?
Why did the company change its method of accounting for _____? Why is this
new accounting method preferable to the old method?
Are any accounting changes anticipated during the next fiscal year? If so,
what is the potential effect on the financial statements?
Goodwill represents a significant portion of the companys asset base.
How is that asset tested for impairment? What impact will the FASBs
project on impairment have on the measurement of goodwill?
There are rumors circulating in the accounting community that the FASB may
decide to take a U.K. accounting standards approach relative to goodwill
acquired in a purchase business combination (i.e. require goodwill to be
immediately expensed or included in equity). What is the FASBs latest
thinking on that issue?
A recent article in the Wall Street Journal mentioned that pooling of
interests accounting is soon to be a thing of the past. What is the status of
the FASBs project on business combinations?
Were there any significant year-end or audit adjustments? If so, what were
they and why did they occur?
What caused the increase (decrease) in the _____ account compared with the
What are the major items included in the _____ account?
What unusual charges or credits to income affected comparability?
What is the company's cash flow per share?
What is in the "other" caption under long term assets/liabilities
in the company's balance sheet?
How are you satisfied that financial reporting misstatements cannot occur
(or has not occurred) here?
Please explain the company's accounting policy for derivative financial
instruments. Please explain the company's disclosures related to derivative
Note: The information printed in this document may not be completely
up-to-date. It was obtained from a Lotus Notes database and was last updated on
03/9/98. Hardcopy is not available. The contents of this database are
copyrighted by PricewaterhouseCoopers. It was originally issued by by William A.
Mooney, Managing Partner, Accounting, Auditing & SEC Services, US Firm's
Stamford National Office, Price Waterhouse before its merger with Coopers &
Lybrand. The two firms merged to become PricewaterhouseCoopers on July 1, 1998.
Comments or questions may be directed to the appropriate department at National
Office or to Lawrence Dodyk, Stamford National Office.