BoardShareholder DecisionMaking

1
Board-Shareholder Decision-Making

• Lecture 3

2
Boards-Shareholders-Management What Do They Want
in a CEO?

• Vision?
• Customer-centric?
• Operating expertise?
• Acquisitions/Divestitures?
• Partnerships/Alliances?
• Ability to Attract and Retain Talent?
• Enable others
• Build organizational relationships
• Intelligence?

3
Characteristics of Superior Leaders

• Honesty?
• Sets and communicates vision?
• Business insight and strategy?
• Inspiring?
• Courageous?
• Intelligent?

4
Characteristics of Superior Boards

• Attentive to Independence?
• Diversity of leadership experiences, functional
  experiences, industry and geographic
  perspectives?
• Strong on processes for making key decisions
• Understands the business-credible with
  management?
• Good board chemistry and dynamics?
• Effective Board leadership?
• Sensitive to shareholder issues?

5
Financial Times Report2002

• Of the 1500 NYSE listed companies
• 13 of the companies did not comply with the rule
  that at least 51 of the board be independent
• 52 of the companies did not comply with the rule
  that independent directors comprise two-thirds of
  a board
• Very few companies had strong leadership-Independe
  nt chairman, lead or presiding directors

6
Who Should SelectCorporate Directors?

• Shareholders?
• CEO/Management?
• Independent Directors?
• Others?

7
What Happens When A Crisis Occurs-Whos In
Charge?

• Real or threatened Legal Action
• Government agitation
• Activists shareholder agitation-individual
• Institutional shareholder agitation
• Pension Funds
• Mutual Funds
• Hedge/Funds or Private Equity Funds
• Unsolicited or hostile takeover offer
• Whistleblower allegation
• Fraud
• HR Issues
• Continuous poor performance
• Product tampering or defect issue

8
Top Shareholder Issues

• Declassify Board of Directors
• Majority Voting
• Submit Shareholder rights plan to shareholders
  (poison pill)
• Limit Executive Compensation
• Eliminate or reduce contributions to SERPs
• Expense Stock-based compensation
• Sell the Company
• Adopt a Green Strategy

9
Unsolicited Takeover OfferBoard-Management
Process

• Managements view of value
• Future value to be produced by the strategic
  plan-Metrics?
• Bankers view of value
• Assessment of managements plan-Metrics?
• Assessment of alternatives-Metrics?
• Decision?
• Reject the offer, stay the course
• Explore strategic alternatives
• One-on-one
• auction

10
SOX-Whistleblower Protection

• Now a federal offense punishable with penalties
  up to10 years to retaliate against anyone who
  provides truthful information to law enforcement
  relating to the SEC or possible federal offense.

11
Board Structure Dilemmas

• Number of members?
• Number and mix of committees?
• Audit?
• Compensation?
• Governance and Nominating?
• Others?
• Process decision-making?
• Board appointments
• Committee appointments
• Special Committee formation?