Contents
Part I: The System and How It Came To Be
Chapter 1:How Our Governance System Began
The First Limited Liability Corporation
Amsterdam Stock Exchange Established to List VOC Securities
VOC Completes Initial Public Offering, Possibly World’s First
The Governance of VOC Establishes the Model
The Lords Seventeen Governance Structure Drawn from Guild System
VOC Confronts a Large Activist Shareholder
The Corporate Form Advances and Spreads—And with It, the Board
Corporations Arrived in the New World
Chapter 2:The Emergence of the Corporation in United States
New York Pioneers Simple Incorporation Procedure
Boston Manufacturing Company is First Private Corporation in United States
Corporations Gain Power Under State Control
Economic Opportunity Expands; Farmers and Artisans Suffer Disruption
Corporate Control is Concentrated
How J.D. Rockefeller Went from Rags to Riches
The Government Fights Back, Kind Of
Early Days of the New York Stock Exchange
Government Power Takes on Commercial Power: Teddy v J.P.
Unintended Consequences Lead to More Antitrust Laws
Chapter 3:Post–World War I Developments
The Great Depression and FDR’s New Deal
Regulation of Securities and Securities Markets Takes Root
Safety Net Extended to Citizens as Social Security is Born
Frustration Sets in as Unemployment Persists
Government and Business Mobilize for World War II
Roosevelt and Business Create Formidable Alliance
Wartime Success Reaches Far Beyond Battlefields
Chapter 4:The Glow Following World War II
Stock Market Investing is Patriotic Duty
Investor Relations Become a Corporate Function
Chapter 5:Shifting Dynamics from 1970 to 2000
Outrage over the Wreck of Penn Central Fuels New Focus on Board Role
Broad Corruption Revealed Leads to Focus on Governance Per Se
The Board as Overseer Takes Root as Independent Directors Become Desirable
The Definition of Independence Proves Elusive; We Know It When We See It
The 1980s Board Role: The Board Becomes Important
Mighty Institutional Investors Weigh In
The Courts Recognize Independent Judgment of the Board as Mission Critical
Economic Uncertainty and Social Unrest Reduce American Confidence
Market Crashes on Black Monday
Changing Market Forces Become Visible
The 1990s Board: Independence Criteria Tighten as Equity Linked Compensation Grows
True Independence Grows in Value
Equity Linked Compensation Creates Moral Hazard
Independence of Mind Needs Help from Independence of Process
Chapter 6:Post 2000 Intensification of Focus on the Board
Corruption Eruption Leads to Sarbanes Oxley and Growing Focus on Board
The Functioning of the Board of Directors Gains Attention
Part II: The Players and Capital Market Forces
Chapter 7:The Rise of Independent/Disinterested Directors
Considering Independent Director Effectiveness
New York Stock Exchange Listing Requirements Stress Independence of Directors
Independent Directors Fill a Structural and Legal Need
Chapter 8:The Rise of Institutional Investors
Comments from Mutual Fund Leader John C. Bogle
The Growth of Passive Investing
The Defined Benefit Pension Plan Grows
Employee Retirement Income Security Act of 1974 (ERISA) Strengthens Pension Rules
The Defined Benefit Pension Plan Declines
Retirement Assets Shift into Mutual Funds
Investing by Public and Private Plan Fiduciaries
Shifting Patterns of Share Ownership in United States
The Perils and Possibilities of Concentrated Share Ownership
The Rise of Proxy Advisor Power
Proxy Advisors Helped Interpret High Volume of Information
Responsible Voting of Proxies in Best Interests of Clients Required
Proxy Advisors Take Heed: Physician, Heal Thyself
Chapter 9:The Impact of The Great Inflation
The Seeds of the Great Inflation Are Sown by the Fateful Phillips Curve
Our Economy Fights Another War, on Several Fronts
Federal Reserve Chairman Volcker Toughs It Out
Impact of Prolonged Inflation on Capital Market Innovation
Securitization Solves a Genuine Problem, and Turns the World Upside Down
Not Your Daddy’s Trading Floor
Interest Rate Arbitrage Comes of Age with the Swap Market
Chapter 10:Mortgage Backed Securities and Structured Products Conundrums
Using Securitization Techniques, the Sky Was the Limit—Or Maybe Not
The Mortgage Derivative Market Implodes
Hark, Securitization of Sub Prime Mortgages Begins
Earnings as Defined by Generally Accepted Accounting Principles May Not Create Cash
Sub Prime Industry Almost Died in 1998
Public Policy Starts the Subprime Cycle Again
Repeal of Glass Steagall Act Allows Commercial Banks and Investment Banks to Compete
And We Pushed Ourselves into the Abyss
Low Interest Rates Fuel Frenzies in Multiple Arenas
Collateralized Debt Obligations Explode, In More Ways Than One
Multiple Financial Institutions Fail
Chapter 11:The Aftermath of the Abyss
Chapter 12:The Rise of Leveraged Buyouts, High Yield Bonds, and Private Equity Investment
No Longer Your Granddaddy’s Way to Buy a Company
The Venture Capital Firm is Born
The Private Equity Fund is Born
Pension Plans Buy in to Private Equity Investing
Milken Flexes His Funding Muscles
Corporate Titans Are Shaken by an Upstart
The Government Fights Back—For Real
Giuliani Plays Hardball with RICO Threat
Milken Pleads, and NOT to Engaging in Insider Trading
And Restructures Its Own Board of Directors
Lasting Impact of Milken and Drexel Burnham
Chapter 13:The Rise of Hedge Funds and Emergence of Aggressive Activism
Hedge Funds Remain Largely Opaque and Unregulated
Hedge Funds Emerge as Activists
Traditional Institutional Investors Join the Fray
The Current Impact of Activism
Voting Results on Shareholder Proposals
Chapter 14:The Evolution of the New York Stock Exchange
Part III: The Role of The Board
Chapter 15:Clarifying the Rights and Roles of the Board and the Shareholders
The Board Serves the Corporation as Its Agent
Functional Principles of the Board
The Purpose of the Corporation Project
Short Termism Really Is a Problem
Chapter 16:Assessing the Proliferating Policies and Principles
OECD Encourages Adoption of National Codes of Governance
Chapter 17:Considering the Proposed New Paradigm
Summary Roadmap for the New Paradigm
The New Paradigm Attempts a Synthesis of Good Corporate Governance Concepts
New Paradigm Proposes Integrated Long-Term Investment Approach
Proposed Integration of Citizenship Matters into Investment Strategy
Proposed Disclosure of Investor Policies and Preference
And Now Comes CIRCA, Council for Investor Rights and Corporate Accountability
Proxy Fights and Shareholder Candidates
The Bower and Paine Analysis of Maximizing Shareholder Value as Corporate Goal
Boards Must Protect Corporation Regardless of Conflicting Agendas
Chapter 18:Review Issues for Boards to Address Highlighted by NYSE
Executing the Work of the Board
Chapter 19:Establish the Appropriate “Tone at the Top”
Relentless Focus on Ethical Behavior and Discerning the Right Thing to Do
Training as to What Ethical Behavior Means is Important in Our Changing World
Ensure Reports on Compliance are Made Directly to the Board Periodically
Chapter 20:Choose the CEO Wisely and Actively Plan for Succession
Keep the Emergency Succession Plan Current
Build a Future View of Company Needs into Longer Term Succession Planning
Setting Criteria and Developing Possible Candidates
Know Your Senior Management Team
Chapter 21:Develop a Strong Organizational Framework
Chapter 22:Tailor Board Work to the Company
Nominating and Corporate Governance Committee
Special Investigation Committee
Manage Communication Mindfully
Facilitate Candid Communication and Trusting Relationships
In Crisis the Buck Stops with the Board
Chapter 23:Focus Intently on Compensation
Chapter 24:Seek Wisdom, Courage and Breadth of Experience in Director Recruitment
Get the Right Mix of Directors in the Boardroom
Value Tempered Judgment over Technical Expertise
Chapter 25:Actively Evaluate Board Performance to Constantly Improve
Chapter 26:Manage Risk Effectively
Further Comments on the Board and Cybersecurity
Never Underestimate the Impact of Human Error
Chapter 27:Independently Evaluate the Impact and Execution of Transactions
Chapter 28:Communicate Clearly, Consistently and Constantly
Part V: Hazards and Their Navigation
Chapter 29:Address Individual Hazards and Personal Fear
Directors and Candidates Should Understand the Protections They Have
Beware the Responsible Corporate Officer Doctrine
Chapter 30:Navigate Corporate Hazards and Distressed Situations
Liquidity: What to Do When Cash Runs Low
Form a Board Committee to Focus Closely on the Emergency
Is This Really a Role for the Board?
The Corporation Is Counsel’s Client; The Board Retains Counsel
The Next Step: Assess Viability
Assessing Leadership Resources
Structuring the Leadership Role
Communicate the Plan, and the Progress
Appreciation of the Effort Put in Goes a Long Way
Yes, Virginia, You Did Sign Up for This
Becoming the Debtor in Possession
Chapter 31:Recognize and Rectify Hazards of Board Process
Continuing Confusion as to Responsibility and Authority
Chapter 32:Know that Steady, Purposeful Work is the Antidote
Finding Your Point of View—and Theirs
Chapter 33:Survive Success and Relentlessly Build Resilience