Finance Foundations: Corporate Governance

Introduction

• Understanding corporate governance

1. Overview of Corporate Governance

• History of the modern corporation
• Benefits and costs of organizing a business as a corporation
• Corporations operate as republics
• Difference between the CEO and the chairman of the board

2. Board of Directors

• What kind of people are chosen to be corporate directors?
• Voting for directors
• Executive vs. non-executive directors
• Nominating committee
• Interlocking boards: The case of the Japanese keiretsu

3. Audit Committee

• Scandals leading to Sarbanes-Oxley
• Qualifications of directors on the audit committee
• Audit committee and the external auditor

4. Compensation Committee

• Management objective: Maximize shareholder wealth
• Earning-based bonus plans
• Stock-based compensation
• How much does your corporate executive friend make?

5. Shareholder Activism

• Free cash flow and the danger of entrenched management
• Proxy advisory firms
• Hostile takeovers, corporate raiders, and the Williams Act
• Poison pills and golden parachutes
• Leveraged buyouts (LBO)

6. Corporate Responsibility to All Stakeholders

• Employees and the German corporate board structure
• Responsibility to customers and suppliers
• Responsibility to local communities
• Responsibility to lenders
• Environmental, social, and governance (ESG) issues

Conclusion

• Strategic direction and mission statements