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Board-Shareholder Decision-Making

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

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  1. Board-Shareholder Decision-Making Lecture 3

  2. 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?

  3. Characteristics of Superior Leaders • Honesty? • Sets and communicates vision? • Business insight and strategy? • Inspiring? • Courageous? • Intelligent?

  4. 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?

  5. 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

  6. Who Should SelectCorporate Directors? • Shareholders? • CEO/Management? • Independent Directors? • Others?

  7. 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

  8. 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

  9. 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

  10. 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.”

  11. 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?

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