American University Kogod School of Business

Corporate Governance (FIN-687) Professor Ron Anderson Fall 2008

Classes: Monday: 5:30 to 8:00 KSB 39

Office: Finance Suite, Room 47 (Basement level and far right of building when viewed from the Quad).

Office Hrs: Monday: 2:00 pm to 5:00 pm Wednesday: 10:00 am to 1:00 pm And by appointment.

Contacts: Office Phone: 202/885-2199 e-mail: [email protected] (best bet!)

Required:

(i) Most of the course material required for FIN-687 will be distributed electronically via Blackboard or through the Harvard Business School website. (ii) We will do several Harvard Business Cases and Notes that you will be required to purchase. Purchasing of the Cases and Notes will be done on-line directly with Harvard Publishing. See the final page of the syllabus for instructions on accessing the course material

Optional:

If you feel that you need a textbook for an overview of the course, I recommend “ Corporate Governance ” by Robert A.G. Monks and Nell Minow, 3rd Edition, ISBN: 1-4051-1698-6. The book is available via websites for around $70.

Overview:

The importance of corporate governance has became dramatically clear since the crash of the dot-com bubble; the fraudulent activities of corporate managers at Enron, WorldCom, and many other firms; and the most recent crisis created (at least in part) by the behavior of executives in the mortgage industry. These failures in governance caused a massive loss of shareholder wealth and plunged world financial markets into crisis.

In this course, we examine the underlying theory, principles, and practices that surround the governance of modern corporations. The course focuses, in particular, on the mechanisms that shareholders use to ensure that managers maximize shareholder wealth. We will discuss such topics as boards of directors, executive compensation, large shareholders, executive termination and succession, and government regulation.

Because corporate governance is a relative newcomer to graduate business education, very few textbooks or formal course designs exist to teach the subject. Consequently, we will be using articles from academic journals and high-quality media outlets to learn about the state of each governance subject. After each subject, we will then follow-up with a business case that hopefully places each governance mechanism in better focus.

Objectives: The course develops a broad understanding of the governance process by studying the role of managers, boards of directors, and investors in promoting firm value maximization. Generally, we will take a financial economics approach in studying governance; however, this is only one possible avenue and we will study other theoretical and practical approaches to understand the roles of senior management.

You will gain an understanding of the roles, processes, and environments that senior managers operate within. As you proceed in your careers, this knowledge will likely prove quite valuable and provide a competitive advantage over your peers when you return to the workforce.

In addition, the course deals quite intensively with corporate strategy; corporate governance processes must mesh with the firm’s strategies for shareholders and managers to be successful. As a consequence, developing articulate and logical arguments relative to the governance/strategies features will be an important learning goal of the course.

Course Setup: We will essentially run the course as a seminar series. In such a setting, everybody is expected to come to class fully prepared and ready to be engaged in a dynamic and relevant conversation.

Each week you will have required articles and cases that must be fully prepared and ready for presentation to the class. Consequently, most of the learning will occur outside the classroom in your reading assignments and in your work with your group and classmates. The success of the course depends on your being prepared!!!

Grading:

Assignment Percent of Total Grade Weekly Reading Assignment / Class Participation 40% Case Write -ups 60%

Class Participation and Attendance: To learn in this course, you must show-up for the course. Consequently, attendance is required and your absences will be noted.

Cases: Case write-ups and presentations make up 60% of the total grade. Write the case analysis as an executive memo or other business document. The following ground rules apply:

1. Groups must be comprised of two or three students -- no more.

2. The cases will be done in groups with all group members receiving the same grade for the write-up. Peer evaluations will be done on each group member by the other members of the group. These peer evaluations will comprise 30% of the case grade with the other 70% of the case grade to be determined by the professor.

3. The case write-up is a two-page, 1.5 spaced, 12 point font report with up to six pages of appendices (exhibits such as graphs and tables).

4. Do not spend time re-hashing the issue in the case. I am more interested in your analysis and solution to the problem in the case. Assume that I (and your classmates) have read the case and adequately understand the issue. Just give a two or three sentence synopsis of the issue.

5. Importantly, you and your group must take a position regarding the problem in the case and make specific recommendations on how to solve it. Support your recommendations as succinctly and as effectively as possible.

Academic Support Services: If you experience difficulty in this course for any reason, please don’t hesitate to consult with me. In addition to the resources of the department, a wide range of services is available to support you in your efforts to meet the course requirements.

• Academic Support Center (x3360, MGC 243) offers study skills workshops, individual instruction, tutor referrals, and services for students with learning disabilities. Writing support is available in the ASC Writing Lab or in the Writing Center, Battelle 228. • Counseling Center (x3500, MGC 214) offers counseling and consultations regarding personal concerns, self-help information, and connections to off-campus mental health resources. • Disability Support Services (x3315, MGC 206) offers technical and practical support and assistance with accommodations for students with physical, medical, or psychological disabilities.

If you qualify for accommodations because of a disability, please notify me in a timely manner with a letter from the Academic Support Center or Disability Support Services so that we can make arrangements to address your needs.

Academic Integrity: Academic integrity is paramount in higher education and essential to effective teaching and learning. As a professional school, the Kogod School of Business is committed to preparing our students and graduates to value the notion of integrity. In fact, no issue at American University is more serious or addressed with greater severity than a breach of academic integrity.

Standards of academic conduct are governed by the University’s Academic Integrity Code. By enrolling in the School and registering for this course, you acknowledge your familiarity with the Code and pledge to abide by it. All suspected violations of the Code will be immediately referred to the Office of the Dean. Disciplinary action, including failure for the course, suspension, or dismissal, may result.

Additional information about the Code (i.e. acceptable forms of collaboration, definitions of plagiarism, use of sources including the Internet, and the adjudication process) can be found in a number of places including the University’s Academic Regulations , Student Handbook , and website at < http://www.american.edu/academics/integrity >. If you have any questions about academic integrity or standards of conduct in this course, please discuss them with your instructor.

Pandemic Planning : In the event of a declared pandemic (influenza or other communicable disease), American University will implement a plan for meeting the needs of all members of the university community. Should the university be required to close for a period of time, we are committed to ensuring that all aspects of our educational programs will be delivered to our students. These may include altering and extending the duration of the traditional term schedule to complete essential instruction in the traditional format and/or use of distance instructional methods. Specific strategies will vary from class to class, depending on the format of the course and the timing of the emergency. Faculty will communicate class-specific information to students via AU e-mail and Blackboard, while students must inform their faculty immediately of any absence due to illness. Students are responsible for checking their AU e-mail regularly and keeping themselves informed of emergencies. In the event of a declared pandemic or other emergency, students should refer to the AU Web site ( www. prepared. american.edu ) and the AU information line at (202) 885-1100 for general university-wide information, as well as contact their faculty and/or respective dean’s office for course and school/ college-specific information.

Tentative Course Schedule for Corporate Governance (FIN-687) Fall, 2009 (Prof. Ron Anderson)

Date Book Chapters Homework Assignment August 24 Overview of Course

September 1 Review of Corporate Valuation Readings : Hist. Dev. of Corporate Governance (MM, CG Volume, Chapter 2) - (BB) September 7 Labor Day – no class September 11 Corporate Valuation Case Study on Corporate Val & Gov : British Land (HBS: 9-208-064) September 1 4 Insights into Human Behavior: Readings : Agency and Stewardship (1) Stockholder-Manager Conflicts and Firm Value (BB) (2) Costs of Uncontrolled Principal-Agent Problems ( Nord, CG Volume, Chapter 10) - (BB)

Case Study on Stewards & Agents : Manville Corp. Fiber Glass Group A (HBS: 394117) September 21 Boards of Directors Readings : (1) Goldman Sach’s Article #1 (BB) (2) Goldman Sach’s Article #2 (BB) (3) What Makes Great Boards Great (HBS: R0209H)

Practical Work Assignment : Boards of Directors • GE Proxy Statement (BB) • Campbell Soup Proxy Statement (BB)

Case Study on Boards of Directors : New York Times Co. (HBS: 207113) September 28 Executive Compensation Readings : (1) Ethical choices in the design and administration of executive compensation programs (HBS: BH238)

Practical Work Assignment : Executive Compensation • GE Proxy Statement (BB) • Campbell Soup Proxy Statement (BB) • Comp. Excel Spreadsheet (BB)

Case Vignette on Executive Compensation : Say on Pay: Does the Buck Stop Here? (HBS: CG-12)

October 5 Executive Compensation Readings : (1) Pay Without Performance: Overview of the Issues (BB) (2) Is U.S. CEO Compensation Broken? (BB)

Case Study on Executive Compensation : Attention Shoppers: Executive Compensation at Kroger, Safeway, Costco, and Whole Foods (HBS: CG-13) October 12 CEO Succession/Termination Readings : (1) The World’s Most Prominent Temp Workers (BB) (2) Holes at the Top: Why CEO Firings Backfire (HBS – 2357) (3) Off with his Head? (HBS: R0109A)

Case Study on CEOs in Crisis : The Coca-Cola Company (A): The Rise and Fall of M. Douglas Ivester (abridged) (HBS: 9- 808-074) October 19 Activist Shareholders Readings : Institutional Investors: The Reluctant Activists (HBS- 94111)

Practical Work Assignment : Large Shareholders • GE Proxy Statement (BB) • Campbell Soup Proxy Statement (BB) • Cal. Pizza Kitchen (BB)

Case Study on Activist Shareholders : Shareholder Activists at Friendly Ice Cream (HBS: 9-108-024) October 26 Market for Corporate Control Readings : Proxy Contest (Sz, CG Volume, Chapter 25) - (BB)

Case Study on Market for Corporate Control : Oracle’s Hostile Takeover of PeopleSoft (A) (HBS: CG-4A)

November 2 Family Firms Readings : U.S. Family-Run Companies – They May Be Better Than You Think (BB: JACF)

Case Study on Family Firms : Academia Barilla (HBS: 9-507-001) November 9 External Regulation (SOX) Readings: The Unexpected Benefits of Sarbanes-Oxley (HBS: R0604J)

Case Study on SOX : Cutter & Buck (A) (HBS-9-806-028) Governan ce and the Financial Crisis November 16 Governance Failures Readings : (1) Breach of Trust: Leadership in a Market Economy (BB: Leeds)

Case Study on Governance Failures : AIG – Blame for the Bailout (HBS: A-203) November 23 Government Intervention Ca se Study on External Governance: The Tip of the Iceberg: JP Morgan Chase and Bear Stearns (HBS: 9-309-001).

December 30 Government Policy Resp onse Government Response : U.S. Subprime Mortgage Crisis: Policy Reactions (B) (HBS: 9-709-045) December 7th , Final Exam Period 5 :30 to 8 :00 pm

You have registered for Corporate Governance - Fall 2009 (FIN-687).

I have created a set of course materials at the Harvard Business Education web site. This email will provide you with information about the two steps you will now take to access your course material.

To access the Harvard Business Education site, follow this link: http://cb.hbsp.harvard.edu/cb/access/4420875

If you have not registered with the Harvard Business Education site, it will be necessary to do so now. Once you have completed the brief registration process, you will be able to log in. Once logged in you will be able to access the material I have assigned for the course. For your reference, the course materials you need are also listed at the end of this email.

Note that the format of classroom materials may differ. Most will be available in PDF and can be viewed with Adobe Acrobat Reader. Simulations and Online Courses require you to access them online. A few materials may require that a hard copy be shipped to you. All PDFs and eLearning content are available to you through your Harvard Business Education library for 6 months from the date of purchase.

For subsequent access, you will need to login at www.hbsp.harvard.edu and go to My Library->Courses

I hope you find this a convenient way to access your course materials. If you have any questions about the materials, please contact me at [email protected].

For technical assistance, please contact Harvard Business Publishing Customer Service at 1- 800-810-8858 or 617-783-7700 from 8am-8pm EST. Customer Service can also be reached at [email protected].

Thank you.