1.

Corporate governance
 What can you say about the company’s governance quality?
o Ownership: shareholders by type; major blockholders; any dual class shares and other
deviations from the one share-one vote rule
o Board quality: election method, size, independence, age, diversity etc.
o Use of anti-takeover devices: classified board, poison pill, golden parachute etc.
o Level and structure of executive compensation
o Shareholder activism: shareholder proposals presented at annual meetings; proxy
fights; class action suits – please discuss outcomes and implementation
 How does the company’s governance quality compare to that of its immediate peers?

Corporate Governance

Corporate governance refers to the policies, rules, and practices that determine how the
management oversees and manages an organization's operations. In other words, it is the system
by which an organization is controlled and directed (Bhowmik & Bhattacharya, 2019). The paper
aims the evaluate Oracle’s governance quality in depth after which its corporate governance will
be compared with its competitors. Why is it important to have a clear understanding of the
corporate governance of a company? Corporate governance has received increased focus since
the Enron, WorldCom, Tyco frauds. According to the article published in Harvard Business
Review, it turned out that most of the frauds happened without neither the incompetence of the
board nor the involvement of it, indicating no corruption whatsoever. Most of the members were
de facto doing quite a good job. What does it mean then? It means that the operation and
evaluation of a board should be fundamentally altered. Strong, active, working groups are
needed, who trust each other, yet who are able and willing to challenge one another and the
senior management as well, with critical issues.1

Ownership

According to Nasdaq, Oracle has institutional ownership of 50,46%. The biggest institutional
shareholders are the Vanguard Group INC, Blackrock INC, and State Street Corp. According to
marketscreener.com, the largest shareholder is the founder, Chairman, and & Chief Technology
Officer, Larry Ellison with 37,8% of the total shares held. 2 The company is not deviating from
the one share one vote rule, according to the company’s proxy statement it only has single class
shares, with each share entitled to one vote. The executives are held accountable to the
stockholders, and the stockholders have a power that is in proportion to the economic interest
held in Oracles shares.

Use of anti-takeover devices

1
https://hbr.org/2002/09/what-makes-great-boards-great
2
https://www.marketscreener.com/quote/stock/ORACLE-CORPORATION-13620698/company/
Oracle has already faced anti-takeover devices being used during its mergers and acquisitions. In
2014, Micros Systems Inc. executives received a golden parachute before Oracle would take over
the company, which granted Micros’ executives a very significant bonus payout if they decided
to leave the company, or in case they would be terminated within the first two years. PeopleSoft
has opted to use the poison pill by offering its customer a rebate which was many times higher
than the license fee, in case Oracle would proceed with the takeover, however, in the end, the two
companies have managed to sign a definitive merger agreement in 2014 December. 34 In the 43
years of Oracle’s history, the company did not have to defend itself from hostile takeovers.
According to the most recent Proxy Statement of the company, it avoids using the practice of
golden parachute tax gross-up, and since the whole board is practically reelected, there is no
classified board either. There is one very significant anti-takeover device in place according to
the Proxy Statement issued by Oracle in 2020 September, which is the very generous stock
option awards for Mr. Ellison, Mr. Hurd, and Ms. Catz in value of 103,700,000 USD each.

Board Quality

Based on the Oracle’s website, the Board of Directors of Oracle currently consists of 14
members.5 The average age of the board of directors in Oracle is 64 years, with 57,14% of board
members being above 60 years old, while 100% of the members are being above 50 years old.
This means, that the board of directors of Oracle is comprised of highly experienced individuals,
which is in line with the article published by Annalisa Barrett, that was researching the age
dispersion of the S&P 500. According to the article, 80% of the S&P 500 boards have the average
age of sixties, while only two percent of average age being under 55 (the minimum is 48,6) or
above 70 (the maximum being 75,5). 6 As Tomas Pereira pointed out in his article, C-suite
executives, who are older than 50 years old are usually very experienced with risk management
and human resources, legal and governance skills, while the youngest age group, those, who are
under 40 years old are excelling in corporate leadership and strategy. An important factor is
energy, which is also better represented by the younger age group alongside technical expertise
which is a weakness in the current setup of the board members at Oracle due to the fact, that even
the youngest board member is already 53 years old. Seniority and a long tenure can contribute to
the efficient operation of the board; however, it is questionable whether such an unbalanced
seniority composition is an added value or rather a liability. It is worth mentioning that although
there is no mandatory retirement age, yet 4 members out of the 14 are above 80 years old, it is
likely that new board members will emerge soon.7 According to the Proxy statement of Oracle,
the company has a 36% diversity in its Board with 4 members out of 14 being women, including
the co-CEO Safra A. Catz. However, there is a concerning factor related to the current board
structure which is, that the board does not include any Asian-American, African American, or
any other minority representative except for Vikal Sikka. The board also lacks a Black
representative. This is very important because a lawsuit has been filed against the company by

3
https://www.oracle.com/corporate/pressrelease/oracle-buys-peoplesoft-121304.html
4
https://www.financialexpress.com/market/repelling-the-corporate-shark-5-times-when-companies-foiled-hostile-
takeover-attempts/814968/
5
https://www.oracle.com/corporate/executives/board-of-directors.html
6
https://corpgov.law.harvard.edu/2017/04/06/age-diversity-within-boards-of-directors-of-the-sp-500-companies/
7
https://corpgov.law.harvard.edu/2018/04/04/how-board-skills-vary-by-director-age-groups/
plaintiff R. Andre Klein exactly for this reason, for the lack of minority representation. The
lawsuit has been filed in 2020 July in the U.S. District Court in San Francisco and is demanding
the replacement of Larry Ellison as Chairman of the Board alongside two additional members by
Black individuals and other minorities before the Company’s annual meeting in 2020 November.
The plaintiff, who is a shareholder in the company, is also seeking 400 M USD in damages above
the demanded change in the current board structure. So far, Oracle has not commented on the
issue, and there is no information about any steps taken either. 8 According to the Proxy
Statement of Oracle on the SEC’s website, the company has proposed for the current 14 members
of the board to be voted on as directors. The proxy statement confirms that out of the 14
nominees, 9 are independent. however, independence is of the most important factors when
evaluating directors, yet it is one of the most challenging elements to assess as well, as it is
particularly hard to prove if someone is indeed independent, nevertheless the independence of a
director will be evaluated based on his or her past decisions. Predominantly, it has been identified
that the longer the tenure, the harder it is for the board member to remain independent. For
exactly this reason some countries have put a restriction to the maximum tenure, requiring an
explanation why the company has decided to trust the independence of the board member which
has to be presented in the company’s annual report. As a rule of thumb, this number is
somewhere between 9-12 years.9 10 Even with the addition of two new members, Rona and
Vishal, Oracle’s average tenure is 13,78 years, which indicates that the current form of the board
is not necessarily independent. There is an immense outlier in the group in form of the founder,
and CTO, Lawrence J. Ellison, who has been part of the board for 43 consecutive years.
Notwithstanding, even excluding him, the average tenure remains extremely high, remaining
11,53 years on average, which is still an extreme value, but even after excluding the tenure of the
non-independent members, it turns out, that the average tenure increases to 11,55. Therefore the
final conclusion about the board can be drawn that while it cannot be proven that it is not
independent, there is a significant risk that.

Oracle’s Board of Directors Compensation

From the director compensation of the company, it can be observed, that all non-employee
directors received a similar compensation which was between 122,500 USD and 75,000 USD
with an additional, substantial stock awards in value of 343,740 USD, however, there are two
outliers, Rona A. Fairhead and Vishal Sikka. Rona has received 671,471 USD salary, while
Vishal has received 507,527 USD salary with an additional 282,000 USD as other compensation.
Both share awards were the result of the new members joining in 2019, and thus their
compensation has been prorated accordingly, however, it is worth investigating why Vishal has
received an additional amount marked as other compensation. The compensation has been paid
for Hang Ten’s consultation services and sales support, which is wholly owned by Vishal.
Although this is not unethical, it is certainly questionable practice, even if Vishal is marked as
one of the non-independent members of the board. Oracle Corp. shareholders have turned down
8
https://rennepubliclawgroup.com/lawsuit-against-oracle-corporation/
9
https://s23.q4cdn.com/440135859/files/doc_downloads/proxy-voting-material/Proxy-Statement-2020-Final-
Bookmarked.pdf
10
https://alembeeks.com/oracle-directors-independence-tenure/
the company’s executive compensation plan for the 6th year straight after the company has paid
out more than 100 million USD compensation in the fiscal year 2018. The company has failed to
secure a majority during the voting in a say-on-pay vote as the majority of the shareholders
opposed, making the company the only one out of the S&P 500 which could not secure a
majority from 2011 until 2017. This happened despite the fact, that at this time, the founder and
CTO, Larry Ellison owned about 28% percent of the stocks.11 According to the Guardian, in 2013
when the motion has been defeated for the second time, Larry owned about 24% of Oracle
shares, which means that he has managed to increase his proportion of Oracle shares by almost
17% in 4 years.12 In the next 4 years, Larry has managed to secure 35% more shares compared to
2017, reaching 37,8% ownership in Oracle by 2020. It can be argued whether the substantial
increase in the number of owned shares. Even more so in the light of the fact, that according to
Financial Times, Larry Ellison has been among the top of the highest-paid business leaders by
2017 and was the 7th richest person in the world in 2019 (despite having an official salary of one
dollar a year, which of course does not include other compensation). This might explain the
shareholder unrest, and why the shareholders of Oracle have tied his salary to performance and
share price targets and voted against his salary increase.13

Shareholder activism

Stathopoulos and Voulgaris (2016) consider that shareholder activism concerns how shareholders
leverage their partial ownership rights to influence the corporation’s behavior by obligating,
demanding, and leading change. Over the years, Oracle’s shareholders have had a significant
impact on the running of the organization. For instance, in 2015, the management bowed to
several years of unrest by reducing the income of Larry Ellison, Oracle’s co-founder (Waters,
2017). Previously, he was one of the highest-paid business leaders across the United States.
Besides the pay cut, the stakeholders influenced the alteration of compensation terms that he
could not derive bonuses unless Oracle recorded improved performance and share price targets.
Oracle’s shareholders have also raised issues concerning the manipulation of the board. For
example, in 2014, investors cited low 1st quarter earnings caused by improper board
manipulation by Federico Pignatelli, Biolase’s chairman (Sarvestani, 2014). For several months,
this organization had been involved in proxy wars with Oracle Partners. The investors raised their
voices concerning the matter since Federico intended to control Oracle’s board illegally. The two
case scenarios reveal that Oracle’s stakeholders play a vital role in checking the management’s
decision and corporate governance to influence its running while safeguarding their interests.  

Oracle’s Corporate Governance compared to competitors’

11
https://www.bloomberg.com/news/articles/2017-11-15/oracle-investors-say-no-to-executive-pay-for-sixth-
straight-year
12
https://www.theguardian.com/business/2013/nov/01/oracle-executive-pay-deal-rejected-shareholders-larry-
ellison
13
https://www.ft.com/content/7f930ae0-aa19-11e7-ab55-27219df83c97
Oracle's board of directors embraces guidelines different from those of its competitors, such as
IBM, Microsoft, and Adobe and, SAP. The first aspect to consider is the directors' qualifications.
Most of the Board of Director's members should qualify as independent directors as per the
provisions of the Securities Exchange Act of 1934 (Elbardan & Kholeif, 2017). When choosing
the board's nominees, the Nomination and Governance Committee assesses each potential
candidate's independence, judgment, and character. Besides, it establishes core competencies in
areas such as accounting, finance, management, and economics. When it comes to IBM, the
board comprises 10 to 14 members chosen based on their qualifications (Singareddy et al., 2018).
Furthermore, the board's committees' structure, number, and functions are reviewed by the
Directors and Corporate Governance Committee. In Adobe, the board reviews its size
periodically to certify that the present number of members supports the organization. The
Nominating and Governance Committee is tasked with determining and reviewing the suitable
experiences, skills, and attributes needed by Board Members. Considering Microsoft,
shareholders choose board members based on skills and competencies to oversee the
organization's management. In particular, they work with management to achieve the
organization's long-term strategy and mission. Although SAP is a German company and has to
comply with the German Stock Corporation Act, since the company is a NYSE-listed company, it
is also subject to certain SEC and NYSE regulations and some U.S. laws. One key difference
between SAP and Oracle is that the 8 members of the Executive Board are appointed – and
removed if deemed necessary – by the Supervisory Board, which places an immense focus on
diversity. 14 A key differentiator concerning leadership roles is that Oracle's board compared to its
competitors is, that it does not embrace any policy that mandates the separation of the CEO's and
Chairman's roles. The board elects the two, and every position can either be occupied by a single
person or by different individuals. Furthermore, there is a belief that maintaining flexibility plays
a crucial role in determining whether these roles should be combined or separated based on
Oracle's needs. In Microsoft, the independent directors are responsible for appointing the chair of
the board. The board does not have a policy concerning whether the chair should be an affiliated
director, a management member, or an independent director (Chin et al., 2019). To enhance
leadership autonomy, the board may appoint a lead independent director, especially if the person
elected as chairman is not an independent director.

References

14
https://www.sap.com/corporate-en/investors/governance
Bhowmik, A., & Bhattacharya, A. (2019). Corporate Governance and its Importance in the

Startup World. The Management Accountant Journal, 54(12), 48-50.

Elbardan, H., & Kholeif, A. (2017). Enterprise resource planning, corporate governance, and

internal auditing. Springer Books.

Sarvestani, A. (2014). Activist investor Oracle revives proxy war at Biolase. Retrieved from

https://www.massdevice.com/activist-investor-oracle-revives-proxy-war-biolase/

Singareddy, R. R., Chandrasekaran, S., Annamalai, B., & Ranjan, P. (2018). Corporate

governance data of 6 Asian economies (2010–2017). Data in Brief, 20, 53-56.

Stathopoulos, K., & Voulgaris, G. (2016). The importance of shareholder activism: The case of

say‐on‐pay. Corporate Governance: An International Review, 24(3), 359-370.