Question

MULTIPLE CHOICE. Please give explanation.

Which of the following board of directors conditions provide REIT general individual shareholders with the best alignment of the equity interest with a REIT

a. No independent directors, 100% annual directors up for annual elections, existence of a special class of stock providing management insiders with a disproportionate controlling vote

b. No independent directors, 50% annual directors up for annual elections, existence of a special class of stock providing management insiders with a disproportionate controlling vote

c. 2 independent directors, 100% annual directors up for annual elections, no special class of stock providing management insiders with a disproportionate controlling vote

d. 2 independent directors, 50% annual directors up for election, no special class of stock providing management insiders with a disproportionate vote

e. No independent directors, 100% annual directors up for election, no special class of stock providing management insiders with a disproportionate vote

Answer 1

c. 2 independent directors, 100% annual directors up for annual elections, no special class of stock providing management insiders with a disproportionate controlling vote

Even as per the stock exchange requirement, REIT should have majority of director independent. It will lead to better corporate governance for REIT and will directors to act in the best interest of the shareholder (not in the management interest). Also higher the percentage annual directors are up for the election every year, better for the shareholders to decide on non-performing / inactive directors and also bring performing or vigilant person on the board.

Also it is better to have all the stock equal voting rights from general shareholders perspective. It gives them equal weight (as management) at the time of election on important decision.