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In the New Economy, established companies are looking to the techno-literate to help them stay in the game.

One of the potential advantages that successful privately-held companies have over their public competitors is their ability to make long-term strategic decisions based, in part, on what has been called "patient capital." It means not having to answer to securities analysts and outside investors who tend to favor short-term results and short-sighted strategy. But firms can find this advantage only if they have a unified shareholder group. That, in turn, depends on the risk profile of individual family shareholders. It's one of the topics that Timothy Habbershon, director of Wharton's Family-Controlled Corporation Program, covers in a new research paper titled, "Improving the Long-run Survival of Family Firms."

As the stock markets have begun to pull back from their historically high levels, the boards of directors of corporations that have used stock options to attract and retain employees have found themselves under increasing pressure to modify or replace previously issued stock options that have gone "underwater." (i.e. options whose exercise price is above the current market price of the corporation's stock). To address this problem, corporate boards are confronted with the prospect of "repricing" these existing options in order to allow them to retain their incentive value.

Article examines the trend toward viewing the CEO as a superhero and putting him/her in a position to satisfy Wall Street or be fired.

Article examines stockholder rights plans, also called poison pills.

When the tech-stock bubble burst in 2000, a number of companies allowed key employees to cancel previous options-based stock purchases that had left them with deep losses. The implications of such favoritism are troubling enough that the SEC - not to mention shareholder activists - are taking a closer look.

Spring so far has been full of surprises, not the least of which is the SEC's relief for private companies with at least 500 option holders that, under Section 12(g) of the Securities Exchange Act of 1934, might have had to fulfill public company disclosure requirements, such as 10-Qs and 10-Ks. It could be extremely harmful for a private company to have to expose its books for anyone to see. The SEC's new and more flexible guidelines let companies seek relief for stock options that are immediately exercisable, as long as they are nontransferable in most cases.

Professors Joseph Blasi and Douglas Kruse of Rutgers University have recently completed a new study of the long-term performance of closely-held companies that implemented ESOPs. Key findings of the study show that ESOP companies had better long-term survival rates than comparable non-ESOP firms; had higher employment growth and higher growth in annual sales per employee; and that the introduction of the ESOP resulted in a relative improvement of corporate productivity compared to the non-ESOP firms.

With the annual-meeting season getting underway, corporate executives can once again expect to be publicly targeted by shareholder groups unhappy over recent stock returns. Just how effective are shareholder activists and how constant is the pressure they exert on non-performing managers?

Note: Older EBF articles are not currently online. I'm not sure if this is temporary or permanent. If you click you will be taken to the Archive.org site to find an archived copy.

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Valter Lazzari, Full Professor of Banking and Finance at Università Cattaneo and Università Bocconi, Milan introduces this important topic with an essay on first principles, current debates and future prospects. Then eight other experts explore a range of issues including differences between North American and European practices, regional models within Europe, the impact of voting restrictions, the challenge for financial institutions and NGOs, and the attractions and shortcomings of the two-tier board approach. Then Graham Gilmour pulls together the different strands of the debate and offers a practical way forward for managers.

Editor's Note: For more from EBF on corporate governance, see
Board performance, not just board conformance
http://www.mbadepot.com/redir.php?ID=1756&file=links
Corporate Governance Audited
http://www.mbadepot.com/redir.php?ID=1501&file=links
Corporate Governance - Equity culture at risk
http://www.mbadepot.com/redir.php?ID=2930&file=links
Quis Custodiet Ipsos Custodes?
http://www.mbadepot.com/redir.php?ID=2932&file=links

Stephen Davis of Davis Global Advisors expects the most dramatic changes in corporate governance in the next few years to take place in Germany. The Schröder government's elimination of corporate capital gains taxes, effective next January will, he predicts, encourage companies to unwind their cross-shareholdings.

Article discusses the controversy of whether companies should estimate the present value of employee stock options, when granted, and then account for them as a current expense. Though the article is a little dated (referring to an old FASB proposal), the issues addressed continue to be relevant.

Authors, from the Center for Corporate Community Relations at Boston College, argue that in addition to becoming the investment of choice, a company must become the supplier of choice, the employer of choice and a "neighbor of choice." Included is an 11-step best-practices blueprint for implementing the neighbor-of-choice strategy

This article is much more substantive than the title suggests, offering an anthropological analysis of organization types and their implications, drawing a corrolary to boards of directors in the end which leads to the discussion on CEO performance.

Editor's Note: This article is referenced by another article that might be of interest. See that at:
http://www.mbadepot.com/links/links.php?ID=1763

This article offers some warning signs of a failed CEO, including:
1. A chief executives who argues for fewer and shorter board meetings.
2. A chief executive's refusal to consider board candidates who have a reputation for being outspoken and who might be quick to criticize the chief executive's actions. A corollary of this last warning sign is the manipulation by the chief executive of the membership of key board committees.
3. The steady erosion in the number of security analysts who follow the company.
4. The chief executive's reliance on his or her "vision statement."
5. Excessive dependence on management consultants.
6. The dismissal of market share as a measure of performance.
7. Chief executives who go out of their way to blame subordinates for the unhappy circumstance of the company or alternatively to excuse or defend the underperformance of those subordinates.
8. The unexpected departure of management people of promise.
9. The steady coming and going of popular management programs.
10. The growing presence of management by committee.
11. An excessive preoccupation with compensation.
12. The chief executive's personal agenda is slowly but significantly changed.
13. A chief executive who develop an "edifice complex."
14. A sharp decline in the chief executive's grasp of the financial and operating details of the business.
15. The chief executive's propensity for diminishing his or her heirs apparent.
16. The increasing delegation of key decisions upward to the board.

"In an environment where past results are no longer a reliable indicator of future performance, the annual report letter is viewed as a unique statement of vision and personal accountability.

In four years of surveying shareholder letters, we've seen the good, the bad and the quickly forgotten -- unfortunately, most of them in the latter two categories...Our yearly research of the letters of 100 top-rated companies has determined that only about one-third of companies are writing distinguished letters that educate and engage readers."

"A good name for every compensation consulting firm would be Ratchet Ratchet & Ratchet. Any other kind of consultant you can think of is brought in to try to cut costs. The basic goal of compensation consultants is to justify whatever it is the CEO wants to make. After all, who's going to recommend these consultants to other CEOs? Not the little old lady in Dubuque, with her 100 shares, that's for sure. It's basically what's called a 'corrupt system.' A corrupt system is where non-evil people do evil things. That's the real problem. If there are corrupt people, you can do something about it. If it's a corrupt system, it's very difficult to do something about it. I think the best chance for bringing compensation under control would be, say, a dozen really powerful institutions - organizations like Fidelity and Vanguard - stating that they're going to vote against any management that oversteps on compensation. But we haven't seen that happen, and I don't think we will."

In "mergers of equals," target company CEOs frequently strike deals that benefit them personally but are not in the best interests of their shareholders, according to a new study by Wharton management professor Julie Wulf. Her analysis of 40 mergers of equals that took place during the 1990s includes explanations for the lower returns as well as a way to prevent their recurrence.

Did you ever sit in the board meeting and watch the CEO's facial expressions, imagining what he was thinking? You're sure that he, along with every other CEO, would just as soon not have to spend the time dealing with a board. But he is savvy enough to mask such sentiments. Here is what we hear CEOs say behind the scenes. During their confidential conversations, they want to discuss how to address some of the following director and board behaviors.

Corporate governance can be difficult enough—but what happens when your board of directors is comprised of your cousins? Or when your CEO is your sister? Harvard Business School's John Davis discusses governance issues unique to the family-run business.

Find Part 2 at:
http://hbswk.hbs.edu/pubitem.jhtml?id=2630&sid=0&pid=0&t=family

Advocates of more effective corporate governance have been focusing on corporate reform at the expense of institutional reform. Now is the time to change tactics.

Steve Jobs, Paul Allaire, Henry Schacht, Lawrence Bossidy, Kenneth Lay and Ted Waitt all, for one reason or another, left the top jobs at their companies only to return later when the companies ran into difficult times. Does it work to bring back former CEOs in such circumstances? What are the risks? And what does it say about the companies' boards?

Note: Older EBF articles are not currently online. I'm not sure if this is temporary or permanent. If you click you will be taken to the Archive.org site to find an archived copy.

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Eamonn Walsh looks into the effects of executive incentives on corporate performance.

Editor's note: Let me count the ways this analysis is flawed...

Also Note: you can read the article on the web page, but for a bigger font and to get the graphics referenced, read the .pdf version instead (link on the right side of page).

Note: Older EBF articles are not currently online. I'm not sure if this is temporary or permanent. If you click you will be taken to the Archive.org site to find an archived copy.

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The audit function has often been neglected in the corporate governance discussion - it is time to give it new attention!

Editor's Note: For more from EBF on corporate governance, see
Board performance, not just board conformance
http://www.mbadepot.com/redir.php?ID=1756&file=links
Is corporate governance delivering value?
http://www.mbadepot.com/redir.php?ID=1096&file=links
Corporate Governance - Equity culture at risk
http://www.mbadepot.com/redir.php?ID=2930&file=links
Quis Custodiet Ipsos Custodes?
http://www.mbadepot.com/redir.php?ID=2932&file=links

Demand for outside non-executive directors is rising even as the supply of them is shrinking. Time for an increase in their pay?

Corporate boards have long used such techniques as poison pills and anti-greenmail to stave off hostile outsiders. But shareholders' organizations say such anti-takeover techniques are really meant to protect bad executives. Wharton finance professor Andrew Metrick and two colleagues examine which side has the better claim.

The question of the desirablity and value of board diversity is not new. Yet there can still be disagreement as to the scope and goal of diversity and the way in which this should be achieved.

Companies are being pressured to eliminate classes of stock with supervoting rights.

The dramatic disintegration of Enron has left a lot of people wondering how this huge, publicly-traded company could have fallen so far so fast. Wharton faculty and others help explain what went on behind the scenes at Enron, where it is now clear that management exploited loopholes in accounting procedures and created questionable partnerships involving top company officials, among other tactics.

There are several senior positions you can hold without any formal qualifications - senior manager, parent and prime minister, for example. You can also be a company director without undergoing any real training. In the UK, however, a growing number of senior executives are submitting themselves to an exhausting and rigorous process which allows them to call themselves chartered directors. The Institute of Directors, which has devised the chartered directors' programme, believes it is first such qualification in the world.