Business English Upper Intermediate
U2W09
John Silberstein
johnsilb@aol.com
Agenda
•Corporate Governance
•Metaphors: The Count
Management
Corporate Governance
What is Corporate Governance?
It is the way a company is organized at the
highest level. This can have a critical
impact on a company’s performance and
behavior.
Corporate Governance is determined by the
Board of Directors.
Management
Corporate Governance: Board of Directors
A board of directors is a body of elected or
appointed members who jointly oversee the
activities of a company or organization. The
body sometimes has a different name, such
as board of trustees, board of governors,
board of managers, or executive board. It is
often simply referred to as "the board."
Management
Corporate Governance: Board of Directors
A board's activities are determined by the
powers, duties, and responsibilities
delegated to it or conferred on it by an
authority outside itself. These matters are
typically detailed in the organization's
bylaws. The bylaws commonly also specify
the number of members of the board, how
they are to be chosen, and when they are to
meet.
Management
Corporate Governance: Board of Directors
In an organization with voting members, e.g., a
professional society, the board acts on behalf
of, and is subordinate to, the organization's full
assembly, which usually chooses the members
of the board.
In a stock corporation, the board is elected by
the stockholders and is the highest authority in
the management of the corporation. In a nonstock corporation with no general voting
membership, e.g., a university, the board is the
supreme governing body of the institution.
Management
Corporate Governance: Board of Directors
Typical duties of boards of directors include
governing the organization by establishing
broad policies and objectives;
selecting, appointing, supporting and reviewing
the performance of the chief executive;
ensuring the availability of adequate financial
resources;
approving annual budgets;
accounting to the stakeholders for the
organization's performance.
Management
Corporate Governance: Board of Directors
Failures
Most boards largely rely on management to report information
to them
Boards of directors are part-time bodies, whose members meet
only occasionally and may not know each other particularly
well. This unfamiliarity can make it difficult for board members
to question management.
Directors may not have the time or the skills required to
understand the details of corporate business.
Directors often feel that a judgment of a manager, particularly
one who has performed well in the past, should be respected.
Management
Corporate Governance
Who are the Board of Directors?
Executive Directors: The Chief Executive and other
senior managers such as the Director of Finance.
Non-Executive Directors – Non-Execs: Outsiders with
management experience who are invited to sit on the
board, bringing their expertise and an outside view.
Large investors in the company, such as pension funds
may also have seats on the board so they can influence
how the company is run.
In some countries, such as Germany, there are two
boards. Above the Management Board is a more senior
Supervisory Board.
Management
Corporate Governance
Board of Directors
Why might it be important to have an
outside view on the Board of Directors?
Management
Corporate Governance
How should the Company be organized?
Should The COB (Chairman of the Board) and the
CEO be the same person?
Name examples where the COB and the CEO are
the same person or are not the same person.
What are some advantages to the COB and CEO
being the same person?
What are the disadvantages?
Management
Corporate Governance
How should the Company be organized?
Should The COB (Chairman of the Board) and the
CEO be the same person?
Name examples where the COB and the CEO are
the same person or are not the same person.
What are some advantages to the COB and CEO
being the same person?
What are the disadvantages?
Management
Corporate Governance
The rewards of Success or How much should a CEO earn?
Also important is Executive Remuneration or compensation. Top
executives are rewarded for success in the form of high salaries,
share options and stock options: the opportunity to exercise the
right to purchase shares of the company cheaply. These highly paid
executives are often called Fat Cats by their critics. Executives say,
in their own defense, that share options are one of the incentives
that encourage them to perform better.
These executives may also be rewarded for failure, in the way of
severance payouts or Golden Parachutes, when leaving a
company due to poor performance.
In the U.S., Executives will have binding contracts. These contracts
will specify the length of their tenure and the size of the severance if
asked to leave before the end of the contract.
Management
Corporate Governance
What is the purpose of Corporate Governance?
Provides a framework of rules and practices by which the board of directors
ensure accountability, fairness and transparency in the
firm's relationship with its
stakeholders (financiers, customers, management, employees, government,
and the community).
This framework consists of
(1)
explicit and implicit contracts between the firm and the stakeholders
for distribution of responsibilities, rights, and rewards,
(2)
(3)
procedures for reconciling the sometimes conflicting interests of
stakeholders in accordance with their duties, privileges, and roles
procedures for proper supervision, control, and information-flows to
serve as a system of checks-and-balances. Also called corporation
governance.
Management
Corporate Governance
What the research shows about the Board
of Directors.
Boards dominated by outsiders tend to
make decisions that are more likely to be
beneficial to shareholders
Outsider dominated boards are more likely
to remove CEO’s and other C-Level in
poorly performing companies.
Management
Corporate Governance
Lets look at Microsoft
http://www.microsoft.com/about/companyinf
ormation/corporategovernance/guidelines.m
spx
Management
Corporate Governance: Microsoft
Role of the Board
Shareholders elect the Board to oversee
management and to assure that
shareholder long-term interests are served.
Through oversight, review, and counsel, the
Board establishes and promotes Microsoft's
business and organizational objectives…
Management
Corporate Governance: Microsoft
Board Composition and Selection; Independent Directors
Board Size. The Board believes 8 to 11 members is an appropriate size
based on the Company's present circumstances…
Selection of Board Members. The Company’s shareholders elect Board
members annually, except for Board action to fill vacancies…
Board Membership Criteria. The Governance and Nominating Committee
works with the Board on an annual basis to determine the appropriate
characteristics, skills, and experience for the Board…
Board Composition – Mix of Management and Independent Directors. The
Board intends that, except during periods of temporary vacancies, a
substantial majority of its directors will be independent…
Term Limits. The Board does not believe it should limit the number of
terms…
Management
Corporate Governance: Microsoft
Board Composition and Selection; Independent Directors – Cont.
Election of Directors…
Retirement Policy…
Directors with Significant Job Changes…
Selection of CEO and Chairman; Lead Independent Director. The
Board selects the Company's CEO and Chairman in the manner that it
determines to be in the best interests of the Company's shareholders. The
Board does not have a policy as to whether the Chairman should be an
independent director…
Other Boards and Committees. Without specific approval from the Board,
no director may serve on more than five public company boards (including
the Company's Board) and no member of the Audit Committee may serve
on more than three public company audit committees (including the
Company's Audit Committee)
Management
Corporate Governance: Microsoft
Board Meetings; Involvement of Senior Management and
Independent Advisors
Board Meetings – Frequency.
Board Meetings – Agenda.
Advance Distribution of Materials.
Access to Employees.
Access to Independent Advisors.
Compensation Consultant Independence.
Executive Sessions of Independent Directors.
Management
Corporate Governance: Microsoft
Communications with Shareholders
Shareholder Communications to the Board. Shareholders may
contact an individual director, the Board as a group, or a specified
Board committee or group, including the independent directors as
a group, by the following means:
Mail: MSC 123/9999
Corporate Secretary
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
E-mail: AskBoard@microsoft.com
Attendance at Annual Shareholder Meeting. Each director is
encouraged to attend the Company's annual meeting of
shareholders
Management
Corporate Governance: Microsoft
Performance Evaluation; Succession
Planning
Annual CEO Evaluation.
Succession Planning.
Board and Committee Self-Evaluation.
Management
Corporate Governance: Microsoft
Committees
Number and Type of Committees
Audit Committee
Compensation Committee
Governance and Nominating Committee
Finance Committee
Antitrust Compliance Committee
Management
Corporate Governance: Microsoft
Management
Corporate Governance: Microsoft
Management
Corporate Governance
Compare Microsoft with a professional corporation.
Pepper Hamilton is a classic “Philadelphia” law firm and
has been in existence for over 120 years.
As a lawyer working for a firm such as Pepper Hamilton,
your goal is to become a Partner.
As a partner, you have an ownership interest in the
organization. With a firm such as Pepper Hamilton, you
will have to purchase you ownership interest. At a small
firm, you may be given your ownership interest because
you add considerable value to the organization.
Management
Corporate Governance
Pepper Hamilton Leadership
EXECUTIVE COMMITTEE
Matthew H. Adler
Vincent V. Carissimi
Thomas J. Cole, Jr.
John P. Duke
Bruce K. Fenton
Nina M. Gussack,
Jeremy Heep
Robert E. Heideck
Dusty Elias Kirk
George A. Lehner,
William A. Scari, Jr.
David B. Stratton
Chair
Vice Chair
Management
Corporate Governance
Pepper Hamilton Leadership
Department and Practice Group Chairs
Commercial Department
Cary S. Levinson and Michael H. Friedman (co-chairs)
Corporate and Securities - Michael H. Friedman
Corporate Restructuring and Bankruptcy Robert S. Hertzberg and David B. Stratton (co-chairs)
Employee Benefits - Jonathan A. Clark and David M. Kaplan
Financial Services - Richard P. Eckman
Real Estate - Norman B. Berlin and Dusty Elias Kirk (co-chairs)
Tax - Joan C. Arnold
Trusts and Estates - Mark S. Blaskey
Litigation and Dispute Resolution Department
Francis P. Devine, III and Laurence Z. Shiekman (co-chairs)
Commercial Litigation - Amy B. Ginensky
Construction - Bruce W. Ficken
Environmental - John W. Carroll
Health Effects Litigation - Nina M. Gussack
Insurance - Deborah F. Cohen
Intellectual Property - Vincent V. Carissimi
Labor and Employment - Jonathan Kane