Chapter-10

Dealing With External Pressure

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External Pressure
In general, crises requiring board response can be divided into three broad categories:

Shareholder actions directed at the board Hostile takeovers

Regulatory actions
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SHAREHOLDER ACTIVISM
In recent years, though, there has been a growing tendency for activists of one sort or another to seek change.
As a proven example, agitation by activists brought about extensive changes in the area of ensuring a safe supply of food and drugs for the U.S.

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Issues around Labor Relations
Issues around Labor Relations were so apparent that they eventually led to legal protection for most workers with regard to these basic workplace characteristics.

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Issues around Full Disclosure One of the basic tenets of us capitalism. with the shares of thousands of companies listed on the major stock exchanges. 5 . The entire body of legal requirements and turns been put into place gradually over many decades in response to the sequential appearance of newly perceived threats to free markets. is that all investors and potential investors (the public) should have access to the same information regarding all aspects of the operations of these companies.

the stage is set for a proxy fight. These fights take the form of mailings to shareholders.Proxy Fights When there are strong differences between a board and a company's shareholders as to the strategy being followed. 6 . or even the initiation of lawsuits. the financial results of the firm. advertisements in widely read newspapers. or a proposed merger or acquisition. the long-term outlook. Disenchanted shareholders may institute a public fight against the board's proposals.

groups of individuals who feet they have been denied fundamental rights by companies and large numbers of people who claim to have been hurt as a result of negligence on the part of manufacturers who have delivered allegedly unsafe products. 7 .Class-Action Lawsuits Class action lawsuits have been brought into the courts on behalf of environmental activists.

S. The recognition of such situations has led the boards and CEOs of numerous companies to simultaneously arrive at the conclusion that the consolidation of two or more smaller firms would provide the missing economies of scale. companies have found themselves in a fragmented competitive situation in which no firm has the economies of scale. 8 . U.FRIENDLY MERGERS In many industries.

and shareholders of both companies. lenders. customers. 9 .When both parties are already thinking along the same lines regarding the desirability of a merger. agreements often can be reached very quickly. suppliers. lessening the trauma to the employees.

In hostile takeover situations. 10 . as a consequence of the bitterness that results from the combative process. This brings to mind one of the advantages of hostile takeovers from a governance perspective. including the CEO. most of the management. and most of the board usually will be displaced.HOSTILE TAKEOVERS Hostile transactions come about when an aggressor company attempts to take over another company without the consent of its board.

defensive method Limitations on special meetings Staggered terms "Poison pills“ White Knights Greenmail 11 .

which would be more likely to result from an auction." Underlying this strategy would be a strong desire to achieve the best possible price for the shareholders of the company. The board may then proceed to seek out other possible acquirers for the company. 12 . The firm invited into the contest by the target company has come to be called a "white knight.White Knights In the event that an effective poison pill is not in effect.

if the total accumulation of shares acquired reaches some stipulated percentage of the total shares outstanding. the aggressor company must file a form with the SEC announcing the firm's intentions regarding the target company. 13 .Greenmail a new form of corporate predator: Their modus operandi is for the aggressor to begin to buy shares in a target company. After some time period.

will negotiate to repurchase the shares held by the raider for some premium above their acquisition cost. the board and the CEO of the target company. in order to be rid of the potential threat the aggressor may pose. The raider thus walks away with a rather fast and sometimes handsome premium on its investment. 14 . These transactions came to be called greenmail.Greenmail On some occasions.

CASE 10 BALANCING CEO. BOARD. AND SHAREHOLDER INTERESTS AFTER A HOSTILE TAKEOVER BID THE ISSUE 15 .

so mostly they don’t accept the hostile takeover which is maybe benefit to the shareholders. 16 .Generally .CEO and the board don’t want to remove the control right easily.

and complete disclosure of information designed to maintain orderly and fair markets.REGULATORY AGENCIES The primary agencies overseeing public companies are the federal Securities and Exchange Commission and the related state corporation commissions. 17 . the justice system comes into play with criminal proceedings. accurate. When fraud is detected. They are interested in timely.

Model of Corporate Governance 18 .

Complementar y knowledge Corporate governance structure and governance model 19 .

Thailand. part of France. Japan.Dual model (Germany model). Austria.Three main Structures: The CG board Structures in different country is different 1.UK.China.Australia. Germany. 2. etc 3.Canada. Unitary model.etc 20 .Japanese model .applied in US.Holland.etc.

Unitary Structure Model Appoint Shareholders Report Independent Auditors Working Relationship Power to Govern Suppliers/ Creditors Board of Directors Employees Customers 21 Providers of Non-Equity Finance CEO system (Tricker 1984) .1.

Grievance committee.Unitary Structure Model There are always some committee of board. ets 22 . Appointment committee.1. Remuneration committee. eg. Audit committee.

Board Structure Committees Board Audit Remuneration Appointment 23 .

Mostly are Nonexecutive or independentExecutive.In the Board. Us has the highest proportion of Non-executive or independentExecutive in the world. 24 . about 62%-80%.

CEO SYSTEM CEO (Chief Executive Office) COO (Chief Operating Office) CFO (Chief Financial Office) CTO (Chief Technology Office) CIO (Chief Information 0ffice) 25 .

Board Structure Separation of Chairman and CEO Chairman Is responsible for the board CEO Is responsible for the management 26 .

Structure Model Shareholders Dual Employees Representative Membership Supervisory Board Board of Management Suppliers/ Creditors Customers 27 (Tricker 1984) Independent Auditors .2.

just like Top-level managers in unitary model. half from employees. Dual Structure Model Supervisory Board just act as board of directors in the unitary model. 28 . Board of Management are all executive directors.they are all Non-executive directors. half from shareholders.2.

3. Japanese Structure Model Shareholder’s general meeting Board directors of Monitoring Statutory auditors Manager Board 29 .

30 . and powerful capital market . so it’s called external governance model. Anglo-American model( AngloSaxon shareholder model) higher decentralization of the ownership.Corporate governance model 1.

so focus on internal governance Model . always controled by the institutional investors.2.Germany & Japan model higher centralization of ownership . 31 .

32 .3.family-owned governance model east Asian Family always control the ownership and management in the same time.

Which model is Best? No Optimal Model Just suitable 33 .

and so on. there could be managers with their own turf to protect.The ten deadly sins of nonperforming boards 1 The board is wrongly structured: it could be too big. or there could be a wrong balance between directors with executive responsibilities and the others. in which case it is just a talking shop. 34 .

The ten deadly sins of nonperforming boards 2 Information. . 3 Major decisions. particularly financial information. such as 'bet your company' acquisitions or disposals are taken without challenge or with inadequate debate. 35 . or by cabals of the board. is inadequate and nothing is done about this. .

product or market development. 5 The board does not push management hard on succession. R&D..The ten deadly sins of non-performing boards 4 . and then there are no post-mortems to see if the decisions were correct or not. investment (including training). 36 ..

the wrong structure of indebtedness.6 The company's financing arrangements are not kept under review: the wrong banks. too many banks. 37 . the wrong risk profile. the wrong means of finance.

..7 It is a 'yes-man' board that will not take hard and unpleasant (but necessary) decisions. 8 . . and one that is. in fact. . 38 . under the domination of an all-powerful person or influence..

with inadequate time for discussion.9 The board meetings are social occasions. such as the non-existence of audit or remuneration committees or. 10 There is no evidence of any rigorous review. if these exist. over a good lunch. they are not taken seriously. 39 . and a rubber-stamping of decisions.

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