MNE 697B Modern Corporate Organizations in the Minerals Industry
Fall Semester 2010
Instructor: Jack Thompson, Jr., Adjunct Professor
Credit: 1 credit, 100%
Grade: A,B,C,D,E
Catalog Description:
Analysis of the effective structure and governance of public corporations in the minerals sector. The
course will introduce students to the key issues in setting up and managing effective mining organizations
and will provide insight into the role of boards of directors and senior management of such Companies.
Course Objectives:
1. Develop an appreciation for the complexities of modern mining corporations.
2. Have a conceptual understanding of the basic legal structure, corporate governance, regulatory
requirements, management accounting, fiduciary duties of directors and senior officers, and the
role of the Board in setting strategy, allocating capital, acquisitions, and mergers.
3. Familiarity with the difference between large and junior mining companies and issues related to
growth.
Topics
Introduction
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Instructor backgrounds
Students introduction
Course Description
Course Objective
Outline of course
Tests/assignments
Grading
Text Books
Basic Legal Structure of Corporations
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Corporation
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Shareholders vs. Stakeholders
1. Short Term vs. long terms investors
2. Mutual Funds vs. Pension Funds and Insurance Companies
3. Sovereign Wealth Funds
4. Hedge Funds
5. Activist shareholders
6. Value for whom?
7. Phelps Dodge case
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The Modern Corporation
Bylaws, Charter, Delaware Corporations, etc
Board structure, committees, etc.
Independence
Role of the Board
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General duties
1. Informed Advice
2. Decision Making
3. Honest oversight
4. Assuring the Future
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Legal Fiduciary Duties
1. Duty of Care
2. Duty of Loyalty
3. Duty of Disclosure
4. Good Faith
5. Confidentiality
6. Business Judgment Rule
7. Fiduciary duties for activist shareholders?
8. Related Party Transactions
9. Prudent Man Philosophy
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Key Duties of the Board
1. CEO Selection
2. Strategy
3. Monitoring Performance
4. Compliance Monitoring
5. Compensation
6. Director Recruitment
Key Duties of the Board
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CEO Selection
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Strategy
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CEO recruitment, etc.
Management succession
Sounding board, mentoring, etc.
Replacing CEO’s
1. Commodity Diversification (at company level or at investor level?)
2. Growth by acquisition
3. M&A activity (role of investment bankers, due diligence, etc)
4. Organic growth
5. Geographic diversification
6. Political risk
7. Size of projects today
8. Upstream/Downstream integration
9. Corporate organization
Centralized vs. decentralized – Barrick case
Regional business units vs. commodity focus
Market Capitalization and complexity of organization (size issues, impact on
accounting and regulatory issues))
Capital allocations
Exploration, R & D
Monitoring Performance
1. Difficulty of Assessment
2. Plant Visits
3. Access to Management
4. Tie to Compensation
5. Duty to do your Homework
6. Tough questions to Ask
Compliance Monitoring
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Shared set of values
Tone from the top/Board
Enforcement
Effective whistleblower programs (hot lines, confidentiality, feedback, etc.)
Communicating policy
Subcontractors and agents
Ethics audits
Audit perspective
Regulatory Compliance
• Insider trading
• Backdating
• 10b5 compliance
• SEC, Justice, FCPA, etc.
• Stillwater Ore reserves and SEC
• Tidewater FCPA
• Workplace Harassment
• Antitrust
10. Special investigations
11. Crisis Management
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Compensation
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Director Recruitment
1. Nominating Committees
2. Determining Needs
3. Recruiting Process
4. Interview process
5. Director Qualifications
6. Diversity
7. Director Pay
8. D & O Protection
• Indemnity Agreements
• D&O Insurance
• Enforcement issues
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Pay structure (pay ranges, etc)
Compensation philosophy
Target range
Salaries
Annual bonus
Long term compensation
Stock awards
Options vs. full value awards
Stock ownership guidelines
Change in Control Agreements
SEC disclosures
Board Machinery
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Audit Committee
1. SOX
2. Financial Statement Accuracy
3. Accounting framework
a. Accounting Standards (GAAP, IAS, etc.)
b. FIN 47 Accounting for Derivaties
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c. Regulatory requirements (SEC, Exchanges, SOX, etc. )
d. Audit Practice (Annual and other periodic audits, SOX compliance)
Financial Statements and Statement Analysis
Mining Sector Cost Accounting
• SEC vs. JORC Ore Reserves
• Waste Stripping
• Stillwater Ore reserve dispute
• Pricing assumptions
• Veladero Capitalization
Impairment and Asset Retirement Obligations
Financial Experts
Enterprise risk management
Public disclosure
• Role of board in shareholder communications
• Regulation FD
• Audit perspective
Materiality
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Governance Committee
1. Size of board
2. Board membership criteria (director recruiting, diversity, HP case)
3. Independent directors
4. Chairman and Lead Director
5. Committees (Audit, Compensation, Finance, Executive, EHS, Technology,
Governance, Special Committees etc. including charters)
6. Selection of Directors
7. Term limits
8. Mandatory retirement
9. Membership on other boards
10. Change in Director affiliations
11. Meetings (pre meeting board packages, agendas, minutes, use of check lists,
etc.)
12. Naming officers
13. Board access to senior management
14. Succession planning
15. Budgeting and strategic planning
16. Related party transactions
17. Board resources (Compensation audit, legal, etc.)
18. Director orientation and continuing education
19. Compensation (director and officer)
20. Board performance evaluations
21. Share ownership guidelines
22. Role of Risk Metrics
23. Corporate Governance Guidelines and their dissemination
24. Corporate defenses (classified board, majority voting, etc.
25. Indemnification and D&O Insurance
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Compensation Committee
1. Development of Talent
2. Attraction and retention of Senior Executives
3. SEC disclosure rules
4. Executive Pay Consultants
5. Pay for Performance
6. Peer Group Comparisons
7. Severance and other perquisites
8. Understanding the Total Package – Tally Sheets
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Health, Safety and Sustainability Committee
1. Corporate Social Responsibility
2. Oversight vs. Managing
3. Policy Setting
4. Global Warming, etc.
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Finance Committee
1. Dividend policy and stock buybacks
2. Hedging (currency and commodities)
3. Financing Strategies, Cash Flow management, etc.
4. Pension fund management
Large vs. Small Company Issues
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Topic for discussion by lunch/dinner speakers
Open Discussion Session
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Exploration of topics of interest to the students in open format.
Grading:
Total
Take-Home Final Exam (60%)
60%
Using the hypothetical example of mega merger of Anglo American Plc. and Xtrata Inc., write a
paper laying out the plan for how you would set up the resulting company in terms of governance,
organization, control, and all other aspects of corporate organization.
Quizzes (4x5%)
20%
Homework (1x20%)
20%
Homework Assignment:
Write a paper on how you would handle the following scenario and
cite the appropriate policies and legal requirements: You have just been told by a competitor’s CEO that
they are about to launch a hostile takeover for your company tomorrow. What do you do now?
Grading Policy:
90-100%=A
89-80%= B
79-70%= C
69-60%= D
Less than 60%=E
Text books:
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Required: Corporate Director’s Guidebook, 5 Edition, American Bar Association Committee on
Corporate Laws
Murray, A., Revolt in the Boardroom: The new rules of power in corporate America:
Harper Collins, New York
Recommended Prerequisites: Familiarity with industrial organizations