Business English Upper Intermediate U2W09 John Silberstein

Agenda Corporate Governance Metaphors: The Count

Management What is Corporate Governance? It is the way a company is organized at the highest level. This can have a critical impact on a company’s performance and behavior. Corporate Governance is determined by the Board of Directors. Corporate Governance

Management A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as "the board." Corporate Governance: Board of Directors

Management A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. Corporate Governance: Board of Directors

Management In an organization with voting members, e.g., a professional society, the board acts on behalf of, and is subordinate to, the organization's full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a non- stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution. Corporate Governance: Board of Directors

Management Typical duties of boards of directors include governing the organization by establishing broad policies and objectives; selecting, appointing, supporting and reviewing the performance of the chief executive; ensuring the availability of adequate financial resources; approving annual budgets; accounting to the stakeholders for the organization's performance. Corporate Governance: Board of Directors

Management Failures Most boards largely rely on management to report information to them Boards of directors are part-time bodies, whose members meet only occasionally and may not know each other particularly well. This unfamiliarity can make it difficult for board members to question management. Directors may not have the time or the skills required to understand the details of corporate business. Directors often feel that a judgment of a manager, particularly one who has performed well in the past, should be respected. Corporate Governance: Board of Directors

Management Who are the Board of Directors? Executive Directors: The Chief Executive and other senior managers such as the Director of Finance. Non-Executive Directors – Non-Execs: Outsiders with management experience who are invited to sit on the board, bringing their expertise and an outside view. Large investors in the company, such as pension funds may also have seats on the board so they can influence how the company is run. In some countries, such as Germany, there are two boards. Above the Management Board is a more senior Supervisory Board. Corporate Governance

Management Board of Directors Why might it be important to have an outside view on the Board of Directors? Corporate Governance

Management How should the Company be organized? Should The COB (Chairman of the Board) and the CEO be the same person? Name examples where the COB and the CEO are the same person or are not the same person. What are some advantages to the COB and CEO being the same person? What are the disadvantages? Corporate Governance

Management How should the Company be organized? Should The COB (Chairman of the Board) and the CEO be the same person? Name examples where the COB and the CEO are the same person or are not the same person. What are some advantages to the COB and CEO being the same person? What are the disadvantages? Corporate Governance

Management The rewards of Success or How much should a CEO earn? Also important is Executive Remuneration or compensation. Top executives are rewarded for success in the form of high salaries, share options and stock options: the opportunity to exercise the right to purchase shares of the company cheaply. These highly paid executives are often called Fat Cats by their critics. Executives say, in their own defense, that share options are one of the incentives that encourage them to perform better. These executives may also be rewarded for failure, in the way of severance payouts or Golden Parachutes, when leaving a company due to poor performance. In the U.S., Executives will have binding contracts. These contracts will specify the length of their tenure and the size of the severance if asked to leave before the end of the contract. Corporate Governance

Management What is the purpose of Corporate Governance? Provides a framework of rules and practices by which the board of directors ensure accountability, fairness and transparency in the firm's relationship with its stakeholders (financiers, customers, management, employees, government, and the community). This framework consists of (1)explicit and implicit contracts between the firm and the stakeholders for distribution of responsibilities, rights, and rewards, (2)procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles (3)procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances. Also called corporation governance. Corporate Governance

Management What the research shows about the Board of Directors. Boards dominated by outsiders tend to make decisions that are more likely to be beneficial to shareholders Outsider dominated boards are more likely to remove CEO’s and other C-Level in poorly performing companies. Corporate Governance

Management Lets look at Microsoft ormation/corporategovernance/guidelines.m spx Corporate Governance

Management Role of the Board Shareholders elect the Board to oversee management and to assure that shareholder long-term interests are served. Through oversight, review, and counsel, the Board establishes and promotes Microsoft's business and organizational objectives… Corporate Governance: Microsoft

Management Board Composition and Selection; Independent Directors Board Size. The Board believes 8 to 11 members is an appropriate size based on the Company's present circumstances… Selection of Board Members. The Company’s shareholders elect Board members annually, except for Board action to fill vacancies… Board Membership Criteria. The Governance and Nominating Committee works with the Board on an annual basis to determine the appropriate characteristics, skills, and experience for the Board… Board Composition – Mix of Management and Independent Directors. The Board intends that, except during periods of temporary vacancies, a substantial majority of its directors will be independent… Term Limits. The Board does not believe it should limit the number of terms… Corporate Governance: Microsoft

Management Board Composition and Selection; Independent Directors – Cont. Election of Directors… Retirement Policy… Directors with Significant Job Changes… Selection of CEO and Chairman; Lead Independent Director. The Board selects the Company's CEO and Chairman in the manner that it determines to be in the best interests of the Company's shareholders. The Board does not have a policy as to whether the Chairman should be an independent director… Other Boards and Committees. Without specific approval from the Board, no director may serve on more than five public company boards (including the Company's Board) and no member of the Audit Committee may serve on more than three public company audit committees (including the Company's Audit Committee) Corporate Governance: Microsoft

Management Board Meetings; Involvement of Senior Management and Independent Advisors Board Meetings – Frequency. Board Meetings – Agenda. Advance Distribution of Materials. Access to Employees. Access to Independent Advisors. Compensation Consultant Independence. Executive Sessions of Independent Directors. Corporate Governance: Microsoft

Management Communications with Shareholders Shareholder Communications to the Board. Shareholders may contact an individual director, the Board as a group, or a specified Board committee or group, including the independent directors as a group, by the following means: Mail: MSC 123/9999 Corporate Secretary Microsoft Corporation One Microsoft Way Redmond, WA Attendance at Annual Shareholder Meeting. Each director is encouraged to attend the Company's annual meeting of shareholders Corporate Governance: Microsoft

Management Performance Evaluation; Succession Planning Annual CEO Evaluation. Succession Planning. Board and Committee Self-Evaluation. Corporate Governance: Microsoft

Management Committees Number and Type of Committees Audit Committee Compensation Committee Governance and Nominating Committee Finance Committee Antitrust Compliance Committee Corporate Governance: Microsoft

Management Corporate Governance: Microsoft

Management Corporate Governance: Microsoft

Management Compare Microsoft with a professional corporation. Pepper Hamilton is a classic “Philadelphia” law firm and has been in existence for over 120 years. As a lawyer working for a firm such as Pepper Hamilton, your goal is to become a Partner. As a partner, you have an ownership interest in the organization. With a firm such as Pepper Hamilton, you will have to purchase you ownership interest. At a small firm, you may be given your ownership interest because you add considerable value to the organization. Corporate Governance

Management Pepper Hamilton Leadership EXECUTIVE COMMITTEE Matthew H. Adler Vincent V. Carissimi Thomas J. Cole, Jr. John P. Duke Bruce K. Fenton Nina M. Gussack, Chair Jeremy Heep Robert E. Heideck Dusty Elias Kirk George A. Lehner, Vice Chair William A. Scari, Jr. David B. Stratton Corporate Governance

Management Pepper Hamilton Leadership Department and Practice Group Chairs Commercial Department Cary S. Levinson and Michael H. Friedman (co-chairs) Corporate and Securities - Michael H. Friedman Corporate Restructuring and Bankruptcy - Robert S. Hertzberg and David B. Stratton (co-chairs) Employee Benefits - Jonathan A. Clark and David M. Kaplan Financial Services - Richard P. Eckman Real Estate - Norman B. Berlin and Dusty Elias Kirk (co-chairs) Tax - Joan C. Arnold Trusts and Estates - Mark S. Blaskey Litigation and Dispute Resolution Department Francis P. Devine, III and Laurence Z. Shiekman (co-chairs) Commercial Litigation - Amy B. Ginensky Construction - Bruce W. Ficken Environmental - John W. Carroll Health Effects Litigation - Nina M. Gussack Insurance - Deborah F. Cohen Intellectual Property - Vincent V. Carissimi Labor and Employment - Jonathan Kane Corporate Governance