week5 - Corporate Boards Thomas H Noe The Modern Corporate...

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Corporate Boards Thomas H. Noe
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The Modern Corporate Board Legal Role monitor management decisions and ratify the most important corporate decisions evaluate, hire, and replace top management advise top management insure compliance with laws and regulations
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Modern Board Legal Duties of Board Members Loyalty Care Rights of boards Business judgment rule
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Modern US Board Board Composition (Coles, Daniel, Naveen (2005)) US firms (1992-2001) Median 25th %ille 75%ille Board Size 10 8 12 Insiders 2 1 3 Outsiders 8 6 10 Insider % 20% 13% 29%
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Modern US Board Factors that effect board design (Coles, Daniel, Naveen (2005)) In firm with high RD intensity M/B and insider representation have a positive relation In firms which are large and/or highly diversified M/B and board size have a positive relation
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Modern Board Director Compensation (Stern, Stewart) Typically a retainer of $40,000 to $60,000 plus stipend for meeting attendance approx. 25% offer stock-based compensation. approx 75% offer retirement plans steep discounts on goods produced by firm
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Modern Board Interlocking Boards 86% of Bil-dollar companies’ boards contained at least one CEO of another company 1/5 of directors serve on four or more boards. 28% of firms have at least one director who owns no shares of the companies stock.
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U. S. Board System Single board containing both Insiders (managers large shareholders) Independent directors Grey directors ( e.g., partners in the law firm representing the company) Decisions made by majority vote Board presided over by chairman
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What is an Independent Director NYSE definition of independent director [all rules apply both to director and immediate family] BOD certifies no material financial relationship with company Familial, legal, commercial industrial ... tie But share ownership (per se) not a bar Not an employee for last three years No consulting > 100K in any year in last three years.
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NYSE def of Ind. Director NYSE definition of independent director (cont) [all rules apply both to director and immediate family] No professional service provided to company Not executive a company on which listed Co Ex’s serve on compensation committee Not officer of company that does more than 1M dollars of business with listed company.
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U. S. Board System New feature of U. S. Boards: Lead directors An outside director Chairs separate meeting of non-insider directors.
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