Tag Archives | Board Of Directors

Commonsense Principles: Ground Floor

Commonsense Principles of Corporate Governance. JPMorgan Chase CEO Jamie Dimon and a group of influential leaders in business and finance have joined to develop a set of "commonsense" principles that institutional investors and governance advisers are mostly applauding. (Photo by Mark Wilson/Getty Images and used by Washington Post)

JPMorgan Chase CEO Jamie Dimon and a group of influential leaders in business and finance have joined to develop a set of “commonsense” principles that institutional investors and governance advisers are mostly applauding. (Photo by Mark Wilson/Getty Images and used by Washington Post)

The so-called Commonsense Principles of Corporate Governance are posted here mostly for my future reference, since I don’t know how long others will keep them on the internet. The authors are no radicals, but are a group of 13 executives from the country’s largest public companies and institutional investors… very much mainstream CEOs. Almost half hold both CEO and chair positions, a practice many investors consider bad corporate governance. The Commonsense Principles are supposed to “provide a basic framework for sound, long-term oriented governance” at public companies. Continue Reading →

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Video Friday: Vote "For" Proxy Access at Reeds Inc. (REED)

REEDGojiGinger_KombuchaMy first effort to record a video on corporate governance is about my proxy access proposal, now being voted on at Reeds Inc. (REED).  The video below explains Reeds’ great potential and why I submitted a 2013 shareholder proposal to allow shareholders proxy access for up to two director nominees.

Did you know 40% of our Board members own NO stock in our company or that directors are expected to show up for 10 Board meetings a year (plus various committee meetings) but are paid as little as $750 for their service? For that kind of work, with such little financial reward, what is their motive? Are they really Continue Reading →

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Review: The History of Modern US Corporate Governance

CheffinsMODcorpgovThis unique “must have” two volume set traces the development of corporate governance thought around the core issue of the separation of ownership and control while also touching on the board of directors, executive pay, shareholder activism and the regulatory structures that shape corporate governance in the U.S. I include the index to both volumes at the bottom of this review for your reference. The word “modern” in the title refers roughly to the post 1970 world.

Although referenced, the set does not stem directly from The Modern Corporation and Private Property by Adolf Berle and Gardiner Means.  And of course, scholars continue to explore the consequences of this rift in books such as Citizens Continue Reading →

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Board or Shareholders – Who Should Determine Management Compensation? A Model of Compensation Governance

The efficacy of boards of directors as a critical governance institution has attracted increasing scrutiny in the wake of the recent financial meltdown. CEO compensation which consequentially determines overall management compensation in a firm, is a key governance decision entrusted with the board. A relevant, though unexplored question would be whether shareholders are better served by making the compensation decision themselves.

In this paper, in a game theoretic set up, we analyze shareholder payoffs under the traditional delegated- governance structure wherein shareholders set the compensation of the board, but delegate the management compensation decision to the board, and contrast such delegated- governance with an alternate owner-governance structure wherein shareholders determine the compensation contracts for both the board and management. Under unobservable effort, we consider both deterministic and stochastic firm performance, jointly determined by the effort of the board and management.

We find that shareholders are never worse off under owner-governance, though management wages as well as effort are higher under certain conditions. Within a deterministic setting, board wages as well as effort are equal or higher with centralized governance. Under extreme stochastic effects, which might describe boom or bust environments, it does not pay to incentivize the board or management to expend effort. In a stochastic environment where output is determined primarily by board effort, it does not pay to incentivize management for effort. Our analysis suggests a possible explanation for the puzzling observation of rising managerial compensation, often not in congruence with firm performance, as the board faces no penalty for misaligned managerial wages under delegated-governance. We show that owner-governance generally eliminates non-aligned incentive structures.

via SSRN-Board or Shareholders – Who Should Determine Management Compensation? A Model of Compensation Governance by Shivendu Shivendu, Joseph Vithayathil.

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