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?
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 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.”
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.
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.”
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?
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.”
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.”
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 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.”
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.
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.”
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?
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.”
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.”
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?
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.”
Political risk, ESG and market performance - March 2014Damian Karmelich
As the ASX releases new corporate governance guidelines with an increased focus on risk management and environmental, social and governance principles Political Monitor examines the link between ESG, political risk & market performance.
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!
ESG Engagement Insights, a presentation by Nawar Alsaadi of best engagement practices of 30 asset managers, owners, pension funds, and non-profits around the world. (The work is derived from BlackRock & Ceres’ paper entitled Engagement in the 21st Century).
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.
Authors: Professor David F. Larcker, Brian Tayan
CGRI Quick Guide Series. Corporate Governance Research Initiative, November 2017
This Research Spotlight provides a summary of the academic literature on shareholder activism, including:
• The impact of union activism on corporate outcomes.
• The performance of socially responsible investment funds.
• The impact of activist hedge funds on effecting change.
• The impact of activist hedge funds on short- and long-term corporate performance.
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
Hoe zorg je ervoor dat je als persoon en als bedrijf een goede online indruk nalaat? Hoe weet je wat jouw huidige online imago is en hoe kan je het beïnvloeden? Lees het in deze Slideshare presentatie
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?
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.”
Political risk, ESG and market performance - March 2014Damian Karmelich
As the ASX releases new corporate governance guidelines with an increased focus on risk management and environmental, social and governance principles Political Monitor examines the link between ESG, political risk & market performance.
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!
ESG Engagement Insights, a presentation by Nawar Alsaadi of best engagement practices of 30 asset managers, owners, pension funds, and non-profits around the world. (The work is derived from BlackRock & Ceres’ paper entitled Engagement in the 21st Century).
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.
Authors: Professor David F. Larcker, Brian Tayan
CGRI Quick Guide Series. Corporate Governance Research Initiative, November 2017
This Research Spotlight provides a summary of the academic literature on shareholder activism, including:
• The impact of union activism on corporate outcomes.
• The performance of socially responsible investment funds.
• The impact of activist hedge funds on effecting change.
• The impact of activist hedge funds on short- and long-term corporate performance.
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
Hoe zorg je ervoor dat je als persoon en als bedrijf een goede online indruk nalaat? Hoe weet je wat jouw huidige online imago is en hoe kan je het beïnvloeden? Lees het in deze Slideshare presentatie
Dr Candice Christie: Putting the Worker at the Centre of the 'Man-Machine' In...SAMTRAC International
This presentation explores the diverse health of the South African working population, and how health affects workers’ performance. Health that is influenced by both factors outside of the work environment and factors intrinsic to the work setting will be discussed. The paper further highlights the important of workplace wellness programmes and how these can be used within an ergonomics framework to promote health and wellbeing in the workplace.
How do we instil a personal sense of agency within employees, regarding their impact on safety issues? Discover the power of psychology in the workplace, as well as its impact on at-risk and safe behaviours. Determine why it is important to understand how workers’ mind set is moulded to act in a certain way, what the drivers are and how these can be managed.
Shortify is used for minimizing your coding effort in your development environment. It has some builtin method and classes which helps you in creating mostly used element and tasks in Android app.
Strava for Glass makes it easy to track your rides, visualize your progress, and challenge your friends, all while keeping your hands on the handlebars.
This presentation tell us the types of m&a and their defence.
The information of this presentation is supported with various article theories definition and presentation
Please Do Not Copy and Paste anything from this report, this is ju.docxrandymartin91030
Please Do Not Copy and Paste anything from this report, this is just history of the case
BP: Example of an Unethical Trifecta
Posted on September 17, 2013 by mensah_henry
From the dawn of time, human beings have relied on the environment to provide with the all the things we need to survive and be successful. It has also helped us develop civilizations and founded industries where there was none. Our exploitation of our environment is part of what makes us successful. The more we have been able to conquer and manipulate our environment, the more we have developed culturally, socially, and economically (Kareiva and Marvier, 2012). The three tenets of culture, society, and economy has been our biggest source of influence in dealing with the environment. Ever since the discovery of oil by the ancient civilizations of Babylonia and Greece, great importance has been placed on our ability to utilize it and the products we get from it (Totten, 2007). Today, the oil industry has grown from nothing to become one of the world’s biggest and most important. British Petroleum (BP) is one of the largest oil companies in the world and a major stakeholder in the United States oil industry.
Although BP has been operating in the United States for a long time, its history and operations have not always been worthy of praise. The company has been in the middle of several issues and held accountable for several incidents that have resulted in the loss of life, property, and massive environmental damage. The United States government has always placed a premium on the environment and its safety and Americans in general are conscious about the environment and what needs to be done to protect it.
The purpose of this paper is to discuss the BP Pipeline case (Case 6.25 on pp. 411-422) and to address the following topics:
• Discuss in detail the ethical, negligence, and environmental issues you see in this case.
• BP had rented the rig from Transocean for $500,000 per day. Transocean had been recognized by the U.S. government for its safety record. Can companies distance themselves from liability and responsibility through the use of contractors?
• Discuss how BP got into the position in which it found itself in late 2006 and what might have prevented the spill, the financial fallout, and the loss of reputation. Be sure to factor in the financial implications of any decision made during the period from 2001 to 2006.
• What was the impact of the emphasis in cost cutting on BP’s culture? What was the influence on the company’s performance?
• Evaluate the social responsibility positions of BP in light of the refinery explosion and the pipeline issue. What can companies learn from the BP experience?
British Petroleum has a large operation in the United States and it has made investments to ensure that it develops these operations to maximize its production and increase profits. One such investment was the acquisition of the vast oil field at Prudhoe Bay, .
An ESOP sponsor may confront conflict when fulfilling its corporate governance and fiduciary responsibilities. This presentation discusses the danger of wearing multiple hats and how to minimize litigation exposure through best practices.
An ESOP plan sponsor must avoid conflict in fulfilling its corporate governance and fiduciary responsibilities. How is this done? This presentation discusses the dangers of wearing multiple hats and how to minimize litigation risk.
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?
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
CASE 3.2 Ethics, Schmethics-Enrons Code of EthicsIn Jul.docxannandleola
CASE 3.2 "Ethics, Schmethics"-Enron's Code of Ethics
In July 2000, Enron Corporation published an internal code of ethics docu-
ment that ran 64 pages in length (see the Appendix 1).Page 12 of the document
proudly announced the company's position on business ethics:
Employees of Enron Corp., its subsidiaries, and its affiliated companies
(collectively the "Company") are charged with conducting their business
affairs in accordance with the highest ethical standards. An employee
shall not conduct himself or herself in a manner which directly or indi-
rectly would be detrimental to the best interests of the Company or in
a manner which would bring to the employee financial gain separately
derived as a direct consequence of his or her employment with the Com-
pany. Moral as well as legal obligations will be fulfilled openly, promptly,
and in a manner which will reflect pride on the Company's name.
Products and services of the Company will be of the highest quality and
as represented. Advertising and promotion will be truthful, not exagger-
ated or misleading.
Agreements, whether contractual or verbal, will be honored. No bribes,
bonuses, kickbacks, lavish entertainment, or gifts will be given or received
. in exchange for special position, price or privilege . . . Relations with
the Company's many publics-customers, stockholders, governments,
employees, suppliers, press, and bankers-will be conducted in honesty,
candor, and fairness." .- ~ ~ ~ -
Subsequent investigations into the inner workings of Enron Corp. revealed that
the only time this code of ethics received formal attention (other than, presum-
ably,when it was created and formally accepted) was when the board of directors
voted to waive key provisions of the code in order to allow the off-balance-sheet
partnerships that Chief Financial Officer Andy Fastow ultimately used to hide
over half a billion dollars of debt from analysts and investors.
A more realistic picture of the apparent flexibility of Enron's ethical culture
can be found in the extreme conflict of interest represented in its relationship
with Arthur Andersen. Andersen provided both consulting and auditing ser-
vices for fees running into millions of dollars-money that became so critical to
Andersen's continued growth that its employees were encouraged to sign off on
off-balance-sheet transactions-transactions that were not shown on Enron's
publicly-reported balance sheet-that stretched the limits of generally accepted
accounting principles (GAAP) to their furthest edges. In addition, Enron hired
former Andersen employees to manage the affairs of their former colleagues,
which further strengthened the conflict of interest in a relationship that was
supposed, at the very least, to be at arm's length, and, at best, above reproach.
1. What is the purpose of a code of ethics?
2. Do you think the employees of Enron Corp. were told about the vote to put
aside key elements of the code of ethics? If not, why not? If they had .
What Every M&A Advisor Should Know About Environmental LiabilitiesΔρ. Γιώργος K. Κασάπης
Companies holding environmental liabilities are exposed to far more financial degradation than the estimated cost of the cleanup itself. This is especially true if environmental liabilities become part of a merger and acquisition (M&A) transaction. The mere presence of environmental contamination can produce a virtual quagmire of unquantifiable risk.
Many corporate holders of environmental liabilities are choosing to mitigate these risks through a transaction commonly referred to as an environmental liability transfer (ELT). During an M&A transaction, ELTs are used to remove environmental liabilities from the pending transaction while providing both the buy-side and sell-side with robust corporate indemnifications from and against all future environmental liability.
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.
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?
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.”
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Governance Aches and Pains: Is Bad Governance Chronic?
1. Stanford Closer LOOK series
Stanford Closer LOOK series 1
By David F. Larcker and Brian Tayan
april 14, 2016
Governance Aches and Pains
is bad governance chronic?
introduction
Institutional investors pay considerable attention to the quality
of a company’s governance.1
In theory, a well-governed company
is one whose managers and directors take into account the best
interest of the corporation and its shareholders when making
strategic, operating, and financing decisions, thereby maximizing
the probability of long-term value creation and minimizing or
reducing risk. Conversely, a poorly governed company is one
whose managers make poor decisions or routinely put their own
interests above those of shareholders by placing greater emphasis
on personal gain (through wealth extraction, job security, media
attention, or the misuse of corporate assets) than the enhancement
of corporate value. An experienced and engaged board of directors
is an important safeguard against poor decision making and self-
interested behavior.
The challenge for many shareholders is that it is often difficult
for outside observers to reliably gauge governance quality.2
Oftentimes, poor governance manifests itself only after decisions
have been made and their outcomes known. Even so, shareholders
have to determine whether problems are isolated incidents or are
systemic in nature, and whether they can be remedied through
straightforward fixes (such as a change in management or the
board) or require wholesale changes to corporate culture and
operating principles.
massey energy: lax compliance
On April 5, 2010, a massive explosion in the Upper Big Branch
mine in West Virginia killed 29 miners and injured 2 others. The
mine was owned by Massey Energy Company and operated by its
subsidiary Performance Coal Company.
Massey Energy had a history of mining accidents, although
none of this magnitude. In 2006, a fire in one of the company’s
conveyer-belt lines in a Logan County, West Virginia, mine
resulted in two deaths. The following year, a miner died in
Kanawha County when the conveyer belt he was repairing
accidentally started, knocking him 39 feet to his death. In both
cases, regulators found faulty equipment and inadequate
maintenance to be contributing factors. Massey also had a
history of legal and regulatory violations, including a $20 million
settlement with the Environmental Protection Agency that
the company polluted rivers and streams in West Virginia and
Kentucky with excess discharges, a $50 million judgment (later
reduced) that the company illegally interfered with the business of
a competitor by buying coal reserves surrounding the company’s
mining property to make it a less attractive acquisition target, and
a $220 million judgment that Massey reneged on a long-term coal
supply contract with a local steel-making company. The company’s
long-time chairman and CEO, Don Blankenship, garnered media
attention when it came to light that he was personal friends with
the chief justice of the West Virginia Supreme Court of Appeals
and contributed $3 million to the election campaign of another
judge on that court during a time when the company had cases
pending before it (see Exhibit 1).
The Upper Big Branch accident, however, exceeded all of
these in scale and significance. The company and its regulator—
the Mine Safety and Health Administrator (MSHA)—launched
separate investigations to determine the cause. The report issued
by the company’s investigators concluded that the Upper Big
Branch explosion was due to an unpreventable surge of natural
gas. The final report by the MSHA flatly contradicted this and
concluded that the explosion was due to a buildup of coal dust
in the mine’s passageways that was “entirely preventable.” The
regulator accused the company of “systematic, intentional, and
aggressive efforts” to avoid compliance with regulatory standards
(see Exhibit 2) and cited nine “flagrant” violations that contributed
to the explosion, including:
• Providing advance notice to miners of regulatory inspections
• Failing to conduct examinations to identify hazards
• Allowing hazardous levels of loose coal and coal dust to
accumulate in mine shafts
• Failing to adequately apply rock dust to reduce the risk of
explosion
2. Governance Aches and Pains
2Stanford Closer LOOK series
• Failing to comply with approved ventilation
• Failing to properly maintain water sprays
• Failing to adequately train workers3
Blankenship resigned, and Alpha Natural Resources announced
that it would acquire Massey Energy for $7.1 billion. The company
set aside $200 million to pay for civil and criminal penalties
related to the accident. The mine’s superintendent, security
chief, and president of an operating subsidiary were convicted
and sent to prison for obstruction of justice and preventing
regulators from properly conducting examinations. Blankenship
was indicted on federal charges that he conspired to violate mine
safety laws. During the trial, prosecutors cited a memo stating
that employees did not believe management was serious about
regulatory compliance: “We are told to run, run, run until we get
caught; when we get caught, then we will fix it.”4
Blankenship was
found guilty of a misdemeanor charge and sentenced to one year
in prison but found not guilty on felony charges that would have
carried a 30-year sentence. He was believed to be the first CEO of
a large U.S. corporation to be sent to prison for workplace safety
violations following an industrial accident..
Nabors industries: extreme compensation
In 1987, Eugene Isenberg was recruited as chairman and CEO
of oilfield services company Anglo Energy of Houston, Texas,
which had recently emerged from bankruptcy protection but still
suffered from heavy debt loads and years of under-investment
following an extended period of low oil prices.5
Isenberg’s
employment contract gave him considerable incentive to improve
the company’s fortunes: In addition to sizeable stock option
awards (a grant of more than 3 million shares at $1 per share),
Isenberg was entitled to an annual bonus equal to 10 percent
of the company’s operating cash flow in excess of 10 percent of
average shareholders’ equity during the year.6
Isenberg also took a
direct ownership stake in the company, purchasing $0.5 million in
equity and $8.25 million principle amount in notes.
Isenberg pursued an aggressive financial and operating
strategy to turn around the company, which changed its name
to Nabors Industries. He struck a prepackaged bankruptcy deal
with creditors, resulting in a debt-for-equity swap that relieved
the company of its heavy interest obligations. He initiated an
extensive campaign to buy assets from competitors, often at
distressed prices. He redeployed idled drilling rigs from an
oversupplied U.S. market to international areas where drilling
services were in demand. By the early 1990s, the turnaround plan
was a success, and the company’s stock price, which had traded
around $1 per share, increased six-fold (see Exhibit 3). Isenberg,
who often elected to receive his annual bonus in equity rather
than cash, was a significant shareholder owning 12 percent of the
company.
In time, Isenberg’s employment agreement with the company
evolved. When his five-year contract was renewed in 1992, the
formula for his cash bonus was reduced to 7 percent of cash flow
in excess of 15 percent; however, the size of the company was
much larger.7
Later, his contract was converted to an evergreen
agreement. He was also granted protection in case of a change in
control or termination without cause.
Isenberg also began to receive stock option awards with
more generous terms. A 1994 grant contained performance-
accelerated vesting features that allowed for immediate vesting if
the company’s common stock price traded above $9.375 for 20
consecutive trading days—approximately 40 percent higher than
the grant-date price. Exercised options would be replaced with an
equal number of new options at the prevailing price (known as
a “reloading”).8
Future option grants contained similar features.
Between 1993 and 2005, Isenberg exercised options on 16.8
million shares, realizing over $400 million in profit. Many of these
were replaced, and he continued to hold 9 million shares valued at
approximately $275 million.9
In time, shareholders pushed back on the compensation
practices of Nabors. A shareholder resolution at the company’s
2007 annual meeting called for the adoption of a say-on-pay
policy, giving shareholders the right to approve Isenberg’s
compensation. A 2008 resolution called for the elimination of tax
gross ups in the case of termination following a change in control.
A 2009 resolution called for the company to more closely tie
pay with performance. Shareholders challenged an employment
contract provision that promised a cash payment of $100 million
(reduced from $263.6 million) in the event of “death, disability,
[or] termination without cause.”10
They also challenged Isenberg’s
frequent use of corporate aircraft to fly to Martha’s Vineyard and
Palm Beach, Florida where he owned homes and the company
maintained offices.
As the company’s operating and stock price began to suffer,
investors demonstrated their frustration by voting against the
company’s pay program and against the reelection of members
of the compensation committee (see Exhibit 4). Isenberg stepped
down as CEO in 2011, retired from the board in 2013, and passed
away in 2014.
Yahoo!: Revolving leadership
For many years, Yahoo failed to keep pace with its main competitor
3. Governance Aches and Pains
3Stanford Closer LOOK series
Google in the field of online search and advertising. After failing
to execute on a major upgrade to the company’s advertising sales
system in 2007, Chairman and CEO Terry Semel resigned. His
leadership role was divided, with cofounder Jerry Yang becoming
CEO and Roy Bostock appointed as nonexecutive chairman.
Yang, who had maintained involvement in the company as an
executive and board member, laid out plans to increase investment
in innovation and generate more revenue from the company’s
installed user base, promising to “execute with speed, clarity, and
discipline.”11
Six months into his tenure, Microsoft made an unsolicited
offer to acquire Yahoo for $44.6 billion in cash and stock—a 62
percent premium over the company’s recent stock price. Yahoo
rejected the offer as undervaluing the company and made a series
of moves to thwart a takeover. Among them, it implemented what
is known as a “tin parachute”: a provision that allowed every
employee in the company who was terminated without cause
during the two years following a change in control to receive a
lump-sum payout equal to their annual salary and the immediate
vesting of all unvested restricted shares and options. The provision
was intended to make a hostile takeover prohibitively expensive.
Microsoft withdrew its bid and the company’s stock price fell (see
Exhibit 5).
Shareholders were upset. According to one investor, “I’m
extremely disappointed in Jerry Yang. I think he overplayed a
weak hand. And I’m even more disappointed in the independent
directors who were not responsive to the needs of independent
shareholders.”12
Activist investor Carl Icahn took a stake in the
company with the intention of restarting merger talks with
Microsoft but failed: “I am amazed at the lengths that Jerry Yang
and the board went to entrench themselves in this situation.”13
At the company’s annual meeting, Yang received only 66 percent
support; Chairman Roy Bostock 60 percent. Following the vote,
Yang resigned as CEO.
His replacement, Carol Bartz, former CEO of Autodesk, was
hard-driving with a reputation for hands-on management and
the occasional use of strong language. To Bostock, she was “the
exact combination of seasoned technology executive and savvy
leader that the board was looking for.”14
Two-and-a-half years
later, however, she too resigned under pressure from the board
for failing to meet performance targets. Bartz was not pleased,
particularly with the manner of her dismissal, which came over
the phone rather than in a face-to-face meeting. She told Fortune,
“These people f---ed me over,” adding, “The board was so spooked
by being cast as the worst board in the country. Now they are
trying to show that they’re not the doofuses that they are.”15
Yahoo hired former PayPal executive Scott Thompson to
replace Bartz. Less than five months into his tenure, it was
discovered that Thompson misrepresented his educational
credentials on his resume (claiming a degree in computer science
rather than accounting), and he resigned.
Marissa Mayer, former Google executive, became the
company’s fifth CEO in six years. Mayer shifted Yahoo’s focus
to emerging growth areas, such as mobile technology, video,
native advertising, and social media (categories that she dubbed
“MaVeNS”), spending more than $2.3 billion to purchase 50
startups. She also sought to monetize Yahoo’s 24 percent stake
in Chinese e-commerce company Alibaba, in which the company
initially invested in 2005. Following Alibaba’s initial public
offering, Yahoo’s holdings were valued at $40 billion pretax,
an amount equal to Yahoo’s entire market capitalization at the
time. Mayer planned to distribute Alibaba shares directly to
Yahoo investors. Yahoo’s share price climbed to a 10-year high
in anticipation. When the Internal Revenue Service declined
to give assurance that the spinoff would be treated as tax free,
the stock reversed. With signs of the company’s growth plan
sputtering, Yahoo drew the attention of activist investors. The
board established an independent committee to explore strategic
alternatives. The committee did not include Mayer. Frustrated
with the pace of change, activist hedge fund Starboard Value filed
a proxy to remove the entire Yahoo board and pave the way for a
sale of the company.16
Chesapeake Energy: Aggressive Leadership
Chesapeake Energy was founded in 1989 by Aubrey McClendon.
For nearly 20 years, the company grew aggressively through
land acquisition and exploration, becoming the second-largest
producer of natural gas in the United States in terms of volume
(after ExxonMobil) and the largest in terms of rigs in active use.
The company held land leases in Texas, Oklahoma, Louisiana,
Arkansas, Pennsylvania, and Ohio.
In the 2000s, Chesapeake benefited from generally tight supply,
locking in high energy prices through hedging instruments and
using the resulting cash flow to finance large capital investment.
By 2008, the market changed. Looming recession and the
advancement of hydraulic fracturing technology—which greatly
reduced the cost of production—created an oversupply, and
prices fell. Chesapeake scrambled to sell assets, and its stock price
plummeted (see Exhibit 6).
McClendon got caught in the reversal. In October 2008, the
company disclosed that he sold 31.5 million shares, or 94 percent
of his 5.8 percent stake in the company, to meet a margin call. The
shares, which had been worth $2.3 billion at their peak, were sold
for $570 million. Following the sale, McClendon held only $32
4. Governance Aches and Pains
4Stanford Closer LOOK series
million in Chesapeake shares. “I got caught up in a wildfire that
was bigger than I was,” he said. “I’m fortunate that I have other
resources and I’ll be fine.”17
Some of those resources came in the form of corporate
largesse. Following his margin sale, the board of directors signed
McClendon to a new five-year contract, even though he had
signed a five-year contract the previous year. As part of the deal,
McClendon received a $75 million bonus. The company also
purchased his collection of antique maps for $12 million (see
Exhibit 7).18
Shareholders were displeased. According to one, “I
have never seen a more shameful document than the Chesapeake
proxy statement. If I could reduce it to one page, I would frame it
and hang it on my office wall as a near perfect illustration of the
complete collapse of appropriate corporate governance.”19
McClendon moved to shore up the company’s finances. He
announced a plan to raise $12 billion through the sale of assets
to reduce debt and return the company to an investment-grade
credit rating. Chesapeake sold portions of its holdings in the
Marcellus shale ($3.4 billion), Fayetteville shale ($4.75 billion),
and Mississippi Lime joint venture ($1 billion). Shareholder
support for McClendon and the board continued to decline. In
2011, McClendon was reelected as chairman with 78 percent of
the vote, down from 96 percent in 2008. The company’s advisory
say-on-pay vote received only 58 percent support.20
The following year, it was discovered that McClendon
had taken $1.1 billion in third-party loans to acquire personal
stakes in wells drilled by Chesapeake. The program, known as
the Founder Well Participation Program, had been approved by
shareholders in 2005 and allowed McClendon to participate in
oil and gas discovery by purchasing a 2.5 percent stake in wells
that Chesapeake drilled. The program prohibited McClendon
from cherry-picking the most promising wells and was subject to
review by the compensation committee of the board (see Exhibit
8). Still, shareholders were unaware of the size of McClendon’s
investment; they were also unaware that the financing came in the
form of loans from a private equity firm with which Chesapeake
was simultaneously negotiating to sell land and lease rights.21
The board moved to curtail the program. At the company’s
annual meeting, the two directors standing for reelection received
26 percent and 27 percent of votes. It was the lowest support for
directors of an S&P 500 company in the previous five years.22
Shareholders also approved a proxy access measure that would
allow investors to directly nominate candidates to the board.
McClendon stepped down as chairman, and the following year
he resigned as CEO. In 2016, he was indicted by a federal grand
jury for conspiring to manipulate the price of natural gas leases in
Oklahoma between 2007 and 2012, when still at Chesapeake. The
case never made it to trial; McClendon died in a car accident the
day after the indictment.
Why This Matters
1. Governance problems take many forms. Sometimes, they
involve a large-scale incident; other times, multiple or smaller
events over a long period of time. The problem might be
confined to one aspect of the firm, or it might be systemic
across the whole organization. How can shareholders diagnose
the issues facing a company to determine whether these
observations are the result of bad corporate governance that
needs to be fixed or simply the outcomes of routine business
decisions?
2. Many of the situations described in this Closer Look involve
the CEO and the board. When is the CEO the root cause of
the problem because of his or her decisions, actions, and
behavior, and when is the board the root cause because of
failed oversight duties? Should shareholders spend more time
assessing whether the board members are really “independent”
from the CEO?23
How can shareholders tell if the board is
“captured” by the CEO?
3. The case of Massey Energy involved massive cultural as well
as procedural failure. How can shareholders gauge the culture
of an organization to determine its commitment to sound
and responsible business? What “red flags” might they see if
management is cutting corners?
4. Isenberg’s tenure at Nabors Industries started very successfully
but gradually the company’s performance deteriorated and
its compensation practices became more extreme. How can
shareholders tell when a company begins to “drift”? How much
leeway should they give to a successful CEO?
5. The troubles at Yahoo spanned multiple CEOs; the
troubles at Chesapeake one. The former situation raises
questions about succession planning; the latter about
performance evaluation. How can shareholders determine
whether boards are capably handing their responsibility
to select and oversee management? How can they
determine whether the “right” CEO is in charge?24
1
See Rivel Research Group, “Engaging with Proxy Voters: Attitudes and
Practices of North American Proxy Voters,” The Corporate Governance
Intelligence Council (February 2016).
2
Larcker, Richardson, and Tuna (2007) test a comprehensive list of
governance attributes and find little statistical relation to corporate
outcomes. See David F. Larcker, Scott A. Richardson, and Irem Tuna,
“Corporate Governance, Accounting Outcomes, and Organizational
Performance,” Accounting Review (2007).
3
United States Department of Labor, Mine Safety and Health
Administration, “Report of Investigation: Fatal Underground Mine
6. Governance Aches and Pains
6Stanford Closer LOOK series
Exhibit 1 — massey energy: stock price history and timeline of events
Source: Factiva. Center for Research in Securities Prices (University of Chicago).
0
20
40
60
80
100
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Massey Energy (2005-2011)
Massey S&P 500
1
2
3
4
5
6
10
8
9
7
1. Massey ordered to pay $50 million for illegally interfering with the business of a competitor (2002).
2. Two miners die in Logan County fire.
3. Massey ordered to pay $220 million for breaking a long-term coal supply contract.
4. Miner dies in Kanawha County accident.
5. Massey agrees to $20 million settlement with Environmental Protection Agency over pollution.
6. Massey CEO friendship with and donation to two State Supreme Court of Appeals judges is reported in the media.
7. Twenty-nine miners die, two injured in Upper Big Branch explosion.
8. Massey CEO resigns.
9. Alpha Natural Resources agrees to acquire Massey Energy for $7.1 billion.
10. Former Massey employees guilty of obstruction of justice (2012, 2013); former Massey CEO guilty of misdemeanor in
conjunction with Upper Big Branch explosion and sentenced to prison (2016).
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7Stanford Closer LOOK series
Exhibit 2 — massey energy: msha accident report findings
Source: United States Department of Labor, Mine Safety and Health Administration, “Report of Investigation: Fatal Underground Mine Explosion, April 5, 2010,”
(issued December 2011).
Performance Coal Company/Massey’s Management Practices that Led to the Explosion
PCC/Massey failed to perform required mine examinations adequately and remedy known hazards and violations of law.
MSHA regulations require mine operators to examine certain areas of the mine on a weekly basis, as well as before and during
each shift, to identify hazardous conditions. MSHA’s accident investigation found that PCC/Massey regularly failed to examine
the mine properly for hazards putting miners at risk and directly contributing to the April 5 explosion. At UBB [Upper Big
Branch], PCC/Massey examiners often did not travel to areas they were required to inspect or, in some cases, travelled to the
areas but did not perform the required inspections and measurements.
PCC/Massey kept two sets of books, thus concealing hazardous conditions.
During the course of the investigation, MSHA discovered that PCC/Massey kept two sets of books at UBB: one set of production
and maintenance books for internal use only, and the required examination books that, under the Mine Act, are open to review
by MSHA and miners. … PCC/Massey often recorded hazards in its internal production and maintenance books, but failed to
record the same hazards in the required examination book provided to enforcement personnel to review.
PCC/Massey intimidated miners to prevent MSHA from receiving evidence of safety and health violations and hazards.
Testimony revealed that UBB’s miners were intimidated to prevent them from exercising their whistleblower rights. Production
delays to resolve safety-related issues often were met by UBB officials with threats of retaliation and disciplinary actions. …
MSHA did not receive a single safety or health complaint relating to underground conditions at UBB for approximately four
years preceding the explosion even though MSHA offers a toll-free hotline for miners to make anonymous safety and health
complaints.
PCC/Massey failed to provide adequate training for workers.
Records and testimony indicate that PCC/Massey inadequately trained their examiners, foremen and miners in mine health
and safety. It failed to provide experienced miner training, especially in the area of hazard recognition; failed to provide task
training to those performing new job tasks; and failed to provide required annual refresher training.
PCC/Massey established a regular practice of giving advance notice of inspections to hide violations and hazards from enforcement personnel.
Under the Mine Act, it is illegal for mine operators’ employees to give advance notice of an inspection by MSHA enforcement
personnel. Despite this statutory prohibition, UBB miners testified that PCC/Massey mine personnel on the surface routinely
notified them prior to the arrival of enforcement personnel. Miners and others testified they were instructed by upper
management to alert miners underground of the arrival of enforcement personnel so hazardous conditions could be concealed.
8. Governance Aches and Pains
8Stanford Closer LOOK series
1. Isenberg is recruited to Anglo Energy; enters profit-sharing agreement.
2. Company changes name to Nabors; Isenberg begins turnaround plan.
3. Renewal of five-year contract; terms of profit-sharing agreement changed.
4. Isenberg begins to receive stock options with performance-accelerated vesting and reload features.
5. Isenberg employment contract amended to include automatic annual extensions.
6. Shareholders call for say-on-pay policy.
7. Shareholders call to end tax gross ups on severance payments.
8. Chairman of the compensation committee reelected with only 52 percent of the vote.
9. Shareholders reject Nabors’ executive compensation plan under say on pay.
10. Isenberg resigns as CEO.
11. Isenberg resigns as chairman of the board.
0
20
40
60
Jan-87 Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11 Jan-15
Nabors Industries (1987-2015)
Nabors S&P 500
1
Exhibit 3 — nabors industries: stock price history and timeline of events
Note: Nabors Industries stock price adjusted for 2-for-1 split April 2006.
Source: Factiva. Center for Research in Securities Prices (University of Chicago).
2 3 4
5
6
10
8
9
7
11
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Exhibit 4 — nabors industries: selected results of shareholder votes
Year Resolution Sponsor % For
% For
All Companies
2007 Grant shareholders advisory vote on pay* Shareholder 39% 41%
2007 Pay for superior performance Shareholder 36% 31%
2008 Eliminate tax gross ups on severance Shareholder 43% 39%
2008 Pay for superior performance Shareholder 31% 33%
2009 Grant shareholders vote on payments following executive death Shareholder 41% 45%
2009 Pay for superior performance Shareholder 40% 29%
2010 Grant shareholders advisory vote on pay* Shareholder 44% 44%
2010 Pay for superior performance Shareholder 40% 30%
2010 Require annual election of directors Shareholder 75% 58%
2011 Say on pay (vote to approve executive compensation)** Management 43% 90%
2011 Adopt majority voting in director elections Shareholder 63% 60%
2011 Require annual election of directors Shareholder 75% 69%
2012 Say on pay (vote to approve executive compensation)** Management 25% 91%
2012 Grant shareholders access to nominate directors on proxy Shareholder 56% 27%
2012 Grant shareholders vote on severance agreements Shareholder 66% 37%
2013 Say on pay (vote to approve executive compensation)** Management 36% 91%
2013 Grant shareholders vote on performance targets in equity plans Shareholder 25% 27%
2013 Grant shareholders vote on severance agreements Shareholder 50% 34%
2013 Grant shareholders access to nominate directors on proxy Shareholder 51% 32%
* Shareholder-sponsored proxy proposal that would require the company to grant shareholders the right to cast an advisory vote on executive
compensation (prior to the Dodd-Frank Act of 2010).
** Management-sponsored proxy proposal to approve executive compensation (pursuant to Dodd Frank).
Notes: Voting percentages exclude abstentions. Average support among “all companies” is calculated as the percentage of votes in favor of similar
proposals on other corporate proxies during the same year. Calculations by the authors.
10. Governance Aches and Pains
10Stanford Closer LOOK series
Exhibit 4 — continued
Note: Nabors had a classified (“staggered”) board structure until 2011, annual terms thereafter. Voting percentages exclude broker non-votes.
Source: FactSet Research.
Year Director Election Term % For
2008 Anthony G. Petrello, president and chief operating officer 3-year term 98%
2008 Myron M. Sheinfeld, compensation committee member 3-year term 93%
2008 Martin J. Whitman, compensation committee chair 3-year term 93%
2009 Eugene M. Isenberg, chairman of the board 3-year term 84%
2009 William T. Comfort, compensation committee member 3-year term 60%
2010 John V. Lombardi, compensation committee chair 3-year term 52%
2010 James L. Payne, compensation committee member 3-year term 52%
2011 Anthony G. Petrello, president and chief operating officer 3-year term 63%
2011 Myron M. Sheinfeld, compensation committee member 3-year term 43%
2012 James R. Crane, newly appointed director 1-year term 91%
2012 Michael C. Linn, newly appointed director 1-year term 97%
2012 John Yearwood, compensation committee member 1-year term 74%
2013 James R. Crane, technical & safety committee chair 1-year term 71%
2013 Michael C. Linn, compensation committee member 1-year term 62%
2013 John V. Lombardi, compensation committee chair 1-year term 44%
2013 Howard Wolf, newly appointed director 1-year term 98%
2013 John Yearwood, compensation committee member 1-year term 47%
11. Governance Aches and Pains
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0
20
40
60
80
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Yahoo! (2005-2015)
Yahoo! S&P 500
1. Semel resigns as dual chairman/CEO; Yang becomes CEO, Bostock chairman.
2. Microsoft announces bid to acquire Yahoo.
3. Icahn discloses investment in Yahoo; promises to reestablish merger talks.
4. Yang resigns; Bartz becomes CEO.
5. Bartz resigns; Thompson becomes CEO.
6. Thompson resigns; Mayer becomes CEO.
7. Yahoo’s 24 percent stake in Alibaba valued at $40 billion following Alibaba IPO.
8. Yahoo announces plan to pursue tax-free spinoff of Alibaba stake.
9. IRS declines to gives assurance on tax status of Alibaba distribution.
10. Yahoo establishes committee to explore strategic alternatives; Starboard Value launches proxy contest (2016).
Exhibit 5 — yahoo!: stock price history and timeline of events
Source: Factiva. Center for Research in Securities Prices (University of Chicago).
2
1
3
4 5 6
10
8
9
7
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0
20
40
60
80
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Chesapeake Energy (2005-2015)
Chesapeake S&P 500
1. Chesapeake becomes the second-largest independent producer of natural gas in the U.S.
2. Chesapeake signs McClendon to 5-year employment agreement, through 2012.
3. McClendon purchases Chesapeake shares on margin.
4. McClendon receives margin call; sells 95 percent of his Chesapeake shares.
5. Chesapeake signs McClendon to new 5-year contract; purchases map collection.
6. Chesapeake sells assets to improve financial condition.
7. McClendon receives $1.1 billion in loans to support Founder Well Participation Program.
8. McClendon steps down as chairman.
9. McClendon steps down as CEO.
10. McClendon indicted for conspiring to manipulate oil and gas lease prices; dies in car accident (2016).
Exhibit 6 — chesapeake energy: stock price history and timeline of events
Source: Factiva. Center for Research in Securities Prices (University of Chicago).
2
1
3
4
5
6
10
8
9
7
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Exhibit 7 — chesapeake energy: ceo compensation and related party transactions (2008)
Year Salary Bonus Stock Awards Option Awards
All Other
Compensation
Total
Aubrey McClendon
Chairman and CEO
2008 $ 975,000 $ 76,951,000 $ 20,342,384 - $ 1,800,817 $ 100,069,201
2007 975,000 1,826,000 14,398,233 294,020 1,271,231 18,764,484
2006 975,000 1,581,000 9,288,550 1,412,612 1,819,698 15,076,860
Other Relationships and Transactions
In December 2008, the Company purchased an extensive collection of historical maps of the American Southwest from Mr.
McClendon for $12.1 million, which represented his cost. A dealer who had assisted Mr. McClendon in acquiring this collection
over a period of six years advised the Company that the replacement value of the collection in December 2008 exceeded
the purchase price by more than $8 million. The maps have been displayed at the Company’s Oklahoma City headquarters
for a number of years, during which the Company has been insuring the maps in exchange for their display. Our corporate
headquarters in Oklahoma City is comprised of numerous buildings in a campus-type setting. These maps have been displayed
throughout the Company’s headquarters for a number of years, complementing the interior design features of our campus
buildings and contributing to our workplace culture. Our employees and visitors appreciate the maps’ depiction of the early
years of the nation’s energy industry and the discovery and expansion of Indian Territory (now, Oklahoma) and the surrounding
territories of the early United States. In addition, the collection connects to our Company’s everyday use of mapping in our
business of exploring for and developing natural gas and oil. The Company was interested in continuing to have use of the
map collection and believed it was not appropriate to continue to rely on cost-free loans of artwork from Mr. McClendon.
The Board of Directors authorized the purchase of Mr. McClendon’s collection following review and approval by the Audit
Committee and required that the Company’s purchase price be applied as a credit to Mr. McClendon’s future FWPP costs.
Future purchases, if any, of historical maps or artwork for the Company’s headquarters will be made directly by the Company.
Source: Chesapeake Energy, Form DEF-14A filed April 30, 2009.
14. Governance Aches and Pains
14Stanford Closer LOOK series
Exhibit 8 — chesapeake energy: founder well participation program (fwpp)
The FWPP permits Mr. McClendon, the Company’s cofounder, to participate and invest as a working interest owner in new
wells drilled by the Company. … Shareholders approved the FWPP on June 10, 2005. … The Company believes the FWPP
fosters and promotes the development and execution of the Company’s business by aligning the interests of Mr. McClendon
and the Company. Mr. McClendon has continually participated in the FWPP since the Company’s initial public offering in
1993, except during the five-quarter period from January 1, 1999 to March 31, 2000. …
Under the FWPP, Mr. McClendon has the right to participate in either all or none of the wells spudded by or on behalf of
the Company during each calendar year. Prior to the beginning of each year, Mr. McClendon must provide written notice to
the members of the Compensation Committee of his election to participate in the FWPP and his proposed working interest
percentage for that year. His working interest percentage may not exceed a 2.5% working interest in a well and is not effective
for any well where the Company’s working interest after Mr. McClendon’s participation election would be reduced to below
12.5%. Subject to these limitations, if Mr. McClendon elects to participate in the FWPP, he must participate in all wells spudded
by or on behalf of the Company during the given calendar year and cannot elect to participate on a well-by-well basis. In
September 2011, Mr. McClendon elected to participate in the FWPP for the 2012 calendar year at the maximum 2.5% working
interest permitted, the same participation percentage that Mr. McClendon has elected for the past nine years. …
Mr. McClendon believes the present value of the future net revenue (pretax) of the estimated proved developed producing
reserves attributable to his FWPP interests at December 31, 2011, discounted at 10% per year and based on prices and costs
under existing conditions at such date, was approximately $409.0 million. … Mr. McClendon’s FWPP interests are his personal
assets and are separate and distinct from the Company’s interest in its oil and gas properties and other assets. The FWPP does
not restrict sales, other dispositions or financing transactions involving FWPP interests acquired from the Company. From
time to time, Mr. McClendon has sold FWPP interests separately and concurrently with sales by the Company of its interests
in the same properties. … Since January 1, 2011 through April 26, 2012, Mr. McClendon advises that he realized approximately
$108.6 million from such sales, and he paid approximately $550,000 of deal costs. Additionally, over the life of the FWPP, Mr.
McClendon has typically mortgaged his interests acquired under the FWPP with one or more lenders, some of which also
have lending, investment or advisory relationships with the Company. Mr. McClendon’s mortgages with these lenders secure
loans used in whole or in part to fund Mr. McClendon’s well costs. The Company does not extend loans to Mr. McClendon for
participation in the FWPP or any other purposes. Neither the Company nor the Board reviews or approves financings of Mr.
McClendon’s personal assets, including his FWPP interests. In addition, the Company has no obligation to repay any loans Mr.
McClendon may obtain nor are any of the Company’s interests in any assets exposed to such loans or the mortgages securing
them.
Source: Chesapeake Energy, Form DEF-14A filed May 11, 2012.