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.”
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.”
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.”
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 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?
Seven Myths of Boards of Directors
David F. Larcker and Brian Tayan
September 30, 2015
Corporate governance experts pay considerable attention to issues involving the board of directors. Because of the scope of the board’s role and the vast responsibilities that come with directorship, companies are expected to adhere to common best practices in board structure, composition, and procedures. While some of these practices contribute to board effectiveness, others have been shown to have no or a negative bearing on governance quality.
We review seven commonly accepted beliefs about boards of directors:
1. The chairman should be independent
2. Staggered boards are bad for shareholders
3. Directors that meet NYSE independence standards are independent
4. Interlocked directorships reduce governance quality
5. CEOs make the best directors
6. Directors have significant liability risk
7. The failure of a company is the board’s fault
We ask:
• Why isn’t more attention paid to board processes rather than structure?
• Why aren’t more governance practices voluntary rather than required?
• Would flexible standards lead to better solutions or more failures?
• When do directors deserve the blame for a company’s failure and when is it the fault of management, the marketplace, or luck?
• How can shareholders more effectively monitor board performance?
By David Larcker and Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), Stanford Graduate School of Business, October 2016.
This Research Spotlight provides a summary of the academic literature on internal and external CEOs.
It reviews the evidence of:
• Trends in hiring external CEOs
• Operating condition of companies that hire internal and external CEOs
• Stock market reaction to hiring external CEOs
• Relative performance of internal and external CEOs
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
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?
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2016
Download
This Research Spotlight provides a summary of the research literature on whether companies with diverse boards (in terms of background, gender, or ethnicity) exhibit better performance and governance quality than companies without diverse boards.
It reviews the evidence of:
The relation between diversity and corporate performance
The relation between diversity and compensation
The relation between diversity and governance quality
The impact of mandatory quotas
The impact of diversity on group performance
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
This 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.”
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.”
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 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?
Seven Myths of Boards of Directors
David F. Larcker and Brian Tayan
September 30, 2015
Corporate governance experts pay considerable attention to issues involving the board of directors. Because of the scope of the board’s role and the vast responsibilities that come with directorship, companies are expected to adhere to common best practices in board structure, composition, and procedures. While some of these practices contribute to board effectiveness, others have been shown to have no or a negative bearing on governance quality.
We review seven commonly accepted beliefs about boards of directors:
1. The chairman should be independent
2. Staggered boards are bad for shareholders
3. Directors that meet NYSE independence standards are independent
4. Interlocked directorships reduce governance quality
5. CEOs make the best directors
6. Directors have significant liability risk
7. The failure of a company is the board’s fault
We ask:
• Why isn’t more attention paid to board processes rather than structure?
• Why aren’t more governance practices voluntary rather than required?
• Would flexible standards lead to better solutions or more failures?
• When do directors deserve the blame for a company’s failure and when is it the fault of management, the marketplace, or luck?
• How can shareholders more effectively monitor board performance?
By David Larcker and Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), Stanford Graduate School of Business, October 2016.
This Research Spotlight provides a summary of the academic literature on internal and external CEOs.
It reviews the evidence of:
• Trends in hiring external CEOs
• Operating condition of companies that hire internal and external CEOs
• Stock market reaction to hiring external CEOs
• Relative performance of internal and external CEOs
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Succession Planning.”
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?
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.”
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.
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!
In case of business, Corporate Governance is a new era. It has potential scope to find it useful though it hasn't actually been evolved from one theory. Many theories from different disciplinary area contributed to develop fundamental of corporate governance.
Youtube Video Link -
https://youtu.be/dx28fuD_D4w
Stewardship Theory, developed by Donaldson and Davis focuses on understanding the existing relationships between ownership and management of the company.
Under Stewardship theory managers are considered as Stewards which means someone who is responsible to protect and act in the best interest of shareholders.
It is opposite to agency theory which mentions the conflict of interest between managers and shareholders.
Managers are considered as committed to business, responsible, working towards accomplishment of mission and vision of organization.
They are the one who brings out collectivism in organization and align everyone’s objective for the growth of business.
Focuses on recognizing various groups in organization and empowers them with motivation and delegation of work.
Balances all stakeholders and add significant value to organization reputation.
There exist a strong relationship between managers and success of the company.
Stewards tries to maximize shareholders wealth by constantly increasing profitability and efficiency of business.
More control and restrictions over managers may lower their motivation and hence turn them out unproductive since they take most of the strategic decisions for growth of business in long run.
Thank you for Watching
Subscribe to DevTech Finance
Corporate governance and bank performance: Empirical evidence from Nepalese f...Rajesh Gupta
This paper examines the effects of corporate governance on bank performance in the context of Nepal. Return on assets (ROA) and return on equity (ROE) are dependent variables for bank performance, and board size, female board members, financial institutions, CEO duality, independent directors, firm size, firm age, earnings per share, and the capital adequacy ratio are independent variables for corporate governance.
Study to investigate the correlation between the operating performances of fi...Charm Rammandala
The purpose of this study to understand whether there is a correlation between the operating performance of a firm and its CEO’s compensation. Various scholars and journalists studied and reported in this area over the years with mixed results. Popular notion among general public is that regardless of the performance of the company, CEO’s pay and perks either remain same or increase. Another accusation is most of the mergers and acquisitions taken place to boost the pay of CEO’s rather than to increase the value of shareholder. Study will look in to the validity of these claims to determine whether there is a correlation between the firm performances and the CEO pay
ReLIVE 2008, Closing Keynote - When It's All Over We Still Have to Clear UpRoo Reynolds
My closing keynote. Created on-the-fly during the two-day conference, to digest and summarise the event.
See http://rooreynolds.com/2008/11/22/relive08-closing-keynote-when-its-all-over-we-still-have-to-clear-up/
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.”
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.
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!
In case of business, Corporate Governance is a new era. It has potential scope to find it useful though it hasn't actually been evolved from one theory. Many theories from different disciplinary area contributed to develop fundamental of corporate governance.
Youtube Video Link -
https://youtu.be/dx28fuD_D4w
Stewardship Theory, developed by Donaldson and Davis focuses on understanding the existing relationships between ownership and management of the company.
Under Stewardship theory managers are considered as Stewards which means someone who is responsible to protect and act in the best interest of shareholders.
It is opposite to agency theory which mentions the conflict of interest between managers and shareholders.
Managers are considered as committed to business, responsible, working towards accomplishment of mission and vision of organization.
They are the one who brings out collectivism in organization and align everyone’s objective for the growth of business.
Focuses on recognizing various groups in organization and empowers them with motivation and delegation of work.
Balances all stakeholders and add significant value to organization reputation.
There exist a strong relationship between managers and success of the company.
Stewards tries to maximize shareholders wealth by constantly increasing profitability and efficiency of business.
More control and restrictions over managers may lower their motivation and hence turn them out unproductive since they take most of the strategic decisions for growth of business in long run.
Thank you for Watching
Subscribe to DevTech Finance
Corporate governance and bank performance: Empirical evidence from Nepalese f...Rajesh Gupta
This paper examines the effects of corporate governance on bank performance in the context of Nepal. Return on assets (ROA) and return on equity (ROE) are dependent variables for bank performance, and board size, female board members, financial institutions, CEO duality, independent directors, firm size, firm age, earnings per share, and the capital adequacy ratio are independent variables for corporate governance.
Study to investigate the correlation between the operating performances of fi...Charm Rammandala
The purpose of this study to understand whether there is a correlation between the operating performance of a firm and its CEO’s compensation. Various scholars and journalists studied and reported in this area over the years with mixed results. Popular notion among general public is that regardless of the performance of the company, CEO’s pay and perks either remain same or increase. Another accusation is most of the mergers and acquisitions taken place to boost the pay of CEO’s rather than to increase the value of shareholder. Study will look in to the validity of these claims to determine whether there is a correlation between the firm performances and the CEO pay
ReLIVE 2008, Closing Keynote - When It's All Over We Still Have to Clear UpRoo Reynolds
My closing keynote. Created on-the-fly during the two-day conference, to digest and summarise the event.
See http://rooreynolds.com/2008/11/22/relive08-closing-keynote-when-its-all-over-we-still-have-to-clear-up/
That’s one small step for IT, one giant leap for business agility
Give to your business the moon as in this REX of micro-services solution used in the Airbus flight tests department to rebuild a large and complex systems. This medium size on-going project took some technical decisions and finally managed to bring the Micro-Services philosophy in a huge legacy IT system.
Intranet trends in Finland 2014 based on the Intranets in Finland 2014 survey. How are the Finnish intranets doing?
The first ‘Intranets in Finland 2014′ study was conducted this summer. The slideshow will present the typical features of Finnish intranet and current intranet trends in Finland. Differences and similarities between Swedish and Finnish intranets are also covered.
Presentation at Intranätverk 2014 seminar in Stockholm 13 November 2014.
2016.11.17 Walking at Work: The What, Why & How of Walking MeetingsTed Eytan, MD, MS, MPH
Presentation given with AmericaWalks on November 17, 2016
"Walking is a great way to incorporate more physical activity into your daily routine. One way to make sure you are getting the recommended amount of steps is to turn meetings at work into walking meetings. This webinar explores the what, why and how of walking meetings and learn from examples of businesses and organization that have put them into practice. - See more at: http://americawalks.org/walking-at-work-the-what-why-how-of-walking-meetings-november-17-2016-webinar/#sthash.V97AwZMP.dpuf"
By David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), 2016
This Research Spotlight provides a summary of the academic literature on how shareholder voting on executive compensation plans influences executive pay. It reviews the evidence of:
The impact of “vote no” campaigns
The impact of shareholder voting on equity compensation plans
The market reaction to say-on-pay legislation and proposals
The impact of say on pay on future pay practices
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Compensation.”
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.”
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”.
The board of directors might decide it is in the best interest of shareholders to sell the corporation to new owners. In theory, a change in control only makes sense when the value of the firm to new owners, minus transaction costs, is greater than the value of the firm to current owners.
This Quick Guide examines the market for corporate control.
It answers the questions:
• Why do companies merge?
• Do mergers improve performance?
• Who gets the value in a merger?
• How do companies protect themselves from hostile bids?
• Do these protections help shareholders?
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.
Most corporations dedicate significant time and attention to managing their shareholder base. Furthermore, companies overwhelmingly prefer “long-term shareholders” to “short-term shareholders.”
There is little rigorous research, however, that conclusively demonstrates the impact that individual investor groups have on corporate decision making, or that quantifies the premium (or discount) that specific shareholder groups add to corporate value.
We explore this topic in greater detail, and ask:
• Does the composition of a company’s shareholder base really matter?
• What substantive impact do shareholder—including activists—have on strategy, investment, and management?
• How long is long-term? How short is short-term?
• Can short-term market pressures be offset by long-term compensation incentives?
This Research Spotlight provides a summary of the academic literature on outside (non-executive) directors and directors who are independent according to New York Stock Exchange listing requirements.
It reviews the evidence of:
• Shareholder reaction to the appointment of outside directors
• The relation between outside directors and performance
• The relation between outside directors and mergers and acquisitions
• The relation between outside directors and CEO compensation
• Factors that influence the “independence” of outside directors
This Research Spotlight expands upon issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
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?
This Research Spotlight provides a summary of the academic literature on CEO pay levels in the United States. It reviews the evidence of:
• Long-term trends in the CEO compensation
• The relation between CEO compensation and governance quality
• The relation between peer group composition and CEO pay
• The relation between compensation consultant selection and CEO pay
This Research Spotlight expands upon issues introduced in the Quick Guide “CEO Compensation”.
Authors: Professor David F. Larcker, Brian Tayan, CGRI Quick Guide Series. Corporate Governance Research Initiative, Stanford Graduate School of Business, August 2017
This Research Spotlight provides a summary of the academic literature on the role of proxy advisors (ISS and Glass, Lewis) in the proxy voting process:
• The influence of proxy advisors on director elections.
• The influence of proxy advisors on say on pay.
• The influence of proxy advisors on proxy contests.
• The influence of proxy advisors on compensation design.
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
Investigating Corporate Governance And Its Effect on Firm Performance with As...QUESTJOURNAL
ABSTRACT: Corporate governance and its effect on firm performance are investigated in this research. Research independent variables include non-bound members of board of directors, board of directors’ independence, institutional shareholders, and dependent variable includes assets return which is the index of firm’s performance. Accordingly, data of 125 accepted firms in Tehran securities exchange during 2009 to 2013 was extracted and panel data regression model was applied to test the hypotheses. Results indicate an inverse significant relationship between non-bound members of board of directors and assets return and a positive significant relationship between board of directors’ independence and firm’s performance. Also, there is a positive relationship between institutional shareholders and firm’s performance. In general, results showed that appropriate corporate governance improves firms’ performance.
Institutional Shareholders and
Activist Investors
Professor David F. Larcker
Corporate Governance Research Program
Stanford Graduate School of Business
2011
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
David F. Larcker, Brian Tayan, Vinay Trivedi, and Owen Wurzbacher, Stanford Closer Look Series, July 2, 2019
Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs.
We ask:
• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative, June 2019
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide will take an in-depth look at Shareholders and Activism.
By Brandon Boze, Margarita Krivitski, David F. Larcker, Brian Tayan, and Eva Zlotnicka
Stanford Closer Look Series
May 23, 2019
Recently, there has been debate among corporate managers, board of directors, and institutional investors around how best to incorporate ESG (environmental, social, and governance) factors into strategic and investment decision-making processes. In this Closer Look, we examine a framework informed by the experience of ValueAct Capital and include case examples.
We ask:
• What is the investment horizon prevalent among most companies today?
• Do companies miss long-term opportunities because of a focus on short-term costs?
• How many companies have an opportunity to profitably invest in ESG solutions?
• What factors determine whether a company can profitably invest in ESG solutions?
• Can investors earn competitive risk-adjusted returns through ESG investments?
• If so, how widespread is this opportunity?
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
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.”
By David F. Larcker, Brian Tayan, CGRI Quick Guide Series. Corporate Governance Research Initiative, September 2018
This guide provides data and statistics on the attributes of the CEOs and CEO succession events at publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “CEO Succession Planning.”
By David F. Larcker, Brian Tayan, CGRI Quick Guide Series. Corporate Governance Research Initiative, September 2018
This Data Spotlight provides data and statistics on the attributes of boards of directors of publicly traded companies in the United States. This data supplements the issues introduced in the Quick Guide “Board of Directors: Structure and Consequences.”
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1. David F. Larcker and Brian Tayan
Corporate Governance Research Initiative
Stanford Graduate School of Business
STAGGERED BOARDS
RESEARCH SPOTLIGHT
2. Staggered (or classified) board
• Directors elected to three-year terms, with one-third of board standing for
election each year.
• Staggered boards are a formidable antitakeover protection.
• The board cannot be replaced in a single year; two election cycles are
required to gain majority control.
• Staggered boards are often adopted in combination with other
protections, such as a poison pill, limits on shareholder rights to call a
special meeting, and supermajority voting required to remove directors.
• Combining a staggered board and poison pill is practically insurmountable.
KEY CONCEPTS
3. • From a theoretical standpoint, it is unclear how staggered boards impact
shareholder value:
(-) Management entrenchment.
(+) Enhances bargaining power with potential acquirers.
(+) Strengthens long-term commitments to strategic partners.
(+) Encourages management to take risk / invest in long-term projects.
• Empirical evidence tends to be negative, but is very mixed.
• The impact of a staggered board—positive or negative—likely depends on
situational factors that are company-specific.
KEY CONCEPTS
4. • Daines and Klausner (2001) examine whether antitakeover protections are
more prevalent in companies where they might be value maximizing:
1. Do they increase bargaining power in industries with lower takeover activity?
(less deal competition = lower takeover premiums)
2. Do they allow long-term R&D whose value is not understood by markets?
(prevent a raider from purchasing company at a discount)
• Sample: 310 companies undergoing an IPO, 1994-1997.
• Find that staggered boards are not correlated with firms that have these
characteristics.
• Conclusion: staggered boards are not adopted to maximize value.
MIXED EVIDENCE FROM IPO CHARTERS
5. • Johnson, Karpoff, and Yi (2014) examine whether antitakeover protections
are implemented to protect long-term business commitments.
• Sample: 1,219 companies undergoing an IPO, 1997-2005.
• Find that staggered boards are more prevalent if company:
1. Has one or more large customers.
2. Is dependent on one or more key suppliers.
3. Has an important strategic alliance in place.
• Also find that long-term operating performance is positively related to the
use of takeover defenses among these firms.
• Conclusion: staggered boards increase value when they protect long-term
business relationships.
MIXED EVIDENCE FROM IPO CHARTERS
6. • Pound (1987) evaluates the impact of staggered boards on merger activity.
• Sample:
– 100 companies with staggered board and supermajority provisions, 1973-1979.
– 100 companies without these protections (control group).
– Examine merger activity through 1984.
• Find that staggered boards:
– Reduce likelihood of takeover bid (28% vs. 38% in control group).
– Do not increase premiums among completed deals (51% vs. 49%).
• Conclusion: staggered boards harm deal activity.
STAGGERED BOARDS DECREASE MERGER ACTIVITY
“These amendments increase the bargaining power of
management… to the detriment of shareholder wealth.”
7. • Bebchuk, Coates, and Subramanian (2002) also study the impact of
staggered boards on merger activity.
• Sample: 92 hostile bids, 1996-2000.
• Companies with staggered boards are significantly more likely to defeat an
unsolicited bid (61% vs. 34% single-class board).
• Premiums not materially higher among completed deals (54% vs. 50%).
• Conclusion: staggered boards harm deal activity.
STAGGERED BOARDS DECREASE MERGER ACTIVITY
Staggered boards “do not seem to provide sufficiently large countervailing
benefits for shareholders of hostile bid targets, in the form of higher deal
premiums, to offset the substantially lower likelihood of being acquired.”
8. • Bebchuk and Cohen (2005) examine whether companies with staggered
boards trade at lower market-to-book values (Tobin’s Q) than companies
with single-class boards.
• Sample: ~1,600 companies, 1995-2002.
• Find that companies with staggered boards trade at 10.6% lower industry-
adjusted Tobin’s Q, on average.
• Conclusion: staggered boards are associated with lower firm value.
IMPACT ON VALUE: THE NEGATIVE EVIDENCE
9. • Faleye (2007) examines the relation between staggered boards and
governance quality.
• Sample: 2,021 companies, 1995-2002.
• Finds that staggered boards are associated with:
– Lower market-to-book values.
– Lower CEO turnover (16.4% vs. 30.3%).
– Less CEO pay-performance sensitivity.
– Lower likelihood of proxy contests or shareholder proposals.
• Conclusion: staggered boards entrench management and reduce value.
IMPACT ON VALUE: THE NEGATIVE EVIDENCE
“Classified boards significantly insulate management from market discipline, thus suggesting that the
observed reduction in value is due to managerial entrenchment and diminished board accountability.”
10. • Guo, Kruse, and Nohel (2008) measure the stock market’s reaction to the
decision to destagger a company’s board.
• Sample: 188 companies announcing destagger, 1987-2004.
• Use matched pairs to compare to similar firms that retain staggered board.
• Announcement to destagger is associated with a 1% increase in stock price.
• Companies with “good governance” are more likely to destagger (those with
higher E-index scores, more independent boards, and those responding to
shareholder pressure).
• Conclusion: a decision to destagger is beneficial to shareholders.
IMPACT ON VALUE: THE NEGATIVE EVIDENCE
11. • Cremers, Litov, and Sepe (2014) examine the effects of staggering and
destaggering boards using time-series rather than cross-section analysis.
• Sample: 3,023 companies, 1978-2011.
• Findings:
– A decision to stagger is associated with a subsequent increase in value
(Tobin’s Q and excess returns).
– A decision to destagger is associated with a subsequent decrease in value.
• Conclusion: staggered boards are not harmful to shareholders.
IMPACT ON VALUE: THE POSITIVE EVIDENCE
“Overall our findings seem to support the view that staggered boards help to commit
shareholders and boards to longer horizons and challenge the managerial
entrenchment interpretation that staggered boards are not beneficial to shareholders.”
12. • Ge, Tanlu, and Zhang (2014) also examine the impact of the decision to
destagger using time-series analysis.
• Sample: 384 companies that destagger, 1991-2001.
• Find that companies are more likely to destagger if they face pressure from
shareholder activists or exhibit poor performance.
• Find that the decision to destagger leads to a deterioration in operating
performance (ROA) and no improvement in market value (Tobin’s Q).
• Conclusion: destaggering is not beneficial to shareholders.
IMPACT ON VALUE: THE POSITIVE EVIDENCE
“Our evidence is contrary to the earlier studies
that claim that destaggered boards are always
optimal and value-increasing.”
13. • Larcker, Ormazabal, and Taylor (2011) examine the market reaction to
proposed regulations that would bar staggered boards.
• Sample:
– 3,451 companies, 2007-2009.
– 18 proposed legislative rules / amendments in the years preceding Dodd-Frank.
• Firms with staggered boards exhibit negative excess returns in response to
proposals that include provisions to eliminate staggered boards.
• Conclusion: restrictions on board structure are not value enhancing.
IMPACT ON VALUE: THE POSITIVE EVIDENCE
“The evidence suggests the market reaction [to regulation] is increasingly
negative for firms with staggered boards. This is consistent with the notion that
the presence of a staggered board is a value-maximizing governance choice.”
14. • The evidence on staggered boards is highly mixed.
• Staggered boards decrease merger activity by protecting a company from
an unsolicited takeover.
• When combined with other defenses (in particular, a poison pill), the
defense is very formidable.
• Whether staggered boards entrench management or empower a board to
adopt a long-term horizon is unclear.
• Staggered boards appear to have a positive impact on companies with
unrecognized potential resulting from proprietary knowledge, innovation,
or business relationships.
CONCLUSION
15. Robert Daines and Michael Klausner. Do IPO charters maximize firm value? Antitakeover protection in IPOs. 2001. Journal of Law
Economics & Organization.
William C. Johnson, Jonathan M. Karpoff, and Sangho Yi. The Bonding Hypothesis of Takeover Defenses: Evidence from IPO Firms.
Forthcoming. Journal of Financial Economics.
John Pound. The Effects of Antitakeover Amendments on Takeover Activity: Some Direct Evidence. 1987. Journal of Law and
Economics.
Lucian A. Bebchuk, John C. Coates IV, and Guhan Subramanian. The Powerful Antitakeover Force of Staggered Boards: Theory,
Evidence, and Policy. 2002. Stanford Law Review.
Lucian A. Bebchuk and Alma Cohen. The Costs of Entrenched Boards. 2005. Journal of Financial Economics.
Olubunmi Faleye. Classified Boards, Firm Value, and Managerial Entrenchment. 2007. Journal of Financial Economics.
Re-Jin Guo, Timothy A. Kruse, and Tom Nohel. Undoing the Powerful Antitakeover Force of Staggered Boards. 2008. Journal of
Corporate Finance.
Martijn Cremers, Lubomir P. Litov, and Simone M. Sepe. Staggered Boards and Firm Value, Revisited. 2014. Social Science Research
Network.
BIBLIOGRAPHY
16. Weili Ge, Lloyd Tanlu, and Jenny Li Zhang. Board Destaggering: Corporate Governance Out of Focus? 2014. AAA 2014 Management
Accounting Section (MAS) Meeting Paper.
David F. Larcker, Gaizka Ormazabal, and Daniel J. Taylor. The Market Reaction to Corporate Governance Regulation. 2011. Journal of
Financial Economics.
BIBLIOGRAPHY