1. Week 9 Management: Performance Faisal AlSager MGT 427 - Corporate Governance

2. Objectives ✤ To highlight the rising importance of managers ✤ To clarify what shareholders want from managers ✤ To raise some of the shareholders’ concerns

3. Manager’s Influence ✤ In the 1990’s, managers have become more noticeable ✤ CNN’s Ted Turner, Intel’s Andy Grove, Amazon’s Jeff Bezos, and GE’s Jack Welch

4. Issues with Managers ✤ Shareholders and employees share concerns about managers ✤ Mainly, the tens of millions of dollars they receive ✤ Also, how long will the manager positively impact the share price? Usually, it’s on short-term only ✤ And as we know, many CEOs have not set a good example of responsible share ownership

5. What Do We Want from the CEO? ✤ Change is the only certainty in business ✤ Thus, we want a CEO who is able, by virtue of ability, expertise, resources, motivation, and authority, not just to keep the company ready for change but ready also to benefit from changes ✤ The CEO must be powerful enough to do the job ✤ BUT he/she must be accountable enough to make sure the job is done correctly ✤ CEO decisions must be in the long-term interests of shareholders rather than in his/her own interests

6. How Do We Achieve that Balance? ✤ Answer: Executive Compensation ✤ Shareholders prefer a compensation plan with maximum variability ✤ Management prefer a compensation plan with maximum security

7. Measuring CEO’s Performance? ✤ Question: How Can we measure a CEO’s performance? ✤ Answer: we usually use same measures we use for measuring the company’s performance

8. Challenge ✤ The biggest challenge a company faces is not failure, but success! ✤ Giants of the 1960s became problems of the 1980s and 1990s (Xerox, Kodak, General Motors) ✤ Giants of the 1990s became problems of the 2000s (Enron, Tyco, Global Crossing, WorldCom)

9. What Caused Failures? ✤ Company’s failure was the effect of bad governance ✤ Same person held the following positions: ✤ CEO ✤ chairman of the board ✤ CEO of the largest operating division ✤ chairman of the nominating committee of the board ✤ trustee of the 25 percent of the company’s stock

10. Executive Compensation ✤ One important issue of governance is excessive CEO compensation ✤ This issue was the first corporate issue to be the focus of the press ✤ This issue has the most direct impact on shareholder value ✤ To the shareholder, compensation represent an investment opportunity: ✤ how much will the return on investment be? ✤ Is it going to sustain?

11. References ✤ Corporate Governance (4th Edition): Monks, R. and Minow, N. 2004. (Publisher: Wiley-Blackwell)