Corporate Governance Foundations
CEO Pay Ratio
1950: 20 to 1, 2014: 216 to 1 compared to average worker.
Corporate Social Responsibility (CSR)
Company's responsibility to operate ethically and contribute to society.
Legitimacy
Congruence between organization's activities and society's expectations.
Anglo-American Model of Governance
Corporate governance model emphasizing shareholder primacy.
Director-Primacy Model
Corporate governance model where boards are ultimate decision-makers.
Board Independence
Crucial for good governance; outside directors are independent.
Ownership and Control
Distinguishing between precorporate and corporate ownership.
Legitimation
Dynamic process for a business to perpetuate its acceptance.
Spring-loading
Granting stock option at today's price with insider knowledge of value increase.
Board of Directors
Group governing and overseeing management of the business.
Inside Directors
Have ties to the firm.
Evolution of Corporate Governance
Historical development, issues, and current trends.
Corporate Accountability
Holding corporations responsible for their actions and decisions.
Stakeholder Groups
Include owners, boards, managers, employees, and other stakeholders.
Board Diversity
Increasing variety in board composition for better decision-making.
Outside Directors
Independent from the firm.
Red Flags for Board Problems
Indicators like restated earnings, poor morale, or missed goals.
Shareholder Activists
Individuals exerting pressure on corporate management for governance improvement.
Managers
Individuals hired by the Board to manage the business daily.
Employees
Individuals hired to perform operational work in the business.
Investor Relations
Interactions between a company and its investors to maintain a good relationship.
Shareholder Engagement
Involving shareholders in company decision-making and activities.
Transparency
Key in ethics and stakeholder management.
Dodd-Frank Act
Legislation covering reforms for banks, credit agencies, insurance, and more.
Sarbanes-Oxley Act of 2002
Legislation limiting nonauditing services and requiring financial disclosure.
Business Judgment Rule
Protects board members acting in good faith for the company's interests.
Tipper
Provides material non-public information.
Backdating
Purchase stock at yesterday's price for immediate gain.
Tippee
Receives material non-public information.
Outside Directors Compensation
Recent idea; median pay rose from $175,800 to $258,000 (2003-2015).
SEC
Regulatory body protecting investor interests, criticized for business focus.
Avoiding Governance Failures
Strategies to prevent governance failures and maintain legitimacy.
Hierarchy of Authority
Structure showing levels of authority within the corporation.
CEO Pay Controversy
Surrounding excessive executive compensation.
SEC's Role in Investor Protection
The Securities and Exchange Commission's responsibility to safeguard investors.
Legitimate Company Loss
Explains governance failures leading to loss of legitimacy.
Shareholder-Primacy Model
Gives ultimate control to shareholders who own stock in the firm.
Corporate Governance
Method of governing, directing, and controlling a firm.
Shareholder Democracy Movement
Movement advocating for majority vote, banning staggered boards, and proxy access.
Banning Classified Boards
Preventing electing board members in staggered terms for faster replacements.
Business Ethics in Governance
Principles and standards guiding ethical behavior in business operations.
Retirement Packages
Under scrutiny; George Hager Jr. received $5.2M 'retention payment.'
Improving Corporate Governance Suggestions
Various proposals to enhance corporate governance effectiveness.
CEO Monitoring
Boards oversee CEO performance and can dismiss underperforming CEOs.
Shareholder Activism
Actions taken by shareholders to influence business practices and governance.
Clawback Provisions
Allow company to recoup CEO pay in case of financial restatement or misbehavior.
Stock Options
Allow purchase of stock in the future at today's price.
Proxy Access
Allows shareholders to propose nominees for the board of directors.
Warren Buffett's Shareholder Meeting
Annual meeting known as a 'Woodstock weekend for capitalists' by CEO Warren Buffett.
Insider Trading
Buying/selling securities with non-public material information.
Mediating Hierarchs
Boards balancing stakeholder interests and having a duty to the corporation.
Material Information
Data affecting stock price and available to insiders.
Discussion Activity on Governance Models
Debate on the pros and cons of shareholder-primacy and director-primacy models.
Bullet Dodging
Delaying stock option grant after bad news.
Improving Corporate Governance
Enhancing ethics, sustainability, and stakeholder management.
Shareholder Voice Strengthening
Enhancing the influence and participation of shareholders in governance.
Sustainability in Governance
Ensuring practices that promote long-term sustainability in corporate governance.
Legitimacy in Corporate Governance
Linking legitimacy issues to the structure and practices of corporate governance.
Boards of Directors Criticisms
Major criticisms faced by Boards of Directors in corporate governance.
Majority Vote
Requirement for board members to be elected by a majority of votes cast.
Say on Pay
Response to concerns over excessive executive compensation.
Mergers and Acquisitions
Threat of takeover motivates shareholder interest; CEOs use poison pills and golden parachutes.