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Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, Second Edition

Book Description

This is the most comprehensive and up-to-date reference for implementing and sustaining superior corporate governance. Stanford corporate governance experts David Larcker and Bryan Tayan carefully synthesize current academic and professional research, summarizing what is known and unknown, and where the evidence remains inconclusive.

Corporate Governance Matters, Second Edition reviews the field's newest research on issues including compensation, CEO labor markets, board structure, succession, risk, international governance, reporting, audit, institutional and activist investors, governance ratings, and much more. Larcker and Tayan offer models and frameworks demonstrating how the components of governance fit together, with updated examples and scenarios illustrating key points. Throughout, their balanced approach is focused strictly on two goals: to "get the story straight," and to provide useful tools for making better, more informed decisions.

This edition presents new or expanded coverage of key issues ranging from risk management and shareholder activism to alternative corporate governance structures. It also adds new examples, scenarios, and classroom elements, making this text even more useful in academic settings. For all directors, business leaders, public policymakers, investors, stakeholders, and MBA faculty and students concerned with effective corporate governance.

Table of Contents

  1. About This eBook
  2. Title Page
  3. Copyright Page
  4. Praise for the First Edition of Corporate Governance Matters
  5. Dedication Page
  6. Contents-at-a-Glance
  7. Contents
  8. Acknowledgments
  9. About the Authors
  10. Preface
  11. 1. Introduction to Corporate Governance
    1. Self-Interested Executives
    2. Defining Corporate Governance
    3. Corporate Governance Standards
    4. Best Practice or Best Practices? Does “One Size Fit All”?
    5. Relationship between Corporate Governance and Firm Performance
    6. Endnotes
  12. 2. International Corporate Governance
    1. Capital Market Efficiency
    2. Legal Tradition
    3. Accounting Standards
    4. Enforcement of Regulations
    5. Societal and Cultural Values
    6. Individual National Governance Structures
      1. United States
      2. United Kingdom
      3. Germany
      4. Japan
      5. South Korea
      6. China
      7. India
      8. Brazil
      9. Russia
    7. Endnotes
    8. Interlude
  13. 3. Board of Directors: Duties and Liability
    1. Board Responsibilities
    2. Board Independence
    3. The Operations of the Board
      1. Board Committees
    4. Duration of Director Terms
    5. Director Elections
    6. Removal of Directors
    7. Legal Obligations of Directors
      1. Fiduciary Duty
      2. Disclosure Obligations under Securities Laws
      3. Legal Enforcement of State Corporate Law (Fiduciary Duties)
      4. Legal Enforcement of Federal Securities Laws
      5. Director Indemnification and D&O Insurance
    8. Endnotes
  14. 4. Board of Directors: Selection, Compensation, and Removal
    1. Market for Directors
      1. Active CEOs
      2. International Experience
      3. Special Expertise
      4. Diverse Directors
      5. Professional Directors
    2. Disclosure Requirements for Director Qualifications
    3. Director Recruitment Process
    4. Director Compensation
      1. Ownership Guidelines
      2. Board Evaluation
    5. Removal of Directors
    6. Endnotes
  15. 5. Board of Directors: Structure and Consequences
    1. Board Structure
      1. Chairman of the Board
      2. Lead Independent Director
      3. Outside Directors
      4. Board Independence
      5. Independent Committees
      6. Bankers on the Board
      7. Financial Experts on Board
      8. Politically Connected Boards
      9. Employee Representation
      10. Boards with “Busy” Directors
      11. Interlocked (or Connected) Boards
      12. Committee Overlap
      13. Board Size
      14. Board Diversity
      15. Female Directors
    2. Summary
    3. Endnotes
    4. Interlude
  16. 6. Strategy, Performance Measurement, and Risk Management
    1. Organizational Strategy
    2. Strategy Implementation Process
    3. Business Model Development and Testing
      1. Example 1: Fast-Food Chain and Employee Turnover
      2. Example 2: Financial Services Firm and Investment Advisor Retention
    4. Key Performance Measures
    5. How Well Are Boards Doing with Performance Measures and Business Models?
    6. Risk and Risk Management
    7. Risk and Risk Tolerance
    8. Risk to the Business Model
    9. Risk Management
    10. Oversight of Risk Management
    11. Assessing Board Performance on Risk Management
    12. Endnotes
  17. 7. Labor Market for Executives and CEO Succession Planning
    1. Labor Market for Chief Executive Officers
    2. Labor Pool of CEO Talent
    3. CEO Turnover
    4. Newly Appointed CEOs
    5. Models of CEO Succession
      1. External Candidate
      2. President and/or Chief Operating Officer
      3. Horse Race
      4. Inside–Outside Model
    6. The Succession Process
    7. How Well Are Boards Doing with Succession Planning?
    8. The External Search Process
    9. Endnotes
  18. 8. Executive Compensation and Incentives
    1. The Controversy over Executive Compensation
    2. Components of Compensation
    3. Determining Compensation
    4. Compensation Consultants
    5. Compensation Levels
    6. Ratio of CEO Pay to Other Top Executive Pay
    7. Ratio of CEO Pay to Average Employee Pay
    8. Compensation Mix
    9. Short-Term Incentives
    10. Long-Term Incentives
    11. Benefits and Perquisites
    12. Compensation Disclosure
    13. Say-on-Pay
    14. Endnotes
  19. 9. Executive Equity Ownership
    1. Equity Ownership and Firm Performance
    2. Equity Ownership and Risk
    3. Equity Ownership and Agency Costs
    4. Accounting Manipulation
    5. Manipulation of Equity Grants
      1. Other Examples of Value Extraction through Timing
    6. Equity Sales and Insider Trading
    7. Rule 10b5-1
    8. Hedging
    9. Pledging
    10. Repricing and Exchange Offers
    11. Endnotes
  20. 10. Financial Reporting and External Audit
    1. The Audit Committee
    2. Accounting Quality, Transparency, and Controls
    3. Financial Reporting Quality
    4. Financial Restatements
    5. Models to Detect Accounting Manipulations
    6. The External Audit
    7. Audit Quality
    8. Structure of Audit Industry
    9. Impact of Sarbanes–Oxley
    10. External Auditor as CFO
    11. Auditor Rotation
    12. Endnotes
  21. 11. The Market for Corporate Control
    1. The Market for Corporate Control
    2. Stock Market Assessment of Acquiring and Target Firms
      1. Who Gets Acquired?
      2. Who Gets the Value in a Takeover?
    3. Antitakeover Protections
    4. Antitakeover Actions
      1. Poison Pills
      2. Staggered Board
      3. State of Incorporation
      4. Dual-Class Shares
    5. Warding Off Unwanted Acquirers
    6. Endnotes
  22. 12. Institutional Shareholders and Activist Investors
    1. The Role of Shareholders
    2. Blockholders and Institutional Investors
    3. Institutional Investors and Proxy Voting
    4. Activist Investors
      1. Pension Funds
      2. Social Responsibility and Other Stakeholder Funds
      3. Activist Hedge Funds
    5. Shareholder Democracy and Corporate Engagement
      1. Majority Voting in Uncontested Director Elections
      2. Proxy Access
      3. Proxy Voting
      4. Corporate Engagement
    6. Proxy Advisory Firms
    7. Endnotes
  23. 13. Corporate Governance Ratings
    1. Third-Party Ratings
    2. Credit Ratings
    3. Commercial Corporate Governance Ratings
      1. ISS: Corporate Governance Quotient
      2. ISS: Governance Risk Indicators
      3. ISS: QuickScore
      4. GMI Ratings
      5. Testing the Predictability of Corporate Governance Ratings
    4. Governance Rating Systems by Academic Researchers
    5. The Viability of Governance Ratings
    6. Endnotes
  24. 14. Alternative Models of Governance
    1. Family-Controlled Corporations
    2. Venture-Backed Companies
    3. Private Equity-Owned Companies
    4. Nonprofit Organizations
    5. Endnotes
  25. 15. Summary and Conclusions
    1. Testing Remains Insufficient
    2. The Current Focus Is Misdirected
    3. Important Variables Are Clearly Missing
    4. Context Is Important
    5. Endnotes
  26. Index