who’s really in charge?. the agency “problem” agents/managers have one interest and want to...
TRANSCRIPT
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.
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
Why do they own stock?
Economic
Social•Social or ethical objectives•Using CSR as investment criteria!•SIF
•Socially screened portfolios provide returns that are competitive with the broad market
•Good ethics = Good business
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
T. L. Ceranic
Exclusionary screening
Manufacture of Manufacture of tobaccotobacco
Manufacture of Manufacture of alcohol alcohol
Weapons and Weapons and weapons weapons systemssystems
Environmental Environmental practicespractices
Participation in Participation in gambling gambling industryindustry
Manufacture of Manufacture of nuclear powernuclear power
Positive screening
Environmental/ Environmental/ Climate ChangeClimate Change
Management/Management/labor relations labor relations historyhistory
Consumer Consumer protection issuesprotection issues
Women/family Women/family benefitsbenefits
Equal Equal employment employment opportunityopportunity
IntInt’’l operations/ l operations/ human rightshuman rights
Animal welfareAnimal welfare
Corporate Corporate GovernanceGovernance
More Objectives of Stock Ownership
Mixed objective
•Economic + social objectives
Corporate control
•Take over or just to make improvements
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.
Boards should…
Communicate and report accurate info Protect shareholders’ votes Be independent and compensated fairly Promote corporate citizenship Ensure sound corporate governance
Board Committees
AuditCompensationStock OptionsNominatingExecutiveDirectors’ Compensation
Board OrganizationFinanceSuccessionCorporate ResponsibilityInvestment
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.
Executive Compensation
Stock options•In the U.S., CEOs make somewhere between 300-800
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.
2012 CEO Pay
Executive Pay Watch
A Governance Problem: CEO Pay
U.S. corporations will need to disclose how the paychecks of their chief
executive officers compare with those of their workers under a new proposal released on Wednesday by a sharply divided U.S. Securities and Exchange
Commission.(September 18, 2013)
Insider Trading
Securities and Exchange Commission
•Created in 1934 to protect stockholder’s rights by making sure that stock markets are run fairly and investment information is fully disclosed
Some argue it is “ethically appropriate”
•Market-based argument •Efficient means to disseminate accurate
information
NYSE/NASDAQ Listing Rules
Majority of independent directors
Codes of ethics
Independent nominating and compensation committees (NYSE only)