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Corporate Governance & Transparency Presented By: Patricia Abels & Joseph Martelli

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2013 MBAA/NAMS presentation, "Corporate Governance and Transparency: A Research Study Investigating CEO Duality in Fortune Ranked Companies" Patricia B. Abels, University of Findlay and Joseph T. Martelli, University of Findlay

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Page 1: Corporate governance transparency

Corporate Governance & Transparency

Presented By: Patricia Abels & Joseph Martelli

Page 2: Corporate governance transparency

What is CEO Duality? ▪ When a CEO also serves as the Chairman of the Board of

Directors

▪  Splitting CEO duality is gaining acceptance within large US companies

▪ Corporate disclosure and transparency are heightened when the role of CEO and Chairman are split

▪  Prevalent topic due to the turbulence of the American economy

▪  80% of large US corporations have governance policies that permit CEO duality, while large foreign corporations in Europe do not.

Page 3: Corporate governance transparency

Legislation ▪  Sarbanes-Oxley Act (SOX) –

Ø Regulates the financial activity and corporate governance of public corporations

Ø Securities and Exchange Commission (SEC) regulates corporate compliance with SOX

Page 4: Corporate governance transparency

Legislation ▪  Exchange Act –

Ø Amendment to the Securities Exchange Act of 1934 to forbid a dual CEO role (Release No. 34-48745)

Ø Requires board membership of listed public companies to be predominately composed of independent directors, not management

Page 5: Corporate governance transparency

Legislation ▪  Exchange Act –

Ø Amendment to Regulation S-K to enhance corporate governance and disclosure policies (Release No. 34-60280)

Ø Restricts CEOs from dually serving as Chairman of the Board unless companies can justify and disclose its reasoning

Page 6: Corporate governance transparency

Theory

▪ Agency Theory Ø Defines the relationship existing between a stockholder

(principal) and management (agent) Ø Assumes an agent will select the best option to enhance their

own personal benefit

Page 7: Corporate governance transparency

Theory

▪  Perspectives Ø Advocates and Agency theorists believe the CEO duality

position hinders firm performance Ø Proponents of duality believe one central authority figure

reduces confusion

Page 8: Corporate governance transparency

Methodology, Analysis, and Results

▪  This study seeks to reveal the degree to which CEO duality roles exist today in large US publicly traded corporations

▪ Analysis incorporated the top 500 revenue-generating firms for 2008 and 2010

▪  432 companies remained on the Fortune 500 in 2010

▪  86 companies appointed a new CEO

▪  Supplementary analysis focuses on the 86 new CEOs

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Conclusion § A fiduciary duty exists with boards of directors to protect the interests of the shareholders § Dual CEOs have additional company insight and insiders have greater firm knowledge that can permit efficiency in decisions

§ Weak board independence can promote moral hazard

Page 15: Corporate governance transparency

Conclusion § Large US companies are changing governance structures

§ Splitting the duality role is becoming more widely accepted in order to increase corporate disclosure and transparency

Page 16: Corporate governance transparency

Corporate Governance & Transparency

Thank You for Attending

Patricia Abels & Joseph Martelli


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