Corporate
Governance
Governance
mechanisms are considered to be effective if they meet the needs of all
stakeholders, including shareholders. Governance mechanisms are also an
important way to ensure that strategic decisions are made effectively. As a potential
employee, how would you go about investigating a firm's governance structure?
Would that investigation weigh in your decision to become an employee?
Identify a firm
that you would like to join or one that you just find interesting. Complete the
following research on your target firm:
- Find a copy of the company's most
recent proxy statement and 10-K. Proxy statements are mailed to
shareholders prior to each year's annual meeting and contain detailed
information about the company's governance and present issues on which a
shareholder vote might be held. Proxy statements are typically available
from a firm's website (look for an "Investors" submenu). You can
also access proxy statements and other government filings such as the 10-K
from the SEC's EDGAR database.
Alongside the proxy, you should also be able to access the firm's annual
10-K. Here you will find information on performance, governance, and the firm's
outlook, among other things.
- Identify one of the company's main
competitors for comparison purposes. You can find this information using
company analysis tools such as Datamonitor.
Some of the
topics that you should examine include:
- Compensation plans (for both the
CEO and board members; be sure to look for any difference between fixed
and incentive compensation)
- Board composition (for example,
board size, insiders and outsiders, interlocking directorates, functional
experience, how many active CEOs, how many retired CEOs, what is the
demographic makeup, age diversity, and so on)
- Committees (how many, composition,
compensation)
- Stock ownership by officers and
directors—identify beneficial ownership from stock owned (you will need to
look through the notes sections of the ownership tables to comprehend
this)
- Ownership concentration—evaluate
the firm's outstanding stock owned by institutions, individuals, and
insiders and identify the no. of large-block shareholders (owners of five
percent or more of stock)
In addition,
answer the following questions:
- Does the firm utilize a duality
structure for the CEO?
- Is there a lead director who is
not an officer of the company?
- What are the activities by
activist shareholders regarding corporate governance issues of concern?
- Are there any managerial defense
tactics employed by the firm? For example, what does it take for a
shareholder proposal to come to a vote and be adopted?
- What is the firm's code of
conduct? List them.
Prepare a
double-spaced memo summarizing the results of your findings with a side-by-side
comparison of your target and its competitor. Your memo should include the
following topics:
- Summarize what you consider to be
the key aspects of the firm's governance mechanisms.
- Attach to your memo a single graph
covering the last 10-year historical stock performance for both companies.
If applicable, compare both using a representative index such as the
Standard & Poor's (S&P), National Association of Securities
Dealers Automated Quotation (NASDAQ), or other applicable industry index.
- Highlight key differences between
your target firm and its competitor.
- Based on your review of the firm's
governance, discuss any change in your opinion of the firm's desirability
as an employer. How does the competitor stack up, governance wise? Why or
why not?
