Taking Back The Boardroom: Thriving As A 21st-century Director (2nd Edition) Thriving as a 21st-Century Director

Companies like Enron, WorldCom, and Siemens have defined the dark side of the corporate world in the 21st century. This timely book is designed to address the diverse requirements of directors and heightened investor awareness, with an intelligent and comprehensive presentation of the structure and practice of boardroom management. The second edition takes account of recent developments like the Sarbanes Oxley Act of 2002, codes of conduct promulgated by non-government organizations and institutional investors, debates over the audit committee s roles and responsibilities, and new cases illustrating the problems facing directors as they negotiate the twin challenges of global competition and social responsibility. It walks readers through the legal and philosophical theories of corporate governance, translates these into practical implications for boardroom practices, and guides managers and directors on how to build their own frameworks for considering ethical and strategic issues that routinely appear in the boardroom. The practical approach is complemented by numerous illustrations and cases at the end of each chapter for discussion and self-appraisal. CONTENTS......Page 14 PREFACE......Page 8 INTRODUCTION TAKING BACK THE BOARDROOM: A DIRECTOR’S CALL TO ARMS......Page 10 How the Firm is Defined and Why is that Important for Directors......Page 18 How does the Firm Perform its Productive Function?......Page 21 The Relationship Between Managers and Shareholders......Page 22 The agency problem......Page 24 Managing the agency problem......Page 25 The external control of the firm......Page 27 External control or the board of directors: which is better?......Page 30 The Duties of the Director......Page 33 Discharging your duties as a director......Page 37 The Non-Executive Director: Key to Board Independence......Page 38 $64 million question: So what IS director independence?......Page 39 Personal accountability......Page 41 Enhanced disclosure......Page 43 Looking Back, Looking Forward1......Page 44 Majority Voting for Directors......Page 46 Section 404......Page 47 Thinking Points......Page 48 CHAPTER 2 TAKING BACK THE BOARDROOM: THE CHAIRPERSON’S SPECIAL ROLE......Page 50 The Role of the Chairman of the Board......Page 51 The Three Responsibilities of the Chair......Page 52 Liaison responsibility......Page 53 Responsibility for the agenda......Page 54 Responsibility for management and board development......Page 55 Managing meetings: how to herd lions without being bitten......Page 57 Who can Chair?......Page 61 A Summary of the Chair’s Priorities......Page 62 The CEO and the Board......Page 64 Slow Mover......Page 73 Does good governance pay?......Page 74 Independent directors or O’Reilly’s cronies?......Page 75 Putting More Stock in Good Governance......Page 76 Higher premiums for well-run boards......Page 78 “I’d Like the World to Buy a Coke”......Page 80 Dramatic Shift......Page 81 “The Spanish Inquisition”......Page 83 Future Shock......Page 85 “No Sacred Cows”......Page 87 Thinking Points......Page 88 In Conclusion......Page 89 CHAPTER 3 TAKING BACK THE BOARDROOM: ETHICS AND SOCIAL RESPONSIBILITY......Page 92 Why is it Important to Talk About Ethics?......Page 94 Why Don’t We all Simply Behave, as We Would Like Others to Behave?......Page 96 The Connection Between Personal and Corporate Ethics......Page 98 Ethical tests for the director......Page 99 Creating an Ethical Organization......Page 100 How to Avoid Common Pitfalls in ‘Gray-Area’ Decisions......Page 102 ...And in the Final Analysis......Page 105 A Corporate Kleptocracy: The Saga of Conrad Black and Hollinger International......Page 107 Pre-Crisis Period......Page 110 Crisis Period 2001......Page 111 A Corporate Kleptocracy......Page 122 Repeated abusive practices......Page 126 Management fees......Page 130 Non-compete payments......Page 132 Unauthorized Transfers of Hollinger Cash......Page 137 Deceitful practices become the norm......Page 138 Personal expenses......Page 140 The efforts to avoid taxation......Page 142 Private company behavior in a public company......Page 144 Repeated disclosure issues......Page 146 Evaluating the Board’s Conduct......Page 147 Thinking Points......Page 159 CHAPTER 4 TAKING BACK THE BOARDROOM: ORGANIZATION AND PROCESS......Page 160 The Paradoxes of Corporate Governance......Page 162 Understanding Power in the Boardroom......Page 163 Organizing to Solve the Paradoxes......Page 164 The Principles of Good Process......Page 165 The Audit Committee......Page 168 The Compensation Committee......Page 171 The Nominating Committee......Page 172 The Strategy Committee......Page 174 Specialty Committees......Page 178 Conclusion......Page 179 Corporate Governance Guidelines at Intel & General Motors......Page 181 Thinking Points......Page 198 CALPERS: Core Principles of Accountable Corporate Governance......Page 199 I. Introduction......Page 200 II. Purpose......Page 202 III. Core Principles of Accountable Corporate Governance......Page 203 A. Board independence and leadership......Page 204 B. Board processes & evaluation......Page 208 C. Individual director characteristics......Page 209 D. Executive & director compensation......Page 210 E. Audit integrity......Page 211 F. Corporate responsibility......Page 212 G. Shareowner rights......Page 214 Definition of independent director......Page 215 Independent Chair/Lead-Director Position Duty Statement......Page 216 Incentive Compensation......Page 217 C. Equity compensation......Page 218 E. Use of “other” forms of compensation......Page 220 Thinking Points......Page 221 CHAPTER 5 TAKING BACK THE BOARDROOM: SPECIAL SITUATIONS IN THE BOARDROOM......Page 222 The Relationship Between Ownership, Control and Board Function......Page 223 The Family Business Board......Page 225 The Closely Held Corporate Board......Page 226 The Multinational Subsidiary Board......Page 227 Dealing With Takeovers......Page 228 What to do during a takeover......Page 229 After the takeover......Page 233 Preventing takeovers......Page 234 The Jeremiah Brown Electric Wire and Cable46......Page 236 The company......Page 237 The industry......Page 242 Governance and the board of directors......Page 244 Current situation......Page 248 Thinking Points......Page 250 Conclusion......Page 252 REFERENCES AND FURTHER READINGS......Page 256 Appendix: Abstracted Codes of Conduct......Page 263 OECD Principles of Corporate Governance......Page 264 Preamble......Page 265 I. The rights of shareholders......Page 269 II. The equitable treatment of shareholders......Page 270 IV. Disclosure and transparency......Page 271 V. The responsibilities of the board......Page 272 I. The rights of shareholders......Page 273 II. The equitable treatment of shareholders......Page 277 III. The role of stakeholders in corporate governance......Page 281 IV. Disclosure and transparency......Page 283 V. The responsibilities of the board......Page 288 Abstracted Cadbury Code......Page 293 Preface......Page 294 The Setting for the Report......Page 295 Corporate governance......Page 297 Companies to whom directed......Page 298 Code principles......Page 299 Statement of compliance......Page 300 Compliance......Page 301 Board effectiveness......Page 302 Non-executive directors......Page 304 Directors’ training......Page 307 Board structures and procedures......Page 308 Directors’ responsibilities......Page 309 Internal controls......Page 310 Audit committees......Page 311 Board remuneration......Page 313 Financial reports......Page 315 Reporting practice......Page 316 Abstracts from Title III & Title IV of the Sarbanes-Oxley Act of 2002......Page 319 INDEX......Page 350 CONTENTS 14 PREFACE 8 INTRODUCTION TAKING BACK THE BOARDROOM: A DIRECTOR’S CALL TO ARMS 10 CHAPTER 1 TAKING BACK THE BOARDROOM: UNDERSTANDING YOUR DUTIES AS A DIRECTOR 18 How the Firm is Defined and Why is that Important for Directors 18 How does the Firm Perform its Productive Function? 21 The Relationship Between Managers and Shareholders 22 The agency problem 24 Managing the agency problem 25 The external control of the firm 27 External control or the board of directors: which is better? 30 The Duties of the Director 33 Discharging your duties as a director 37 The Non-Executive Director: Key to Board Independence 38 $64 million question: So what IS director independence? 39 Sarbanes-Oxley Act of 2002 41 Personal accountability 41 Enhanced disclosure 43 Looking Back, Looking Forward1 44 Majority Voting for Directors 46 Section 404 47 Executive Compensation 48 Thinking Points 48 CHAPTER 2 TAKING BACK THE BOARDROOM: THE CHAIRPERSON’S SPECIAL ROLE 50 The Role of the Chairman of the Board 51 The Three Responsibilities of the Chair 52 Liaison responsibility 53 Responsibility for the agenda 54 Responsibility for management and board development 55 Managing meetings: how to herd lions without being bitten 57 Who can Chair? 61 A Summary of the Chair’s Priorities 62 The CEO and the Board 64 Slow Mover 73 Does good governance pay? 74 Independent directors or O’Reilly’s cronies? 75 Putting More Stock in Good Governance 76 Hypothetical 78 Higher premiums for well-run boards 78 “I’d Like the World to Buy a Coke” 80 Dramatic Shift 81 “The Spanish Inquisition” 83 Future Shock 85 “No Sacred Cows” 87 Thinking Points 88 In Conclusion 89 CHAPTER 3 TAKING BACK THE BOARDROOM: ETHICS AND SOCIAL RESPONSIBILITY 92 Why is it Important to Talk About Ethics? 94 Why Don’t We all Simply Behave, as We Would Like Others to Behave? 96 The Connection Between Personal and Corporate Ethics 98 Ethical tests for the director 99 Creating an Ethical Organization 100 How to Avoid Common Pitfalls in ‘Gray-Area’ Decisions 102 ...And in the Final Analysis 105 A Corporate Kleptocracy: The Saga of Conrad Black and Hollinger International 107 Pre-Crisis Period 110 Crisis Period 2001 111 A Corporate Kleptocracy 122 Repeated abusive practices 126 Management fees 130 Non-compete payments 132 Unauthorized Transfers of Hollinger Cash 137 Deceitful practices become the norm 138 Personal expenses 140 The efforts to avoid taxation 142 Private company behavior in a public company 144 Repeated disclosure issues 146 Evaluating the Board’s Conduct 147 Thinking Points 159 CHAPTER 4 TAKING BACK THE BOARDROOM: ORGANIZATION AND PROCESS 160 The Paradoxes of Corporate Governance 162 Understanding Power in the Boardroom 163 Organizing to Solve the Paradoxes 164 The Principles of Good Structure 165 The Principles of Good Process 165 The Committee Structure 168 The Audit Committee 168 The Compensation Committee 171 The Nominating Committee 172 The Strategy Committee 174 Specialty Committees 178 Conclusion 179 Corporate Governance Guidelines at Intel & General Motors 181 Thinking Points 198 CALPERS: Core Principles of Accountable Corporate Governance 199 I. Introduction 200 II. Purpose 202 III. Core Principles of Accountable Corporate Governance 203 A. Board independence and leadership 204 B. Board processes & evaluation 208 C. Individual director characteristics 209 D. Executive & director compensation 210 E. Audit integrity 211 F. Corporate responsibility 212 G. Shareowner rights 214 Definition of independent director 215 Independent Chair/Lead-Director Position Duty Statement 216 Executive Compensation Policies 217 A. Structure and components of total compensation 217 Incentive Compensation 217 C. Equity compensation 218 D. Use and disclosure of severance agreements 220 E. Use of “other” forms of compensation 220 F. Use of retirement plans 221 Thinking Points 221 CHAPTER 5 TAKING BACK THE BOARDROOM: SPECIAL SITUATIONS IN THE BOARDROOM 222 The Relationship Between Ownership, Control and Board Function 223 The Family Business Board 225 The Closely Held Corporate Board 226 The Multinational Subsidiary Board 227 Dealing With Takeovers 228 What to do during a takeover 229 After the takeover 233 Preventing takeovers 234 The Jeremiah Brown Electric Wire and Cable46 236 The company 237 The industry 242 Governance and the board of directors 244 Current situation 248 Thinking Points 250 Conclusion 252 REFERENCES AND FURTHER READINGS 256 Appendix: Abstracted Codes of Conduct 263 OECD Principles of Corporate Governance 264 Preamble 265 I. The rights of shareholders 269 II. The equitable treatment of shareholders 270 III. The role of stakeholders in corporate governance 271 IV. Disclosure and transparency 271 V. The responsibilities of the board 272 Annotations to the OECD Principles of Corporate Governance 273 I. The rights of shareholders 273 II. The equitable treatment of shareholders 277 III. The role of stakeholders in corporate governance 281 IV. Disclosure and transparency 283 V. The responsibilities of the board 288 Abstracted Cadbury Code 293 Preface 294 The Setting for the Report 295 Introduction 297 Corporate governance 297 Report content 298 Companies to whom directed 298 Code principles 299 Statement of compliance 300 Keeping the code up to date 301 Compliance 301 Board effectiveness 302 The chairman 304 Non-executive directors 304 Professional advice 307 Directors’ training 307 Board structures and procedures 308 The company secretary 309 Directors’ responsibilities 309 Standards of conduct 310 Nomination committees 310 Internal controls 310 Audit committees 311 Internal audit 313 Board remuneration 313 Financial reports 315 Reporting practice 316 Abstracts from Title III & Title IV of the Sarbanes-Oxley Act of 2002 319 INDEX 350

companies Like Enron, Worldcom, And Siemens Have Defined The Dark Side Of The Corporate World In The 21st Century. This Timely Book Is Designed To Address The Diverse Requirements Of Directors And Heightened Investor Awareness, With An Intelligent And Comprehensive Presentation Of The Structure And Practice Of Boardroom Management.

the Second Edition Takes Account Of Recent Developments Like The Sarbanes-oxley Act Of 2002, Codes Of Conduct Promulgated By Non-government Organizations And Institutional Investors, Debates Over The Audit Committee's Roles And Responsibilities, And New Cases Illustrating The Problems Facing Directors As They Negotiate The Twin Challenges Of Global Competition And Social Responsibility. It Walks Readers Through The Legal And Philosophical Theories Of Corporate Governance, Translates These Into Practical Implications For Boardroom Practices, And Guides Managers And Directors On How To Build Their Own Frameworks For Considering Ethical And Strategic Issues That Routinely Appear In The Boardroom. The Practical Approach Is Complemented By Numerous Illustrations And Cases At The End Of Each Chapter For Discussion And Self-appraisal.

Written for corporate directors and policymakers interested in becoming more effective and improving corporate governance, this practical book examines global trends in corporate governance, and is replete with examples, case studies and sound advice