Henley Management College Henley, UK

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Henley Management CollegeHenley, UK

• Robert A.G. Monks
• June 20, 2001

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• The Basic Principle of Governance
• The Heisenberg Principle

Scientist
Governance
observe particle
Observe Board of Directors
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• The Basic Principle of Governance
• The Heisenberg Principle

An observed board BEHAVES differently
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• Management is DIFFERENT than Governance

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• MODELS OF GOVERNANCE

• Society (and politics) are concerned with
• impact of corporations on society
• inequality of wealth
• lack of accountability to elected authority

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• MODELS OF GOVERNANCE
• appearance of reality

Model 1 Devise a system that has the
appearance of accountability, but which retains
the capacity of self perpetuating management to
make its own rules...
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Independent Loyal Brave All Knowing
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Is the INDEPENDENT DIRECTOR a myth?
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Is it a USEFUL myth?
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REAL MISSION CEO - functioning and
successor AUDIT - independence and
thoroughness
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• Shareholder Activism
• A p p e a r a n c e
• R e a l i t y

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• CEO Compensation
• s h a r e h o l d e r s
• e f f e c t
• l i t t l e
• c o n t r o l

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• LITTLE restraint on
• Corporate Money in
• politics

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• No real involvement in process of
• obtaining an independent a u d i t...

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• ELECTION OF DIRECTORS

Slate Card

• As many nominees as there are vacancies
• Prepared by incumbent management

- Independent members of nominating committee
get and hold their positions with approval of
incumbants
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• ELECTION OF DIRECTORS

Independent Nominees

• Legal obstacles - casual use of company proxy
  statement
• Cost Considerations - printing, mailing,
  solicitations

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• MODELS OF GOVERNANCE
• reality

Model 2 Devise a system which requires
management to account to an informed, motivated,
competent ENTITY...
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Myners Review of Institutional Investment Final
Repot
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• ...the review is particularly concerned by the
  value lost to institutional investors through the
  reluctance of fund managers to actively engage
  with companies in which they have holdings, even
  where they have strong reservations about
  strategy, personnel or other potential causes of
  corporate underperformance...

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Why Nothing is Done...

• A culture that seeks to avoid conflict
• Unwillingnes of managers to act
• Alleged regulatory obstacles
• The lack of incentive for managers
• Potential conflicts of interest

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Annual Meeting 1992

• 1. The corporation shall have a committee of
  shareholder representatives consisting of three
  members.
• 2. The members of the committee shall be elected
  by the shareholders by plurality vote at their
  annual meeting.
• 3. The corporation shall include in its proxy
  materials.
• 4. Nothing herein shall restrict the power of the
  directors to manage the business and affairs of
  the corporation.

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• MEMBERSHIP OF AUDIT COMMITTEE NEEDS
• TO BE EXPANDED WITH ADDITIONS OF
• LONG-TERM SHAREHOLDING TRUSTEES

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