Class 15

1
Class 15

• Corporate Boards of Directors

AND
Corporate Reporting Case Studies
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Corporate Boards Ambiguity
?
The structure, functions, effectiveness of
boards questioned and debated for a very long
time. Shareholders elect corporate boards but how
responsive are boards to investors? When the CEO
is also the COB is this a good thing or a bad
thing? Are corporate boards actually effective at
governance oversight? Do corporate boards
actually provide value to corporations?
Existing evidence of corporate board value
is thin and generally contradictory
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History of Boards Board Research
Early in the 20th Century the majority of large
corporations were owned and controlled by a small
number of capitalists. Their vast holdings were
slowly dispersed to many beneficiaries. Management
control gradually passed from owners to insiders
(managers). This created the potential for
conflicts of interests. Corporate Boards were the
selected mechanism for overseeing management
decision-making. For at least 75 years the
consensus has been that boards have not been
proactive in their fulfilling their fiduciary
responsibility. Boards should expect continuous
pressure to become more assertive and proactive.
Directors?
4
Interlocking Directorates

• Interlocking directorates occur when two firms
  share one or more directors.
• Interlocking Directorates are a source of concern
  for many shareholders, analysts, and the federal
  government.
• Fears are based on
• the potential for unfair, self-serving exchanges
  of non-public information
• individuals sitting on multiple boards will
  divide his/her time and attention to the extent
  of diminishing returns for shareholders
• Despite of the concern expressed by stakeholders,
  interlocking directorates are common.
• Examples include Boeing, Fed Ex, Northwest
  Airlines, Staples, Xerox, Anheuser-Busch,
  Coca-Cola, Dell, Home Depot, Kellogg, Amazon.com,
  American Express and hundreds more.
• Shareholders rarely hear from Interlocked boards
  except in proxy statements in which they seek
  reappointment or compensation changes.

?
5
Know your Corporate Board
Sarbanes-Oxley may be making a difference. Boards
generally fall into one of two categories (1)
Sedate (do nothings) and (2) Proactive (monitor
governance) Which category does your board fall
into? What is the name, age, and professional
experience of the individual members? Do they sit
on multiple boards? Is the CEO also the COB? How
many members are on the board? Can you think of
other questions?
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Corporate Reporting

• Enigmatic Annual Reports can make the process of
  reading financial data appear as a daunting task.
• With determination and a template to follow the
  process is surprisingly simple.
• The Corporate Performance text dissects recent
  annual reports of 14 large American corporations.
• The companies cover a range of industries and
  include IBM, GE, JP Morgan-Chase, Wal-Mart,
  KeyCorp, Southwest Airlines, PepsiCo, Inc.,
  Morgan Stanley, Merck Company, Amazon.com,
  General Mills, Inc., Boeing Company, General
  Motors Corp., and Exxon/Mobil.

Please turn to page 160 in your Corporate
Performance text for a cursory review of several
of these companies.