1. Assessing Corporate Governance Risk

2. Weak, ineffective boards have cost investors, creditors & underwriters hundreds of billions of dollars over the past four years alone.
Company Name
Lost Value
Parmalat
10,000,000,000
Healthsouth
12,000,000,000
Qwest
104,000,000,000
Worldcom
180,000,000,000
Adelphia
6,500,000,000
KMart
4,000,000,000
Tyco
86,000,000,000
Vivendi
56,000,000,000
Global Crossing
40,000,000,000
Conseco
62,000,000,000
Enron
80,000,000,000
Warnaco
Sunbeam
2,000,000,000

3. Not all were spectacular failures, either
Not all were spectacular failures, either. Many otherwise sound companies have experienced substantial losses.
Company Name
Lost Value
AOL Time Warner
100,000,000,000
AT&T
13,000,000,000
Xerox
3,000,000,000
Merck
42,600,000,000
Halliburton
7,200,000,000
Johnson & Johnson
22,000,000,000
Rite-Aid
2,000,000,000
DaimlerChrysler AG
300,000,000
DPL Inc.
110,000,000

4. Bad Corporate Governance The Five Largest Securities Class Action Settlements
Company
Settlement Amount
Cendant
3,527,000,000
Lucent
563,000,000
Bank of America
490,000,000
Waste Management
457,000,000
Rite Aid
259,000,000

5. Corporate governance is: The system of checks and balances designed to ensure that corporate managers are vigilant on behalf of long-term shareholder value.
Corporate governance is not: Best practices, checklists, or compliance. Assessing the likely impact of weak, ineffective boards on investor value requires a more specific, more dynamic, more robust, and more substantive approach.

6. Good Corporate Governance

7. Bad Corporate Governance

8. Governance-Related Risk IPO Considerations
Public investors will want a strong, effective, independent board in place to represent their interests.
Public investors will expect greater levels of disclosure and transparency.
Positive investor perceptions of a firm’s corporate governance can translate directly into share price premiums.

9. Governance-Related Risk International Considerations
Controlled companies – where a single, dominant shareholder controls a majority of the shareholder voting rights – are often the rule.
Understanding the local legal and regulatory environment is critical.
Disclosure & overall reporting transparency will often be the most important indicators.

10. Uncovering Bad Governance

11. Uncovering Bad Governance KEY PLACES TO LOOK
Ownership Structures
Board Composition
Executive Compensation
Accounting Practices
Strategic Decision-making
Litigation & Regulatory Exposure

12. Regulatory responses Sarbanes-Oxley SEC PCAOB Exchanges
404 disclosures
SEC
PCAOB
Exchanges
Proxy vote disclosure

13. Market responses Wall Street analyst reports
Shareholder involvement in director selection
CalPERS/Putnam
ISS/Glass-Lewis/Proxy Governance
Moody’s downgrade

14. Uncovering Bad Governance WHAT TO LOOK FOR
Conflicted relationships
Conflicted contracts
Excessive compensation
Lack of transparency
Power-driven strategies
ACTIONS/DECISIONS, NOT POLICIES
FOLLOW THE MONEY

15. Board Analyst Company, CEO and Director Research

16. Director Interlocks Research

17. Corporate Governance Screening Tool