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Board-Shareholder Decision-Making. Lecture 3. 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
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Board-Shareholder Decision-Making Lecture 3
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?
Characteristics of Superior Leaders • Honesty? • Sets and communicates vision? • Business insight and strategy? • Inspiring? • Courageous? • Intelligent?
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?
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-Independent chairman, lead or presiding directors
Who Should SelectCorporate Directors? • Shareholders? • CEO/Management? • Independent Directors? • Others?
What Happens When A Crisis Occurs-Who’s 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
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
Unsolicited Takeover OfferBoard-Management Process • Management’s view of “value” • Future value to be produced by the strategic plan-Metrics? • Bankers’ view of “value” • Assessment of management’s plan-Metrics? • Assessment of alternatives-Metrics? • Decision? • Reject the offer, stay the course • Explore strategic alternatives • One-on-one • auction
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.”
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?