Future of Corporate Governance (Hire better and skilled CEOs to every corners of the market)
Hostile Takeover
1) Corporate Governance : Organizing and managing the relationship between outside financial investors and the managers running the actual firm. Deliver much value to the managers to the firm.
How to manage investment and financial calls. Competitive international business.
2) Private equity market (growing rapidly)/Private ownership of corporations. Competing system of corporate governance with public companies.
William F. Pounds (Professor Emeritus of Management: Dean Emeritus, MIT Sloan)
Convocations
1) Management in governance: Seeking ways to have the most appropriate and effective CEO on every corporations. Integrity and transparency is higher regards for this position. This effective CEO can satisfy the stock holders and shareholders at hand. In order to support these CEOs, the order must find every minimal traits of these CEO positions. Attracting and selection of the people to the positions is the most importance to the company. Also terminating the people with less degree to the company must be terminated at once. CEO is the source of vision and inspiration for the corporation. CEO chooses the competitive game. Sets the moral tones. Also generating passion. Attracts and picks the workers and the environment where the game is played at. CEO needs to learn strategy, marketing, finance and operations. Boards of Directors are the main governance of the corporations (Need to understand the board). Find out how the new board members are attracted or know their tasks. Learn about their work and consul to improve their efforts. Find out all the performances (understanding through consultants). Its all messy work on the board. Support the best practices (slogans : no one praises). Audit committees are now required to hire financial experts. Separate Chairman and CEO (No Values besides benefits onto the consultants and accountants). The market decides the value to the ultimate businesses.
Adam Emmerich (Partner, Wachtell, Lipton, Rosen & Katz)
1) New World of Corporate Governance (ex:404) : Organization productive activity and allocation of the capital
A) Historical Perspective
1- British East India Company 1500
2- Adam Smith – The Wealth of Nations 1778
3- Generally available limited liability corporations
- New York Incorporation statue 1811
4- Managerial capitalism
- Hierarchical management 1850 (Alfred Chandler)
5- Separation of ownership and control (Berlin & Means 1932)
6- The Nature of the Firm ()
B) Governance in the United States Today
C) Road Ahead
1- The Agency Problem of the Future: Financial Intermediaries
The four Corners of American Corporate Governance
A) State corporation law
1- Enabling system
2- Fiduciary duties the business judgment
B) Federal “governance” law
1- Proxy system
2- SEC reporting
C) The market for corporate control
D) Federal securities law
1- Capital raising
1) Evolution in corporate governance: The Board of Directors (Importance)
A) 1920s – 1980s The Advisory Board – classic business judgment rule/Take over
B) Beginning 1980s active board in change of control cases – heightened scrutiny
C) Now: independence and monitoring increasingly stressed
1- But an “organized board” cannot and does not serve as a co-manager
2- And legally “the business judgment rule” still matters
D) Scrutiny and revenue of companies and directors: The monitoring board
E) Power and activism of shareholder – shareholders participation: shareholder proposals
1- Shareholder only govern over 401k, stockholder and other funding lopes
2- Shareholder to now own or govern over the board and the directors
F) Important proposals/matters in 2005:
1- Majority election of directors
2- Executive compensation
3- Declassified boards
4- Anti-pill proposals
5- Supermajority voting
6- Option Expensing
7- SOX 404
2) Who cares about Sarbanes-Oxley
A) Sarbanes-Oxley was a minor adjustment in corporate governance. Not a change of course or fundamental restructuring of US managerial capitalism
B) Dubious corporate governance mandates of SOX
1- Only independent directors of audit committees
2- Blanket prohibition on corporate loans to executives/directors
3- Executive certification
3) Long term: Applying the agency problems to financial intermediaries
A) Classic agency problem
B) The separation of ownership and control in public corporations receives much attention
1- Long time subject of academic study
2- SOX reaffirmed centrality of agency problem in corporate law
3- Ingrained in corporate culture
C) Anxiety about the classic agency problem may have gone too far
1- Doubting homo economics
2- Leadership matter in corporate governance
3- Perversely excessive monitoring may encourage malfeasance
Hedge funds and State pension funds/acting as an agent or agency are no good.
No body of law in the crucible system is laundering the economy
4) A case study” Compensation of Hedge Fund Managers
A) “2 and 20”
B) Is this employment agreement goof the market?
1- Thought experiment
2- May cause excessive risk taking
3- Superior returns-if any-maybe be short lived
Agency problems: theory of the firm; behavioral economics – corporate governance will continue to evolve as does our knowledge and understanding of the economic world around us – our challenge as scholars, economic actors, and even, lawyers is to understand the frame in which we work, and neither to fix what ain’t broke nor to blindly accept what must be fixed. (Don‘t fix anything if its not broken!)
“Stock options” (lottery tickets)/giving excessive options
Delaware is one of the biggest corporate ground (Hostel Takeover)
Hedge funds and mutual funds/Venture capitalists
