Corp Governance

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Corp Governance

• Adding It All Up. Using a tool called "tally
  sheets," boards discover how much their CEOs
  really make. The s are shocking directors --
  and changing pay practices - By Joann S. Lublin,
  WSJ Online Apr06
• When the board at Conseco drew up a new contract
  for their 5th CEO 5 years, they wanted to avoid
  past mistakes. "The history of this company was
  excessive pay not based on performance," says
  Michael Shannon, compensation committee chair.
  This time around, the directors used an
  increasingly popular board tool a tally sheet.
• 50 of 350 tracked corps. disclosed tally-sheet
  usage in their latest proxy statements. Pfizer
  supplied among the fullest disclosure. CEO Henry
  A. McKinnell could have gotten 83 million if he
  retired last Dec and will receive 6.5 million /
  year for life when he does.
• Qs
• Who hires board? What do they do? What are
  characteristics of a good board?

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AGENCY THEORY IN CALIFORNIA BANKS AND PRIVATE
COLLEGES
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Characteristics of Early Business Ownership

• Risk personal wealth in search of profit
• Management of enterprise responsibilities

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Shift to a Modern Organization

• Growing reliance on management
• bigger firms (economies of scale)
• division of labor (specialization-A. Smith)
• new technologies (productivity)
• vertical integration (value added)
• ? Need for Managerial
  Specialists

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Shift to a Modern Organization

• Growing Needs of Ownership
• more plant and equipment
• more employees
• new technologies
• vertical integration
• ? dispersion of ownership

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Owner/Manager Complications

• Goal Incongruity
• principal goals differ from agent goals
• Information asymmetry
• manager knows more than owner
• Risk aversion
• manager more risk-averse than owner

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Agency Relationship, Agency Theory, Agency Costs

• Hiring another to perform a service
• Conflict between self-serving managers and owners
  means firm value isnt maximized
• Monitoring control other agency costs (BOD)

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http//www2.coca-cola.com/investors/annualreport/2
002/boardmgmt.htm
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Method

• Archival data - 132 California Banks
• Pooled cross-sectional time-series regression
• IVs Stock ownership
• DVs ROA, Loan Losses

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Descriptive Statistics - Bank

• Management Tenure Mean 5.7 S.D. 4.4
• Board Tenure Mean 8.4 S.D. 4.8
• Mgmt Stock Ownership Mean 38 S.D. 16.1
• Board Size Mean 7.6 S.D. 2.6

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Results

• Increased Stock Ownership Led to
• increased ROA
• higher loan losses

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Method

• Questionnaire sent to 420 CIC Institutions
• Pooled cross-sectional time-series regression
• IVs ? Board Demography, Pres. Tenure
• DVs ? Revenue, Gift Income

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Descriptive Statistics - Colleges

• Presidential Tenure Mean 8.6 S.D. 6.2
• Board Tenure Mean 6.4 S.D. 3.2
• Board Size Mean 28.9 S.D. 7.5
• Bus Exec Experience Mean 24 S.D. 14.2

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Time Series Regression - College

• Large Board Size (T) ? incr gift inc (T1)
• Presidential Tenure (T) ? incr gifts (T1)

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Conclusion

• Boards matter in not-for-profits
• Agency theory
• Resource dependence
• Board / Presidential interests may be more
  aligned in not-for-profits
• Common ownership

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Kiplingers Article

• Joseph McCabe President of Coe College
• Earned 458,616.67 over 40 years
• Donated 458,616.67 to Coe
• a small college has the intense advantage of
  being like a family

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Overall Conclusions

• Financial Ownership ? Better Performance
• Psych Ownership ? Better Performance
• Therefore,
• GIVE PEOPLE OWNERSHIP

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Governance Presentations

• Report
• Cover
• Summary
• Appendices
• Research
• Results
• Rating
• Presentation (11 minutes)
• Intro
• Overview
• Body
• Conclusion