1. Business & Society ETLW 302
Tara Ceranic Salinas, PhD

2. Who’s really in charge?

3. The Agency “Problem”
Agents/managers have one interest and want to minimize the risk of their claim (e.g., they want to diversify the firm).
Principals/owners/stockholders have many interests and want to optimize the risk of their claim (e.g., they resist diversification of the firm).
This results in conflict and tension.

4. Stockholders
Stockholders occupy a position of central importance in the corporation because:
They are the company’s legal owners
They expect high levels of economic performance
Stockholders contend with management and the board of directors for control of company policies

5. Who are stockholders? Individuals Institutional Investors 401(k) IRA
58% of value of all stocks

6. Good ethics = Good business
Why do they own stock?
Economic
Social
Social or ethical objectives
Using CSR as investment criteria!
Socially screened portfolios provide returns that are competitive with the broad market
Good ethics = Good business

7. Social Investment Sidebar 
1700s: Religious Groups – Quakers, Jews, Methodists 1960s: Labor-mgmt. issues, gender equality, anti-nuclear 1970s: Apartheid - South Africa divestment begins 1980s: Bhopal, Chernobyl & Exxon Valdez – environment 1994: Tobacco – American Medical Association makes public call to divest from tobacco stocks

8. Other Objectives of Stock Ownership
Mixed objective
Economic + social objectives
Corporate control
Take over or just to make improvements

9. The Board
An elected group of individuals who have a legal duty to establish corporate objectives, develop broad policies, and select top-level personnel to carry out these objectives and policies.

10. Boards should… Communicate and report accurate info
Protect shareholders’votes
Be independent and compensated fairly
Promote corporate citizenship
Ensure sound corporate governance

11. Features of Effective Boards
Select independent directors to fill most positions.
Hold open elections for members of the board.
Appoint an independent lead director and hold regular meetings without the CEO present.
Evaluate the board’s own performance on a regular basis.

12. NYSE/NASDAQ Listing Rules
Majority of independent directors
Codes of ethics
Independent nominating and compensation committees (NYSE only)

13. One woman DOES NOT equal a diverse Board

14. Executive Compensation
Stock options
In the U.S., CEOs make somewhere between times what the average worker does.
Top managers in other countries earn much less.
Executive pay is set by compensation committees of boards of directors.
CEO Pay 2016

15. SEC & CEO pay
“This simple benchmark will help investors monitor both how a company treats its average workers and whether its executive pay is reasonable.”

16. The intent is for the ratio to be used by shareholders, who could apply it when comparing compensation between similar companies. If the gap between the pay of the chief executive and the median pay of employees turns out to be far higher for PepsiCo than Coca-Cola, shareholders might press Pepsi to explain the difference.

17. At the end of the day…
Boards of Directors have a TREMENDOUS amount of power in an organization Deciding who fills these positions can impact employees at all levels of the company as well as the investors