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Corporate Governance

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Corporate Governance Lecture 6 State Corporation Laws Select corporate officers Nominating directors for election to the board Determining when to propose amendments ... – PowerPoint PPT presentation

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Title: Corporate Governance


1
Corporate Governance
  • Lecture 6

2
State Corporation Laws
  • Select corporate officers
  • Nominating directors for election to the board
  • Determining when to propose amendments to the
    certicate of incorporation
  • Issuing stock

3
State Corporation Laws
  • Consider merger proposals and making
    recommendations to stockholders with respect to
    such transactions
  • Determining distributions to stockholders
  • Initiating changes in corporate capital structures

4
Board Responsibilities
  • Select, regularly evaluate, replace CEO
  • Review and, where appropriate approve
    financial/accounting policies and objectives,
    major strategies, and plans
  • Approve management compensation
  • Counsel top management

5
Director Duties and Liability Protection
  • Duty of Loyalty-Act in the best interest of the
    corporation
  • Duty of Care-Be informed, exercise due diligence,
    and make reasonable decisions
  • Duty of Good Faith-Make effort to over see the
    company, act with honesty of purpose, and react
    to potential known risks
  • Business Judgement Rule-Non-conflicted,
    informed business decisions

6
Director Duties and Liability Protection
  • Directors may be found be liable for material
    misstatements or omissions in registration
    statements

7
Brehm vs. Eisner
  • This Court strongly encourages directors and
    officers to employ best practices, as those
    practices are understood at the time a corporate
    decision is taken.
  • Court of Chancery
  • Delaware

8
Where Directors Want to Spend Time
  • Strategic Planning
  • Succession Planning
  • Meeting Key Managers
  • Visiting Worksites
  • Discussing the Competition
  • Risk Management

9
Recent Significant Changes
  • Audit, Compensation, and Governance and
    Nominating Committee
  • Financial Expert on the Audit Committee
  • Audit partner rotation
  • Committee members should be independent
  • Executive Sessions without CEO
  • Committees appoint their own advisors
  • Appointment of Lead Director
  • Annual Board and Committee Review

10
Top Mega Settlementsin the Post-Reform Era
  • Enron---7.160B
  • Worldcom---6.128B
  • Cendent---3.528B
  • AOL Time Warner--2.5B
  • McKesson HBOC---969M
  • Lucent Technologies--673.4M
  • Raytheon---490M

11
Key Data Points for Assessing Company and
Executive Performance
  • Quantitative measures
  • Accounting measures (EPS, ROE, Capital, Assets,
    Debt, Revenues, Net income, Profit Margins, Free
    Cash Flow)
  • Long term stock market performance (TSR)
  • Compensation measures (tied to goals and metrics)

12
Key Data Points for Assessing Company and
Executive Performance
  • Qualitative measures
  • Creating an environment for performance with
    integrity
  • Achievement of corporate strategy
  • Leadership development and team building
  • Product or service development initiatives
  • Quality of product and services
  • Relationship with stakeholders
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