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?
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?
This presentation is for my students under Master in Business Administration Course code of Business Policy MBA106. The information is all about the roles and managing of corporate under the corporate governance.
Building bench strategic planning ceos executive successionPwC
Putting the right talent at the top is critical for boards and CEOs who need to ensure their companies thrive in today’s dynamically changing landscape. To compete and win, companies need to cultivate executive talent and teams that can recognize and seize strategic opportunities in constantly shifting conditions. Do you have a succession process that can put the right talent at the top?
Why do corporations continue to fail, regardless of the increase (or decrease) in regulatory efforts? Until management adopts a "risk-centric" stance, we will continue to repeat the sins of the past...
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?
This presentation is for my students under Master in Business Administration Course code of Business Policy MBA106. The information is all about the roles and managing of corporate under the corporate governance.
Building bench strategic planning ceos executive successionPwC
Putting the right talent at the top is critical for boards and CEOs who need to ensure their companies thrive in today’s dynamically changing landscape. To compete and win, companies need to cultivate executive talent and teams that can recognize and seize strategic opportunities in constantly shifting conditions. Do you have a succession process that can put the right talent at the top?
Why do corporations continue to fail, regardless of the increase (or decrease) in regulatory efforts? Until management adopts a "risk-centric" stance, we will continue to repeat the sins of the past...
The board of directors is generally described in terms of its prominent structural attributes, including size, composition, and independence.
This Quick Guide examines the importance of these and whether they contribute to board effectiveness and shareholder value.
It answers the questions:
• What is the composition of a typical board?
• Which factors improve governance quality?
• Which factors do not?
• Can a board’s quality be determined by its structure?
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.
Introduction to Corporate Governance Sep 17 2011Demir Yener
Introductory remarks on good corporate governance practices and implications on board performance and rights and responsibilities for Mongolian directors.
Corporate Governance Definition and PracticeBolaji Okusaga
The recent failures of erstwhile strong institutions has thrown up the importance of Corporate Governance in the running of businesses and the drive for investments. This presentation attempts a basic definition the term and also x-rays practices and processes for sound corporate governance.
Whether you are considering forming a board or want to enhance existing governance practices, understanding the role of the board and expectations of directors is an essential ingredient to successful, value-added governance in private companies. Company leaders and board directors often struggle to determine the role of the board and how to separate board responsibilities from those of ownership and management. In this webinar, the audience will learn what companies are really looking for (or should be) from their boards, and the many ways that boards contribute to private company success. We will cover the definition of a board, typical expectations of a director, board oversight vs. management responsibilities, and many other basics of board formation and operation.
Part of the webinar series: Board of Directors Boot Camp 2021.
See more at https://www.financialpoise.com/webinars/
The role of the Non-Executive Director can appear to those sitting outside of Boards to be shrouded in secrecy. What is a Non-Executive Director? What do they do? And why be a Non-Executive Director?
Jointly in our roles advising the Boards of a range of organisations, and the Directors who sit on them, we
are often asked what information a new Non-Executive Director should be aware of. Through combining our experience and perspective in providing Board advice, we have attempted to provide a Guide that answers both the ‘obvious’ questions to ask and issues to be aware of, together with the detail and summary of the working mechanics of the Board and the key legislation Non-Executive Directors need to understand.
Opportunities for CAs as independent directors to enhance the credibility and...CA. (Dr.) Rajkumar Adukia
The concept of Independent Directors is a welcome step for corporate governance in India. Independent directors are expected to use their capacity, knowledge, and resources towards the maximization of stakeholders’ value and well-being. They ensure the progress of mankind through transparency, accountability, and truthful disclosure of the state of affairs of the company. The Companies Act, 2013 has conferred greater empowerment upon Independent Directors to ensure that the management and affairs of a company are being run fairly and smoothly.
The board of directors is generally described in terms of its prominent structural attributes, including size, composition, and independence.
This Quick Guide examines the importance of these and whether they contribute to board effectiveness and shareholder value.
It answers the questions:
• What is the composition of a typical board?
• Which factors improve governance quality?
• Which factors do not?
• Can a board’s quality be determined by its structure?
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.
Introduction to Corporate Governance Sep 17 2011Demir Yener
Introductory remarks on good corporate governance practices and implications on board performance and rights and responsibilities for Mongolian directors.
Corporate Governance Definition and PracticeBolaji Okusaga
The recent failures of erstwhile strong institutions has thrown up the importance of Corporate Governance in the running of businesses and the drive for investments. This presentation attempts a basic definition the term and also x-rays practices and processes for sound corporate governance.
Whether you are considering forming a board or want to enhance existing governance practices, understanding the role of the board and expectations of directors is an essential ingredient to successful, value-added governance in private companies. Company leaders and board directors often struggle to determine the role of the board and how to separate board responsibilities from those of ownership and management. In this webinar, the audience will learn what companies are really looking for (or should be) from their boards, and the many ways that boards contribute to private company success. We will cover the definition of a board, typical expectations of a director, board oversight vs. management responsibilities, and many other basics of board formation and operation.
Part of the webinar series: Board of Directors Boot Camp 2021.
See more at https://www.financialpoise.com/webinars/
The role of the Non-Executive Director can appear to those sitting outside of Boards to be shrouded in secrecy. What is a Non-Executive Director? What do they do? And why be a Non-Executive Director?
Jointly in our roles advising the Boards of a range of organisations, and the Directors who sit on them, we
are often asked what information a new Non-Executive Director should be aware of. Through combining our experience and perspective in providing Board advice, we have attempted to provide a Guide that answers both the ‘obvious’ questions to ask and issues to be aware of, together with the detail and summary of the working mechanics of the Board and the key legislation Non-Executive Directors need to understand.
Opportunities for CAs as independent directors to enhance the credibility and...CA. (Dr.) Rajkumar Adukia
The concept of Independent Directors is a welcome step for corporate governance in India. Independent directors are expected to use their capacity, knowledge, and resources towards the maximization of stakeholders’ value and well-being. They ensure the progress of mankind through transparency, accountability, and truthful disclosure of the state of affairs of the company. The Companies Act, 2013 has conferred greater empowerment upon Independent Directors to ensure that the management and affairs of a company are being run fairly and smoothly.
Corporate Governance a Balanced Scorecard approach with KPIs between BOD, Exe...Chris Rigatuso
This paper, from 2003, during my time at Oracle, was an early attempt to define metrics for inducing accountability between BOD, executives, and operating management of corporations. It's geared to large companies, but the lessons are broadly appreciable. It was published in CFO Reviews by Anderson Consulting, and other places. It predates the SOX Sarbanes Oxley laws that were a result of the Enron Scandal.
Role of board of directors -Corporate GovernanceRehan Ehsan
This Presentation states the role of board of directors in respect of corporate governance of Pakistan. Reviewing this clear the concept of their legal role in Pakistan.
Analysis of Nine Pillars of Corporate Governance Principles for Small and Med...Karan Mahajan, CCRA
The report involved critically analyzing the nine pillars of corporate governance for SMEs in Dubai, providing recommendation for strengthening the principles as well as comparison with OECD Principles of Corporate Governance, Commonwealth Association for Corporate Governance and Corporate Governance principles in India.
Whether you are considering forming a board or want to enhance existing governance practices, understanding the role of the board and expectations of directors is an essential ingredient to successful, value-added governance in private companies. Company leaders and board directors often struggle to determine the role of the board and how to separate board responsibilities from those of ownership and management. In this webinar, the audience will learn what companies are really looking for (or should be) from their boards, and the many ways that boards contribute to private company success. We will cover the definition of a board, typical expectations of a director, board oversight vs. management responsibilities, and many other basics of board formation and operation.
Part of the webinar series:
BOARD OF DIRECTORS BOOT CAMP 2022
See more at https://www.financialpoise.com/webinars/
Whether you are considering forming a board or want to enhance existing governance practices, understanding the role of the board and expectations of directors is an essential ingredient to successful, value-added governance in private companies. Company leaders and board directors often struggle to determine the role of the board and how to separate board responsibilities from those of ownership and management. In this webinar, the audience will learn what companies are really looking for (or should be) from their boards, and the many ways that boards contribute to private company success. We will cover the definition of a board, typical expectations of a director, board oversight vs. management responsibilities, and many other basics of board formation and operation.
Part of the webinar series: Board of Directors Boot Camp 2022
See more at https://www.financialpoise.com/webinars/
Phillip Gallo, was the keynote speaker at ICCI's February Industry Update Breakfast. The topic of the meeting was the Importance of a Corporate Governance Strategy.
Similar to Scaling Up: The Implementation of Corporate Governance in Pre-IPO Companies (20)
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.
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, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University surveyed 53 founders and CEOs of 47 companies that completed an Initial Public Offering in the U.S. between 2010 and 2018 to understand how corporate governance practices evolve from startup through IPO.
David F. Larcker, Stephen A. Miles, Brian Tayan, and Kim Wright-Violich
Stanford Closer Look Series, November 8, 2018
CEO activism—the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business—has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism.
We ask:
• How widespread is CEO activism?
• How well do boards understand the advocacy positions of their CEOs?
• Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?
• How should boards measure the costs and benefits of CEO activism?
• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, October 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,544 individuals — representative by gender, race, age, household income, and state residence — to understand how the American public views CEOs who take public positions on environmental, social, and political issues.
“We find that the public is highly divided about CEOs who take vocal positions on social, environmental, or political issues,” says Professor David F. Larcker, Stanford Graduate School of Business. “While some applaud CEOs who speak up, others strongly disapprove. The divergence in opinions is striking. CEOs who take public positions on specific issues might build loyalty with their employees or customers, but these same positions can inadvertently alienate important segments of those populations. The cost of CEO activism might be higher than many CEOs, companies, or boards realize.”
“Hot-button issues are hot for a reason,” adds Brian Tayan, researcher at Stanford Graduate School of Business. “Interestingly, people are much more likely to think of products they have stopped using than products they have started using because of a position the CEO took on a public issue. When consumers don’t like what they hear, they react the best way they know how to: by closing their wallets.”
By David F. Larcker, Brian Tayan, CGRI Quick Guide Series. Corporate Governance Research Initiative, September 2018
This guide provides data and statistics on the attributes of the CEOs and CEO succession events at publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “CEO Succession Planning.”
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Implicitly or explicitly all competing businesses employ a strategy to select a mix
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The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
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Editable Toolkit to help you reuse our content: 700 Powerpoint slides | 35 Excel sheets | 84 minutes of Video training
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Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
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Vat Registration is a legal obligation for businesses meeting the threshold requirement, helping companies avoid fines and ramifications. Contact now!
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In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
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Scaling Up: The Implementation of Corporate Governance in Pre-IPO Companies
1. Stanford Closer LOOK series
Stanford Closer LOOK series 1
By David F. Larcker and Brian Tayan
december 3, 2018
Scaling up
The Implementation of Corporate Governance in Pre-IPO Companies
introduction
An effective system of corporate governance is considered critical
to the proper oversight of companies. While companies are
required to have a reliable corporate governance system in place
at the time of IPO, relatively little is known about the process by
which they implement it.
At its founding, a typical private company lacks many, if not all,
of the features that will later be required by regulatory authorities.
The board of directors is composed primarily of insiders—
founders, investors, managers—and usually has no directors
who meet the independence standards of the New York Stock
Exchange and NASDAQ. Financial statements may be subject
to an external audit but are usually not prepared in accordance
with generally accepted accounting principles (GAAP). Financial
reporting systems lack many of the controls necessary to comply
with the Sarbanes-Oxley Act of 2002. Compensation contracts are
dominated by equity awards and milestone-based payouts whose
amounts are not justified in an annual proxy or explained in light
of the company’s compensation philosophy, pay objectives, or
the peer-group analysis that public companies are required to
disclose.1
And yet, by the time companies go public, they have in
place fully established (if not fully matured) systems of corporate
governance.
How do pre-IPO companies go from essentially “no
governance” at inception to meeting the rigorous standards
mandated by the Securities and Exchange Commission (SEC) to
protecttheinterestsofpubliccompanyinvestorsandstakeholders?
Governance in Pre-IPO Companies
To understand the evolution of corporate governance in pre-IPO
companies, we collected data from 47 companies that completed
an Initial Public Offering in the U.S. between 2010 and 2018
(see Exhibit 1).2
We found that pre-IPO governance systems are
highly diverse in maturity, rigor, and structure; and that corporate
leaders make vastly different choices about when and how to
implement the standards required by the SEC in the time leading
up to IPO. These choices reflect the individual situations that
each company faces in terms of industry, market opportunity, and
growth profile, as well as the previous experience of management
and investors, funding needs, and speed to IPO.
On average, the companies in our sample were nine years old
at the time of IPO.3
Major milestones include the following:
5 years prior to IPO
• The company hires the CEO (if different from the founder)
who eventually takes the company public.
4 years prior to IPO
• The company implements the financial and accounting systems
in place at the IPO.
• The company hires the external auditor used at IPO.
3 years prior to IPO
• The company first becomes serious about developing a
corporate governance system.
• The company recruits its first independent (outside) board
member.
• The company recruits the CFO who eventually takes the
company public.
2 years prior to IPO
• The company hires an in-house general counsel.
Note that these numbers are average results (see Exhibit 2). The
order in which these events occur varies widely across individual
companies.
Companies that develop governance systems do so primarily
as a part of a plan to go public. Eighty-three percent of companies
say that they first became serious about developing a system of
corporate governance as part of a plan to eventually complete an
IPO. Having a corporate governance system is not necessarily seen
as a required step in the evolution of a young, private company
when the company intends to remain private.
Still, some aspects of corporate governance are embedded in
2. Scaling Up
2Stanford Closer LOOK series
companies from their founding. For example, some companies
voluntarily run formal board meetings even at a very young age,
some recruit independent directors for their expertise before the
company is required to do so, some maintain an independent
compensation committee to separate management from the
compensation setting process, and some maintain rigorous
reporting and internal audit capabilities to assure lenders or
customers of the quality of their statements. These practices
are adopted for different reasons: a desire to satisfy investors,
stakeholders, or regulators; to prepare for eventual scale; or
because they are considered “the right thing to do” by the founder,
CEO, or major investors.
In the minds of founders and CEOs, “good governance” is
synonymous with having independent directors on the board.
Companies typically recruit the first independent director to their
board at the same time they become serious about developing a
system of corporate governance. In interviews, when asked about
key steps in developing a formal system of governance, founders
and CEOs frequently referred to the decision to add outside
experts to the board as the first step they took. Furthermore,
the founders and CEOs we interviewed viewed the decision to
recruit an independent director as very positive for the company,
management, and the board. They cite the value of having people
with outside experience to guide leadership as the company
grows. According to one founder:
In a privately held company, many times we’re so involved in
the day-to-day operations, it’s hard to see the forest for the trees.
[Independent directors] have more of an objective view. They see
things that management doesn’t see.4
Another contrasts the experiences of working with independent
directors and working with a venture-capital board:
For VCs, the main questions always center on growth: If you obtain
additional capital can you grow quicker? Independent directors
tend to focus on whether the right controls are in place, governance
factors, the potential risks, and whether we are properly addressing
those as the company grows. … One is more growth-based, and the
other is more risk management-based.
The independent directors that companies recruit have a diverse
mix of skills—primarily industry, management, and commercial
expertise, but also finance or banking experience, accounting
or financial reporting experience, prior board service, or
experience growing companies or taking them public (see Exhibit
3). The decision about what skills to look for when adding an
independent director for the first time depend specifically on
the company’s situation—for example, whether the company is
facing growth challenges, expanding into new markets, changing
product focus, or implementing more formalized reporting and
control functions to support growth or in preparation for an IPO.5
Independent directors are typically recruited through the personal
networks of management and investors. In later stages of growth,
private companies rely somewhat more on recruiters. Founders
and CEOs are careful to ensure that newly added independent
directors, regardless of source, have a positive impact on board
culture and dynamics.
Seventy-seven percent of companies in our sample had a
staggered board at the time of IPO. While staggered boards are
considered by some governance experts to be indicative of poor
governance quality, no founder or CEO who we talked to said
that they received questions from potential investors about their
decision to maintain a staggered board.6
In the words of one CEO:
A lot of companies have a staggered board when they go public. We
had no push-back whatsoever. I think that’s almost an expected
part of the prospectus. … I never got a question about it at all.
Companies in our sample are fairly evenly divided between those
whose founders take the company public (53 percent) and those
that bring in a non-founder CEO (47percent – see Exhibit 4).7
Of note, companies that recruit a non-founder CEO do not do
so explicitly in order to take the company public but to scale the
company or to solve managerial or commercial problems. One
founder provides an example:
The company was struggling when the CEO joined. We were in
the midst of trying to implement a pivot in our strategy. … We
brought in a new CEO to help, somebody who believed in [our
new] approach. He joined us in 2008, and really back then we were
just trying to survive, and make this conversion, and we were able
to do that. We really didn’t start talking about paths to liquidity
until 2013.
Rigorous financial and control systems are put in place to support
pre-IPO companies as they scale. The CFO who eventually takes
the company public is not necessarily the executive who first
implements these systems. In our sample, only two-thirds (65
percent) of CFOs who took the company public were tasked
with overseeing the development of the financial and accounting
systems in place at the time of IPO (see Exhibit 5). Still, interviews
with founders and CEOs underscore the importance, time, and
cost of developing these systems to the specifications required
by the SEC.8
Companies whose CFOs did not have deep prior
experience running public-company reporting systems were
required to bring in experts who have this experience—at the
board level, CFO level, or accounting and controls level. In the
words of one founder:
3. Scaling Up
3Stanford Closer LOOK series
We hired a head of internal audit, and he was really critical in
getting our SOX controls in place and making sure that we had
a sound control environment. … We also hired a person for SEC
reporting and technical accounting. We significantly increased the
accounting team as part of the going public process because of the
large increase in work.
According to another:
We already had gone through the discipline of preparing a clean
audited financial statement. Transferring to what was required by
the SEC was a big process, there’s no question: There’s more detail,
more notes, and other documentation. But the disciplines were in
place, and so it wasn’t as difficult as it could have been.
Some founders and CEOs note that provisions of the JOBS Act
allowing an emerging growth company to file for IPO before
implementing a control environment compliant with Section
404(b) of the Sarbanes-Oxley Act (as well as being allowed to file
confidentially with the SEC) were critical in their decision to
move forward with an IPO.9
Many pre-IPO companies transition from a regional auditor
to a Big Four accounting firm as they prepare for IPO, but a sizable
minority do not. Over three-quarters (77 percent) report using a
Big Four auditor at the time of IPO. Companies who switch to
a Big Four firm do so because they believe their company has
become too large and complex for a regional firm.
An internal general counsel is considered the “least necessary”
element of the governance system in pre-IPO companies. The
typical company in our sample hires an internal general counsel
two years before the IPO; however, a significant minority (18
percent) do not hire an internal general counsel until after the
IPO, and 8 percent have no internal general counsel, even as a
public company (see Exhibit 6). The decision to hire an internal
general counsel is viewed through a cost-benefit lens. In the words
of three different founders and CEOs:
Our decision to hire a general counsel was not driven by regulatory
requirements, just volume of work. The fees we were paying
to outside counsel were extraordinary. There is an efficiency to
having some of it controlled internally, and frankly just having
more access to a legal perspective in-house. The person that we
hired had been involved in a lot of SEC work in the past, so she
had tremendous expertise in dealing with issues that are foreign to
the rest of us.
The year after we went public, we decided to bring in an internal
general counsel. [Three years later], we reevaluated that decision,
and felt that because that individual was not an expert in
everything, and they were using a ton of outsourced legal teams
to get the work done, we were wasting a lot of money in our legal
G&A. We eliminated our internal legal team at the beginning of
this year and replaced them with an outside law firm that could
bring a higher level of expertise over all aspects of our business,
including SEC, corporate board governance, contracting review,
licensing, M&A, HR, etc.
Eventually we will hire an internal general counsel. Right now, it
is hard to justify the numbers.
Prior to IPO, companies rely on a variety of key performance
metrics and milestone-based targets in awarding CEO bonus
compensation. The most commonly used metrics include those
relating to earnings and cash flow (53 percent), revenue growth (49
percent), innovation and new product development (44 percent),
and business partnership and alliances (40 percent). Other metrics
includethoserelatingtoemployeehiring,retention,orsatisfaction;
regulatory or legal matters; product quality; customer growth and
satisfaction, and sustainability. For the most part, these metrics do
not change significantly as the company approaches IPO. Only 30
percent of companies add new performance metrics in the years
immediately prior to IPO, and those that do add metrics add ones
related to revenue growth, earnings or cash flow, and innovation
or new product development (see Exhibit 7).
Interviews with founders and CEOs show that companies
differ in the degree to which they believe compensation practices
change following an IPO. Some take the viewpoint that pre- and
post-IPO compensation practices are starkly different: the former
reliant on milestone-based awards and stock option grants; the
latter reliant on external advice, peer-group assessments, equity
burn limits, and a formal disclosure process through the proxy.
Others contend that the primary focus in awarding pay does not
change: Both pre- and post- IPO pay outcomes depend primarily
on achieving growth and performance targets that increase value
to shareholders.
Founders and CEOs are generally satisfied with their
governance systems. Ninety-one percent of companies are very
or somewhat satisfied with the quality of corporate governance
system they had in place at the time of IPO. They believe that
implementing a governance system that meets the needs of
regulators is costly, but recognize that it is a requirement of going
public. (Interestingly, few founders and CEOs [12 percent] believe
that the quality of their governance system has an impact on the
pricing of the IPO, and those who do believe that it does estimate
that it contributed 15 percent to the IPO price.)
Finally, they recognize that the systems they currently have
in place are not final and will continue to evolve as the company
matures in a public environment.
4. Scaling Up
4Stanford Closer LOOK series
Why This Matters
1. There is no one-size-fits-all approach to governance in the
pre-IPO world. Companies make vastly different choices on
whether, when, or how to implement governance features
that are common among public companies. What does this
tell us about the relation between governance features and a
company’s specific situation? Should regulators and market
participants allow public companies greater flexibility to tailor
their governance systems to the needs of their business?
2. Corporate governance systems in pre-IPO companies are
very different and much less developed than those of public
companies. The founders and CEOs of pre-IPO companies
recognize the value of having a quality governance system in
place; at the same time, they recognize its cost. Which elements
of governance add to business performance and governance
quality? Which have made their way into the regulatory
or market environment but do not meaningfully add to
governance quality?
3. How much value does a good corporate governance system
add to a company’s overall valuation? Does good corporate
governance impact the IPO price?
4. A typical startup company becomes serious about developing
a corporate governance system only as part of a plan to
eventually complete an IPO. What does this say about the
value of corporate governance systems in small or medium
sized private companies? When should a small or medium
sized company that intends to remain private implement a
governance system? Which elements should it include? Which
are unnecessary or excessively costly, relative to the potential
benefits?
1
Compensation contracts in pre-IPO companies also offer potential
windfall payouts at IPO that dwarfs the compensation amounts offered
to the CEOs of many established, publicly traded companies.
2
Surveys were mailed to the founders and CEOs (at the time of IPO)
of 435 companies. Responses were received from 47 companies,
representing a 10.8 percent response rate. Respondent companies come
from a mix of industries including biotech and healthcare, technology,
services, industrial, real estate, finance, and other. In-depth interviews
were subsequently conducted with eight founders or CEOs. For a full
summary of the data, see: Rock Center for Corporate Governance, “The
Evolution of Corporate Governance: 2018 Study of Inception to IPO,”
(2018).
3
Ritter calculates that during the period 2012-2017 the median age of
companies at the time of IPO is 11 years. Averages are not available.
See Jay R. Ritter, “Initial Public Offerings: Median Age of IPOs Through
2017,” (June 2018), available at: https://site.warrington.ufl.edu/
ritter/.
4
Quotes are edited lightly for clarity. All quotes from Rock Center for
Corporate Governance, “The Evolution of Corporate Governance: 2018
Study of Inception to IPO,” (2018).
5
This is consistent with Boone, Field, Karpoff, and Raheja (2007) who
study board evolution in the 10-year period following IPO and find
that variations in board size and independence reflect “economic
considerations—in particular, the specific nature of the firm’s
competitive environment and managerial team.” See Audra L. Boone,
Laura Casares Field, Jonathan M. Karpoff, and Charu G. Raheja, “The
Determinants of Corporate Board Size and Composition: An Empirical
Analysis,” Journal of Financial Economics (2007).
6
Daines and Klausner (2001) study the prevalence of anti-takeover
protections (including staggered boards) in place at the time of IPO
and find that they are used to protect management when a takeover is
most likely and management performance most transparent. They find
no evidence that staggered boards are used for entrenchment purposes.
See Robert Daines and Michael Klausner, “Do IPO Charters Maximize
Firm Value? Antitakeover Protection in IPOs,” Journal of Law, Economics
& Organization (2001). For a review of the research on staggered boards,
see David F. Larcker and Brian Tayan, “Staggered Boards: Research
Spotlight,” Stanford Quick Guide Series (2015).
7
This is somewhat consistent with Broughman and Fried (2018) who
find that founder is no longer CEO in 60 percent of firms at IPO. That
study also finds that the likelihood of a founder remaining CEO and
maintaining voting control three years after IPO is only 0.4 percent. See
Brian Broughman and Jesse M. Fried, “Do Founders Control Start-Up
Firms that Go Public?” European Corporate Governance Institute (2018).
8
Davila and Foster (2005) study the implementation of managerial
accounting systems in startup companies and find that decisions on when
and how to implement these are based on company-specific factors,
including perceived benefits and costs, company scale, and management
style. They also find that venture capital-backed companies are quicker
to adopt formal accounting system components. See Antonio Davila and
George Foster, “Management Accounting Systems Adoption Decisions:
Evidence and Performance Implications from Early-Stage/Startup
Companies,” The Accounting Review (2005).
9
This is consistent with Dambra, Field, and Gustafson (2015) who find
that the JOBS Act led to a 25 percent increase in the number of IPOs
in the year following enactment, with the increase in IPO activity
occurring in companies with high proprietary disclosure costs. They also
find that these firms took advantage of the act’s de-risking provisions,
allowing them to file the IPO confidentially while testing the market.
Barth, Landsman, and Taylor (2017) find that companies that qualify
as emerging growth companies under the JOBS Act offer more limited
disclosure to investors, resulting in greater IPO underpricing and higher
post-IPO volatility. See Michael Dambra, Laura Casares, and Matthew
T. Gustafson, “The JOBS Act and IPO Volume: Evidence That Disclosure
Costs Affect the IPO Decision,” Journal of Financial Economics (2015); and
Mary E. Barth, Wayne R. Landsman, and Daniel J. Taylor, “The JOBS
Act and Information Uncertainty in IPO Firms,” The Accounting Review
(2017).
David Larcker is Director of the Corporate Governance Research
Initiative at the Stanford Graduate School of Business and senior faculty
member at the Rock Center for Corporate Governance at Stanford
University. Brian Tayan is a researcher with Stanford’s Corporate
Governance Research Initiative. They are coauthors of the books
Corporate Governance Matters and A Real Look at Real World
Corporate Governance. The authors would like to thank Michelle E.
Gutman for research assistance with these materials.
6. Scaling Up
6Stanford Closer LOOK series
Exhibit 1 — Descriptive Statistics of Sample Companies
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)
7. Scaling Up
7Stanford Closer LOOK series
Exhibit 2 — Corporate Governance Milestones: Time Relative to IPO
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)
8. Scaling Up
8Stanford Closer LOOK series
Exhibit 3 — Attributes of First Independent Director Recruited to Pre-IPO Companies
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)
9. Scaling Up
9Stanford Closer LOOK series
Exhibit 4 — Attributes of CEOs in Pre-IPO Companies
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)
10. Scaling Up
10Stanford Closer LOOK series
Exhibit 5 — Attributes of CFOs in Pre-IPO Companies
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)
11. Scaling Up
11Stanford Closer LOOK series
Exhibit 6 — Distribution of Decision to Hire Internal General Counsel in Pre-IPO Companies
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)
12. Scaling Up
12Stanford Closer LOOK series
Exhibit 7 — Performance Metrics in CEO Compensation Contracts at Pre-IPO Companies
Source: Rock Center for Corporate Governance at Stanford University, “The Evolution of Corporate Governance: 2018 Study of Inception to
IPO,” (2018)