Within many of the subsequent chapters of this textbook, we highlight chapter-relevant material using Ford Motor Company (Ford) and Toyota Motor Corporation (Toyota) as practical examples. We pose questions that require you to apply the concepts introduced in that chapter to the facts of Ford and Toyota. We have selected these companies because they (1) are large, well-known manufacturers of products that are familiar to you, (2) operate in dynamic industries that present serious risks and challenges, (3) are both publicly traded on the New York Stock Exchange, and (4) differ in terms of their issuer status with the Securities and Exchange Commission (Ford is a U.S.-based company and therefore files an annual Form 10-K and Form Def 14A, whereas Toyota is not a U.S.-based company and therefore files an annual Form 20-F).
Go to the Ford and Toyota Web sites or to the EDGAR database on the SEC’s Web site and download the following:
● Ford’s 2012 annual report
● Ford’s 2012 10-K
● Ford’s 2012 Def 14A (i.e., proxy statement)
● Toyota’s 2012 annual report
● Toyota’s 2012 20-F
Chapter-end materials concerning Ford and Toyota contain questions referenced to specific pages within these sources. These materials will introduce you to the companies, provide you with insight into the automotive industry, give you detailed financial results, and describe relevant corporate governance issues. In subsequent chapters, we present additional materials from these sources tailored to the topics of those chapters. For Chapter 2, you should answer the following questions.
General Background Questions
Ford Annual Report or 10-K
Toyota Annual Report or 20-F
1a. Describe the history of Ford, its current business, operating sectors, and reportable segments.
1b. Describe the factors affecting Ford’s profitability and factors affecting the automotive industry in general.
1c. Compare the nature of Ford’s history, business sectors, and reportable segments to those of Toyota.
Corporate Governance Questions
Ford Def 14A 2a. What is the purpose of the Form Def 14A?
2b. What does “Def” stand for?
2c. What types of information does a proxy contain?
3a. Who are the board members who are standing for election at Ford?
3b. Which of them has been deemed “independent” of Ford?
3c. How does Ford determine director independence?
3d. Why does independence matter to shareholders?
3e. What characteristics is Ford seeking when considering individuals to serve on its board?
3f. How are nonemployee board members compensated? Could the nature of the compensation potentially affect the director’s independence? Explain.
4a. Describe Ford’s audit committee and its duties.
4b. Who is the designated financial expert on the audit committee? Does the designation of only one individual as a financial expert seem adequate for the complexity of Ford and the requirements of the Sarbanes-Oxley Act?
4c. Review the audit committee’s report and describe its primary contents.
Toyota Annual Report or 20-F
5a. Who is the auditor for Ford? Who is the auditor for Toyota?
5b. What were the Ford audit fees as a percentage of (a) Total revenue, and (b) Total assets?
5c. What were the Toyota audit fees as a percentage of (a) Total revenue, and (b) Total assets?
Compare these amounts to those for Ford and discuss possible reasons for and implications of the differences.
5d. Audit fees were not always publicly disclosed. In fact, such disclosure became mandatory only since the year 2000 in the United States. Why is public disclosure of audit and other fees paid to the audit firm important?
6. Read Toyota’s corporate governance disclosures. What are the significant differences in corporate governance between Toyota and Ford?