Executive MBA LA

Executive MBA LA Class XXX Theme IX 2016

Professor Judith Blumenthal

This part of Theme IX will focus on corporate governance, which is the overall system by which business corporations are directed and controlled. Corporate governance includes rights and responsibilities of various stakeholders (board of directors, managers, shareholders, and others) as well as rules and procedures for decision making. We will focus on the role of the Board of Directors and the key issues that boards face today.

The board of directors is empowered with oversight responsibilities of the corporation, and is ultimately responsible for the corporation’s strategy and performance, along with its compliance with laws, rules and customs in the society. Boards must achieve balance and alignment among external and internal factors, sustainability and risk considerations, and competitive behaviors. There are many challenges in achieving this balance, but ultimately, successful management of these disparate and often competing factors is the benchmark against which boards and entire corporate governance systems are evaluated.

Executive MBA LA, Theme IX (1) Friday, March 18, 2016 8:50 – 10: 20 a.m.

The Governance Problem, Role of the Board

In our first session, we will provide a framework for thinking about corporate governance, and consider the points of view of various stakeholder groups. We will discuss the distribution of rights and responsibilities among board members, shareholders, and management. We will focus our analysis of the role and responsibilities of the board of directors, and attempt to answer the question, “What makes for an effective board?”

Required Case:

 Jonathon Elderslie and the Board Decision

Case Questions: 1. What attitudes toward corporate governance are revealed in the comments made to Jonathon Elderslie by his friend, Jerome Haskins, as well as in Elderslie’s own experience as an executive reporting to a board? 2. Do you think these attitudes are widespread or confined to few directors? 3. To the extent that these attitudes exist, what needs to change to create more effective corporate governance? 4. What questions should Elderslie be asking before deciding to take on a directorship?

1 Required Reading:

 Berkshire Hathaway 2002 Annual Report. Excerpt.  Thain, D. and Leighton, D. The Director’s Dilemma: What’s My Job?  Lorsch, J. and Clark, R. Leading from the Boardroom. Harvard Business Review April 2008  Nadler, D., Building Better Boards  Sonnenfeld, J. What Makes Great Boards Great.

Optional Reading:

 Report of the Task Force of the ABA Section of Business Law Corporate Governance Committee on Delineation of Governance Roles & Responsibilities, August 1, 2009.

Executive MBA LA, Theme IX (2) Friday, March 18, 2016 10:40 a.m. – 12:10 p.m.

Case of an Effective Board

In this session, we will discuss the CCL case, which concerns an effective board that seeks to become more effective as it addresses new strategic issues and environmental concerns. This case will serve as an example of effective board practices, before we analyze several boards later in the theme where serious board dysfunctions will be apparent.

Required Case:

 CCL Industries

Case Questions:

1. Analyse the development of the CCL board. 2. Identify problems that could have arisen under the various board structures. 3. If you were consulting to CCL management, what recommendations would you make to improve the effectiveness of the CCL board?

Executive MBA LA, Theme IX (3) Saturday, March 19, 2016 8:50 – 10: 20 a.m.

The CEO’s Perspective, Guest Speaker: Carlos Alberini, CEO, Lucky Brand

Carlos Alberini will offer us perspectives on governance from his current role as CEO of Lucky Brand, a company funded through private equity, and also from his recent role as CEO of Restoration Hardware, a company that he took from private to public. He 2 previously served as President of Guess?, Inc., and also has prior experience in helping take other private firms public. He will describe his perspective on relationships and responsibilities among players in the corporate governance arena. He brings valuable insights about the complexities and nuances of corporate governance.

(4) Saturday, March 19, 2016 10:40 a.m. – 12:10 p.m.

The Board’s Role in Executive Succession and Executive Compensation

One of the board’s most important responsibilities is selecting, and if necessary replacing the CEO. Yet board’s routinely report that this is an area which does not receive sufficient board attention and planning, resulting in board’s having to make sub-optimal choices under great pressure.

At the same time, the rich level of many executive compensation packages has emerged as a major flashpoint for shareholders and for the public in general. There is widespread anger over what many see as excessive executive compensation, particularly in light of poor corporate performance and falling share prices. In fact, compensation committees today being scrutinized in much the same way that audit committees have been scrutinized since the major corporate accounting scandals.

In this session, we will think about CEO succession and compensation, and criteria that should be considered in setting performance incentives and executive compensation. Among other questions, we will ask whether there is an ethical limit for compensation. Our focus will be one the role of the board and the challenges boards face in executive succession and in determining both the level and mix of executive compensation.

Required Case:

 Al Dunlap at Sunbeam

Case Questions:

1. Do you agree with Dunlap’s view of shareholder primacy (see page 3)? 2. What are the strengths and weaknesses of Dunlap’s compensation package? What type(s) of behavior did it motivate? 3. Was the second compensation package well-structured? 4. Did the board make the right decision in firing Dunlap? Is this an example of effective or poor corporate governance?

Required Reading:

 Charan, R. “CEO Compensation,” Chapter 4 in Boards that Deliver (2005)

3 Executive MBA LA, Theme IX (5) Friday, April 1, 2016 1:10 – 2:40 p.m.

Corporate Governance Standards, Investor Relations

Guest Speaker: William Coffin, Founder and Retired CEO, CCG Investor Relations and Former Chairman of the Board, California Council on Economic Education

William Coffin is founder and longtime CEO of CCG Investor Relations, one of the largest investor relations agencies in the country, with offices also in overseas markets. He will speak to us about evolving standards and expectations in corporate governance and effective approaches to investor relations, emphasizing issues pertaining to corporate disclosure.

Executive MBA LA, Theme IX (6) Friday, April 1, 2016 3:00 – 4:30 p.m.

The Board’s Audit and Risk Oversight Roles

Guest Speaker : Omid Yasdi, Partner, KPMG

Omid Yasdi is a partner in Forensic Advisory Services in the Los Angeles office of KPMG LLP. He has extensive experience in US and international financial statement audit and audit of internal control services, fraud risk management, forensic accounting, economic recovery analysis and litigation advisory services. His remarks will focus on a range of challenges for board members in the current environment, including dealing with increased economic pressures, emphasis on emerging markets for growth, regulatory matters, risk management, and shareholder demand for information. He will stimulate our thinking concerning financial challenges for board members, global trends, and board and audit committee responsibilities —all with an eye toward enhancing corporate governance.

Required Reading:

 KPMG (2013) Fraud Risk Management paper.  KPMG (2015) ABC Survey  KPMG (2013) Integrity Survey  COSO Internal Control -- Integrated Framework

Executive MBA LA, Theme IX (7) Saturday, April 2, 2016 1:10 – 2:40 p.m. 4 International Corporate Governance

Corporate governance issues take on increased complexity as we consider differences in legal frameworks and practices in different countries. In this session, Professor Baizhu Chen will join me in a discussion of corporate governance in China. The agency issue is quite different between U.S. firms and Asian firms. As we have seen, in the U.S., it occurs mainly between shareholders and managers, while in China (and other Asian countries) it is mainly among different shareholders—between the controlling shareholder and minority shareholders.

We will use the GOME situation as a focal point. GOME, the largest electronic store chain in China, is undergoing a remarkable power struggle in its board room. Mr. Huang Guangyu, its founder and once the richest man in China, is currently serving a 14 year prison sentence. Huang's family is fighting to regain control of the firm from chairman, Mr. Chen. Mr. Chen, who formerly was head of another firm taken over by GOME, had brought in a third investor, Bain, to dilute Huang's family stake.

Required Case:

 GOME

Case Questions:

1. How would you vote if you were a shareholder at the GOME meeting? 2. Based on the case, the readings, and our prior discussions, do you see different models of corporate governance converging as international capital markets become more integrated? Explain?

Executive MBA LA, Theme IX (8) Saturday, April 2, 2016 3:00 – 4:30 p.m.

The Market for Corporate Control

In an economic system where shares of companies are publicly traded, the "market for corporate control" refers to the process by which ownership and control of companies is transferred from one group of investors and managers to another. In this session, we will see one example of a fight for control, and learn why the market for corporate control doesn’t always drive out poor governance practices and the management associated with them.

Required Case:

5  Circon (A)

Case Questions:

1. What motivated Circon chairman and CEO Richard Auhll? 2. Did he have financial incentives that strongly aligned his interests with those of the shareholders? 3. At the board meeting at the end of the case, what options are available to the board? 4. Which is most attractive?

Final Exam

A final exam will be given during the last half on this final session.