The Governance Revolution: What Every Board Member Needs to Know, NOW!

The Governance Revolution: What Every Board Member Needs to Know, NOW!

by Deborah Midanek

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Product Details

ISBN-13: 9781547416448
Publisher: De|G Press
Publication date: 10/08/2018
Pages: 316
Product dimensions: 6.10(w) x 9.06(h) x (d)
Age Range: 18 Years

About the Author

Deborah Hicks Midanek, Principal, Prevail Investments, LLC; Vice Chairman & Independent Director, Innovate MS., USA

Table of Contents

Part I: The System and How It Came To Be1

Chapter 1: How Our Governance System Began — 3

The First Limited Liability Corporation — 3

Amsterdam Stock Exchange Established to List VOC Securities — 4

VOC Completes Initial Public Offering, Possibly World’s First — 4

The Governance of VOC Establishes the Model — 5

The Lords Seventeen Governance Structure Drawn from Guild

System — 5

VOC Confronts a Large Activist Shareholder — 6

. . . And a Bear Syndicate — 6

The Corporate Form Advances and Spreads—And with It, the Board — 7

Corporations Arrived in the New World — 8

And Bubbles Burst — 9

Chapter 2: The Emergence of the Corporation in United States — 11

New York Pioneers Simple Incorporation Procedure — 11

Boston Manufacturing Company is First Private Corporation in United

States — 12

Corporations Gain Power Under State Control — 13

Economic Opportunity Expands; Farmers and Artisans Suffer

Disruption — 14

Corporate Control is Concentrated — 15

How J.D. Rockefeller Went from Rags to Riches — 15

The Government Fights Back, Kind Of — 16

Early Days of the New York Stock Exchange — 17

Teddy Busts the Trusts — 19

Government Power Takes on Commercial Power: Teddy v J.P. — 19

Unintended Consequences Lead to More Antitrust Laws — 20

Chapter 3: Post–World War I Developments — 23

The Stock Market Crashes — 23

The Great Depression and FDR’s New Deal — 23

Safety Net for Banks Created — 24

Regulation of Securities and Securities Markets Takes Root — 25

Safety Net Extended to Citizens as Social Security is Born — 25

Frustration Sets in as Unemployment Persists — 26

Government and Business Mobilize for World War II — 27

Roosevelt and Business Create Formidable Alliance — 27

Solidarity Works Miracles — 28

Wartime Success Reaches Far Beyond Battlefields — 29

Chapter 4: The Glow Following World War II — 31

The 1950s Board Role — 31

Stock Market Investing is Patriotic Duty — 32

The Nifty Fifty Catches On — 33

Investor Relations Become a Corporate Function — 34

Chapter 5: Shifting Dynamics from 1970 to 2000 — 35

Agency Theory is Born — 35

The Stock Market Corrects — 36

Outrage over the Wreck of Penn Central Fuels New Focus on Board

Role — 36

Broad Corruption Revealed Leads to Focus on Governance Per Se — 37

The Board as Overseer Takes Root as Independent Directors Become

Desirable — 38

The Definition of Independence Proves Elusive; We Know It When We

See It — 38

The 1980s Board Role: The Board Becomes Important — 39

Mighty Institutional Investors Weigh In — 40

The Courts Recognize Independent Judgment of the Board as Mission

Critical — 41

Economic Uncertainty and Social Unrest Reduce American

Confidence — 42

Market Crashes on Black Monday — 42

Changing Market Forces Become Visible — 43

NYSE Establishes Safeguards — 43

The 1990s Board: Independence Criteria Tighten as Equity Linked

Compensation Grows — 44

True Independence Grows in Value — 45

Equity Linked Compensation Creates Moral Hazard — 46

Independence of Mind Needs Help from Independence of

Process — 46

Revolving CEOs — 47

Chapter 6: Post 2000 Intensification of Focus on the Board — 49

Corruption Eruption Leads to Sarbanes Oxley and Growing Focus on

Board — 50

The Functioning of the Board of Directors Gains Attention — 52

Sarbanes-Oxley Act — 54

Part II: The Players and Capital Market Forces59

Chapter 7: The Rise of Independent/Disinterested Directors — 61

Considering Independent Director Effectiveness — 61

Dueling Definitions — 62

New York Stock Exchange Listing Requirements Stress Independence of

Directors — 62

Independent Directors Fill a Structural and Legal Need — 66

Chapter 8: The Rise of Institutional Investors — 69

Mutual Fund Development — 69

Comments from Mutual Fund Leader John C. Bogle — 71

The Growth of Passive Investing — 74

The Defined Benefit Pension Plan Grows — 75

Employee Retirement Income Security Act of 1974 (ERISA) Strengthens

Pension Rules — 76

The Defined Benefit Pension Plan Declines — 77

Retirement Assets Shift into Mutual Funds — 78

Public Sector Pension Plans — 78

The Growing Pension Crisis — 79

Investing by Public and Private Plan Fiduciaries — 80

Shifting Patterns of Share Ownership in United States — 82

The Perils and Possibilities of Concentrated Share Ownership — 83

The Rise of Proxy Advisor Power — 84

Proxy Advisors Helped Interpret High Volume of Information — 85

Responsible Voting of Proxies in Best Interests of Clients

Required — 85

Proxy Advisors Take Heed: Physician, Heal Thyself — 86

Chapter 9: The Impact of The Great Inflation — 89

The Seeds of the Great Inflation Are Sown by the Fateful Phillips

Curve — 89

Our Economy Fights Another War, on Several Fronts — 91

Employment v. Inflation — 91

Federal Reserve Chairman Volcker Toughs It Out — 92

Impact of Prolonged Inflation on Capital Market Innovation — 94

Securitization Solves a Genuine Problem, and Turns the World Upside

Down — 94

Not Your Daddy’s Trading Floor — 95

Interest Rate Arbitrage Comes of Age with the Swap Market — 96

Chapter 10: Mortgage Backed Securities and Structured Products

Conundrums — 99

Using Securitization Techniques, the Sky Was the Limit—Or Maybe

Not — 100

The Mortgage Derivative Market Implodes — 101

Hark, Securitization of Sub Prime Mortgages Begins — 101

Earnings as Defined by Generally Accepted Accounting Principles May

Not Create Cash — 102

Sub Prime Industry Almost Died in 1998 — 103

Public Policy Starts the Subprime Cycle Again — 103

Repeal of Glass Steagall Act Allows Commercial Banks and Investment

Banks to Compete — 104

And We Pushed Ourselves into the Abyss — 105

Low Interest Rates Fuel Frenzies in Multiple Arenas — 105

Collateralized Debt Obligations Explode, In More Ways Than

One — 106

The Abyss Itself — 106

Multiple Financial Institutions Fail — 107

And WaMu, Too, Bites the Dust — 108

Chapter 11: The Aftermath of the Abyss — 111

Chapter 12: The Rise of Leveraged Buyouts, High Yield Bonds, and Private

Equity Investment — 113

No Longer Your Granddaddy’s Way to Buy a Company — 113

The Venture Capital Firm is Born — 114

The Private Equity Fund is Born — 114

The Leveraged Buy Out Arrives — 115

Pension Plans Buy in to Private Equity Investing — 116

The Hostile Takeover Epidemic — 117

The Role of Michael Milken — 117

Milken Flexes His Funding Muscles — 118

Corporate Titans Are Shaken by an Upstart — 119

The Government Fights Back—For Real — 119

Giuliani Plays Hardball with RICO Threat — 120

Milken Pleads, and NOT to Engaging in Insider Trading — 121

And Drexel Fails — 122

And Restructures Its Own Board of Directors — 122

Lasting Impact of Milken and Drexel Burnham — 123

Private Equity Goes Public — 123

Chapter 13: The Rise of Hedge Funds and Emergence of Aggressive

Activism — 125

Hedge Funds Remain Largely Opaque and Unregulated — 125

Hedge Funds Emerge as Activists — 126

Traditional Institutional Investors Join the Fray — 127

The Current Impact of Activism — 128

Voting Results on Shareholder Proposals — 129

Chapter 14: The Evolution of the New York Stock Exchange — 131

Part III: The Role of The Board133

Chapter 15: Clarifying the Rights and Roles of the Board and the

Shareholders — 137

The Board Serves the Corporation as Its Agent — 138

The Powers of the Board — 139

Public Company Ownership — 140

Functional Principles of the Board — 141

Accountability of the Board — 143

Defining Board Success — 143

The Purpose of the Corporation Project — 145

Short Termism Really Is a Problem — 146

Chapter 16: Assessing the Proliferating Policies and Principles — 149

OECD Encourages Adoption of National Codes of Governance — 150

Other Voices Join in — 150

Chapter 17: Considering the Proposed New Paradigm — 153

Summary Roadmap for the New Paradigm — 153

The New Paradigm Attempts a Synthesis of Good Corporate Governance

Concepts — 155

Proposed Investor Behavior — 158

New Paradigm Proposes Integrated Long-Term Investment Approach — 159

Proposed Integration of Citizenship Matters into Investment

Strategy — 159

Proposed Disclosure of Investor Policies and Preference — 160

And Now Comes CIRCA, Council for Investor Rights and Corporate

Accountability — 161

Activist Playbook — 162

Proxy Fights and Shareholder Candidates — 163

The Bower and Paine Analysis of Maximizing Shareholder Value as

Corporate Goal — 163

The Dangers of Agency Theory — 165

Part IV: Doing the Job169

Boards Must Protect Corporation Regardless of Conflicting Agendas — 169

Chapter 18: Review Issues for Boards to Address Highlighted by NYSE — 171

Executing the Work of the Board — 173

Chapter 19: Establish the Appropriate “Tone at the Top” — 175

Relentless Focus on Ethical Behavior and Discerning the Right Thing to

Do — 178

Training as to What Ethical Behavior Means is Important in Our

Changing World — 179

Ensure Reports on Compliance are Made Directly to the Board

Periodically — 179

Chapter 20: Choose the CEO Wisely and Actively Plan for Succession — 181

Keep the Emergency Succession Plan Current — 181

Build a Future View of Company Needs into Longer Term Succession

Planning — 182

Setting Criteria and Developing Possible Candidates — 182

Work with the Incumbent — 183

Know Your Senior Management Team — 184

Chapter 21: Develop a Strong Organizational Framework — 187

Chapter 22: Tailor Board Work to the Company — 189

Board Leadership — 189

Committee Structure — 190

Audit Committee — 192

Compensation Committee — 194

Nominating and Corporate Governance Committee — 195

Other Committees — 196

Special Committees — 196

Special Negotiation Committee — 196

Special Litigation Committee — 197

Special Investigation Committee — 197

Board Information — 198

Information Security — 198

Collegiality — 199

Manage Communication Mindfully — 199

Executive Session — 201

Meeting with Management — 201

Setting the Agenda — 202

Facilitate Candid Communication and Trusting Relationships — 202

In Crisis the Buck Stops with the Board — 203

No Time to Resign — 204

Chapter 23: Focus Intently on Compensation — 205

Executive Compensation — 205

Fairly Compensate Directors — 205

Chapter 24: Seek Wisdom, Courage and Breadth of Experience in Director

Recruitment — 207

Get the Right Mix of Directors in the Boardroom — 208

Value Tempered Judgment over Technical Expertise — 2108

Chapter 25: Actively Evaluate Board Performance to Constantly

Improve — 213

Developing the Process — 213

Chapter 26: Manage Risk Effectively — 217

Further Comments on the Board and Cybersecurity — 220

Never Underestimate the Impact of Human Error — 221

Importance of Plans — 221

Chapter 27: Independently Evaluate the Impact and Execution of

Transactions — 223

Chapter 28: Communicate Clearly, Consistently and Constantly — 225

Part V: Hazards and Their Navigation229

Chapter 29: Address Individual Hazards and Personal Fear — 231

Liability Concerns — 231

Efforts to Insulate Directors — 232

Directors and Candidates Should Understand the Protections They

Have — 234

Beware the Responsible Corporate Officer Doctrine — 234

Chapter 30: Navigate Corporate Hazards and Distressed Situations — 237

Liquidity: What to Do When Cash Runs Low — 238

Form a Board Committee to Focus Closely on the Emergency — 238

Is This Really a Role for the Board? — 240

The Corporation Is Counsel’s Client; The Board Retains Counsel — 241

The Next Step: Assess Viability — 241

Bringing in Help — 244

Assessing Leadership Resources — 245

Structuring the Leadership Role — 245

Communicate the Plan, and the Progress — 246

Just Do It — 247

Appreciation of the Effort Put in Goes a Long Way — 248

Yes, Virginia, You Did Sign Up for This — 248

Becoming the Debtor in Possession — 248

Chapter 31: Recognize and Rectify Hazards of Board Process — 251

Continuing Confusion as to Responsibility and Authority — 251

Group Think — 252

Faulty Filters — 252

Corporate Myths — 253

Conformity Pressure — 253

The State Dinner — 254

Bullying — 254

Chapter 32: Know that Steady, Purposeful Work is the Antidote — 255

Reading the Room — 255

Preparing — 256

Owning Your Style — 256

Finding Your Point of View—and Theirs — 256

Leading with Your Ears — 257

Addressing Biases — 257

Overconfidence — 258

Confirmation Bias — 258

Survival Bias — 259

Attribution Bias — 259

Building a Championship Team — 260

Dissent is Not Disloyalty — 261

Building a Portfolio of Roles — 261

Chapter 33: Survive Success and Relentlessly Build Resilience — 263

Conclusion: Own the Role and Build the Future — 267

Index— 269

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