This case examines seven commonly accepted myths about corporate governance. How can we expect managerial behavior and firm performance to improve, if practitioners continue to rely on myths rather than facts to guide their decisions?
This Research Spotlight provides a summary of the academic literature on whether companies with an independent chairman of the board exhibit better governance quality than companies with a dual chairman/CEO.
It reviews the evidence of:
• The relation between independent chair and market value
• Shareholder reaction to a decision to separate chairman and CEO roles
• Separation during the succession process
• Separation to improve oversight
• The impact of separation on performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
Authors: Professor David F. Larcker and Brian Tayan, Researcher, Corporate Governance Research Initiative, Stanford Graduate School of Business
Other organizational structures exist besides public corporations. Examples include family-controlled businesses, venture-backed companies, private equity-owned businesses, and nonprofit organizations. Each of these faces their own issues relating to purpose, ownership, and control.
This Quick Guide reviews the governance features adopted by these entities.
It provides answers to the questions:
• What are the purposes of these organizations?
• What governance solutions do they adopt?
• How effective are they in meeting their objectives?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
Staggered Boards
Authors: Professor David F. Larcker and Brian Tayan,
Researcher, Corporate Governance Research Initiative
Stanford Graduate School of Business
This Research Spotlight provides a summary of the academic literature on how staggered boards impact shareholder value by insulating management from the pressures of capital markets.
It reviews the evidence of:
-Staggered board provisions in IPO charters
-The impact of staggered boards on merger activity
-The relation between staggered boards and market value
-Shareholder reaction to a decision to (de)stagger a board
-Firm outcomes following a decision to (de)stagger a board
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
By David Larcker and Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), Stanford Graduate School of Business, October 2016.
This Research Spotlight provides a summary of the academic literature on internal and external CEOs.
It reviews the evidence of:
• Trends in hiring external CEOs
• Operating condition of companies that hire internal and external CEOs
• Stock market reaction to hiring external CEOs
• Relative performance of internal and external CEOs
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
David F. Larcker and Brian Tayan
Stanford Closer Look Series
June 24, 2016
One of the most controversial issues in corporate governance is whether the CEO of a corporation should also serve as chairman of the board. In theory, an independent board chair improves the ability of the board to oversee management. However, an independent chairman is not unambiguously positive, and can lead to duplication of leadership, impair decision making, and create internal confusion—particularly when an effective dual chairman/CEO is already in place.
In this Closer Look, we examine in detail the leadership structure of publicly traded corporations and the circumstances under which they are changed. We ask:
• What factors should the board consider in deciding whether to combine or separate board leadership?
• How can the board weigh the tradeoffs between stability of leadership, efficient decision making, and decreased oversight?
• What structure should be the default setting for a corporation?
• Why do activists advocate that corporations strictly separate the roles when there is little research support for this position?
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2016
Download
This Research Spotlight provides a summary of the research literature on whether companies with diverse boards (in terms of background, gender, or ethnicity) exhibit better performance and governance quality than companies without diverse boards.
It reviews the evidence of:
The relation between diversity and corporate performance
The relation between diversity and compensation
The relation between diversity and governance quality
The impact of mandatory quotas
The impact of diversity on group performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
This Data Spotlight provides data and statistics on the attributes of boards of directors of publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
This Research Spotlight provides a summary of the academic literature on whether companies with an independent chairman of the board exhibit better governance quality than companies with a dual chairman/CEO.
It reviews the evidence of:
• The relation between independent chair and market value
• Shareholder reaction to a decision to separate chairman and CEO roles
• Separation during the succession process
• Separation to improve oversight
• The impact of separation on performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
Authors: Professor David F. Larcker and Brian Tayan, Researcher, Corporate Governance Research Initiative, Stanford Graduate School of Business
Other organizational structures exist besides public corporations. Examples include family-controlled businesses, venture-backed companies, private equity-owned businesses, and nonprofit organizations. Each of these faces their own issues relating to purpose, ownership, and control.
This Quick Guide reviews the governance features adopted by these entities.
It provides answers to the questions:
• What are the purposes of these organizations?
• What governance solutions do they adopt?
• How effective are they in meeting their objectives?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
Staggered Boards
Authors: Professor David F. Larcker and Brian Tayan,
Researcher, Corporate Governance Research Initiative
Stanford Graduate School of Business
This Research Spotlight provides a summary of the academic literature on how staggered boards impact shareholder value by insulating management from the pressures of capital markets.
It reviews the evidence of:
-Staggered board provisions in IPO charters
-The impact of staggered boards on merger activity
-The relation between staggered boards and market value
-Shareholder reaction to a decision to (de)stagger a board
-Firm outcomes following a decision to (de)stagger a board
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
By David Larcker and Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), Stanford Graduate School of Business, October 2016.
This Research Spotlight provides a summary of the academic literature on internal and external CEOs.
It reviews the evidence of:
• Trends in hiring external CEOs
• Operating condition of companies that hire internal and external CEOs
• Stock market reaction to hiring external CEOs
• Relative performance of internal and external CEOs
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
David F. Larcker and Brian Tayan
Stanford Closer Look Series
June 24, 2016
One of the most controversial issues in corporate governance is whether the CEO of a corporation should also serve as chairman of the board. In theory, an independent board chair improves the ability of the board to oversee management. However, an independent chairman is not unambiguously positive, and can lead to duplication of leadership, impair decision making, and create internal confusion—particularly when an effective dual chairman/CEO is already in place.
In this Closer Look, we examine in detail the leadership structure of publicly traded corporations and the circumstances under which they are changed. We ask:
• What factors should the board consider in deciding whether to combine or separate board leadership?
• How can the board weigh the tradeoffs between stability of leadership, efficient decision making, and decreased oversight?
• What structure should be the default setting for a corporation?
• Why do activists advocate that corporations strictly separate the roles when there is little research support for this position?
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2016
Download
This Research Spotlight provides a summary of the research literature on whether companies with diverse boards (in terms of background, gender, or ethnicity) exhibit better performance and governance quality than companies without diverse boards.
It reviews the evidence of:
The relation between diversity and corporate performance
The relation between diversity and compensation
The relation between diversity and governance quality
The impact of mandatory quotas
The impact of diversity on group performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
This Data Spotlight provides data and statistics on the attributes of boards of directors of publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
Authors: David F. Larcker and Brian Tayan
Stanford Closer Look Series, March 28, 2017
Long Version
Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor. Why would a company make such a decision? In this Closer Look, we examine this question in detail.
We ask:
• What does it say about a company’s succession plan when the board appoints a current director as CEO?
• What is the process by which the board makes this decision?
• Are directors-turned-CEO the most qualified candidates, or do they represent a stop-gap measure?
• What does the sudden nature of these transitions say about the board’s ability to monitor performance?
CEO Turnover
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. September 2016
This Research Spotlight provides a summary of the academic literature on relation between CEO performance and turnover. It reviews the evidence of:
The relation between performance and likelihood of termination
The relation between board attributes and likelihood of termination
Other factors that might influence CEO performance oversight
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
By David F. Larcker and Brian Tayan, Stanford Research Spotlight Series, September 1, 2016
This Research Spotlight provides a summary of the academic literature on the influence that CEOs have on company outcomes (performance and risk). It reviews the evidence of:
• The contribution of the CEO to overall company performance
• The relation between previous managerial experience and future performance
• The relation between personal attributes and performance
• The relation between personality and performance
• Factors that might influence risk tolerance
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
January 23rd, 2012
What Is CEO Talent Worth?
By Professor, David F. Larcker and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford Graduate School of Business
January 24, 2012
The topic of executive compensation elicits strong emotions among corporate stakeholders and practitioners. On the one hand are those who believe that chief executive officers in the United States are overpaid. On the other hand are those who believe that CEOs are simply paid the going fair-market rate.
Much less effort, however, is put into determining whether total compensation is commensurate with the value of services rendered.
We examine the issue and explain how such a calculation might be performed. We ask:
* How much value creation should be attributable to the efforts of the CEO?
* What percentage of this value should be fairly offered as compensation?
* Can the board actually perform this calculation? If not, how does it make rational decisions about pay levels?
Read the attached Closer Look and let us know what you think!
This Data Spotlight provides data and statistics on the level and structure of CEO compensation in the United States. This data supplements in the issues introduced in the Quick Guides “CEO Compensation” and “Equity Ownership.”
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
By David F. Larcker, Stephen Miles, Taylor Griffin and Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, and The Miles Group, November 2016
BOARD OF DIRECTORS EVALUATION AND EFFECTIVENESS
In the summer of 2016, the Rock Center for Corporate Governance at Stanford University along with The Miles Group conducted a nationwide survey of 187 board directors of public and private companies.
The study reveals that while boards generally rate themselves positively in terms of skills and expertise, significantly high negatives are a cause for concern for a large number of firms.
Read the survey to find out more.
By David F. Larcker, Brian Tayan
Stanford Closer Look Series. Corporate Governance Research Initiative (CGRI), April 14, 2016
Institutional investors pay considerable attention to the quality of a company’s governance. Unfortunately, it is difficult for outside observers to reliably gauge governance quality. Oftentimes, poor governance manifests itself only after decisions have been made and their outcomes known. We examine four companies that have had experienced chronic governance-related problems in the past, including Massey Energy, Nabors Industries, Yahoo!, and Chesapeake Energy.
We ask:
How can shareholders diagnose the issues facing a company to determine whether they are the result of bad corporate governance?
How can shareholders tell if the CEO or the board is the root cause of the problem?
How can shareholders tell if the board is “captured” by the CEO?
How can shareholders tell when a company begins to “drift?”
How can they tell if the “right” CEO is in charge?
In case of business, Corporate Governance is a new era. It has potential scope to find it useful though it hasn't actually been evolved from one theory. Many theories from different disciplinary area contributed to develop fundamental of corporate governance.
Many believe that the selection of the CEO is the single most important decision that a board of directors can make. In recent years, several high profile transitions at major corporations have cast a spotlight on succession and called into question the reliability of the process that companies use to identify and develop future leaders.
In this Closer Look, we examine seven common myths relating to CEO succession. These myths include the beliefs that:
1. Companies Know Who the Next CEO Will Be
2. There is One Best Model for Succession
3. The CEO Should Pick a Successor
4. Succession is Primarily a “Risk Management” Exercise
5. Boards Know How to Evaluate CEO Talent
6. Boards Prefer Internal Candidates
7. Boards Want a Female or Minority CEO
We examine each of these myths and explain why they do not always hold true. We ask:
• Why aren’t more companies prepared for a change at the top?
• Would directors make better hiring decisions if they had better knowledge of the senior management team?
• Would they be more likely to hire a CEO from within?
• Would they be more likely to hire a female or minority candidate?
• How many succession should a director participate in before he or she is considered “qualified” to lead one?
Read the Closer Look and let us know what you think!
Presentation provides an overview of the theoretical concepts in corporate governance, few definitions, methods to measure it and a brief overview of recent developments in corporate governance in the Caribbean.
Because unexpected CEO successions can paralyze even the best-functioning companies, they can wreak a harsh toll on revenues, earnings, and stock prices. All of which means there is a far greater payoff to getting succession right than current practices imply. The key is consistent planning.
Seven Myths of Boards of Directors
David F. Larcker and Brian Tayan
September 30, 2015
Corporate governance experts pay considerable attention to issues involving the board of directors. Because of the scope of the board’s role and the vast responsibilities that come with directorship, companies are expected to adhere to common best practices in board structure, composition, and procedures. While some of these practices contribute to board effectiveness, others have been shown to have no or a negative bearing on governance quality.
We review seven commonly accepted beliefs about boards of directors:
1. The chairman should be independent
2. Staggered boards are bad for shareholders
3. Directors that meet NYSE independence standards are independent
4. Interlocked directorships reduce governance quality
5. CEOs make the best directors
6. Directors have significant liability risk
7. The failure of a company is the board’s fault
We ask:
• Why isn’t more attention paid to board processes rather than structure?
• Why aren’t more governance practices voluntary rather than required?
• Would flexible standards lead to better solutions or more failures?
• When do directors deserve the blame for a company’s failure and when is it the fault of management, the marketplace, or luck?
• How can shareholders more effectively monitor board performance?
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
Authors: David F. Larcker and Brian Tayan
Stanford Closer Look Series, March 28, 2017
Long Version
Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor. Why would a company make such a decision? In this Closer Look, we examine this question in detail.
We ask:
• What does it say about a company’s succession plan when the board appoints a current director as CEO?
• What is the process by which the board makes this decision?
• Are directors-turned-CEO the most qualified candidates, or do they represent a stop-gap measure?
• What does the sudden nature of these transitions say about the board’s ability to monitor performance?
CEO Turnover
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. September 2016
This Research Spotlight provides a summary of the academic literature on relation between CEO performance and turnover. It reviews the evidence of:
The relation between performance and likelihood of termination
The relation between board attributes and likelihood of termination
Other factors that might influence CEO performance oversight
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
By David F. Larcker and Brian Tayan, Stanford Research Spotlight Series, September 1, 2016
This Research Spotlight provides a summary of the academic literature on the influence that CEOs have on company outcomes (performance and risk). It reviews the evidence of:
• The contribution of the CEO to overall company performance
• The relation between previous managerial experience and future performance
• The relation between personal attributes and performance
• The relation between personality and performance
• Factors that might influence risk tolerance
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
January 23rd, 2012
What Is CEO Talent Worth?
By Professor, David F. Larcker and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford Graduate School of Business
January 24, 2012
The topic of executive compensation elicits strong emotions among corporate stakeholders and practitioners. On the one hand are those who believe that chief executive officers in the United States are overpaid. On the other hand are those who believe that CEOs are simply paid the going fair-market rate.
Much less effort, however, is put into determining whether total compensation is commensurate with the value of services rendered.
We examine the issue and explain how such a calculation might be performed. We ask:
* How much value creation should be attributable to the efforts of the CEO?
* What percentage of this value should be fairly offered as compensation?
* Can the board actually perform this calculation? If not, how does it make rational decisions about pay levels?
Read the attached Closer Look and let us know what you think!
This Data Spotlight provides data and statistics on the level and structure of CEO compensation in the United States. This data supplements in the issues introduced in the Quick Guides “CEO Compensation” and “Equity Ownership.”
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
By David F. Larcker, Stephen Miles, Taylor Griffin and Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, and The Miles Group, November 2016
BOARD OF DIRECTORS EVALUATION AND EFFECTIVENESS
In the summer of 2016, the Rock Center for Corporate Governance at Stanford University along with The Miles Group conducted a nationwide survey of 187 board directors of public and private companies.
The study reveals that while boards generally rate themselves positively in terms of skills and expertise, significantly high negatives are a cause for concern for a large number of firms.
Read the survey to find out more.
By David F. Larcker, Brian Tayan
Stanford Closer Look Series. Corporate Governance Research Initiative (CGRI), April 14, 2016
Institutional investors pay considerable attention to the quality of a company’s governance. Unfortunately, it is difficult for outside observers to reliably gauge governance quality. Oftentimes, poor governance manifests itself only after decisions have been made and their outcomes known. We examine four companies that have had experienced chronic governance-related problems in the past, including Massey Energy, Nabors Industries, Yahoo!, and Chesapeake Energy.
We ask:
How can shareholders diagnose the issues facing a company to determine whether they are the result of bad corporate governance?
How can shareholders tell if the CEO or the board is the root cause of the problem?
How can shareholders tell if the board is “captured” by the CEO?
How can shareholders tell when a company begins to “drift?”
How can they tell if the “right” CEO is in charge?
In case of business, Corporate Governance is a new era. It has potential scope to find it useful though it hasn't actually been evolved from one theory. Many theories from different disciplinary area contributed to develop fundamental of corporate governance.
Many believe that the selection of the CEO is the single most important decision that a board of directors can make. In recent years, several high profile transitions at major corporations have cast a spotlight on succession and called into question the reliability of the process that companies use to identify and develop future leaders.
In this Closer Look, we examine seven common myths relating to CEO succession. These myths include the beliefs that:
1. Companies Know Who the Next CEO Will Be
2. There is One Best Model for Succession
3. The CEO Should Pick a Successor
4. Succession is Primarily a “Risk Management” Exercise
5. Boards Know How to Evaluate CEO Talent
6. Boards Prefer Internal Candidates
7. Boards Want a Female or Minority CEO
We examine each of these myths and explain why they do not always hold true. We ask:
• Why aren’t more companies prepared for a change at the top?
• Would directors make better hiring decisions if they had better knowledge of the senior management team?
• Would they be more likely to hire a CEO from within?
• Would they be more likely to hire a female or minority candidate?
• How many succession should a director participate in before he or she is considered “qualified” to lead one?
Read the Closer Look and let us know what you think!
Presentation provides an overview of the theoretical concepts in corporate governance, few definitions, methods to measure it and a brief overview of recent developments in corporate governance in the Caribbean.
Because unexpected CEO successions can paralyze even the best-functioning companies, they can wreak a harsh toll on revenues, earnings, and stock prices. All of which means there is a far greater payoff to getting succession right than current practices imply. The key is consistent planning.
Seven Myths of Boards of Directors
David F. Larcker and Brian Tayan
September 30, 2015
Corporate governance experts pay considerable attention to issues involving the board of directors. Because of the scope of the board’s role and the vast responsibilities that come with directorship, companies are expected to adhere to common best practices in board structure, composition, and procedures. While some of these practices contribute to board effectiveness, others have been shown to have no or a negative bearing on governance quality.
We review seven commonly accepted beliefs about boards of directors:
1. The chairman should be independent
2. Staggered boards are bad for shareholders
3. Directors that meet NYSE independence standards are independent
4. Interlocked directorships reduce governance quality
5. CEOs make the best directors
6. Directors have significant liability risk
7. The failure of a company is the board’s fault
We ask:
• Why isn’t more attention paid to board processes rather than structure?
• Why aren’t more governance practices voluntary rather than required?
• Would flexible standards lead to better solutions or more failures?
• When do directors deserve the blame for a company’s failure and when is it the fault of management, the marketplace, or luck?
• How can shareholders more effectively monitor board performance?
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
BUS 499, Week 8 Corporate Governance Slide #TopicNarrationVannaSchrader3
BUS 499, Week 8: Corporate Governance
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
3
Supporting Topics
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
4
Separation of Ownership and Managerial Control
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisionsare made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agencyrelationship. An agency relationship exists when one or more persons hire another person or persons as decision- making specialists to perform a service. As a result an agency relationship exists when one party delegates decision- making responsibility to a second party for compensation. Other examples of agency relationships are consultants and clients and insured and insurer. An agency relationship can also exist between managers and their employees, as well as between top- level managers and the firm’s owners.
The sep ...
BUS 499, Week 8 Corporate Governance Slide #TopicNarration.docxcurwenmichaela
BUS 499, Week 8: Corporate Governance
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
3
Supporting Topics
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
4
Separation of Ownership and Managerial Control
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisionsare made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agencyrelationship. An agency relationship exists when one or more persons hire another person or persons as decision- making specialists to perform a service. As a result an agency relationship exists when one party delegates decision- making responsibility to a second party for compensation. Other examples of agency relationships are consultants and clients and insured and insurer. An agency relationship can also exist between managers and their employees, as well as between top- level managers and the firm’s owners.
The sep.
Corporate Governance a Balanced Scorecard approach with KPIs between BOD, Exe...Chris Rigatuso
This paper, from 2003, during my time at Oracle, was an early attempt to define metrics for inducing accountability between BOD, executives, and operating management of corporations. It's geared to large companies, but the lessons are broadly appreciable. It was published in CFO Reviews by Anderson Consulting, and other places. It predates the SOX Sarbanes Oxley laws that were a result of the Enron Scandal.
Ten Myths of “Say On Pay”
Authors: Professor David F. Larcker, Stanford Graduate School of Business; Allan McCall, co-founder of Compensia and currently a PhD candidate at the Stanford GSB; Gaizka Ormazabal, Assistant Professor of Accounting at IESE Business School at the University of Navarra; and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford GSB.
Published: July 28, 2012
Say on pay is the practice of granting shareholders the right to vote on a company’s executive compensation program at the annual shareholder meeting. Under the Dodd-Frank Act of 2010, publicly traded companies in the U.S. are required to adopt say on pay. Advocates of this approach believe that say on pay will increase the accountability of corporate directors and lead to improved compensation practices.
In recent years, several myths have come to be accepted by the media and governance experts. These myths include the beliefs that:
There is only one approach to “say on pay”
All shareholders want the right to vote on executive compensation
Say on pay reduces executive compensation levels Pay plans are a failure if they do not receive high shareholder support
Say on pay improves “pay for performance”
Plain-vanilla equity awards are not performance-based
Discretionary bonuses should not be allowed
Shareholders should reject nonstandard benefits
Boards should adjust pay plans to satisfy dissatisfied shareholders
Proxy advisory firm recommendations for say on pay are correct
We examine each of these myths in the context of the research evidence and explain why they are incorrect.
We ask:
* Should the U.S. rescind the requirement for mandatory say on pay and return to a voluntary regime?
Read the attached Closer Look and let us know what you think!
To receive monthly alerts about the Closer Look series, please email the Stanford Corporate Governance Research Program at corpgovernance@gsb.stanford.edu. You can also follow more corporate governance
Some executives who accumulate a substantial ownership position in the company hedge or pledge their shares to limit their financial risk. Should the board of directors allow this to occur?
The following report by the Credit Suisse
Research Institute explores several important
aspects of the connection between sound governance
and improved business performance. It provides
new data to support the growing investor
interest in governance-related rules and practices
and introduces innovative ways to assess corporate
performance, such as the HOLT governance scorecard,
to support more effective governance-oriented
decision making. Moreover, our experts identify specific
company types and sectors, in which governance
can serve as a particularly robust investment
strategy instrument. Corporate governance is further
likely to contribute to investment decisions in
emerging economies, for instance when firm-level
structures actively compensate for the possible
absence of country-level governance provisions.
Home Learning Week 81.) What is Corporate Social ResponsibilitSusanaFurman449
Home Learning Week 8
1.) What is Corporate Social Responsibility and why are companies engaged in it?
2.) Discuss the evolving phases of Corporate Social Responsibility
3.) Describe Carroll’s four-part definition of CSR and contrast it to Firedman’s “the business of business is business”
4.) Discuss why companies are engaged in Corporate Social Reporting
Senior Seminar in Business Administration
BUS 499
Corporate Governance
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
Supporting Topics
Separation of Ownership and Managerial Control
Ownership Concentration
Board of Directors
Market for Corporate Control
International Corporate Governance
Governance Mechanisms and Ethical Behavior
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
Separation of Ownership and Managerial Control
What is Corporate Governance
Shareholders
Purchase stock
Managing of their investment risk
Agency Relationships
Problems
Different interests and goals
Managerial Opportunism
Agency Costs
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisions are made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage ...
Recently, shareholder groups have sued companies for inadequate disclosure in the annual proxy. They allege that companies provide insufficient disclosure to determine how to vote on “say on pay.” If a company follows SEC guidelines, why is this not sufficient?
By David F. Larcker and Brian Tayan, Stanford Closer Look Series, December 3, 2018
Companies are required to have a reliable system of corporate governance in place at the time of IPO in order to protect the interests of public company investors and stakeholders. Yet, relatively little is known about the process by which they implement one. This Closer Look, based on detailed data from a sample of pre-IPO companies, examines the process by which companies go from essentially having no governance in place at the time of their founding to the fully established systems of governance required of public companies by the Securities and Exchange Commission. We examine the vastly different choices that companies make in deciding when and how to implement these standards.
We ask:
• What factors do CEOs and founders take into account in determining how to implement governance systems?
• Should regulators allow companies greater flexibility to tailor their governance systems to their specific needs?
• Which elements of governance add to business performance and which are done only for regulatory purposes?
• How much value does good governance add to a company’s overall valuation?
• When should small or medium sized companies that intend to remain private implement a governance system?
RE Chapter 34 Building an ERM Program at General MotorsCOLLAPS.docxaudeleypearl
RE: Chapter 34: Building an ERM Program at General Motors
COLLAPSE
Top of Form
1. What are the pros and cons of having risk officers as part-time assignments within different functions and business units?
The pros and cons of having risk officers as part-time assignments within different functions and business units are listed below:
Pros: The organization's advantage by utilizing low maintenance workers for hazard the executives as the compensation rate the business uses to moderate maintenance representatives are generally smaller than a typical working hour.
Cons: The hazard happens the control measure may not be as robust as when they are available along these lines a ton of harms may happen. Low maintenance laborers won't be nearly as frequently as your full-time staff. It may take them longer to become accustomed to your organization's way of life or become acquainted with the projects utilized usually.
2. Can you think of a company whose strategy failed due to its not considering the actions of external players?
On the off chance that the organization would have had or utilized better hazard the board and had the option to test the new programming before going live with it, Knight Capital may at present be a money related contender on Wall Street today. Or if nothing else had the option to recuperate from their misfortunes and remain the pioneer that they used to be. Organizations like Knight Capital must make arrangement for everything, including short and long haul dangers. Hazard the executives is pivotal to the achievement all things considered, and for this situation, was not centered on enough.
3. Do you think that companies need to experience a crisis to take risk seriously?
They can gain from their very own understanding and by leading a hazard examination to acknowledge potential dangers that are dangerous to their firm. No, organizations don't have to encounter an emergency to pay attention to the hazard. Organizations become better by learning their business condition and taking a gander at what their rivals are experiencing. Organizations today have installed chance administration forms in the majority of its specializations, which is an unmistakable sign that they've paid attention to it tremendously. Organizations execute hazard the board plan which covers how they can deal with various dangers directly before they occur.
Reference:
Fraser, J., Simkins, B., & Narvaez, K. (2014). Implementing enterprise risk management: Case studies and best practices. John Wiley & Sons.
Bottom of Form
RE: Chapter 31: Bon Boulangerie
1. How does Ray’s strategic objective translate to the operational level, that is, what is his key operational objective(s) for the wholesale business line?
Ray’s a strategic objectivethattranslates to the operational level that Bon Boulangerie pastry shop target ought to be expansionary, given it's present remaining in the market. A market head can keep up, develop, and ensure its the situation in t ...
Institutional investors are highly dissatisfied with the quality of information that they receive about corporate governance policies and practices in the annual proxy. Across the board, they want proxies to be shorter, more concise, more candid, and less legal.
The largest complaint involves executive compensation and the inability of investors to determine whether senior management is paid appropriately. Based on recent survey data from major institutional investors, we describe the information that shareholders would like to see in the “ideal” proxy statement.
We ask:
• What changes can companies make to proxies contain the information that investors want in a format that is easy to read and navigate?
• Would shareholder understanding of corporate governance practices improve if companies provided clearer and more succinct data?
• How might the debate about executive compensation change?
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
David F. Larcker, Brian Tayan, Vinay Trivedi, and Owen Wurzbacher, Stanford Closer Look Series, July 2, 2019
Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs.
We ask:
• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative, June 2019
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide will take an in-depth look at Shareholders and Activism.
By Brandon Boze, Margarita Krivitski, David F. Larcker, Brian Tayan, and Eva Zlotnicka
Stanford Closer Look Series
May 23, 2019
Recently, there has been debate among corporate managers, board of directors, and institutional investors around how best to incorporate ESG (environmental, social, and governance) factors into strategic and investment decision-making processes. In this Closer Look, we examine a framework informed by the experience of ValueAct Capital and include case examples.
We ask:
• What is the investment horizon prevalent among most companies today?
• Do companies miss long-term opportunities because of a focus on short-term costs?
• How many companies have an opportunity to profitably invest in ESG solutions?
• What factors determine whether a company can profitably invest in ESG solutions?
• Can investors earn competitive risk-adjusted returns through ESG investments?
• If so, how widespread is this opportunity?
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
This Research Spotlight provides a summary of the academic literature on how dual-class share structures influence firm value and corporate governance quality. It reviews the evidence of:
• The relation between dual-class shares and governance quality
• The relation between dual-class shares and tax avoidance
• The relation between dual-class shares and firm value and performance
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
By Courtney Hamilton, David F. Larcker, Stephen A. Miles, and Brian Tayan, Stanford Closer Look Series, February 15, 2019
Two decades ago, McKinsey advanced the idea that large U.S. companies are engaged in a “war for talent” and that to remain competitive they need to make a strategic effort to attract, retain, and develop the highest-performing executives. To understand the contribution of the human resources department to company strategy, we surveyed 85 CEOs and chief human resources officers at Fortune 1000 companies. In this Closer Look, we examine what these senior executives say about the contribution of HR to the strategic efforts and financial performance of their companies.
We ask:
• What role does HR play in the development of corporate strategy?
• Does HR have an equal voice or is it junior to other members of the senior management team?
• Do boards see HR and human capital as critical to corporate performance?
• How do boards ascertain whether management has the right HR strategy?
• How adept are companies at using data from HR systems to learn what programs work and why?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University surveyed 53 founders and CEOs of 47 companies that completed an Initial Public Offering in the U.S. between 2010 and 2018 to understand how corporate governance practices evolve from startup through IPO.
David F. Larcker, Stephen A. Miles, Brian Tayan, and Kim Wright-Violich
Stanford Closer Look Series, November 8, 2018
CEO activism—the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business—has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism.
We ask:
• How widespread is CEO activism?
• How well do boards understand the advocacy positions of their CEOs?
• Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?
• How should boards measure the costs and benefits of CEO activism?
• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, October 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,544 individuals — representative by gender, race, age, household income, and state residence — to understand how the American public views CEOs who take public positions on environmental, social, and political issues.
“We find that the public is highly divided about CEOs who take vocal positions on social, environmental, or political issues,” says Professor David F. Larcker, Stanford Graduate School of Business. “While some applaud CEOs who speak up, others strongly disapprove. The divergence in opinions is striking. CEOs who take public positions on specific issues might build loyalty with their employees or customers, but these same positions can inadvertently alienate important segments of those populations. The cost of CEO activism might be higher than many CEOs, companies, or boards realize.”
“Hot-button issues are hot for a reason,” adds Brian Tayan, researcher at Stanford Graduate School of Business. “Interestingly, people are much more likely to think of products they have stopped using than products they have started using because of a position the CEO took on a public issue. When consumers don’t like what they hear, they react the best way they know how to: by closing their wallets.”
By David F. Larcker, Brian Tayan, CGRI Quick Guide Series. Corporate Governance Research Initiative, September 2018
This guide provides data and statistics on the attributes of the CEOs and CEO succession events at publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “CEO Succession Planning.”
By David F. Larcker, Brian Tayan, CGRI Quick Guide Series. Corporate Governance Research Initiative, September 2018
This Data Spotlight provides data and statistics on the attributes of boards of directors of publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
More from Stanford GSB Corporate Governance Research Initiative (20)
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Remote sensing and monitoring are changing the mining industry for the better. These are providing innovative solutions to long-standing challenges. Those related to exploration, extraction, and overall environmental management by mining technology companies Odisha. These technologies make use of satellite imaging, aerial photography and sensors to collect data that might be inaccessible or from hazardous locations. With the use of this technology, mining operations are becoming increasingly efficient. Let us gain more insight into the key aspects associated with remote sensing and monitoring when it comes to mining.
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
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1. Topics, Issues, and Controversies in Corporate Governance and Leadership
S T A N F O R D C L O S E R L O O K S E R I E S
stanford closer look series 1
Seven Myths of Corporate Governance
Introduction
Corporate governance has become a popular topic
of discussion among the business community, the
media, regulators, legislators, and the general pub-
lic. This has particularly been the case since the
scandals of 2001-2002 (Enron, WorldCom, Tyco,
etc.) and the financial crisis of 2008-2009 (Bear
Stearns, Lehman, AIG, etc.) exposed self-interested
and in some cases fraudulent behavior that precipi-
tated the collapse of prominent U.S. corporations.
Subsequently, much of the discussion has focused
on how to improve governance systems broadly.
In the process, certain myths have developed that
continue to be accepted, despite a lack of robust
supporting evidence.
Myth #1: The Structure of the Board =
the Quality of the Board
The most commonly accepted myth in corporate
governance is that the structure of the board al-
ways tells you something about the quality of the
board. To this end, governance experts often evalu-
ate a board by placing considerable emphasis on
its prominent observable attributes. These include
features such as whether it has an independent
chairman, a lead director, the number of outside
directors, the independence of its directors, the in-
dependence of its committees, size, diversity, the
number of “busy” directors, and whether the board
is interlocked.1
However, these attributes have been
rigorously studied by researchers and, for the most
part, have been shown to have little bearing on
governance quality (see Exhibit 1).2
Instead, board
quality likely depends on attributes that are less well
examined, including the qualification and engage-
ment of individual directors, boardroom dynamics,
By David F. Larcker and Brian Tayan
June 1, 2011
and the processes by which the board fulfills its du-
ties.
Myth #2: CEOs Are Systematically Overpaid
Another common misconception is that the CEOs
of publicly traded U.S. corporations are system-
atically overpaid. For example, Bebchuk and Fried
have written that, “Flawed compensation arrange-
ments have not been limited to a small number of
‘bad apples’; they have been widespread, persistent,
and systemic.”3
Similarly, Macey has posited that,
“Executive compensation is too high in the U.S.
because the process by which executive compensa-
tion is determined has been corrupted by acquies-
cent, pandering, and otherwise ‘captured’ boards of
directors.”4
While it is true that certain individual execu-
tives in the U.S. receive compensation that is un-
merited based on the size and performance of their
company, the compensation awarded to the average
CEO is much more modest than these authors sug-
gest. Based on data from the 4,000 largest publicly
traded companies, the average (median) CEO re-
ceived total compensation of $1.6 million in fiscal
year 2008. This figure includes salary, bonus, the
fair value of equity-related grants, and other ben-
efits and income.5
This does not seem like an un-
conscionable level of compensation for an around-
the-clock job with tremendous responsibility (see
Exhibit 2).
The average CEO among the largest 100 cor-
porations received total compensation of $11.4
million. These executives managed companies
with a median market capitalization of $35.6 bil-
lion. It is much more difficult to evaluate whether
compensation packages of this size are appropriate.
2. stanford closer look series 2
Seven Myths of Corporate Governance
The companies involved are very large, and their
management is no easy task. Part of the assessment
should take into account how much pay-for-perfor-
mance is embedded in the arrangement. (That is,
these figures are not all fixed salary. A considerable
portion represents “at risk” compensation in the
form of equity-related grants whose ultimate worth
will depend on the value delivered.) This requires a
case-by-case evaluation.
Myth #3: There Is No “Pay for Performance”
in CEO Compensation
“Pay for performance” is the notion that the amount
of compensation awarded to an executive should be
related to the value of the services rendered during
a specified period. Some critics contend that there
is a disconnect between these two and that pay
for performance does not exist in the U.S.6
While
there are examples of unreasonable compensation,
it is not true that the typical CEO is not paid to
perform. On average, CEOs hold a personal equity
stake in the companies they manage with a median
value of $4.6 million. This includes the fair value of
stock directly held and equity grants, such as stock
options and restricted stock. A one percent change
in the company’s share price translates into a rough-
ly $54,000 change in the underlying value of these
holdings. If the CEO doubles the stock price, he
or she stands to realize $5.2 million in appreciated
value.7
These are significant sums of money that
provide incentive to create, and not destroy, share-
holder wealth over the long-term (see Exhibit 3).
Myth #4: Companies Are Prepared for a
CEO Succession
Another myth in corporate governance is that
boards of directors are prepared to replace the
CEO in the event of a transition. Unfortunately,
the evidence suggests that this is not the case. At
many companies, succession planning appears to be
compliance-based rather than operational (i.e., the
company has a list of potential candidates but could
not name a permanent successor if called to do so
immediately). According to survey data, 39 percent
of companies report having zero “ready now” inter-
nal candidates to fill the CEO role. One reason for
this lack of preparedness seems to be insufficient
attention on the part of the board. On average,
boards spend only 2 hours per year discussing suc-
cession (see Exhibit 4).8
This might explain why so
many companies resort to “emergency” (or interim)
appointments and begin the permanent selection
process only after a resignation has occurred.
Myth #5: Regulation Improves Corporate
Governance
In the last ten years, two major pieces of legislation
have been enacted in the United States relating to
governance. The first is the Sarbanes-Oxley Act of
2002. The second is the Dodd-Frank Act of 2010.
Despite the increased federalization of corporate
governance, there is little evidence that legislative
mandates improve corporate outcomes. For exam-
ple, ten years after the passage of Sarbanes-Oxley,
experts are still debating whether the regulation
is cost effective.9
Similarly, the Dodd-Frank Act
imposes governance changes on companies that
were previously at the discretion of the board and
its shareholders. Two of its key provisions include
proxy access and say-on-pay.10
• Proxy access. Companies must allow sharehold-
ers (or groups of shareholders) that maintain at
least a 3 percent ownership position for three or
more years to nominate up the 25 percent of the
board on the annual proxy. This is also referred
to as “shareholder democracy.”
• Say-on-Pay. Companies are required to grant
shareholders a nonbinding, advisory vote on
whether they approve of the executive com-
pensation program. Say-on-pay votes must take
place no less frequently than every three years.
There is no evidence that these provisions improve
corporate outcomes. In fact, some research findings
suggest that Dodd-Frank is more likely to destroy
than enhance shareholder value.11
Myth #6: Voting Recommendations Are
Based on Rigorous Research
Another widely accepted myth of corporate gover-
nance is that proxy advisory firms are experts and
that their recommendations increase shareholder
value. Many institutional investors consult the
recommendation of a third-party advisory firm be-
fore deciding how to vote the annual proxy. The
3. stanford closer look series 3
Seven Myths of Corporate Governance
evidence suggests that the recommendations of
these firms are influential: an unfavorable recom-
mendation from Institutional Shareholder Services
(the largest advisory firm) can reduce shareholder
support by 14 to 21 percent, depending on the
matter of the proposal.12
However, robust evidence
does not exist that the recommendations of advi-
sory firms are correct. They have not been shown to
increase shareholder value, correlate with improved
operating performance, or predict negative events
such as financial restatements, bankruptcies, or
class-action lawsuits.13
In the absence of such evi-
dence, their recommendations should be treated as
opinion rather than expertise.
Myth #7: Best Practices Are the Solution
Finally, the most destructive myth in corporate gov-
ernance is the notion that best practices exist which,
if uniformly followed, lead to better oversight and
performance. This is simply not the case. Despite
the best efforts of regulatory, commercial, and aca-
demic experts, no one has yet identified standards
that are consistently associated with improved cor-
porate outcomes. This includes the recommenda-
tions of blue-ribbon panels, corporate governance
ratings, and governance indices.14
It should not be surprising that uniform best
practices do not exist in governance. Corporations
are organizational systems. Their success is predi-
cated on their external setting, the interactions of
their constituents, and the processes by which the
corporate strategy is planned and executed (see Ex-
hibit 5). It is hard to imagine that the complexity of
such an undertaking can be reduced to a checklist
that is no more difficult to follow than the recipe in
a cookbook. Rather than focus on check-the-box
solutions, governance can only be improved when
corporate practitioners and their constituents give
the matter the careful consideration it deserves.
Why This Matters
1. Governance choices affect managerial behavior
and the performance of the firm. When com-
panies get these choices wrong or make incor-
rect selections based on “myths” about corpo-
rate governance, the welfare of shareholders and
stakeholders is harmed.
2. Decisions regarding the structure and processes
of a governance system should be based on con-
crete evidence, not the educated guesses of self-
styled experts. To this end, a comprehensive and
rigorous body of research exists that examines
many of these important questions. We believe
that this research should be consulted and care-
fully considered when governance decisions are
being made.
1
A “busy” director is one who serves on multiple boards (typically
three or more) at the same time. An interlocked board is one in
which senior executives sit reciprocally on each other’s boards.
2
One exception is “busy” directors, which are consistently shown
to have worse stock price and operating performance and to award
above-average CEO compensation packages. For a detailed review,
see: David Larcker and Brian Tayan, Corporate Governance Matters:
A Closer Look at Organizational Choices and Their Consequences (New
York, NY: FT Press, 2011).
3
Lucian A. Bebchuk and Jesse M. Fried, Pay Without Performance:
The Unfulfilled Promise of Executive Compensation (Cambridge, MA:
Harvard University Press, 2006).
4
Jonathan Macey, “Holding CEOs Accountable,” The Wall Street
Journal, December 9, 2008.
5
Calculations by the authors based on data from Equilar, Inc., for the
fiscal years ending June 2008 to May 2009.
6
Say-on-pay regulation, in which shareholders are given an advisory
vote on the executive compensation package, is intended to correct
this problem. See Myth #5 below.
7
Calculations by the authors based on data from Equilar, Inc., for
the fiscal years ending June 2008 to May 2009.
8
Heidrick & Struggles and the Rock Center for Corporate Gover-
nance at Stanford, “2010 Survey on CEO Succession Planning,”
Jun. 2010. Available at: http://www.gsb.stanford.edu/cldr/.
9
Romano (2005) finds that many of the restrictions of SOX do little
to improve audit quality. She recommends that they be optional and
not required for listed companies. See Roberta Romano, “The Sar-
banes-Oxley Act and the Making of Quack Corporate Governance,”
Yale Law Review (2005).
10
Other governance related provisions include the requirement that
companies develop clawback policies and enhance their disclosure.
Companies must now disclose metrics on internal pay equity (the
ratio of median employee compensation to CEO total compensa-
tion), whether they allow executives to hedge equity holdings, and if
the company does not have an independent chairman why it allows
one person to hold both positions.
11
Larcker, Ormazabal, and Taylor observe a negative shareholder
reaction among companies in the U.S. that are likely to be affected.
See David F. Larcker, Gaizka Ormazabal, and Daniel J. Taylor, “The
Market Reaction to Corporate Governance Regulation,” Journal of
Financial Economics (forthcoming).
12
Jennifer E. Bethel and Stuart L. Gillan, “The Impact of Institutional
and Regulatory Environment on Shareholder Voting, Financial
Management (2002).
13
Larcker, McCall, and Ormazabal (2011) find a negative relation
between the recommendations of Institutional Shareholder Services
with regard to stock option exchanges and corporate outcomes. See
David F. Larcker, Allan L. McCall, and Gaizka Ormazabal, “Proxy
Advisory Firms and Stock Option Exchanges: The Case of Institu-
tional Shareholder Services,” Stanford Rock Center for Corporate
Governance at Stanford University working paper No. 100 (Apr. 15,
5. stanford closer look series 5
Seven Myths of Corporate Governance
Exhibit 1 — The Structure of the Board of Directors (Selected Attributes)
Source: Adapted from David F. Larcker and Brian Tayan, Corporate Governance Matters.
Structural Attribute of the Board Findings from Research
Independent chairman No evidence
Independent directors No evidence
Lead independent director Modest evidence
Board size Mixed evidence
Diversity / female directors Mixed evidence
“Busy” boards Negative impact
Boards “appointed by” the CEO Negative impact
6. stanford closer look series 6
Seven Myths of Corporate Governance
Exhibit 2 — Median Total Compensation Paid to CEOs in the U.S.
Total Annual
Compensation
Market Value
of Company
Top 100 $11,357,478 $36,577,000,000
101 to 500 $6,546,988 $6,928,000,000
501 to 1,000 $4,100,877 $2,057,000,000
1,001 to 2,000 $2,129,101 $639,000,000
2,001 to 3,000 $1,152,533 $175,000,000
3,001 to 4,000 $613,596 $35,000,000
1 to 4,000 $1,588,389 $332,000,000
Note: Total compensation includes salary, annual bonus, other bonus, expected value of stock options, performance plans,
restricted stock grants, pensions, benefits, and perquisites. In calculating stock option fair value, remaining terms are
reduced by 30 percent to adjust for potential early exercise or termination. Market value is the value of common shares
outstanding at fiscal year end.
Source: Calculations by the authors. Based on Equilar compensation data, fiscal years ending June 2008 to May 2009.
7. stanford closer look series 7
Seven Myths of Corporate Governance
Exhibit 3 — Median Pay-for-Performance: Relation between CEO Wealth and Stock Price
Note: Calculations exclude personal wealth outside company stock. Stock options are valued using the Black–Scholes pric-
ing model, with remaining option term reduced by 30 percent to compensate for potential early exercise or termination
and volatility based on actual results from the previous year.
Source: Calculations by the authors. Based on Equilar compensation data, fiscal years ending June 2008 to May 2009.
Total
CEO Wealth
Change in Wealth
1% Δ Stock Price
Change in Wealth
100% Δ Stock Price
Market Value
of Company
Top 100 $41,416,000 $592,000 $58,600,000 $36,577,000,000
101 to 500 $20,703,000 $279,000 $26,900,000 $6,928,000,000
501 to 1,000 $12,240,500 $155,000 $14,900,000 $2,057,000,000
1,001 to 2,000 $7,531,000 $88,000 $8,500,000 $639,000,000
2,001 to 3,000 $3,312,500 $38,000 $3,600,000 $175,000,000
3,001 to 4,000 $720,000 $8,000 $784,000 $35,000,000
1 to 4,000 $4,628,000 $54,100 $5,200,000 $332,000,000
8. stanford closer look series 8
Seven Myths of Corporate Governance
Exhibit 4 — CEO Succession: Survey Data (2010)
Source: Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University, “2010 Survey on CEO
Succession Planning,” Jun. 2010.
(IF YES) How many candidates from the internal talent pool are “ready now” to immediately as-
sume the CEO position (you could name them tomorrow if required)?
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Four
Three
Two
One
Zero
(IF YES) If you had to choose a CEO successor within the next 12 months, how viable are internal
candidates for the CEO position? (A viable CEO candidate is an individual the board could confi-
dently promote).
# Candidates %
0 38.8
1 31.6
2 23.5
3 5.1
4 1
Total 100
Descriptive %
Extremely viable 14.4
Very viable 22.5
Moderately viable 30.6
Slightly viable 22.5
Not at all viable 10
Total 100
9. stanford closer look series 9
Seven Myths of Corporate Governance
Exhibit 5 — Determinants and Participants in Corporate Governance
Source: David Larcker and Brian Tayan, Corporate Governance Matters.
Managers SuppliersCreditors
Analysts
Investors Customers
Unions
Media
AuditorsBoard
Regulators
EfficientCapital
Markets
LegalTradition
Regulatory
Enforcement
Accounting
Standards
Societaland CulturalValues