Reading: Corporate Governance
Corporate
Governance
•Agency
conflicts can decrease the value of stock owned by outside shareholders.
Corporate governance can mitigate this loss in value.
•Corporate
governance
can be defined as the set of laws, rules, and procedures that influence a
company’s operations and the decisions its managers make.
•At the
risk of oversimplification, most corporate governance provisions come in two
forms, sticks and carrots. The primary stick is the threat of removal, either
as a decision by the board of directors or as the result of a hostile takeover.
•If a
firm’s managers are maximizing the value of the resources entrusted to them,
they need not fear the loss of their jobs.
•On the
other hand, if managers are not maximizing value, they should be removed by
their own boards of directors, by dissident stockholders, or by other companies
seeking to profit by installing a better management team.
•The main
carrot is compensation. Managers have greater incentives to maximize intrinsic
stock value if their compensation is linked to the firm’s performance rather
than being strictly in the form of salary.
•Almost
all corporate governance provisions affect either the threat of removal or
compensation. Some provisions are internal to a firm and are under its control.
•These
internal provisions and features can be divided into five areas:
(1) monitoring and discipline by the board of directors
(2) charter provisions and bylaws that affect the likelihood of hostile takeovers
(3) compensation plans
(4) capital structure choices
(5) accounting control systems.
(1) monitoring and discipline by the board of directors
(2) charter provisions and bylaws that affect the likelihood of hostile takeovers
(3) compensation plans
(4) capital structure choices
(5) accounting control systems.
•In
addition to the corporate governance provisions that are under a firm’s
control, there are also environmental factors outside of a firm’s control, such
as the regulatory environment, block ownership patterns, competition in the
product markets, the media, and litigation.
•Shareholders
are a corporation’s owners, and they elect the board of directors to act as
agents on their behalf.
•In the
United States, it is the board’s duty to monitor senior managers and discipline
them if they do not act in the interests of shareholders, either by removal or
by a reduction in compensation.
This is
not necessarily the case outside the United States.
•For example,
many companies in Europe are required to have employee representatives on the
board. Also, many European and Asian companies have bank representatives on the
board. But even in the United States, many boards fail to act in the
shareholders’ best interests.
•Consider
the election process. The board of directors has a nominating committee. These
directors choose the candidates for the open director positions, and the ballot
for a board position usually lists only one candidate.
•Although
outside
candidates can run a “write-in” campaign, only those candidates named by the
board’s nominating committee are on the ballot.
•At many
companies, the CEO is also the chairman of the board and has considerable
influence on this nominating committee. This means that in practice it often is
the CEO who, in effect, nominates candidates for the board.
•High compensation
and prestige go with a position on the board of a major company, so board
seats are prized possessions. Board members typically want to retain their
positions, and they are grateful to whoever helped get them on the board. Thus,
the nominating process often results in a board that is favorably disposed to
the CEO.
At most
companies, a candidate is elected simply by having a majority of votes cast.
The proxy ballot usually lists all candidates, with a box for each candidate to
check if the shareholder votes “For” the candidate and a box to check if the
shareholder “Withholds” a vote on the candidate—you can’t actually vote “No”;
you can only withhold your vote.
•In theory,
a candidate could be elected with a single “For” vote if all other votes were
withheld. In practice, though, most shareholders either vote “For” or assign to
management their right to vote (proxy is defined as the authority to act for
another, which is why it is called a proxy statement). In practice, then, the
nominated candidates virtually always receive a majority of votes and are thus
elected.
•Voting
procedures also affect the ability of outsiders to gain positions on the board.
If the charter specifies cumulative voting, then each shareholder is given a
number of votes equal to his or her shares multiplied by the number of board
seats up for election.
•For example,
the holder of 100 shares of stock will receive 1,000 votes if 10 seats are to
be filled. Then, the shareholder can distribute those votes however he or she
sees fit. One hundred votes could be cast for each of 10 candidates, or all
1,000 votes could be cast for one candidate.
•If noncumulative
voting is used, the hypothetical stockholder cannot concentrate votes in this
way—no more than 100 votes can be cast for any one candidate.
•Voting
procedures also affect the ability of outsiders to gain positions on the board.
If the charter specifies cumulative voting, then each shareholder is given a
number of votes equal to his or her shares multiplied by the number of board
seats up for election.
•For example,
the holder of 100 shares of stock will receive 1,000 votes if 10 seats are to
be filled. Then, the shareholder can distribute those votes however he or she
sees fit. One hundred votes could be cast for each of 10 candidates, or all
1,000 votes could be cast for one candidate.
•If noncumulative
voting is used, the hypothetical stockholder cannot concentrate votes in this
way—no more than 100 votes can be cast for any one candidate.
最后修改: 2018年08月14日 星期二 08:53