How Boards Should Evaluate Their Own Performance

The New York Stock Exchange requires that the boards of all publicly traded corporations conduct a self-evaluation at least annually to determine whether they are functioning effectively. Our research suggests that many board evaluations are inadequate. How can boards better evaluate the performance of directors? Any thorough evaluation should assess the following.

Seven Myths of Boards of Directors

Should the chairman always be independent? Do CEOs actually make good directors?

Does Your CEO Compensation Plan Provide the Right Incentives?

Few boards look at how the CEO’s total wealth invested in the company changes as stock prices fluctuate. They could—and they should.

How Good Are Commercial Corporate Governance Ratings?

A study by Stanford law and business faculty members casts strong doubt upon the value and validity of the ratings of governance advisory firms that compile indexes to evaluate the effectiveness of a publicly held company’s governance practices.

Economic Characteristics, Corporate Governance, and the Influence of Compensation Consultants on Executive Pay Levels

This study investigates the relation between the use of compensation consultants and CEO pay levels. Using new proxy statement disclosures from 2,116 companies, we examine claims that pay is higher in clients of compensation consultants, and test whether any pay differences in users and non-users of consultants are due to differences in economic or corporate governance characteristics. We find that CEO pay is generally higher … [ Read more ]

How Good Are Commercial Corporate Governance Ratings?

A study by Stanford law and business faculty members casts strong doubt on the value and validity of the ratings of governance advisory firms that compile indexes to evaluate the effectiveness of a publicly held company’s governance practices. “Everyone would agree that corporate governance is a good thing,” said Business School Professor David Larcker, “but can you measure it without even talking to the companies … [ Read more ]

Corporate Governance by the Numbers: It Doesn’t Work

Formulas used by consultants and ratings services that assign single numbers or grades to a company’s corporate governance practices don’t work, suggest three Wharton professors in a new paper entitled, “Does Corporate Governance Really Matter?” Yes, it matters, the authors say, but what also matters is how performance is measured. Companies and their situations are too diverse to be shoehorned into simple scorecards. As one … [ Read more ]