Check news stories to see if there are acions that

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Unformatted text preview: ugh quesIons.. 13 ¨༊  ¨༊  ¨༊  Robert’s Rules of Order? In most boards, the CEO conInues to be the chair. Not surprisingly, the CEO sets the agenda, chairs the meeIng and controls the informaIon provided to directors. Be a team player? The search for consensus overwhelms any aCempts at confrontaIon. The CEO as authority figure: Studies of social psychology have noted that loyalty is hardwired into human behavior. While this loyalty is an important tool in building up organizaIons, it can also lead people to suppress internal ethical standards if they conflict with loyalty to an authority figure. In a board meeIng, the CEO generally becomes the authority figure. Aswath Damodaran 13 The worst board ever? The Disney Experience - 1997 14 Aswath Damodaran 14 The Calpers Tests for Independent Boards 15 ¨༊  Calpers, the California Employees Pension fund, suggested three tests in 1997 of an independent board: ¤༊  Are a majority of the directors outside directors? ¤༊  Is the chairman of the board independent of the company (and not the CEO of the company)? ¤༊  Are the compensaIon and audit commiCees composed enIrely of outsiders? ¨༊  Disney was the only S&P 500 company to fail all three tests. Aswath Damodaran 15 Business Week piles on… The Worst Boards in 1997.. 16 Aswath Damodaran 16 ApplicaIon Test: Who’s on board? 17 ¨༊  Look at the board of directors for your firm. ¤༊  ¤༊  ¨༊  Are there any external measures of the quality of corporate governance of your firm? ¤༊  ¨༊  How many of the directors are inside directors (Employees of the firm, ex- managers)? Is there any informaIon on how independent the directors in the firm are from the managers? Yahoo! Finance now reports on a corporate governance score for firms, where it ranks firms against the rest of the market and against their sectors. Is there tangible evidence that your board acts independently of management? ¤༊  Check news stories to see if there are acIons that the CEO has wanted to take that the board has stopped him or her from taking or at least slowed him or her down. Aswath Damodaran 17 So, what next? When the cat is idle, the mice will play .... 18 ¨༊  No stockholder approval needed….. Stockholder Approval needed When managers do not...
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