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The most important decision a corporate board makes is the CEO's compensation. It's possible that directors are prone to misplaced loyalty. People will sometimes disregard their conscience when a person in authority call for action.
The most important decision a corporate board makes is the CEO's compensation. It's possible that directors are prone to misplaced loyalty. People will sometimes disregard their conscience when a person in authority call for action.
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The most important decision a corporate board makes is the CEO's compensation. It's possible that directors are prone to misplaced loyalty. People will sometimes disregard their conscience when a person in authority call for action.
Авторское право:
Attribution Non-Commercial (BY-NC)
Доступные форматы
Скачайте в формате PPT, PDF, TXT или читайте онлайн в Scribd
Corporation New Economic • The world economy change by internet revolution • One of notorious rise and fall was that of Enron. • In 2000 Enron’s market capitalization was more than $60 billion • 2001 the firm field for bankruptcy. Corporate Board • Corporation is a legal entity separated from its founders or owners • No corporation is truly immortal – It limit the ability of a state to interfere with the business of a corporation • Corporate have external and internal constrain. • External force in US is the Securities and Exchange Commission Benfits of Corporate Board • Advise and counsel executive and provide discipline to manager. • It is often difficult to monitor managers directly. • Most board are combinations of insider and outsider – Inside directors are manager or executive of company. – Outside directors are not employees Outside Directors • After the corporate scandals of recent year, policy ensuring that board have majority of outside directors has been advocated. • Relationship between board composition and firm performance is challenging because independence in fundamentally unobservable. It’s a Small World • Corporate boards should have majority of outside director • However, outside directors sometime seem to disregard the interest of the firm’s owners. • The world of corporate directors is even smaller. • Many of them are interlocked there are overlapping board membership Directors, Compensation, and Self-Interest • The small world corporate directors means that managerial innovations can be spread rapidly. • The most important decision a corporate board makes is the CEO’s compensation. • Some expressed concern that top executive’s earning are going through the roof and reducing the shareholder welfare. • In some cases, it may be that directors who put their interest ahead of shareholder are purely self-interested. Directors and Loyalty • It’s possible that directors are prone to misplaced loyalty. • People will sometimes disregard their conscience when a person of authority call for action. • Loyalty may have important consequences in the boardroom if directors are prone to blindly follow the CEO. Analysts • Professional security analysts – Information intermediaries – Consider information from financial statements, trade show, the press, conversation with corporate executive, and other insider. • Types of professional analysts – Sell-side analysis; employed by brokers, dealers, and investment bank. – Buy-side analysts; employed by large money management firm, including mutual and hedge funds and insurance company. – Independent analysts; not associated with any large investment or money management firm. • Performance Security Analysts – The analysts are too optimistic – Focus on sell-side because buy-side analysts not available to public. – Clear conflict of interest provides likely source of sell-side analysts. • Do Analyst Herd – Conflict of interest just describe, analysts’ decision may be affected by social forces. – Herding, or convergence in behavior, among investors is often proposed as an explanation for large swings in market prices. ENRON • Formed in 1985 by Kenneth through the merger of natural gas pipeline. • In 2000, Enron stock trade at $90.75 per share • In end 2001 the firm’s totally bankrupt. • Directors of Enron seem to rubber-stamp anything management brought before them • Their compensation was highest in the US • 15 external directors served among them. • We do not sure that they truly independent. The Analysts • During bankruptcy, they continued to be optimistic about the firm. • They recommended buy or 1.9, where 1= strong buy and 5= strong sell. • They optimistic because of the large investment banking fess generated by Enron Other Player in Enron’s Downfall • The mania of the dot-com run-up in stock prices. • Investors seemed to focus entirely on short-term gain. • Enron’s Auditor, Arthur Anderson, too readily accepted Enron’s business model and method of accounting. • 2002 Anderson official were found guilty of obstructing justice. Organization Culture and Personal Identity • Everyone love Enron. – Many analysts and investors remained optimistic about the firm. • The firm have a unique culture. – The employees were loyal to the firm – They though that the firm was invincible – However, loyalty to an organization can be even more dangerous than loyalty to a person. • The lesson by the fall of Enron is that it is important to any person in any organization to keep separate identity.