The Governance Revolution: What Every Board Member Needs to Know, Now!

ISBN-13: 9781547416448 / Angielski / Miękka / 2018 / 316 str.

Midanek, Deborah Hicks

Recenzje

The Governance Revolution is a must-read for any current or aspiring corporate director. Deborah Hicks Midanek has created an eminently readable, incredibly pragmatic, and extremely valuable playbook for corporate directors. This is the one book every director should read to gain a better understanding of the current corporate governance revolution!

Harvey Pitt, CEO, Kalorama Partners, LLC; Former Chairman, United States Securities & Exchange Commission

Moving our corporations toward sustainable business practice requires that boards of directors stand and deliver. This powerful book is ideal for every director and member of senior leadership who wants to make a difference.

Halla Tomasdottir, CEO, The B Team

This is truly brilliant. Frankly I opened it with a sense of obligation to skim, but that did not last. I read the whole thing word for word. The scope is breathtaking. It is well researched, exhaustive and deeply thoughtful. Frankly I was expecting a modest "how to" and instead got a definitive history. Congratulations!

Robert J. Rosenberg, retired partner and co-chair of Insolvency Practice Group at Latham & Watkins LLP; frequent independent director

I'm still reading the book and I have to say WOW. Most of us take some facts and surround them each by 1000+ words. You take a fact and add two more to make a sentence. I've rarely seen such an information packed book. I've been a non-executive director and trustee of various companies/charities but this is opening my eyes to all the things that directors forget or get steered away from.

Stefan Drew, Author, Futurist, Director, Marketing Magician Enterprises, Ltd

A thorough and thought-provoking consideration of the role of the board in modern business, and why we ought to be talking more about it. With mix of research, legal insight and personal example, Midanek demonstrates not only how boards ought to function, but how more thoughtful approaches to governance can and should restore business to a more sustainable and trusted force in society. I wish I'd had this book in business school!

Michele Miller, Author & Television Writer, The Underwriting

Ms. Midanek combines historical research, personal experience, and current debates in a compelling read. Her book provides context for many of today's discussions about the role of corporations and who's in charge.

Gwen Finegan, Board Member and Strategic Advisor to Health Care Systems

This book has opened my eyes to many important concepts, and confirmed my beliefs about others. While much of the material may not be new, I think it is both new and important to see these ideas written down. Never have these principles been so important for people to understand. While the ideas can be complex, they are explained in human terms. I like this book!

Chantha Nguon, Executive Director, Stung Treng Women's Development Center, Cambodia

Drawing on her encyclopedic knowledge of business history and decades of practical experience inside corporate boardrooms, Deborah brilliantly illuminates and breathes life into dry and dusty concepts like fiduciary duties, maximizing shareholder value, and exercising reasoned business judgment. Deborah encourages corporate directors to flex their collective corporate governance muscles to enthusiastically participate in building robust businesses that serve and reward every constituency today and lay foundations of opportunity for future generations.

Peter A. Chapman, Publisher, Beard Group, Inc.

This book is a must-read not only for current and prospective directors but for anyone who wants to understand the concept of corporations and the way in which they are and should be managed. Bravo to this author who dives into the real heart of how we arrived at corporate America as it exists today and the right path to righting our ship! She has gone in depth to the complexities of the relationships between shareholders, management and directors and has explained it so that a general readership can understand. This book is enlightening, provocative and fun!

John L. Cook Esq., Cofounder & Partner (Ret.), Cook, Barkett, Ponder & Wolz, L.C.

The author is an anthropologist who brings back great stories of that weird tribe of corporate directors; she describes boardroom cultures, often dysfunctional, and shows us how to move and improve them. She is a social psychologist, alert to examples of conformity pressures, groupthink, and emergent leadership in board meetings. She is an economist, bringing the interests of creditors, stockholders, and customers into board deliberations. Her voice is personable and inviting; the experience and examples in this book can encourage seminar discussions across the social sciences.

Clark R. McCauley, Jr., Research Professor of Psychology, Bryn Mawr College; Founding Editor Emeritus, Dynamics of Asymmetric Conflict; Co-Director, Solomon Asch Center for Study of Ethnopolitical Conflict

Ms. Midanek's book has not only helped me as the CEO understand how better to use my board, but it will be required reading for all members of the board and senior management. Board members who can challenge, collaboratively, are the best board members a CEO can have; they promote useful discussion, new ideas, and are generally more supportive of the process. A board member who believes he or she is the smartest person in the room, however, will spew the most irrelevant anecdote, be the worst listener, and the least productive. This book provides useful perspective to help all of them to work better as a group in service to the company.

Darren Latimer, Chief Executive Officer, Stonegate Capital Holdings

By tracing how corporations and their boards have evolved, Ms. Midanek provides a unique historical perspective on the role of corporations in society going back to the trading companies in the Netherlands and Britain in the 17th century. This well-written history is a valuable read for business and law students and teachers as well as for today's officers and directors and their advisors.

Lewis H. Lazarus, Partner, Morris James

"All directors want to help the companies they serve to flourish," writes Deborah Hicks Midanek in her valuable book. Drawing on her store of boardroom experience, this specialist in how boards of directors think and act tackles the big questions such as "Who owns the company?"

James Kristie, Editor-in-Chief and Associate Publisher, Directors & Boards, Retired

The Governance Revolution is a must read for board members and risk and legal professionals advising boards. Deborah Midanek makes the case for a new look at the purpose of corporations and the need for long term perspectives...something sorely missing today. This book will help you in your board

service.

Catherine Allen, Chairman and CEO, The Santa Fe Group; a multi-board director and 2018 NACD Directorship Honoree

The release of this publication could not be more timely or on point. Directors face more challenges and exposure than they ever have. This book is extremely informative and a tremendous resource tool for directors especially those that are independent. Kudos to Ms. Midanek for having the insight and tenacity to write this book.

Trey Monsour, Esq., Shareholder, Polsinelli, PC

Spis treści

Part I: The System and How It Came To Be  1

Chapter 1: How Our Governance System Began  3

The First Limited Liability Corporation  3

Amsterdam Stock Exchange Established to List VOC Securities  4

VOC Completes Initial Public Offering, Possibly World’s First  4

The Governance of VOC Establishes the Model  5

The Lords Seventeen Governance Structure Drawn from Guild

System  5

VOC Confronts a Large Activist Shareholder  6

. . . And a Bear Syndicate  6

The Corporate Form Advances and Spreads—And with It, the Board  7

Corporations Arrived in the New World  8

And Bubbles Burst  9

Chapter 2: The Emergence of the Corporation in United States  11

New York Pioneers Simple Incorporation Procedure  11

Boston Manufacturing Company is First Private Corporation in United

States  12

Corporations Gain Power Under State Control  13

Economic Opportunity Expands; Farmers and Artisans Suffer

Disruption  14

Corporate Control is Concentrated  15

How J.D. Rockefeller Went from Rags to Riches  15

The Government Fights Back, Kind Of  16

Early Days of the New York Stock Exchange  17

Teddy Busts the Trusts  19

Government Power Takes on Commercial Power: Teddy v J.P.  19

Unintended Consequences Lead to More Antitrust Laws  20

Chapter 3: Post–World War I Developments  23

The Stock Market Crashes  23

The Great Depression and FDR’s New Deal  23

Safety Net for Banks Created  24

Regulation of Securities and Securities Markets Takes Root  25

Safety Net Extended to Citizens as Social Security is Born  25

Frustration Sets in as Unemployment Persists  26

Government and Business Mobilize for World War II  27

Roosevelt and Business Create Formidable Alliance  27

Solidarity Works Miracles  28

Wartime Success Reaches Far Beyond Battlefields  29

Chapter 4: The Glow Following World War II  31

The 1950s Board Role  31

Stock Market Investing is Patriotic Duty  32

The Nifty Fifty Catches On  33

Investor Relations Become a Corporate Function  34

Chapter 5: Shifting Dynamics from 1970 to 2000  35

Agency Theory is Born  35

The Stock Market Corrects  36

Outrage over the Wreck of Penn Central Fuels New Focus on Board

Role  36

Broad Corruption Revealed Leads to Focus on Governance Per Se  37

The Board as Overseer Takes Root as Independent Directors Become

Desirable  38

The Definition of Independence Proves Elusive; We Know It When We

See It  38

The 1980s Board Role: The Board Becomes Important  39

Mighty Institutional Investors Weigh In  40

The Courts Recognize Independent Judgment of the Board as Mission

Critical  41

Economic Uncertainty and Social Unrest Reduce American

Confidence  42

Market Crashes on Black Monday  42

Changing Market Forces Become Visible  43

NYSE Establishes Safeguards  43

The 1990s Board: Independence Criteria Tighten as Equity Linked

Compensation Grows  44

True Independence Grows in Value  45

Equity Linked Compensation Creates Moral Hazard  46

Independence of Mind Needs Help from Independence of

Process  46

Revolving CEOs  47

Chapter 6: Post 2000 Intensification of Focus on the Board  49

Corruption Eruption Leads to Sarbanes Oxley and Growing Focus on

Board  50

The Functioning of the Board of Directors Gains Attention  52

Sarbanes-Oxley Act  54

Part II: The Players and Capital Market Forces  59

Chapter 7: The Rise of Independent/Disinterested Directors  61

Considering Independent Director Effectiveness  61

Dueling Definitions  62

New York Stock Exchange Listing Requirements Stress Independence of

Directors  62

Independent Directors Fill a Structural and Legal Need  66

Chapter 8: The Rise of Institutional Investors  69

Mutual Fund Development  69

Comments from Mutual Fund Leader John C. Bogle  71

The Growth of Passive Investing  74

The Defined Benefit Pension Plan Grows  75

Employee Retirement Income Security Act of 1974 (ERISA) Strengthens

Pension Rules  76

The Defined Benefit Pension Plan Declines  77

Retirement Assets Shift into Mutual Funds  78

Public Sector Pension Plans  78

The Growing Pension Crisis  79

Investing by Public and Private Plan Fiduciaries  80

Shifting Patterns of Share Ownership in United States  82

The Perils and Possibilities of Concentrated Share Ownership  83

The Rise of Proxy Advisor Power  84

Proxy Advisors Helped Interpret High Volume of Information  85

Responsible Voting of Proxies in Best Interests of Clients

Required  85

Proxy Advisors Take Heed: Physician, Heal Thyself  86

Chapter 9: The Impact of The Great Inflation  89

The Seeds of the Great Inflation Are Sown by the Fateful Phillips

Curve  89

Our Economy Fights Another War, on Several Fronts  91

Employment v. Inflation  91

Federal Reserve Chairman Volcker Toughs It Out  92

Impact of Prolonged Inflation on Capital Market Innovation  94

Securitization Solves a Genuine Problem, and Turns the World Upside

Down  94

Not Your Daddy’s Trading Floor  95

Interest Rate Arbitrage Comes of Age with the Swap Market  96

Chapter 10: Mortgage Backed Securities and Structured Products

Conundrums  99

Using Securitization Techniques, the Sky Was the Limit—Or Maybe

Not  100

The Mortgage Derivative Market Implodes  101

Hark, Securitization of Sub Prime Mortgages Begins  101

Earnings as Defined by Generally Accepted Accounting Principles May

Not Create Cash  102

Sub Prime Industry Almost Died in 1998  103

Public Policy Starts the Subprime Cycle Again  103

Repeal of Glass Steagall Act Allows Commercial Banks and Investment

Banks to Compete  104

And We Pushed Ourselves into the Abyss  105

Low Interest Rates Fuel Frenzies in Multiple Arenas  105

Collateralized Debt Obligations Explode, In More Ways Than

One  106

The Abyss Itself  106

Multiple Financial Institutions Fail  107

And WaMu, Too, Bites the Dust  108

Chapter 11: The Aftermath of the Abyss  111

Chapter 12: The Rise of Leveraged Buyouts, High Yield Bonds, and Private

Equity Investment  113

No Longer Your Granddaddy’s Way to Buy a Company  113

The Venture Capital Firm is Born  114

The Private Equity Fund is Born  114

The Leveraged Buy Out Arrives  115

Pension Plans Buy in to Private Equity Investing  116

The Hostile Takeover Epidemic  117

The Role of Michael Milken  117

Milken Flexes His Funding Muscles  118

Corporate Titans Are Shaken by an Upstart  119

The Government Fights Back—For Real  119

Giuliani Plays Hardball with RICO Threat  120

Milken Pleads, and NOT to Engaging in Insider Trading  121

And Drexel Fails  122

And Restructures Its Own Board of Directors  122

Lasting Impact of Milken and Drexel Burnham  123

Private Equity Goes Public  123

Chapter 13: The Rise of Hedge Funds and Emergence of Aggressive

Activism  125

Hedge Funds Remain Largely Opaque and Unregulated  125

Hedge Funds Emerge as Activists  126

Traditional Institutional Investors Join the Fray  127

The Current Impact of Activism  128

Voting Results on Shareholder Proposals  129

Chapter 14: The Evolution of the New York Stock Exchange  131

Part III: The Role of The Board  133

Chapter 15: Clarifying the Rights and Roles of the Board and the

Shareholders  137

The Board Serves the Corporation as Its Agent  138

The Powers of the Board  139

Public Company Ownership  140

Functional Principles of the Board  141

Accountability of the Board  143

Defining Board Success  143

The Purpose of the Corporation Project  145

Short Termism Really Is a Problem  146

Chapter 16: Assessing the Proliferating Policies and Principles  149

OECD Encourages Adoption of National Codes of Governance  150

Other Voices Join in  150

Chapter 17: Considering the Proposed New Paradigm  153

Summary Roadmap for the New Paradigm  153

The New Paradigm Attempts a Synthesis of Good Corporate Governance

Concepts  155

Proposed Investor Behavior  158

New Paradigm Proposes Integrated Long-Term Investment Approach  159

Proposed Integration of Citizenship Matters into Investment

Strategy  159

Proposed Disclosure of Investor Policies and Preference  160

And Now Comes CIRCA, Council for Investor Rights and Corporate

Accountability  161

Activist Playbook  162

Proxy Fights and Shareholder Candidates  163

The Bower and Paine Analysis of Maximizing Shareholder Value as

Corporate Goal  163

The Dangers of Agency Theory  165

Part IV: Doing the Job  169

Boards Must Protect Corporation Regardless of Conflicting Agendas  169

Chapter 18: Review Issues for Boards to Address Highlighted by NYSE  171

Executing the Work of the Board  173

Chapter 19: Establish the Appropriate “Tone at the Top”  175

Relentless Focus on Ethical Behavior and Discerning the Right Thing to

Do  178

Training as to What Ethical Behavior Means is Important in Our

Changing World  179

Ensure Reports on Compliance are Made Directly to the Board

Periodically  179

Chapter 20: Choose the CEO Wisely and Actively Plan for Succession  181

Keep the Emergency Succession Plan Current  181

Build a Future View of Company Needs into Longer Term Succession

Planning  182

Setting Criteria and Developing Possible Candidates  182

Work with the Incumbent  183

Know Your Senior Management Team  184

Chapter 21: Develop a Strong Organizational Framework  187

Chapter 22: Tailor Board Work to the Company  189

Board Leadership  189

Committee Structure  190

Audit Committee  192

Compensation Committee  194

Nominating and Corporate Governance Committee  195

Other Committees  196

Special Committees  196

Special Negotiation Committee  196

Special Litigation Committee  197

Special Investigation Committee  197

Board Information  198

Information Security  198

Collegiality  199

Manage Communication Mindfully  199

Executive Session  201

Meeting with Management  201

Setting the Agenda  202

Facilitate Candid Communication and Trusting Relationships  202

In Crisis the Buck Stops with the Board  203

No Time to Resign  204

Chapter 23: Focus Intently on Compensation  205

Executive Compensation  205

Fairly Compensate Directors  205

Chapter 24: Seek Wisdom, Courage and Breadth of Experience in Director

Recruitment  207

Get the Right Mix of Directors in the Boardroom  208

Value Tempered Judgment over Technical Expertise  2108

Chapter 25: Actively Evaluate Board Performance to Constantly

Improve  213

Developing the Process  213

Chapter 26: Manage Risk Effectively  217

Further Comments on the Board and Cybersecurity  220

Never Underestimate the Impact of Human Error  221

Importance of Plans  221

Chapter 27: Independently Evaluate the Impact and Execution of

Transactions  223

Chapter 28: Communicate Clearly, Consistently and Constantly  225

Part V: Hazards and Their Navigation  229

Chapter 29: Address Individual Hazards and Personal Fear  231

Liability Concerns  231

Efforts to Insulate Directors  232

Directors and Candidates Should Understand the Protections They

Have  234

Beware the Responsible Corporate Officer Doctrine  234

Chapter 30: Navigate Corporate Hazards and Distressed Situations  237

Liquidity: What to Do When Cash Runs Low  238

Form a Board Committee to Focus Closely on the Emergency  238

Is This Really a Role for the Board?  240

The Corporation Is Counsel’s Client; The Board Retains Counsel  241

The Next Step: Assess Viability  241

Bringing in Help  244

Assessing Leadership Resources  245

Structuring the Leadership Role  245

Communicate the Plan, and the Progress  246

Just Do It  247

Appreciation of the Effort Put in Goes a Long Way  248

Yes, Virginia, You Did Sign Up for This  248

Becoming the Debtor in Possession  248

Chapter 31: Recognize and Rectify Hazards of Board Process  251

Continuing Confusion as to Responsibility and Authority  251

Group Think  252

Faulty Filters  252

Corporate Myths  253

Conformity Pressure  253

The State Dinner  254

Bullying  254

Chapter 32: Know that Steady, Purposeful Work is the Antidote  255

Reading the Room  255

Preparing  256

Owning Your Style  256

Finding Your Point of View—and Theirs  256

Leading with Your Ears  257

Addressing Biases  257

Overconfidence  258

Confirmation Bias  258

Survival Bias  259

Attribution Bias  259

Building a Championship Team  260

Dissent is Not Disloyalty  261

Building a Portfolio of Roles  261

Chapter 33: Survive Success and Relentlessly Build Resilience  263

Conclusion: Own the Role and Build the Future  267

Index 269

O autorze

Deborah Hicks Midanek, Principal, Prevail Investments, LLC; Vice Chairman & Independent Director, Innovate MS., USA