Monitoring Risks Before They Go Viral: Is it Time for the Board to Embrace Social Media?
Authors: Professor David F. Larcker, Sarah M. Larcker and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford Graduate School of Business.
Published: April 5, 2012
According to Nielsen, social networks and blogs account for the largest percentage of time that individuals spend online, more than email and reading the news. Given the pervasiveness of social media and the potential impact it can have on corporate activities, some experts recommend that boards of directors pay closer attention to the information exchanged on these sites.
Information gleaned through social media might provide unique and relevant insights that improve decision making. For example, this information might be used to supplement the traditional key performance indicators that boards use to monitor corporate performance. Similarly, it might also be used as an “early warning” system to improve risk management.
In this closer look, we examine these issues in detail. We ask:
Why haven’t more boards utilized information from social media to improve corporate oversight?
Should the board formally review social media metrics, or does this represent an encroachment on management?
Can this information be used to safeguard corporate reputation?
Read the attached Closer Look and let us know what you think!
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!
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!
New Research Shows Boards of Directors Too Passive in Developing CEO Successors
Study by Stanford, The Institute of Executive Development, and The Conference Board reveals a critical stumbling block in the succession process
March 12, 2014, STANFORD, Calif. — Internal candidates are the most likely to succeed a CEO, but new research reveals a critical stumbling block in the succession process: how well boards of directors know senior executives one level below the CEO and a lack of board involvement in talent development.
In this report we detail the results of our survey of more than 150 corporate directors of public companies in North America. The study results appear in the latest edition of Director Notes published by The Conference Board. Additional analysis of survey data and statistics regarding CEO turnover events at S&P 500 companies will be included in the 2014 edition of The Conference Board’s CEO Succession Practices, slated for release in early April.
This document summarizes the evolution of governance at Tesla Motors from its inception in 2003 to its IPO in 2010. It discusses how the board of directors, antitakeover protections, compensation structures, and other governance elements changed over time as Tesla transitioned from a startup to a public company. The board grew in size and became more independent, adding representatives from investors and later independent directors. Antitakeover protections were adopted to protect the company. Executive compensation heavily emphasized equity to incentivize success. As Tesla matures further, its governance structures will likely continue evolving to be more conventional for a public firm.
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
Union pension funds manage approximately $3.5 trillion in retirement assets on behalf of public and private sector employees covered by collective bargaining agreement. They are also very active in the proxy process, sponsoring approximately one-third of the shareholder proposals that are included in corporate proxies each year.
Federal and state laws (including ERISA) require that the trustees and administrative bodies that oversee these funds manage their plans “solely in the interest of participants and beneficiaries.” Furthermore, the U.S. Department of Labor is clear that pension funds are not to use plan assets and their voting rights “to further legislative, regulatory or public policy issues through the proxy process.”
We examine this issue is greater detail, including the types of proposals put forward but union pension funds, the support these proposals receive, and the companies they target. We ask:
Are union-sponsored proposals made solely in the interest of their pension beneficiaries?
How can the public or a pension beneficiary assess the motives of funds that sponsor proxy proposals?
How do union pension funds determine which positions to advocate and which companies to target?
Are unions violating their ERISA duties by sponsoring these proposals?
CEOs and Directors on Pay: 2016 Survey on CEO Compensation
By David F. Larcker, John T. Thompson, Nicholas E. Donatiello, Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, Heidrick & Struggles, February 2016
Recently, Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University and the Rock Center for Corporate Governance at Stanford University surveyed 107 CEOs and directors of Fortune 500 companies to understand their perception of CEO pay practices among the largest U.S. corporations.
The research finds that public company directors give CEOs considerable credit for corporate success, believing that 40 percent of a company’s overall results, on average, are directly attributed to the CEO’s efforts.
By David F. Larcker, Brendan Sheehan, and Brian Tayan
September 1, 2016, Stanford Corporate Governance Initiative, and Stanford Rock Center for 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!
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!
New Research Shows Boards of Directors Too Passive in Developing CEO Successors
Study by Stanford, The Institute of Executive Development, and The Conference Board reveals a critical stumbling block in the succession process
March 12, 2014, STANFORD, Calif. — Internal candidates are the most likely to succeed a CEO, but new research reveals a critical stumbling block in the succession process: how well boards of directors know senior executives one level below the CEO and a lack of board involvement in talent development.
In this report we detail the results of our survey of more than 150 corporate directors of public companies in North America. The study results appear in the latest edition of Director Notes published by The Conference Board. Additional analysis of survey data and statistics regarding CEO turnover events at S&P 500 companies will be included in the 2014 edition of The Conference Board’s CEO Succession Practices, slated for release in early April.
This document summarizes the evolution of governance at Tesla Motors from its inception in 2003 to its IPO in 2010. It discusses how the board of directors, antitakeover protections, compensation structures, and other governance elements changed over time as Tesla transitioned from a startup to a public company. The board grew in size and became more independent, adding representatives from investors and later independent directors. Antitakeover protections were adopted to protect the company. Executive compensation heavily emphasized equity to incentivize success. As Tesla matures further, its governance structures will likely continue evolving to be more conventional for a public firm.
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
Union pension funds manage approximately $3.5 trillion in retirement assets on behalf of public and private sector employees covered by collective bargaining agreement. They are also very active in the proxy process, sponsoring approximately one-third of the shareholder proposals that are included in corporate proxies each year.
Federal and state laws (including ERISA) require that the trustees and administrative bodies that oversee these funds manage their plans “solely in the interest of participants and beneficiaries.” Furthermore, the U.S. Department of Labor is clear that pension funds are not to use plan assets and their voting rights “to further legislative, regulatory or public policy issues through the proxy process.”
We examine this issue is greater detail, including the types of proposals put forward but union pension funds, the support these proposals receive, and the companies they target. We ask:
Are union-sponsored proposals made solely in the interest of their pension beneficiaries?
How can the public or a pension beneficiary assess the motives of funds that sponsor proxy proposals?
How do union pension funds determine which positions to advocate and which companies to target?
Are unions violating their ERISA duties by sponsoring these proposals?
CEOs and Directors on Pay: 2016 Survey on CEO Compensation
By David F. Larcker, John T. Thompson, Nicholas E. Donatiello, Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, Heidrick & Struggles, February 2016
Recently, Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University and the Rock Center for Corporate Governance at Stanford University surveyed 107 CEOs and directors of Fortune 500 companies to understand their perception of CEO pay practices among the largest U.S. corporations.
The research finds that public company directors give CEOs considerable credit for corporate success, believing that 40 percent of a company’s overall results, on average, are directly attributed to the CEO’s efforts.
By David F. Larcker, Brendan Sheehan, and Brian Tayan
September 1, 2016, Stanford Corporate Governance Initiative, and Stanford Rock Center for Corporate Governance
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?
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.
The document summarizes the findings of a survey of 47 private and recently public companies about their first outside director. Key findings include:
1. Companies recruit their first outside director primarily for industry and leadership expertise to address specific strategic or operational issues. They focus on skills rather than governance experience.
2. The recruitment process is led by founders/CEOs and directors are often personally connected to insiders. Few candidates are considered.
3. First directors make meaningful contributions quickly in areas like strategy, mentoring, and improving governance processes. Their impact exceeds expectations for oversight alone.
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?
The document is a summary of key findings from a 2019 nationwide survey conducted by the Rock Center for Corporate Governance at Stanford University on Americans' views toward tax policies. Some major findings include:
- Americans believe that tax rates for the highest income earners are about right, with around half thinking rates should stay the same or decrease and a third thinking they should increase.
- A majority support a wealth tax on individuals with over $50 million in assets but oppose it if it could harm the economy or increase unemployment.
- Americans overwhelmingly reject the idea of setting a maximum limit on personal wealth.
- There is no consensus on universal basic income, with around half opposing the idea and less than a third
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.
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?
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 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?
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?
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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?
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.
The document summarizes the findings of a survey of 47 private and recently public companies about their first outside director. Key findings include:
1. Companies recruit their first outside director primarily for industry and leadership expertise to address specific strategic or operational issues. They focus on skills rather than governance experience.
2. The recruitment process is led by founders/CEOs and directors are often personally connected to insiders. Few candidates are considered.
3. First directors make meaningful contributions quickly in areas like strategy, mentoring, and improving governance processes. Their impact exceeds expectations for oversight alone.
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?
The document is a summary of key findings from a 2019 nationwide survey conducted by the Rock Center for Corporate Governance at Stanford University on Americans' views toward tax policies. Some major findings include:
- Americans believe that tax rates for the highest income earners are about right, with around half thinking rates should stay the same or decrease and a third thinking they should increase.
- A majority support a wealth tax on individuals with over $50 million in assets but oppose it if it could harm the economy or increase unemployment.
- Americans overwhelmingly reject the idea of setting a maximum limit on personal wealth.
- There is no consensus on universal basic income, with around half opposing the idea and less than a third
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.
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?
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 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?
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?
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Monitoring Risks Before They Go Viral: Is it Time for the Board to Embrace Social Media?
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
Monitoring Risks before They Go Viral:
Is It Time for the Board to Embrace
Social Media?
Introduction
According to Nielsen, social networks and blogs
account for 23 percent of the time that individu-
als spend online, more than email and reading the
news.1
While the vast majority of consumers (89
percent) use search engines to research products
and services that they are interested in purchasing,
it is perhaps surprising that 42 percent follow or
“like” a brand on a social networking website.2
Given the pervasiveness of social media and the
potential impact it can have on corporate activities,
some experts recommend that boards of directors
pay closer attention to the information exchanged
on these sites. For example, consultant Fay Feeney
argues that “boards need to adapt to a connected
world where listening, disclosure, transparency and
engaging is expected.”3
She advocates that boards
embrace social media as a means of connecting with
and engaging in dialogue with corporate stakehold-
ers. Similarly, as consultant Lucy Marcus explains:
“The reality is that social media exists. It’s not
separate from everything we do.” She argues that
if boards are not engaged in social media, then dis-
cussions will take place “that they are not a part of
and they are not engaged in.”4
This can lead to the
dissemination of factually erroneous information
or rumors that a company will have difficulty cor-
recting.
There are several reasons why the board might
find the information provided through social media
to be valuable. First, directors are responsible for
oversight of the corporation. This includes moni-
toring and advising the senior executive team as it
develops and implements the corporate strategy. In-
formation gleaned through social media might pro-
vide unique and relevant insights into the success
By David F. Larcker, Sarah M. Larcker and Brian Tayan
April 5, 2012
of these efforts and supplement the traditional key
performance indicators (KPIs) that directors use to
evaluate management and award bonuses.5
Procter
& Gamble has taken such an approach. The com-
pany has developed a dashboard that uses Bayes-
ian analysis to scan blogs, tweets, and other social
media to summarize consumer sentiment about
its products and measure brand strength. Chair-
man and CEO Robert McDonald personally re-
views all information that relates to the corporate
brand.6
There are several “off-the-shelf” products
that companies can purchase to collect similar data,
although a company might want to customize these
products to meet its specific needs (see Exhibit 1).7
Second, information gathered through social
media might alert the board to risks facing the or-
ganization in a way that is not currently available.
These risks might include:
• Operational risk: how exposed the company is to
disruptions in its operations.
• Reputational risk: how protected are the com-
pany’s brands and corporate reputation.
• Compliance risk: how effectively the company
complies with laws and regulations.
There is some evidence that social media pro-
vides effective early warning in these areas. For ex-
ample, in online message boards anonymous Eli
Lilly sales representatives discussed the practice of
selling Zyprexa (an antipsychotic medicine) off-
label for the treatment of dementia months before
the news broke in the mainstream media. Similarly,
Nestlé first came under criticism in online commu-
nities for sourcing palm oil (a main ingredient in
many of its products, including Kit Kat and Nestlé
Crunch candy bars) from an Indonesian supplier
2. stanford closer look series 2
Monitoring Risks before They Go Viral: Is It Time for the Board to Embrace Social Media?
accused of destroying rainforests. The company was
eventually forced to issue a public apology and re-
structure its supply chain to source from sustain-
able providers. Had the boards of these companies
been monitoring the discussion online, both might
have been alerted earlier to these risks and moved
proactively to address them. In this way, informa-
tion gathered through social media can supplement
the data provided by management regarding key
risk factors facing an organization (see Exhibit 2).
Survey evidence suggests that many manage-
ment teams would welcome the participation of the
board in a discussion about social media. According
to a Deloitte study, 58 percent of executives believe
that reputational risk associated with social media
should be a board room issue. Only 17 percent of
companies currently have a program in place to
capture this data.8
Still, there are reasons why the board of directors
might not want to have access to this information.
First, the responsibilities of the board of directors
are separate from those of management. Directors
are expected to advise on corporate strategy, the
business model, and risk management, but they are
not expected to handle these activities themselves.
Reviewing detailed information from social media
aggregation providers might encroach too closely
on activities under management’s purview. Second,
in performing its monitoring obligations, the law
explicitly provides that the board may rely on infor-
mation furnished by management. Unless there are
obvious “red flags” regarding the trustworthiness of
management, the board of directors is not expected
to develop alternative means of informing its deci-
sions. To this end, the board of directors might not
want to review information from social media un-
less it is provided by management. Third, the infor-
mation captured through social media might not be
accurate. Directors might feel compelled to act on
negative information, even if it is not representative
of the general sentiment of stakeholders, because
failure to respond would expose them to legal li-
ability. Finally, directors might be encouraged to
engage directly with stakeholders. There are several
examples of CEOs engaging in social media only
to have their actions backfire.9
Directors might be
wary of repeating these mistakes.
Why This Matters
1. Social media introduces a new level of detail and
complexity to information gathering regarding
a company and its stakeholders. Why haven’t
more boards of directors made certain that man-
agement has a process in place for collecting,
analyzing, and responding to this information?
Do boards actually know what questions to ask?
Can boards distinguish between a good system
for monitoring social media and a bad one?
2. The examples above suggest that social media
can provide early warning of risks facing an orga-
nization. Should the board formally review this
information, or does this represent an encroach-
ment on managerial prerogative? Which social
media metrics should be presented to the board
and which excluded? Where do the responsibili-
ties of the board end and those of management
begin?
3. One important task of the board is to monitor
organizational reputation. How is this currently
done? Should overall sentiment derived from
social media sources be a primary input in this
analysis?
1
Nielsen, State of the Media: The Social Media Report. Q3 2011.
2
Sample consists of internet users and therefore might not be rep-
resentative of general population. Source: Fleishman Hillard, 2012
Digital Influence Index Annual Global Study.
3
Fay Feeney, “Leading a Board at the ‘Speed of Instant,’” The Corpo-
rate Board, March/April 2011.
4
Interview with Lucy P. Marcus, “Why Boards Need to Adopt Social
Media,” Reuters, March 22, 2012.
5
This is particularly useful for nonfinancial performance measures—
such as employee satisfaction, customer satisfaction, supplier reputa-
tion, product/service failure, and product innovation—that are dif-
ficult to measure.
6
Robert McDonald, “Inside P&G’s Digital Revolution,” McKinsey
Quarterly, November 2011.
7
Examples include Sysomos, Converseon, ListenLogic, Scout Labs,
NM Incite, Cymfony, Synthesio, Radian6, and Visible Technolo-
gies. In general, these companies or products provide metrics around
company favorability, influencers, topics and themes about a com-
pany and its competitors, positive/negative sentiment, text analytics,
geography, and demographics.
8
Deloitte, 2009 Ethics and Workplace Survey.
9
For example, in 2007, John Mackey, CEO of Whole Foods, came
under fire for regularly making anonymous posts on Yahoo! Finance
message boards. While an SEC investigation cleared Mackey of
wrongdoing because he did not profit from his actions, the board
of directors modified the company’s code of conduct to bar senior
management and directors from making posts about the company,
its competitors or vendors on unsponsored websites. See Andrew
Martin, “Whole Foods Executive Used Alias,” The New York Times,
July 12, 2007; and David Kesmodel and Jonathan Eig, “Unraveling
4. stanford closer look series 4
Monitoring Risks before They Go Viral: Is It Time for the Board to Embrace Social Media?
Exhibit 1 — Example of a Social Media Dashboard
Source: The authors.
0
50
100
150
200
250
0
200
400
600
800
1000
1200
1/1/12 1/8/12 1/15/12 1/22/12 1/29/12 2/5/12 2/12/12 2/19/12 2/26/12 3/4/12 3/11/12 3/18/12 3/25/12
Daily Volume
Category Mentions Brand A Mentions Competitor Mentions
305
152 188
341
475
915
530
Need Features Availability Price Packaging Quality Effectiveness
% Posts 15.6% 34.4% 50.0%
Stage Pre-purchase Point of Sale Post-purchase
Life Cycle Data
Lifestyle
Impact,
32.5%
Out of
Pocket
Costs,
17.6%
Effective
ness,
28.1%
Side
Effects,
4.6%
Switch-
ing,
17.2%
Online Discussion Themes Description of Themes
LifestyleImpact
Opinion posts regarding impact
on quality of life or ability to
perform tasks
Out of Pocket Costs
Direct mention of costs
associated with product
Effectiveness
Opinions about effectiveness of
product
Side Effects
Posts about the unintended
consequences of product use
Switching
Mentions of past or present
switching between brands or
the desire to switch
30.7%
2.3%
6.4%
18.9%
0.8% 1.0%
39.9%
White Black Asian Latino Indian Other Unknown
Demographics:Share of Voice
Negative Positive
Overall Sentiment
Data provider can “listen” for company or product name.
Changes in discussion volume and sentiment can be moni-
tored around key events, both those planned by the com-
pany (such as product launch or marketing event) and
those that are unexpected (such as news story or crisis).
Online discussion is bucketed around topic groups through
linguistic modeling, looking at verbal cues to estimate
who the speaker is. Data provider will mine discussion for
main topic categories.
Discussions can also be bucketed
around themes. It is equally impor-
tant for a company to have the capa-
bility to drill down into the data and
get an explanation for “why” certain
themes are emerging. The company
can intervene upon the emergence
of negative themes.
Sentiment meters can be devised for
each stakeholder group: customers,
suppliers, employees, investors, etc –
based on forum in which discussions
take place or comment themes. Sen-
timent can also be tracked over time.
Demographic data is estimated
based on verbal cues and refer-
ences, although sometimes demo-
graphic data can be supplied, such as
through Facebook.
5. stanford closer look series 5
Monitoring Risks before They Go Viral: Is It Time for the Board to Embrace Social Media?
Exhibit 2 — Potential for Social Media to Supplement Board Information
Source: The authors.
Disclosed Risk Factors
(Form 10-K)
• Industry
• Competition
• Customers
• Suppliers
• Compliance
• Etc.
Social Media
Dashboard
Management
Provided Information
• Strategy reports
• Performance metrics
• Internal audit
• Internal controls
• Legal reviews
• Etc.Gap
Board = Ask Questions