Corporate Governance Final Exam
Corporate Governance Standards and Rating Agencies:
Purposes - answer-To provide a simple and straightforward evaluation of a company's
corporate governance situation to the company and to investors.
-If shareholder value varies with governance, then these scores should matter: poor
governance increases investor risk.
-To encourage better corporate governance norms and consultation to achieve them.
-To influence proxy voting.
Corporate Governance Standards and Rating Agencies: What The Ratings Cover -
answer-Board composition and activity
-Executive compensation
-Accounting and auditing
-Employee ownership guidelines
-Shareholder rights and takeovers
The Different Agencies - answer- Institutional shareholder servec
- glass lewis and company
Quote - answer"While the relationship between good
corporate governance and enhanced
corporate performance may be elusive, the
relationship between poor corporate governance and objective measures of corporate
performance is clear and unmistakable."
The Corporate Library
The Corporate Library: Problems With Boards - answer-Long-tenured directors and
CEO changes adds up to expected failure.
-Too many directors over seventy and too many older directors leads to stuck thinking.
-Boards with too many active or retired CEOs have overcommitted members.
-Former CEOs as chairs are not effective.
Success of Rating Agencies - answer-They HAVE created a market for corporate
governance practices.
-Their analytical arms have created a mechanism to improve scores and thus practices.
-Investors and the press use them.
Problems With The Rating Agencies - answer-Some conflict of interest problems have
arisen.
,-The agencies grow out of the corporate governance environment which has been very
"light touch" oriented.
-Thus, they tend to rate technically independent boards high but do not confront the
systemic problems of board governance.
The SEC (Securities of Exchange Commission) From 1930's to the 1980s - answer-
Federalization of corporate law moved slowly
-Fifty state corporate laws
-Main focus on making available financial information, accounting results, through the
annual report and the proxy before the shareholder meeting
-More of a bureaucratic body, managing all these reports with paper
-Enforcement focused mainly on brokers and dealers and the stock markets - little
aggressive reinforcement of executives and boards
The Exceptions - answer-Reactive approach to corporate governance policy
-For example, takeover debates of the 1980s and 1990s
-Views on shareholder resolutions are an example
The Theory Behind the "Light Touch" - answer-Concern about returning to the heavily
state-controlled corporate behavior
-Killing the goose that lays the golden egg
-Underlying the theory is a faith in markets, the market for corporate control, and self-
regulation
Something Had Changed By 1990 - answer-The rise of multinationals
-The switch to market-based executive compensation created outsize political power
and an established elite among corporate leaders
-The entry of the public into the stock market
-The rise of institutional investors dominating the market
-The role of technology and the Internet
-The hypocrisy uncovered by the takeover battles of the 1980s and early 1990s
Stages of Corporate Governance Reform - answer-The Clinton Reforms on Disclosure
of Executive Compensation (the theory that transparency will create reform
-The SEC Missed Enron, Worldcom, the Internet collapse of 2003, the Madoff Scandal
-The Bush Post-Enron Reforms (more muscular, more micro-managed, but ultimately
restrained)
-The Failure of the Bush and Obama Reforms of Corporate Boards
, The Emergence of Private Ordering - answer-Ironic return to the market for corporate
control
-Made possible by the growth of institutional investors, hedge funds, and activist
investors with some very minor changes in mechanisms:
-liberalize shareholder resolutions
-allow investors to talk with each other
-24/7 news cycle and Internet and new media view
-emergence of a bipartisan governance agenda
-creating a market for clear corporate governance grades
-actual corporate governance research
The Result - answer-Boards are doing internal corporate governance reforms and pre-
analyzing CG problems
-Breakfasts and lunches with investors are leading to reform
-The press has lost its "imperial CEO and board" approach
-Widely-held view that CSR (corporate social responsibility) = Good governance
-Active shareholders are liberalizing the board selection profess
-Union pension funds are more active
Change on the Investor End Too - answer-The role of the Internet
-Kickstarter and related web sites
-Soon a NASDAQ market to trade privately-held company stocks
Finally A Corporate Governance Job Market - answer-At institutional investors
-At corporations
-At non-profits
-At corporate scoring bodies
-At law firms
-In HR departments
Update on China: The General Problem - answer-Corporate governance was an
unknown concept and is totally imported
-It is now viewed as the biggest economic risk in China
-China wants Foreign Direct Investment and increased the permissions for it from $30.
B to $70B but the Shanghai Composite Index has been in the last few years and the
view is better stock market performance requires better corporate governance
China's Enron - answer-Ying Guang Xia increased profit from 178 million yuan to 567
million yuan from 1999 to 2000 and most was fabricated according to the China
Securities Regulatory Commission
Corporate Governance Standards and Rating Agencies:
Purposes - answer-To provide a simple and straightforward evaluation of a company's
corporate governance situation to the company and to investors.
-If shareholder value varies with governance, then these scores should matter: poor
governance increases investor risk.
-To encourage better corporate governance norms and consultation to achieve them.
-To influence proxy voting.
Corporate Governance Standards and Rating Agencies: What The Ratings Cover -
answer-Board composition and activity
-Executive compensation
-Accounting and auditing
-Employee ownership guidelines
-Shareholder rights and takeovers
The Different Agencies - answer- Institutional shareholder servec
- glass lewis and company
Quote - answer"While the relationship between good
corporate governance and enhanced
corporate performance may be elusive, the
relationship between poor corporate governance and objective measures of corporate
performance is clear and unmistakable."
The Corporate Library
The Corporate Library: Problems With Boards - answer-Long-tenured directors and
CEO changes adds up to expected failure.
-Too many directors over seventy and too many older directors leads to stuck thinking.
-Boards with too many active or retired CEOs have overcommitted members.
-Former CEOs as chairs are not effective.
Success of Rating Agencies - answer-They HAVE created a market for corporate
governance practices.
-Their analytical arms have created a mechanism to improve scores and thus practices.
-Investors and the press use them.
Problems With The Rating Agencies - answer-Some conflict of interest problems have
arisen.
,-The agencies grow out of the corporate governance environment which has been very
"light touch" oriented.
-Thus, they tend to rate technically independent boards high but do not confront the
systemic problems of board governance.
The SEC (Securities of Exchange Commission) From 1930's to the 1980s - answer-
Federalization of corporate law moved slowly
-Fifty state corporate laws
-Main focus on making available financial information, accounting results, through the
annual report and the proxy before the shareholder meeting
-More of a bureaucratic body, managing all these reports with paper
-Enforcement focused mainly on brokers and dealers and the stock markets - little
aggressive reinforcement of executives and boards
The Exceptions - answer-Reactive approach to corporate governance policy
-For example, takeover debates of the 1980s and 1990s
-Views on shareholder resolutions are an example
The Theory Behind the "Light Touch" - answer-Concern about returning to the heavily
state-controlled corporate behavior
-Killing the goose that lays the golden egg
-Underlying the theory is a faith in markets, the market for corporate control, and self-
regulation
Something Had Changed By 1990 - answer-The rise of multinationals
-The switch to market-based executive compensation created outsize political power
and an established elite among corporate leaders
-The entry of the public into the stock market
-The rise of institutional investors dominating the market
-The role of technology and the Internet
-The hypocrisy uncovered by the takeover battles of the 1980s and early 1990s
Stages of Corporate Governance Reform - answer-The Clinton Reforms on Disclosure
of Executive Compensation (the theory that transparency will create reform
-The SEC Missed Enron, Worldcom, the Internet collapse of 2003, the Madoff Scandal
-The Bush Post-Enron Reforms (more muscular, more micro-managed, but ultimately
restrained)
-The Failure of the Bush and Obama Reforms of Corporate Boards
, The Emergence of Private Ordering - answer-Ironic return to the market for corporate
control
-Made possible by the growth of institutional investors, hedge funds, and activist
investors with some very minor changes in mechanisms:
-liberalize shareholder resolutions
-allow investors to talk with each other
-24/7 news cycle and Internet and new media view
-emergence of a bipartisan governance agenda
-creating a market for clear corporate governance grades
-actual corporate governance research
The Result - answer-Boards are doing internal corporate governance reforms and pre-
analyzing CG problems
-Breakfasts and lunches with investors are leading to reform
-The press has lost its "imperial CEO and board" approach
-Widely-held view that CSR (corporate social responsibility) = Good governance
-Active shareholders are liberalizing the board selection profess
-Union pension funds are more active
Change on the Investor End Too - answer-The role of the Internet
-Kickstarter and related web sites
-Soon a NASDAQ market to trade privately-held company stocks
Finally A Corporate Governance Job Market - answer-At institutional investors
-At corporations
-At non-profits
-At corporate scoring bodies
-At law firms
-In HR departments
Update on China: The General Problem - answer-Corporate governance was an
unknown concept and is totally imported
-It is now viewed as the biggest economic risk in China
-China wants Foreign Direct Investment and increased the permissions for it from $30.
B to $70B but the Shanghai Composite Index has been in the last few years and the
view is better stock market performance requires better corporate governance
China's Enron - answer-Ying Guang Xia increased profit from 178 million yuan to 567
million yuan from 1999 to 2000 and most was fabricated according to the China
Securities Regulatory Commission
