Index
A
AAER (Accounting and Auditing Enforcement Releases), 16
Abercrombie & Fitch, 225
abnormal accruals, 290
abnormal returns, 14
academic researchers, rating systems by, 383-388
accounting
accounting manipulation, executive equity ownership and, 257-258
AGR (Accounting and Governance Risk) scores, 291, 381
models to detect accounting manipulations, 290-292
standards
GAAP (Generally Accepted Accounting Principles), 24
IASB (International Accounting Standards Board), 24-25
importance of reliable accounting standards, 25
international corporate governance, 23-26
International Financial Reporting Standard (IFRS), 24
principles-based accounting systems, 24
rules-based accounting systems, 24
Accounting and Auditing Enforcement Releases (AAER), 16
Accounting and Governance Risk (AGR) scores, 291, 381
accredited investors, 357
Ackman, William, 321
acquirers, 312
acquisitions
acquirers, 312
antitakeover protections
state of incorporation, 330-331
attributes of acquisition targets, 316-319
friendly acquisitions, 312
initial and final offer premiums, 318
mergers, 312
personalities behind mergers, 315-316
proxy contest, 312
tender offer, 312
value in acquisitions, 319-322
active advisors (outgoing CEOs), 198
active CEOs on board of directors, 82-83
active investors, 344
activist investors, 11
defined, 344
social responsibility and other stakeholder funds, 355-357
activist shareholders, 76
activity level of shareholders, 344
advisory capacity (board of directors), 57
Aegon, 173
AFL-CIO (American Federation of Labor and Congress of Industrial Organizations), 353-355
agency costs
defined, 4
executive equity ownership, 256-257
agency problem, 4
aggressors (outgoing CEOs), 198
AGR (Accounting and Governance Risk) score, 291, 381
AICPA (American Institute of Certified Public Accountants), 298
AIG (American International Group), 3, 101, 382
Ainslie, Michael, 120
Air Products and Chemicals, 340
Akers, John, 119
Alcoa, 101
Allergan, 321
alpha, 14
alternative governance models
family-controlled corporations, 393-396
financial reporting quality and transparency, 395-396
management succession, 395
portion of global economic production, 393
positive and negative aspects of family control, 394-395
United States family-controlled businesses, 393-394
nonprofit organizations, 402-407
executive compensation, 405
explained, 402
financial reporting quality, 407
governance-related challenges, 406-407
nonprofits by count and activity, 403
in United States, 403
overview, 393
private equity-owned companies, 399-402
board of directors, 401
executive compensation, 401-402
exit characteristics of leveraged buyouts, 400
growth of, 399
private equity returns, 402
venture-backed companies, 396-399
antitakeover protections, 398
board of directors, 397
executive compensation, 397-398
explained, 396
governance quality and company performance, 398-399
summary statistics, 397
American Electric Power, 204-205
American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), 353-355
American Institute of Certified Public Accountants (AICPA), 298
American International Group (AIG), 3, 101, 382
American Tobacco, 212
Amgen, 236
annual bonus, 214
annual salary, 214
antidirector rights index, 49
antitakeover protections
state of incorporation, 330-331
venture-backed companies, 398
Antoncic, Madelyn, 175
Apotheker, Léo, 201
Apple, 217
Appleton, Steve, 166
Aquila, 132
Armstrong, Michael, 315
A-shares (China), 43
Ashbury Automotive, 86
Ashton, Joseph, 130
Aspen Institute, 132
assessment of internal controls, 293
Association of Certified Fraud Examiners, 7
AT&T, 315
Audit Analytics, 381
audit committees
communication with, 294
overview 61, 280
audits
external audits
audit committees, 61, 280, 294
audit quality, 296
external auditors as CFOs, 301-302
financial experts, 280
models to detect accounting manipulations, 290-292
overview, 279
preparation for, 292
Sarbanes–Oxley Act of 2002 (SOX), 298-301
structure of audit industry, 296-298
B
backdating
exercise backdating, 260
stock option backdating, 259-260
background of new independent directors, 80
bankers on board of directors, 126-127
bankruptcy statistics, 5
Bechtel Group, 394
Becker, Gary, 4
benchmarking compensation, 218-219
Berlind, Roger, 119
Bernanke, Ben, 253
Bethlehem Steel, 212
blackout period, 261
BlackRock, 363
black swans, 165
blank check preferred stock, 339
Blinder, Alan, 253
Blumenthal, Michael, 212
board observers, 85
governance committee, 62
nominating committee, 62
risk committees, 173
current directors becoming CEOs, 201
digital directors, 84
director recruitment process, 89-91
disclosure requirements for director qualifications, 87-89
dissident slate, 352
duration of director terms, 64
executive sessions, 60
fiduciary duty
constituents directors serve, 68
duty of candor, 68
duty of care, 67
nonshareholder interests, 69
lack of preparedness in CEO succession planning, 200-203
director indemnification, 72-77
disclosure obligations, 70
legal enforcement of federal securities laws, 71-72
legal enforcement of state corporate law, 70-71
management board, 37
market for directors
background of new independent directors, 80
board observers, 85
criteria for director recruitment, 81
international experience, 83-84
number of directors in United States, 79
nonprofit organizations, 404-405
overview, 55
private equity-owned companies, 401
quality of board, 416
removal of directors, 66, 99-106
staggered boards, 324, 328-330
structure
board structure of U.S. corporations, 108-112
chairman of the board, 112-116
employee representation, 128-130
independent committees, 125-126
lead independent director, 116-118
politically connected boards, 128
union representatives on board, 130
uncontested director elections, majority voting in, 360-361
venture-backed companies, 397
weak board oversight, 242
written consent, 60
Boeing, 196
Bogle, John, 417
bonuses, 214
short-term incentives, 229-231
BP, 48
Branson, Richard, 166
Brazil, national governance structure in, 45-47
breakdown in corporate governance
Olympus Corporation of Japan, 3
self-interested executives, 3-7
moral salience, 4
theory of “rational self-interest,” 4
Bristol-Myers Squibb, 286
B-shares (China), 43
BSkyB, 86
Buffett, Warren, 365
bullet-dodging, 260
business judgment rule, 71
business model development
case study: fast-food chain and employee turnover, 156-158
case study: financial services firm and investment advisor retention, 158-159
causal business model, 155
challenges, 156
Consensus business model, 157
KPIs (key performance indicators), 159-163
business relations and “independence,” 123
C
Cadbury Committee, 9
Calhoun, David, 183
California Public Employees’ Retirement System (CalPERS), 353-355
California State Teachers’ Retirement System (CalSTRS), 353
CalPERS (California Public Employees’ Retirement System), 353-355
CalSTRS (California State Teachers’ Retirement System), 353
candor, duty of, 68
capital market efficiency, 20-22
capitulators (outgoing CEOs), 198
care, duty of, 67
Cargill, 394
Carlson Companies, 394
Carlyle Group, 183
causal business model, 155
causality, 14
Cavanaugh, Michael, 183
CD&A (Compensation Discussion & Analysis), 214, 235
Center for Audit Quality, 5
Centerview Partners, 183
CenturyLink, 66
CEOs (chief executive officers)
compensation. See executive compensation
equity ownership
accounting manipulation, 257-258
CEO equity wealth and sensitivity to stock price, 248, 251-252
equity sales and insider trading, 261-262
manipulation of equity grants, 258-260
overview, 247
repricing or exchange offers, 270-278
target ownership plans, 249
value extraction through timing, 260
labor market for
“brain drain” to private equity, 183
labor pool of CEO talent, 184-186
models of CEO succession
inside–outside model, 195
overview, 191
president and/or chief operating officer, 193-194
personality of CEO, 416
succession-planning process, 415
current director becoming CEO, 201
external search process, 203-204
family-controlled corporations, 395
Ford Motor case study, 196-197
outgoing CEO behaviors, 198-199
as risk-management issue, 202-203
Cerner Corporation, 227
CFOs (chief financial officers), 301-302
CGQ (Corporate Governance Quotient), 378-379
chaebol structure (South Korea), 41-43
chairman of the board, 112-116
change in ownership, 313
Chapter 11 bankruptcy, 5
Chattem, 265
Chenault, Kenneth, 213
Cheney, Richard, 128
Chesapeake Energy, 269
chief executive officers. See CEOs
chief financial officers (CFOs), 301-302
chief operating officers (COOs), 193-194
China, national governance structure in, 43-44
Chrysler, 212
CII (Confederation of Indian Industries) Corporate Governance Code, 44
Cisco Systems, 63
Citicorp, 315
Citigroup, 101, 174, 212, 216, 315
class action lawsuits, 5
classified boards, 64, 324, 328-330
clawbacks and deferred payouts, 216-217
Clinton, Bill, 86
Code of Best Practices (Cadbury Committee), 9
Combined Code of Best Practices, 33
Comcast, 394
commercial corporate governance ratings
CGQ (Corporate Governance Quotient), 378-379
GMI Ratings, 381
GRId (Governance Risk Indicators), 380
overview, 378
Committee of Sponsoring Organizations (COSO), 169-171
committees
audit committees, 280
audit committee, 61
governance committee, 62
nominating committee, 62
independent committees, 125-126
nonprofit organizations, 404
risk committees, 173
communication with audit committee, 294
Companies Act 1985, 32
Company Law of the People’s Republic of China, 43
compensation, executive
benefits and perquisites, 234
compensation consultants, 220-221
compensation disclosure, 235-236
compensation incentives, market for corporate control, 314-316
annual bonus, 214
annual salary, 214
benefits, 215
clawbacks and deferred payouts, 216-217
contractual agreements, 215
performance shares (units), 215
perquisites, 215
pledging restrictions, 216
restricted stock, 215
stock ownership guidelines, 215
earned (realizable) compensation, 223
expected compensation, 222
Germany, 38
governance features versus governance functions, 415
nonprofit organizations, 405
overview, 211
private equity-owned companies, 401-402
ratio of CEO pay to average employee pay, 227-228
ratio of CEO pay to other top executive pay, 224-227
realized compensation, 223
short-term incentives, 229-231
2008 financial crisis, 253
United Kingdom, 36
venture-backed companies, 397-398
compensation committee (board of directors), 61-62
compensation consultants, 220-221
compensation disclosure, 235-236
Compensation Discussion & Analysis (CD&A), 214, 235
Compensia, 220
comply-or-explain system, 36
composition of shareholder base, 345-346
Computer Associates, 286
Confederation of Indian Industries (CII) Corporate Governance Code, 44
connected (interlocked) boards, 133-134
Connecticut Retirement Plans and Trust Funds, 225
Consensus business model, 157
constituents directors serve, 68
consultants (compensation), 220-221
context, importance of, 417-418
Continental Resources, 269-270
contractual agreements, 215
controlled corporations, 333
controversy over executive compensation, 212-213
conventionally independent directors, 123
COO (chief operating officer), 193-194
The Corporate Library, 381
acquirers, 312
acquisitions
attributes of acquisition targets, 316-319
friendly acquisitions, 312
initial and final offer premiums, 318
mergers, 312
proxy contest, 312
tender offer, 312
value in acquisitions, 319-322
antitakeover protections
state of incorporation, 330-331
controlled corporations, 333
defined, 311
personalities behind mergers, 315-316
corporate governance best practices, 11-12
corporate governance defined, 4, 7-9, 19
corporate governance index, 383-388
Corporate Governance Quotient (CGQ), 378-379
corporate governance standards, 9-11
activist investors, 11
Code of Best Practices (Cadbury Committee), 9
Dodd-Frank Wall Street Reform and Consumer Protection Act, 10
governance ratings, 10
private equity firms, 11
proxy advisory firms, 11
Sarbanes-Oxley Act of 2002 (SOX), 9-10
Shareholder’s Bill of Rights, 10
COSO (Committee of Sponsoring Organizations), 169-171
cost-benefit assessment of a governance system, 8, 16-17
costs
agency costs, 4
cost-benefit assessment of a governance system, 8, 16-17
Countrywide Financial, 3
Covidien, 88
credit-rating agencies, 376-378
creditworthiness, 376
Crimson Exploration, 262
criteria for director recruitment, 81
cross-holdings, 339
Crown Media Holdings, 132
Cruikshank, Thomas, 119
cultural values
international corporate governance, 27-29
Hofstede model of cultural dimensions, 27-28
shareholder-centric view, 28
stakeholder-centric view, 28
organizational culture, 416
cumulative voting, 65
D
damages, 71
defining corporate governance, 7-9, 19
Delaware, corporate advantages in, 30
Deloitte Touche Tohmatsu, 296-298, 308
Delta Airlines, 267
determinants in corporate governance systems, 8
development
business model development
case study: fast-food chain and employee turnover, 156-158
case study: financial services firm and investment advisor retention, 158-159
causal business model, 155
challenges, 156
Consensus business model, 157
KPIs (key performance indicators), 159-163
digital directors, 84
Dillon, Dave, 194
director and office liability (D&O) insurance, 72-77
directors, board of. See board of directors
Directors’ Remuneration Report Regulations, 36
disclosure
compensation disclosure, 235-236
disclosure obligations for board of directors, 70
disclosure requirements for director qualifications, 87-89
discount to fair value exchange offers, 271
dismissal (auditors), 303
Disney, 115
dissident slate, 352
diverse directors, 85-86, 137-138
diversification, 313
Dodd-Frank Wall Street Reform and Consumer Protection Act, 10, 31, 66, 238, 283
D&O (director and officer liability) insurance, 72-77
Dow Jones, 132
Doyle, David, 266
dual-class shares, 65, 323, 331-334
Duke Energy, 173
duration of director terms, 64
duty of candor, 68
duty of care, 67
E
earned (realizable) compensation, 223
earnings
earnings quality, 145
Eastman Kodak Company, 88
The Economic Approach to Human Behavior (Becker), 4
efficiency of capital markets, 20-22
Egon Zehnder, 84
E-Index, 387
elections for board of directors, 64-66
empirical research
causality, 14
empirical tests, 14
event studies, 15
market-to-book ratio (Tobin’s Q), 14
operating metrics, 14
empirical tests, 14
employee pay, ratio of CEO pay to, 227-228
employee representation on board of directors, 128-130
endowment funds, 407
enforcement of regulations, 26
federal securities laws, 71-72
equal to fair value exchange offers, 271
equity grants, manipulation of, 258-260
equity ownership
accounting manipulation, 257-258
CEO equity wealth and sensitivity to stock price, 248, 251-252
equity sales and insider trading, 261-262
manipulation of equity grants, 258-260
overview, 247
repricing or exchange offers, 270-278
target ownership plans, 249-250
value extraction through timing, 260
equity sales and insider trading, 261-262
Ernst & Young, 2, 132, 295-298
Esrey, William, 132
Estee Lauder, 132
ethnic minorities on board of directors, 85-86
Etsy, 70
evaluation
antitakeover protections, 334-336
Evans, Marsha Johnson, 120
event studies, 15
excessive risk taking, 253
excess returns, 14
Excite, 85
benefits and perquisites, 234
compensation consultants, 220-221
compensation disclosure, 235-236
compensation mix, 228
annual bonus, 214
annual salary, 214
benefits, 215
clawbacks and deferred payouts, 216-217
contractual agreements, 215
performance shares (units), 215
perquisites, 215
pledging restrictions, 216
restricted stock, 215
stock ownership guidelines, 215
earned (realizable) compensation, 223
expected compensation, 222
Germany, 38
governance features versus governance functions, 415
nonprofit organizations, 405
overview, 211
private equity-owned companies, 401-402
ratio of CEO pay to average employee pay, 227-228
ratio of CEO pay to other top executive pay, 224-227
realized compensation, 223
short-term incentives, 229-231
2008 financial crisis, 253
United Kingdom, 36
venture-backed companies, 397-398
executive equity ownership
accounting manipulation, 257-258
CEO equity wealth and sensitivity to stock price, 248, 251-252
equity sales and insider trading, 261-262
manipulation of equity grants, 258-260
overview, 247
repricing or exchange offers, 270-278
target ownership plans, 249-250
value extraction through timing, 260
executive self-interest, 417
moral salience, 4
theory of “rational self-interest,” 4
executive sessions, board of directors, 60
Exelon, 251
exercise backdating, 260
exit characteristics of leveraged buyouts, 400
expected compensation, 222
expressed opinion, 294
audit committees, 280
audit quality, 296
external auditors as CFOs, 301-302
financial experts, 280
models to detect accounting manipulations, 290-292
overview, 279
preparation for, 292
Sarbanes–Oxley Act of 2002 (SOX), 298-301
structure of audit industry, 296-298
external candidate model (CEO succession planning), 191-193
external forces influencing governance systems, 8
external search process (CEOs), 203-204
F
Facebook, 65
failures in governance. See breakdown in corporate governance
fair disclosure (FD), 369
Fair Isaac, 99
family-controlled business groups, 20-21
family-controlled corporations, 393-396
financial reporting quality and transparency, 395-396
management succession, 395
portion of global economic production, 393
positive and negative aspects of family control, 394-395
United States family-controlled businesses, 393-394
family-run companies, 45
FASB (Financial Accounting Standards Board), 30, 280
fast-food chain and employee turnover (case study), 156-158
FCPA (Foreign Corrupt Practices Act) violations, 6
FD (fair disclosure), 369
features of governance versus functions of governance, 415-416
federal securities laws, enforcement of, 71-72
fees, director committee fees, 93
fiduciary duty, board of directors, 67-70
constituents directors serve, 68
duty of candor, 68
duty of care, 67
nonshareholder interests, 69
Fifth Third Bancorp, 63
Financial Accounting Standards Board (FASB), 30, 280
financial crisis of 2008, 174-175, 253
financial experts, 127-128, 280
financial KPIs, 160
financial reporting. See also external audits
audit committees, 280
financial experts, 280
financial reporting quality, 282-284
financial restatements, 284-290
models to detect accounting manipulations, 290-292
overview, 279
quality
family-controlled corporations, 395-396
nonprofit organizations, 407
financial restatements, 5, 284-290
financial risk, 167
financial services firm and investment advisor retention (case study), 158-159
financial synergies, 313
firm performance, relationship with corporate governance, 12-13
Fitch Ratings, 389
Ford, Henry, 196
Ford, William Jr., 196
Foreign Corrupt Practices Act (FCPA) violations, 6
fraud
fraud evaluation, 293
Freddie Mac, 3
Frederic W. Cook, 220
friendly acquisitions, 312
functions of governance versus features of governance, 415-416
funds
social responsibility and other stakeholder funds, 355-357
sovereign wealth funds, 349
G
GAAP (Generally Accepted Accounting Principles), 24
GAAS (Generally Accepted Auditing Standards), 298
gender balance on board of directors, 138-150
General Electric, 88, 183, 194
Generally Accepted Accounting Principles (GAAP), 24
Generally Accepted Auditing Standards (GAAS), 298
Gent, Christopher, 119
Gephardt, Richard, 197
Germany
codetermination, 128
executive compensation, 38
national governance structure, 37-38
Gerstner, Lou, 183
GlaxoSmithKline, 194
globalization pressures
Germany, 38
Japan, 41
GMI Ratings and Institutional Shareholder Services (ISS), 10, 381
going concerns, 294
golden parachutes, 204-206, 319
good faith, 71
Google, 65
governance committee (board of directors), 62
governance failures. See breakdown in corporate governance
governance features versus governance functions, 415-416
GovernanceMetrics International, 381
governance quality and company performance, 398-399
governance ratings, 10
commercial corporate governance ratings
CGQ (Corporate Governance Quotient), 378-379
GMI Ratings, 381
GRId (Governance Risk Indicators), 380
overview, 378
overview, 375
predictive ability, 376
rating systems by academic researchers, 383-388
Governance Risk Indicators (GRId), 380
Grasso, Dick, 212
Greenberg, Hank, 382
Greenbury Report (1995), 33
Green, Robert, 132
GRId (Governance Risk Indicators), 380
groupthink, 137
Grudnowski, Tom, 99
Guidance on Board Effectiveness (2011), 33-34
H
Hallmark Cards, 132
Hamm, Harold, 269
Hamm, Sue Ann, 269
Hampel Report (1998), 33
Harley-Davidson, 223
HCA Holdings, 394
HealthSouth Corp., 1-3, 212, 295-296
Heidrick & Struggles, 203
Hernandez, Roland, 120
Hershey, 65
Hewlett-Packard, 96, 104, 115, 201
Higgs Report (2003), 33
Higgs, Sir Derek, 33
Hill, Bonnie, 117
Hockaday, Irvine Jr., 132
Hofstede, Geert, 27
Hofstede model of cultural dimensions, 27-28
Holliday, Charles, 114
hopeful saviors (outgoing CEOs), 198
horse race model (CEO succession planning), 194-195
H-shares (China), 43
Hughes Electronics, 315
I
Iacocca, Lee, 212
IASB (International Accounting Standards Board), 24-25, 280
IBM, 119
Icahn Capital Management, 358
Icahn, Carl, 336
ICSA (Institute of Chartered Secretaries and Administrators), 33
IFRS (International Financial Reporting Standard), 24
implementation process, 154-156
incentives
benefits and perquisites, 234
short-term incentives, 229-231
incorporation, state of, 330-331
independence of board of directors, 58-59, 121-125
independent committees, 125-126
India, national governance structure in, 44-45
indices, corporate governance index, 383-388
indirect influence of shareholders, 345
individualism, 27
information gap, 119
initial public offering (IPO), 133
injunction, 70
inside–outside model, 195
insiders, 261
Institute of Chartered Secretaries and Administrators (ICSA), 33
institutional investors
Institutional Shareholder Services (ISS)
CGQ (Corporate Governance Quotient), 378-379
GRId (Governance Risk Indicators), 380
insufficiency of testing, 414
internal controls, 280-282, 293
International Accounting Standards Board (IASB), 24-25, 280
International Brotherhood of Teamsters, 353
international corporate governance
GAAP (Generally Accepted Accounting Principles), 24
IASB (International Accounting Standards Board), 24-25
importance of reliable accounting standards, 25
International Financial Reporting Standard (IFRS), 24
principles-based accounting systems, 24
rules-based accounting systems, 24
capital market efficiency, 20-22
enforcement of regulations, 26
national governance structures
Olympus Corporation of Japan, 3
overview, 19
societal and cultural values, 27-29
Hofstede model of cultural dimensions, 27-28
shareholder-centric view, 28
stakeholder-centric view, 28
international experience on board of directors, 83-84
International Financial Reporting Standard (IFRS), 24
interpreting empirical research, 13-15
Intuit, 85
Investor Responsibility Research Center (IRRC), 384
investors. See shareholders
IPO (initial public offering), 133
IRRC (Investor Responsibility Research Center), 384
ISS (Institutional Shareholder Services), 10
CGQ (Corporate Governance Quotient), 378-379
GRId (Governance Risk Indicators), 380
J
Japan
Japanese Financial Services Authority Stewardship Code, 41
national governance structure, 38-41
globalization pressures, 41
keiretsu, 38
stakeholder-centric view, 39
Stewardship Code (Japanese Financial Services Authority), 41
Toyota board of directors, 39-40
J.C. Penney, 86
Jeffries, Michael, 225
Jobs, Steve, 240
Jordan, Vernon, 86
K
Kaufman, Henry, 119
Kelley, John A. Jr., 264
Kerr, John, 118
key performance indicators (KPIs), 159-163
Kikukawa, Tsuyoshi, 3
Knight, Phil, 192
Koch Industries, 394
Kozlowski, Dennis, 1
KPIs (key performance indicators), 159-163
Kraft Foods, 183
Krispy Kreme Doughnuts, 287
L
labor market for CEOs. See also succession planning (CEO)
“brain drain” to private equity, 183
labor pool of CEO talent, 184-186
Lastminute.com, 86
lawsuits, class action, 5
Lazarus, Charles, 212
lead independent director, 116-118
legal enforcement
of federal securities laws, 71-72
legal obligations of board of directors, 66-67
director indemnification, 72-77
disclosure obligations, 70
legal enforcement of federal securities laws, 71-72
legal enforcement of state corporate law, 70-71
legal tradition, international corporate governance, 22-23
legislation. See regulation
Lehman Brothers, 3, 101, 119-120, 174
Leighton, Allan, 86
LeMay, Ronald, 132
levels of executive compensation, 221-224
leveraged buyouts, exit characteristics of, 400
Lewis, Ken, 114
long-term orientation, 27
Lovegood, Scott, 287
Lululemon Athletica, 168
M
Macomber, John, 119
majority voting, 65
majority voting in uncontested director elections, 360-361
management board, 37
management entrenchment, 226, 323
managerial self-interest. See self-interested executives
market for CEOs. See also succession planning (CEO)
“brain drain” to private equity, 183
labor pool of CEO talent, 184-186
market for corporate control. See corporate control, market for
market for directors
background of new independent directors, 80
board observers, 85
criteria for director recruitment, 81
international experience, 83-84
number of directors in United States, 79
market-to-book ratio (Tobin’s Q), 14
masculinity, 27
material information, 70
McClendon, Aubrey, 269
McDATA Corporation, 264
McGuire, William, 212
McKesson, 217
McKinnell, Hank, 212
McMullen, Rodney, 194
measuring accounting quality, 304
MediaOne, 315
Mercer, 221
mergers, 312
Meridian, 220
Merrill Lynch, 101
metrics
market-to-book ratio (Tobin’s Q), 14
operating metrics, 14
stock price metrics, 14
MF Global, 3
Michelin Guide, 375
Micron, 166
Miller, James, 100
minorities on board of directors, 85-86
models of CEO succession
inside–outside model, 195
overview, 191
president and/or chief operating officer, 193-194
models to detect accounting manipulations, 290-292
Moog, 256
moral salience, 4
Morris, Michael, 204
Moynihan, Brian, 114
MSCI GMI Ratings, 381
N
Nabisco Holding Company, 183
NACD (National Association of Corporate Directors), 151
named executive officer (NEO), 243
Nappier, Denise, 225
Nardelli, Robert, 117, 205, 212
National Association of Corporate Directors (NACD), 151
National City Bank, 212
national governance structures. See also regulation
globalization pressures, 41
keiretsu, 38
stakeholder-centric view, 39
Stewardship Code (Japanese Financial Services Authority), 41
Toyota board of directors, 39-40
Anglo-Saxon model, 32
Companies Act 1985, 32
comply-or-explain system, 36
Directors’ Remuneration Report Regulations, 36
executive compensation, 36
Greenbury Report (1995), 33
Guidance on Board Effectiveness (2011), 33-34
Hampel Report (1998), 33
Higgs Report (2003), 33
Turnbull Report (1999), 33
Walker Review (2009), 33
Delaware legal system, 30
Dodd–Frank Wall Street Reform Act of 2010, 31
Financial Accounting Standards Board (FASB), 30
New York Stock Exchange (NYSE), 30-31
Sarbanes–Oxley Act of 2002, 31
Securities and Exchange Commission (SEC), 29
National Venture Capital Association (NVCA), 396
NEO (named executive officer), 243
News Corp, 394
New York State and Local Retirement System, 353
New York Stock Exchange (NYSE), 9, 30-31
New York Times Co., 65
Nivel 1, 46
nominating committee (board of directors), 62
nonexecutive (outside) directors, 119-121
nonfinancial KPIs, 160
nonprofit organizations, 402-407
executive compensation, 405
explained, 402
financial reporting quality, 407
governance-related challenges, 406-407
in United States, 403
nonprofits by count and activity, 403
nonshareholder interests, 69
Northrop Grumman, 231
Norway Government Pension Fund, 349
number of directors in United States, 79
NVCA (National Venture Capital Association), 396
NYSE (New York Stock Exchange), 9, 30-31
O
objectives of shareholders, 344
observers (board of directors), 85
OECD (Organisation for Economic Co-operation and Development), 57, 151
Oil-Dri Corporation, 333
O’Neil, Stanley, 101
operating metrics, 14
operational risk, 167
operations of board of directors, 59-60
opinion, expressed opinion, 294
opinion shopping, 303
Oracle Corporation, 166, 212, 270, 285-286
Organisation for Economic Co-operation and Development (OECD), 57, 151
organizational culture, 416
organizational design, 416
organizational strategy, 152-154
outgoing CEO behaviors, 198-199
outgoing CEOs on board of directors, 91-92
outliers, 165
oversight
oversight capacity of board of directors, 57-58
ownership guidelines for board of directors, 96-97
P
Parker, Matt, 193
Parmalat, 3
participants in corporate governance systems, 8
passive aggressors (outgoing CEOs), 198
passive index funds, 369
passive investors, 344
pay for failure, 205
PCAOB (Public Company Accounting Oversight Board), 299
Pearl Meyer, 220
peer groups, 218
pension-adjusted operating margin, 231
pension fund activism, 353-355
Pepper, John, 112
Perez, William, 192
performance
assessing board, 173
KPIs (key performance indicators), 159-163
relationship between corporate governance and firm performance, 12-13
performance shares (units), 215
personality of CEO, 416
perspectives, shareholder/stakeholder, 8
Petrobras, 3
PetroChina, 44
Pitney-Bowes, 96
plurality of votes, 64
political corruption, 23
politically connected boards, 128
positive net present value (NPV), 232
power blockers (outgoing CEOs), 199
power distance, 27
predictive ability of ratings, 376, 382-383
premiums for good corporate governance, 12-13
premium to fair value exchange offers, 271
Prepaid-Variable Forward (PVF), 265-268
preparation for audits, 292
president and/or chief operating officer (COO), 193-194
presiding (lead independent) director, 116-118
“pretexting” scandal in 2006, 104
PricewaterhouseCoopers, 296-298
Primerica, 315
Prince, Charles, 101
principles-based accounting systems, 24
Principles of Corporate Governance, 57
private equity-owned companies, 11, 399-402
board of directors, 401
executive compensation, 401-402
exit characteristics of leveraged buyouts, 400
growth of, 399
market for corporate control, 313-314
private equity returns, 402
proposals (shareholder), 351
proxy access, 361
proxy advisory firms, 11, 364-369
proxy contest, 312
proxy voting, 349-351, 362-363
Public Company Accounting Oversight Board (PCAOB), 299
public pension fund activism, 353-355
PVF (Prepaid-Variable Forward), 265-268
Pyott, David, 321
Q
Qatar Investment Authority, 349
Q (market-to-book ratio), 14
qualified opinion, 294
quality
accounting quality, 280-282, 304
board of directors, 416
external audits, 296
Quest Software, 266
R
ratcheting effect, 218
ratings, 10
commercial corporate governance ratings
CGQ (Corporate Governance Quotient), 378-379
GMI Ratings, 381
GRId (Governance Risk Indicators), 380
overview, 378
overview, 375
predictive ability, 376
rating systems by academic researchers, 383-388
rational self-interest, 4
ratio of CEO pay
to average employee pay, 227-228
Raymond, Lee, 212
realizable compensation, 223
realized compensation, 223
recruitment process for board of directors, 89-91
Red Cross, 120
“red flags” of fraudulent agents, 7
Refco, 10
regulation. See also national governance structures
Companies Act 1985, 32
Company Law of the People’s Republic of China, 43
Directors’ Remuneration Report Regulations, 36
Dodd–Frank Wall Street Reform Act, 10, 31, 66, 238, 283
enforcement of international corporate governance, 26
fair disclosure (FD), 369
Regulation FD, 369
regulatory enforcement, 26
Sarbanes–Oxley Act of 2002 (SOX), 9-10, 31, 59, 108, 125, 280, 298-301
Securities and Exchange Act of 1934, 29
United Kingdom Corporate Governance Code, 364
Regulation FD, 369
Regulation S–K (SEC), 87
relationship between corporate governance and firm performance, 12-13
removal of directors, 66, 99-106
reports
Greenbury Report (1995), 33
Guidance on Board Effectiveness (2011), 33-34
financial reporting. See also external audits
audit committees, 280
financial experts, 280
financial reporting quality, 282-284
financial restatements, 284-290
models to detect accounting manipulations, 290-292
overview, 279
Hampel Report (1998), 33
Higgs Report (2003), 33
Turnbull Report (1999), 33
Walker Review (2009), 33
repricing or exchange offers, 270-278
reputational risk, 167
resignations
auditors, 303
responsibilities of board of directors, 57-58
restricted stock, 215
review of accounting estimates and disclosures, 292-293
Revised Combined Code of Best Practices, 33
right of codetermination, 128
excessive risk taking, 253
executive equity ownership and, 250-256
financial risk, 167
operational risk, 167
reputational risk, 167
risk culture, 169
risk management
board performance, assessing, 173-175
defined, 169
Heinz Company case study, 170-171
Lululemon Athletica case study, 168
2008 financial crisis, 174-175
risk committees, 173
risk culture, 169
risk management, 415
board performance, assessing, 173-175
CEO succession planning, 202-203
defined, 169
Heinz Company case study, 170-171
Lululemon Athletica case study, 168
2008 financial crisis, 174-175
RJR Nabisco, 336
Roche, Gerry, 192
Royal Bank of Scotland, 3
Royal Mail, 86
rules-based accounting systems, 24
Russell Reynolds, 84
Russia, national governance structure in, 47-48
S
Safeway, 219
Sanderson, Robert, 99
Sarbanes–Oxley Act of 2002 (SOX), 9-10, 31, 59, 108, 125, 280, 298-301
Satyam, 3
Schering Plough, 315
Schmidt, Eric, 240
SC Johnson & Son, 192
Scottish Power, 86
SEBI (Securities and Exchange Board of India), 44
SEC (Securities and Exchange Commission), 29
enforcement action, 5
Regulation S–K, 87
Securities and Exchange Act of 1934, 29
Securities and Exchange Board of India (SEBI), 44
Securities and Exchange Commission (SEC), 29
enforcement action, 5
Regulation S–K, 87
securities laws
disclosure obligations, 70
self-interested executives, 3-7, 417
cost of, 7
bankruptcies, 5
class action lawsuits, 5
financial restatements, 5
Foreign Corrupt Practices Act (FCPA) violations, 6
“red flags” of fraudulent agents, 7
moral salience, 4
theory of “rational self-interest,” 4
Service Employees International Union, 353
Shareholder Bill of Rights, 113
shareholder-centric view, 28
majority voting in uncontested director elections, 360-361
overview, 360
proxy access, 361
shareholder proposals, 351
accredited investors, 357
activist investors
defined, 344
social responsibility and other stakeholder funds, 355-357
activist shareholders, 76
activity level, 344
composition of shareholder base, 345-346
indirect influence of, 345
institutional investors
objectives, 344
shareholder democracy
majority voting in uncontested director elections, 360-361
overview, 360
proxy access, 361
shareholder perspective, 343
shareholder proposals, 351
sovereign wealth funds, 349
Shareholder’s Bill of Rights, 10
short-term incentives, 229-231
Side A (D&O insurance), 73
Side B (D&O insurance), 73
Side C (D&O insurance), 73
Siemens, 3
size of board of directors, 136-137
Smith, Weston L., 1
socially independent directors, 123
social responsibility stakeholder funds, 355-357
societal values, international corporate governance, 27-29
Hofstede model of cultural dimensions, 27-28
shareholder-centric view, 28
stakeholder-centric view, 28
Solso, Tim, 130
Sony Corporation, 40
Sorkin, Andrew Ross, 175
Sotheby’s, 120
Southern Company, 251
South Korea, national governance structure in, 41-43
Southwest Airlines, 129
sovereign wealth funds, 349
SOX (Sarbanes–Oxley Act of 2002), 9-10, 31, 59, 108, 125, 280, 298-301
special expertise on board of directors, 84-85
specialized committees (board of directors), 62-64
spring-loading, 260
Sprint Nextel Corporation, 88, 132
SPX Corporation, 95
staggered boards, 64, 324, 328-330
Staggs, Tom, 194
stakeholder-centric view, 28, 39
stakeholder perspective, 8
standards of corporate governance, 9-11
activist investors, 11
Code of Best Practices (Cadbury Committee), 9
Dodd-Frank Wall Street Reform and Consumer Protection Act, 10
governance ratings, 10
private equity firms, 11
proxy advisory firms, 11
Sarbanes-Oxley Act of 2002 (SOX), 9-10
Shareholder’s Bill of Rights, 10
state corporate law, enforcement of, 70-71
state of incorporation, 330-331
stealth compensation, 234
Steel, Myron, 414
Stewardship Code (Japanese Financial Services Authority), 41
stock option backdating, 259-260
stock ownership guidelines, 215
stock price metrics, 14
strategy. See also risk
business model development
case study: fast-food chain and employee turnover, 156-158
case study: financial services firm and investment advisor retention, 158-159
causal business model, 155
challenges, 156
Consensus business model, 157
KPIs (key performance indicators), 159-163
implementation process, 154-156
organizational strategy, 152-154
overview, 151
of board of directors. See board of directors, structure
of governance systems, 8
current director becoming CEO, 201
models of CEO succession
inside–outside model, 195
president and/or chief operating officer, 193-194
overview, 191
succession-planning process
external search process, 203-204
family-controlled corporations, 395
Ford Motor case study, 196-197
outgoing CEO behaviors, 198-199
as risk-management issue, 202-203
success rates of business model development, 163-164
supervisory board, 37
Surge, 100
Swan, Thomas, 212
Symantec, 221
T
tag-along rights, 46
takeovers
acquirers, 312
antitakeover protections
state of incorporation, 330-331
attributes of takeover targets, 316-319
friendly acquisitions, 312
initial and final offer premiums, 318
mergers, 312
personalities behind mergers, 315-316
proxy contest, 312
tender offer, 312
Target, 115
target awards, 229
target ownership plans, 249-250
targets (acquisition)
defined, 312
TARP (Troubled Asset Relief Program), 113
Tata Group, 45
Taylor, Alexander II, 265
TCI, 315
Telemundo, 120
10b5-1 plans, 263
tender offer, 312
testing
empirical tests, 14
need for, 414
predictability of commercial corporate governance ratings, 382-383
theory of “rational self-interest,” 4
Third Point, 358
Thornton, John, 197
tin parachute, 335
Tobin’s Q, 14
tokenism, 140
Too Big to Fail (Sorkin), 175
tournament theory, 226
Towers Watson, 220
Toys R Us, 212
trading window, 261
transparency
family-controlled corporations, 395-396
Travelers Insurance, 315
Trian Partners, 358
triple-bottom line, 70
Troubled Asset Relief Program (TARP), 113
Turnbull Report (1999), 33
2008 financial crisis, 174-175, 253
U
UAW (United Auto Workers), 130
uncertainty avoidance, 27
uncontested director elections, majority voting in, 360-361
union representatives on board, 130
Unisys, 212
Unisys Corporation, 88
United Auto Workers (UAW), 130
United Brotherhood of Carpenters and Joiners of America, 353
United Kingdom
executive compensation, 36
national governance structure, 32-36
Anglo-Saxon model, 32
Companies Act 1985, 32
comply-or-explain system, 36
Directors’ Remuneration Report Regulations, 36
executive compensation, 36
Greenbury Report (1995), 33
Guidance on Board Effectiveness (2011), 33-34
Hampel Report (1998), 33
Higgs Report (2003), 33
Turnbull Report (1999), 33
Walker Review (2009), 33
United Kingdom Corporate Governance Code, 364
United Methodist Church, 356
United States
board structure of U.S. corporations, 108-112
family-controlled corporations, 393-394
national governance structure, 29-32
Delaware legal system, 30
Dodd–Frank Wall Street Reform Act of 2010, 31
Financial Accounting Standards Board (FASB), 30
New York Stock Exchange (NYSE), 30-31
Sarbanes–Oxley Act of 2002, 31
Securities and Exchange Commission (SEC), 29
nonprofit organizations, 403
number of directors in, 79
say-on-pay, 238
unqualified opinion, 294
V
Valeant Pharmaceuticals International, 321
value extraction through timing, 260
variables impacting governance quality, 416-417
venture-backed companies, 396-399
antitakeover protections, 398
board of directors, 397
executive compensation, 397-398
explained, 396
governance quality and company performance, 398-399
summary statistics, 397
Verizon, 66
viability of governance ratings, 388-391
Virgin America airlines, 166
Virgin Records, 166
VNU, 183
Vodafone, 119
Volkswagen, 38
voting. See also shareholder democracy
cumulative voting, 65
dual-class shares, 65
majority voting, 65
majority voting in uncontested director elections, 360-361
plurality of votes, 64
W
Wachovia, 101
Walden Asset Management, 356
Walker, David, 33
Walker Review (2009), 33
Wal-Mart, 394
The Walt Disney Company, 58-59, 71, 112, 194, 212
Wandell, Keith, 223
Washington Mutual, 101
weak board oversight, 242
wedge, 331
Welch, Jack, 194
whistleblowers, 283
white knights, 339
White, Miles, 249
Whitman, Meg, 201
Williamson, Oliver, 13
Winterkorn, Martin, 38
women on board of directors, 85-86
Woodford, Michael, 3
Wrigley, 193
written consent (board of directors), 60
Wyeth, 315
X-Y
Xstrata, 349
Yang, Jerry, 336
Z
zaibatsu, 38
Zero-Cost Collar, 265