Chapter-10

Dealing With External Pressure

External Pressure
In general, crises requiring board response can be divided into three broad categories:

Shareholder actions directed at the board Hostile takeovers

Regulatory actions
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SHAREHOLDER ACTIVISM
In recent years, though, there has been a growing tendency for activists of one sort or another to seek change.
As a proven example, agitation by activists brought about extensive changes in the area of ensuring a safe supply of food and drugs for the U.S.

Issues around Labor Relations

Issues around Labor Relations were so apparent that they eventually led to legal protection for most workers with regard to these basic workplace characteristics.

Issues around Full Disclosure

One of the basic tenets of us capitalism, with the shares of thousands of companies listed on the major stock exchanges, is that all investors and potential investors (the public) should have access to the same information regarding all aspects of the operations of these companies. The entire body of legal requirements and turns been put into place gradually over many decades in response to the sequential appearance of newly perceived threats to free markets.
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Proxy Fights
When there are strong differences between a board and a company's shareholders as to the strategy being followed, the financial results of the firm, the long-term outlook, or a proposed merger or acquisition, the stage is set for a proxy fight. Disenchanted shareholders may institute a public fight against the board's proposals. These fights take the form of mailings to shareholders, advertisements in widely read newspapers, or even the initiation of lawsuits.
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Class-Action Lawsuits
Class action lawsuits have been brought into the courts on behalf of environmental activists, groups of individuals who feet they have been denied fundamental rights by companies and large numbers of people who claim to have been hurt as a result of negligence on the part of manufacturers who have delivered allegedly unsafe products.
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FRIENDLY MERGERS
In many industries, U.S. companies have found themselves in a fragmented competitive situation in which no firm has the economies of scale. The recognition of such situations has led the boards and CEOs of numerous companies to simultaneously arrive at the conclusion that the consolidation of two or more smaller firms would provide the missing economies of scale.
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When both parties are already thinking along the same lines regarding the desirability of a merger, agreements often can be reached very quickly, lessening the trauma to the employees, lenders, suppliers, customers, and shareholders of both companies.
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HOSTILE TAKEOVERS
Hostile transactions come about when an aggressor company attempts to take over another company without the consent of its board. In hostile takeover situations, as a consequence of the bitterness that results from the combative process, most of the management, including the CEO, and most of the board usually will be displaced. This brings to mind one of the advantages of hostile takeovers from a governance perspective.
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defensive method
Limitations on special meetings Staggered terms "Poison pills

White Knights
Greenmail

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White Knights
In the event that an effective poison pill is not in effect, The board may then proceed to seek out other possible acquirers for the company. The firm invited into the contest by the target company has come to be called a "white knight." Underlying this strategy would be a strong desire to achieve the best possible price for the shareholders of the company, which would be more likely to result from an auction.
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Greenmail
a new form of corporate predator: Their modus operandi is for the aggressor to begin to buy shares in a target company. After some time period, if the total accumulation of shares acquired reaches some stipulated percentage of the total shares outstanding, the aggressor company must file a form with the SEC announcing the firm's intentions regarding the target company.
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Greenmail
On some occasions, the board and the CEO of the target company, in order to be rid of the potential threat the aggressor may pose, will negotiate to repurchase the shares held by the raider for some premium above their acquisition cost. The raider thus walks away with a rather fast and sometimes handsome premium on its investment. These transactions came to be called greenmail.
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CASE 10

BALANCING CEO, BOARD, AND SHAREHOLDER INTERESTS AFTER A HOSTILE TAKEOVER BID THE ISSUE

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Generally ,CEO and the board dont want to remove the control right easily, so mostly they dont accept the hostile takeover which is maybe benefit to the shareholders.

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REGULATORY AGENCIES
The primary agencies overseeing public companies are the federal Securities and Exchange Commission and the related state corporation commissions. They are interested in timely, accurate, and complete disclosure of information designed to maintain orderly and fair markets. When fraud is detected, the justice system comes into play with criminal proceedings.
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Model of Corporate Governance

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Complementar y knowledge

Corporate
governance structure and governance model

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Three main Structures:

The CG board Structures in different country is different
1, Unitary model,applied in US.UK.Australia,Canada,etc. 2,Dual model (Germany model), Germany, Austria,Holland, part of France, etc

3,Japanese model , Japan,China,Thailand,etc

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1. Unitary

Structure Model
Appoint

Shareholders

Report

Independent Auditors
Working Relationship

Power to Govern

Suppliers/ Creditors

Board of Directors

Employees

Customers
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Providers of Non-Equity Finance

CEO system
(Tricker 1984)

1.Unitary Structure Model

There are always some committee of board,
eg, Audit committee, Remuneration committee, Appointment committee, Grievance committee, ets
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Board Structure Committees

Board

Audit

Remuneration

Appointment

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In the Board, Mostly are Nonexecutive or independentExecutive. Us has the highest proportion of Non-executive or independentExecutive in the world, about 62%-80%.
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CEO

SYSTEM

CEO (Chief Executive Office)

COO
(Chief Operating Office)

CFO
(Chief Financial Office)

CTO
(Chief Technology Office)

CIO
(Chief Information 0ffice)

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Board Structure Separation of Chairman and CEO

Chairman
Is responsible for the board

CEO
Is responsible for the management

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2. Structure Model
Shareholders

Dual
Employees

Representative Membership

Supervisory Board

Board of Management Suppliers/ Creditors Customers

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(Tricker 1984)

Independent Auditors

2. Dual Structure Model

Supervisory Board just act as board of directors in the unitary model,they are all Non-executive directors, half from shareholders, half from employees.
Board of Management are all executive directors, just like Top-level managers in unitary model.
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3. Japanese Structure Model

Shareholders general meeting

Board directors

of
Monitoring

Statutory auditors

Manager Board
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Corporate governance model

1, Anglo-American model( AngloSaxon shareholder model)

higher decentralization of the ownership, and powerful capital market , so its called external

governance model.
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2.Germany & Japan model

higher centralization of ownership , always controled by the institutional investors, so focus on internal governance

Model .
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3,family-owned governance model

east Asian

Family always control the ownership and management in the same time.

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Which model is Best?

No Optimal Model
Just suitable
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The ten deadly sins of nonperforming boards

1 The board is wrongly structured: it could be too big, in which case it is just a talking shop, or there could be a wrong balance between directors with executive responsibilities and the others; there could be managers with their own turf to protect, and so on.
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The ten deadly sins of nonperforming boards

2 Information, particularly financial information, is inadequate and nothing is done about this.

3 Major decisions, such as 'bet your company' acquisitions or disposals are taken without challenge or with inadequate debate, or by cabals of the board. . .
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The ten deadly sins of non-performing boards

4 ... and then there are no post-mortems to see if the decisions were correct or not. 5 The board does not push management hard on succession; investment (including training), R&D, product or market development.
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6 The company's financing arrangements are not kept under review: the wrong banks, too many banks, the wrong means of finance, the wrong structure of indebtedness, the wrong risk profile.
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7 It is a 'yes-man' board that will not take hard and unpleasant (but necessary) decisions. . ..
8 ... and one that is, in fact, under the domination of an all-powerful person or influence.
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9 The board meetings are social occasions, over a good lunch, with inadequate time for discussion, and a rubber-stamping of decisions. 10 There is no evidence of any rigorous review, such as the non-existence of audit or remuneration committees or, if these exist, they are not taken seriously.
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