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Title: Putting Investors First: Real Solutions for Better Corporate Governance by Scott Newquist, Max Russell, John C. Bogle ISBN: 1-57660-141-2 Publisher: W. W. Norton & Company Pub. Date: August, 2003 Format: Hardcover Volumes: 1 List Price(USD): $39.95 |
Average Customer Rating: 4.5 (2 reviews)
Rating: 4
Summary: Insights into the Sources of Poor Public Company Ethics
Comment: The subtitle for this book is a little misleading. The solutions the book suggests are found only in the foreword by John C. Bogle and in the final chapter by Scott C. Newquist and Max B. Russell. Almost all of the material in the book describes instead why corporate governance hasn't worked well in the last two decades in the United States.
To me, the best part of the book was in Mr. Bogle's foreword. He points out that no amount of regulation is going to fix corporate governance. Instead, business and financial leaders should seek to set a good example based on their values and principles. With good character in place, some structural changes can really help. He encourages leaders to stop chasing speculative shifts in stock price, and to focus instead on creating long-term enterprise value for shareholders.
In the main book, the authors describe the current crisis in investor confidence and the need to align executive and director interests with serving all shareholders (past, current and future). For those who are new to the financial markets, they then take the time to explain how stock options for executives work, how some companies try to "game" the market by over promising and providing misleading financial results, and ways to spot companies which are distorting their results.
Like Mr. Bogle, they also espouse taking a long-term approach to creating discounted cash flow value for the enterprise. I thought the weakest part of the book was a long explanation of how stock values are created. This explanation certainly captures how a minority of investors behaves, but does not come close to describing the overall market environment.
In developing how a board should work, the authors draw on democratic principles. They view the five cornerstones of good governance as being adherence to duty of loyalty to shareholders (rather than management), duty of care (in looking for potential problems), consistency of practice across all public companies, avoiding exceptions in dealing with issues, and putting all share holders' interests first.
To ensure these results, the authors have a number of novel recommendations. First, the directors should take an oath of independence and care annually. Second, managements and boards should greatly increase transparency and fair disclosure except where a competitive advantage would be lost. This would mean disclosing information that investors would care about even if it isn't material in the legal sense of the word. Boards need mechanisms to communicate directly with shareholders and should have a staff to help with this. At least once a year, independent board members should meet in a public session with institutional shareholders to hear their concerns. Third, investors should have a choice of potential directors. This means that more than one qualified candidate should be proposed for each open seat on the board. Investors should have the right to pool their votes behind a single candidate. In looking for these qualified candidates, companies need to be more rigorous about finding people will be really independent. The book contains a "help wanted" ad on pages 166-167 that explains what the authors have in mind. Fourth, investors should have the ability to remove directors who are not performing. Fifth, directors should account for and describe the basis for their decisions to shareholders.
The authors also favor an independent chairman of the board, having no non-CEO management members of the board, increasing checks and balances on management by having the board access its own information about company performance, directors being more effective in challenging management proposals, and directors spending much more time in their role.
Finally, they favor directors looking at long-term performance and aligning compensation with favoring that measure.
Like Mr. Bogle, they feel that regulation alone won't solve the problem. They also feel that institutional investors need to play a stronger role in challenging companies to improve governance and long-term performance. Perhaps the rise of indexed mutual and pension funds will help this occur. Short-term investors usually don't care about governance while those who must own the shares for decades (as indexed mutual and pension funds do) have a great incentive to demand improvement.
I agreed with most of the prescriptions in the book, as well as most of the characterizations of the problem.
I do think that the authors missed an opportunity to see CEO selection as an opportunity. Most boards that have good governance do so because the CEO wants it. Boards pick CEOs. Boards also decide how to compensate CEOs. I think more can be done in this area. The encouraging example of Jeffrey Immelt at GE shows what can be done to dismantle the imperial CEO framework that harms good governance.
Ultimately, we all get the governance we deserve. So the buck stops with us investors too. More could have been said on that point.
Rating: 5
Summary: Focuses on the importance of having a balance of power
Comment: Co-written by Schott C. Newquist (the co-founder of Board Governance Services, a consulting firm to corporate directors), and professional business writer Max Russell, Putting Investors First: Real Solutions For Better Corporate Governance is a no-nonsense financial investment guide especially intended for board members, corporate executives who work with them, and investors large and small with a keen interest in the governance of the corporations in which they own shares. Warning that effective change is unlikely to come from legal regulation since the spirit of the law can be thoroughly twisted while adhering to the letter, Putting Investors First focuses on the importance of having a balance of power, basic principles of good governance, how to align interests and much more. If you are an investor or are called upon to be responsible to corporate stockholders, then you need to give a close and careful reading to Putting Investors First.
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Title: Back to the Drawing Board: Designing Corporate Boards for a Complex World by Colin B. Carter, Jay W. Lorsch, Jay William Lorsch ISBN: 1578517761 Publisher: Harvard Business School Press Pub. Date: 21 November, 2003 List Price(USD): $29.95 |
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Title: Corporate Governance : The McGraw-Hill Executive MBA Series by John L. Colley, Jacqueline Doyle, George Logan, Wallace Stettinius ISBN: 0071403469 Publisher: McGraw-Hill Companies Pub. Date: 20 June, 2003 List Price(USD): $29.95 |
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Title: Corporate Governance by Robert A. G. Monks, Nell Minow ISBN: 0631222642 Publisher: Blackwell Publishers Pub. Date: 01 August, 2001 List Price(USD): $60.95 |
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Title: The Recurrent Crisis in Corporate Governance by Paul Macavoy, Ira M. Millstein ISBN: 1403916667 Publisher: Palgrave MacMillan Pub. Date: 01 January, 2004 List Price(USD): $65.00 |
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Title: Harvard Business Review on Corporate Governance by Walter J. Salmon, Jay W. Lorsch, Gordan Donaldson, John Pound, Jay A. Conger, David Finegold, Lawler Edward E. III ISBN: 1578512379 Publisher: Harvard Business School Press Pub. Date: January, 2000 List Price(USD): $19.95 |
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