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Corporate governance In practice

Corporate governance In practice. Aswath Damodaran. The key questions in corporate governance at public companies. Who runs this company? Top management (CEO, CFO etc ) Pathways to the top Who monitors these managers? Board of Directors Regulatory Authorities/ Government

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Corporate governance In practice

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  1. Aswath Damodaran Corporate governanceIn practice Aswath Damodaran

  2. The key questions in corporate governance at public companies • Who runs this company? • Top management (CEO, CFO etc) • Pathways to the top • Who monitors these managers? • Board of Directors • Regulatory Authorities/ Government • Equity investors/ analysts • Bondholders/Banks/ Lenders/ Ratings Agencies • What are the rules of the game? • Is it rigged in favor of the incumbent managers? • Are there inside stockholders who have more power than you do? Aswath Damodaran

  3. Start with the company’s own reports • Annual Reports • Information about board of directors • Mission statement • Corporate governance principles/ statement • Filings with regulatory authorities • With US companies, SEC filing DEF14A should contain information relevant to your search. • With non-US companies, there may or may not be an equivalent filing with the local regulatory authorities. Aswath Damodaran

  4. Assessing the board • Board composition • Age & Tenure (How old and how long on board) • Background (Expertise in the business) • Connections to company & CEO • Board operations • Who chairs the board? • How often does the board meet? • How good is the attendance? • Is there any evidence that the board operates as a check or at least a monitor of top management? Aswath Damodaran

  5. Investor/Analyst Activity • Buy Side • Who are the “biggest” stockholders in the firm • What is their history on corporate governance? • Sell side • Who are the analysts that track the firm? • What are their views on the stock? • Activist • Are there any activist investors in the mix? • How “activist” are they? Aswath Damodaran

  6. Rules of the game • How is the voting structure set up? • Multiple classes, with different voting rights? • Golden shares? (or veto votes) • Corporate Charter • Takeover clauses (anti takeover amendments etc.) • Voting rules (Proxies, voting at meetings) • Nominating rules (on directors) Aswath Damodaran

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