Compensation & Risk
Authors: Professor David F. Larcker and Brian Tayan,
Researcher, Corporate Governance Research Initiative
Stanford Graduate School of Business
This Research Spotlight provides a summary of the academic literature on how equity compensation influences CEO risk taking. It reviews the evidence of:
-The relation between stock options and CEO investment decisions
-The relation between options and the likelihood of “extreme” outcomes
-The incentives options create to increase market versus firm-specific risk
-The impact that options had on the Financial Crisis of 2008
-The relation between options and financial misreporting
This Research Spotlight expands upon issues introduced in the Quick Guide “Equity Ownership”.
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
What is Twitter and how do I use it in my small business? This presentation goes over the Twitter basics and how you can use it as a tool to grow your business and connect.
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12 Step Insider Guide to B2B Social Influencer Marketing MOI Global
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How do you find them? And how do you win their confidence and convince them to work with you?
We asked four of the biggest influencers in B2B marketing what makes an influencer tick, what makes them say yes, and what will make them enter into a long-term partnership with a brand.
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Customer Service: come Twitter trasforma il servizio clientiSaverio Bruno
GTConference Torino 13/06/2013. I Social Media hanno rivoluzionato le aziende non solo da un punto di vista comunicativo, ma anche in chiave di assistenza. In particolare Twitter grazie alla semplicità di utilizzo permette di rivolgersi alle aziende in maniera immediata. Purtroppo non sempre le imprese sono pronte a fornire questo tipo di servizio, perdendo una grossa opportunità. L'assistenza tramite i Social, infatti, se sfruttata correttamente, è uno strumento molto potente per il Costumer Care aziendale. Come può un'azienda effettuare un efficace servizio di assistenza clienti tramite i Social?
K-means Clustering Method for the Analysis of Log Dataidescitation
Clustering analysis method is one of the main
analytical methods in data mining; the method of clustering
algorithm will influence the clustering results directly. This
paper discusses the standard k-means clustering algorithm
and analyzes the shortcomings of standard k-means
algorithm. This paper also focuses on web usage mining to
analyze the data for pattern recognition. With the help of k-
means algorithm, pattern is identified.
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
12 Step Insider Guide to B2B Social Influencer Marketing MOI Global
When you contemplate an Influencer Marketing programme, you’re talking about engaging and working with a tiny 3% of people who command 90% of the influence in any user group.
How do you find them? And how do you win their confidence and convince them to work with you?
We asked four of the biggest influencers in B2B marketing what makes an influencer tick, what makes them say yes, and what will make them enter into a long-term partnership with a brand.
Read on for the result. Your 12-step Influencer Marketing guide,
packed with golden nuggets and priceless advice, straight from
the horse’s mouth.
Customer Service: come Twitter trasforma il servizio clientiSaverio Bruno
GTConference Torino 13/06/2013. I Social Media hanno rivoluzionato le aziende non solo da un punto di vista comunicativo, ma anche in chiave di assistenza. In particolare Twitter grazie alla semplicità di utilizzo permette di rivolgersi alle aziende in maniera immediata. Purtroppo non sempre le imprese sono pronte a fornire questo tipo di servizio, perdendo una grossa opportunità. L'assistenza tramite i Social, infatti, se sfruttata correttamente, è uno strumento molto potente per il Costumer Care aziendale. Come può un'azienda effettuare un efficace servizio di assistenza clienti tramite i Social?
K-means Clustering Method for the Analysis of Log Dataidescitation
Clustering analysis method is one of the main
analytical methods in data mining; the method of clustering
algorithm will influence the clustering results directly. This
paper discusses the standard k-means clustering algorithm
and analyzes the shortcomings of standard k-means
algorithm. This paper also focuses on web usage mining to
analyze the data for pattern recognition. With the help of k-
means algorithm, pattern is identified.
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
David F. Larcker, Brian Tayan, Vinay Trivedi, and Owen Wurzbacher, Stanford Closer Look Series, July 2, 2019
Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs.
We ask:
• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative, June 2019
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide will take an in-depth look at Shareholders and Activism.
By Brandon Boze, Margarita Krivitski, David F. Larcker, Brian Tayan, and Eva Zlotnicka
Stanford Closer Look Series
May 23, 2019
Recently, there has been debate among corporate managers, board of directors, and institutional investors around how best to incorporate ESG (environmental, social, and governance) factors into strategic and investment decision-making processes. In this Closer Look, we examine a framework informed by the experience of ValueAct Capital and include case examples.
We ask:
• What is the investment horizon prevalent among most companies today?
• Do companies miss long-term opportunities because of a focus on short-term costs?
• How many companies have an opportunity to profitably invest in ESG solutions?
• What factors determine whether a company can profitably invest in ESG solutions?
• Can investors earn competitive risk-adjusted returns through ESG investments?
• If so, how widespread is this opportunity?
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
This Research Spotlight provides a summary of the academic literature on how dual-class share structures influence firm value and corporate governance quality. It reviews the evidence of:
• The relation between dual-class shares and governance quality
• The relation between dual-class shares and tax avoidance
• The relation between dual-class shares and firm value and performance
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
By Courtney Hamilton, David F. Larcker, Stephen A. Miles, and Brian Tayan, Stanford Closer Look Series, February 15, 2019
Two decades ago, McKinsey advanced the idea that large U.S. companies are engaged in a “war for talent” and that to remain competitive they need to make a strategic effort to attract, retain, and develop the highest-performing executives. To understand the contribution of the human resources department to company strategy, we surveyed 85 CEOs and chief human resources officers at Fortune 1000 companies. In this Closer Look, we examine what these senior executives say about the contribution of HR to the strategic efforts and financial performance of their companies.
We ask:
• What role does HR play in the development of corporate strategy?
• Does HR have an equal voice or is it junior to other members of the senior management team?
• Do boards see HR and human capital as critical to corporate performance?
• How do boards ascertain whether management has the right HR strategy?
• How adept are companies at using data from HR systems to learn what programs work and why?
By David F. Larcker and Brian Tayan, Stanford Closer Look Series, December 3, 2018
Companies are required to have a reliable system of corporate governance in place at the time of IPO in order to protect the interests of public company investors and stakeholders. Yet, relatively little is known about the process by which they implement one. This Closer Look, based on detailed data from a sample of pre-IPO companies, examines the process by which companies go from essentially having no governance in place at the time of their founding to the fully established systems of governance required of public companies by the Securities and Exchange Commission. We examine the vastly different choices that companies make in deciding when and how to implement these standards.
We ask:
• What factors do CEOs and founders take into account in determining how to implement governance systems?
• Should regulators allow companies greater flexibility to tailor their governance systems to their specific needs?
• Which elements of governance add to business performance and which are done only for regulatory purposes?
• How much value does good governance add to a company’s overall valuation?
• When should small or medium sized companies that intend to remain private implement a governance system?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University surveyed 53 founders and CEOs of 47 companies that completed an Initial Public Offering in the U.S. between 2010 and 2018 to understand how corporate governance practices evolve from startup through IPO.
David F. Larcker, Stephen A. Miles, Brian Tayan, and Kim Wright-Violich
Stanford Closer Look Series, November 8, 2018
CEO activism—the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business—has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism.
We ask:
• How widespread is CEO activism?
• How well do boards understand the advocacy positions of their CEOs?
• Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?
• How should boards measure the costs and benefits of CEO activism?
• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?
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of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
Kseniya Leshchenko: Shared development support service model as the way to ma...Lviv Startup Club
Kseniya Leshchenko: Shared development support service model as the way to make small projects with small budgets profitable for the company (UA)
Kyiv PMDay 2024 Summer
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Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
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Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
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Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
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Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
The Influence of Marketing Strategy and Market Competition on Business Perfor...
Compensation & Risk - Research Spotlight
1. David F. Larcker and Brian Tayan
Corporate Governance Research Initiative
Stanford Graduate School of Business
COMPENSATION & RISK
RESEARCH SPOTLIGHT
2. KEY CONCEPTS
• Stock options counteract risk aversion.
• Executives with a large investment in company equity might become risk
averse to preserve their wealth.
• Two measures of their investment are relevant:
– Delta: ratio of change in value of wealth to 1 percent change in price.
– Measures how much executive gains (loses) if stock price goes up (down).
– Vega: ratio of change in value of wealth to 1 percent change in volatility.
– Measures how much executive gains (loses) if stock volatility goes up (down).
3. KEY CONCEPTS
• Executive holding stock:
– Delta. Wealth moves dollar-for-dollar (linearly) with stock price.
– (1 percent change in stock = 1 percent change in wealth).
– Vega. Wealth is unaffected by volatility of stock. Vega = zero.
• Executive holding options:
– Delta. Wealth moves nonlinearly with stock price.
– (1 percent change in stock produces a greater than 1 percent change in wealth).
– Vega. Wealth increases with volatility.
• Stock options encourage risk taking by giving incentive to increase volatility.
4. STOCK OPTIONS ENCOURAGE “RISKY” INVESTMENT
• Rajgopal and Shevlin (2002) examine whether stock options encourage
executives to invest in “risky” projects.
• Sample: 117 companies in oil and gas industry, 1993-1997.
• Findings: executives with stock options:
– Make riskier bets on oil exploration, measured by variation in future cash flows.
– Are less likely to hedge exposure to oil prices.
• Conclusion: stock options encourage managers to invest in higher risk,
higher reward projects.
5. STOCK OPTIONS CAN LEAD TO “EXTREME” OUTCOMES
• Sanders and Hambrick (2007) study impact of stock options on company
performance.
• Sample: 950 companies in S&P 1500 Index, 1993-2000.
• Findings: executives with stock options:
– Increase investment in R&D, capital expenditures, and acquisitions.
– Shareholder returns are more “extreme”—both positive and negative.
– (In this sample, outcomes were more likely to be negative than positive.)
• Conclusion: stock options lead to higher risk, higher return outcomes.
“High levels of stock options appear to motivate
CEOs to take big risks… to ‘swing for the fences.’”
6. FURTHER EVIDENCE OPTIONS ENCOURAGE RISK TAKING
• Coles, Daniel, and Naveen (2006) find that executives with large stock
option exposure spend more on R&D, reduce diversification, and increase
leverage.
• Sample: S&P 1500 companies from 1992-2002.
• Isolate the effects of vega and delta (prior studies do not).
• Findings: Higher vega leads to riskier choices.
• Conclusion: higher sensitivity to stock price volatility gives incentive to take
risk.
7. FURTHER EVIDENCE OPTIONS ENCOURAGE RISK TAKING
• Gormley, Matsa, and Milbourn (2013) find that executives with fewer
options reduce leverage, reduce R&D, hold more cash, and diversify.
• Sample: 143 firms with workers exposed to newly discovered carcinogen,
1980s-2000s.
• Findings:
– Company volatility increases due to litigation risk.
– Boards reduce vega of executive portfolio.
– Executives respond by reducing firm risk.
• Conclusion: lower sensitivity to stock price volatility gives incentive to
reduce risk.
8. STOCK OPTIONS CAN LEAD TO SYSTEMIC RISK TAKING
• Armstrong and Vashishtha (2012) demonstrate that stock options give
CEOs incentive to increase systemic (market) risk but not idiosyncratic
(firm-specific) risk.
– Sample: 13,233 firm-year observations from 1992-2007.
– Isolate the effects of vega on systemic and idiosyncratic risk.
– (Systemic risk can be hedged; idiosyncratic risk cannot.)
– Find that vega is associated with total and systemic, but not idiosyncratic risk.
– (Total risk = systemic risk + idiosyncratic risk.)
• Conclusion: higher sensitivity to stock price volatility gives incentive to
increase systemic risk, even if choices do not increase firm value.
9. DID STOCK OPTIONS CAUSE THE FINANCIAL CRISIS?
• Larcker, Ormazabal, Tayan, and Taylor (2014) demonstrate a significant
increase in risk-taking incentives among banks prior to the crisis.
• Sample: 3,232 nonbanks, 132 banks, and 58 securitizing banks from 1992-2009
• Average vega of securitizing
bank CEO wealth was 15-fold
higher in 2006 than 1992.
• Average vega was
quadruple that of average
nonbank CEO in 2006.
• Suggests that incentives played
a role in bank risk taking.
AVERAGE PORTFOLIO VEGA, ALL U.S. CEOs
10. DID STOCK OPTIONS CAUSE THE FINANCIAL CRISIS?
• Fahlenbrach and Stulz (2011) find no evidence that stock options caused
the financial crisis.
• Sample: 95 banks from 2006-2008.
• No evidence that banks whose CEOs had greater vega performed worse
during the crisis.
• No evidence that incentives and performance were different between firms
that did and did not receive TARP funding from the government.
• Conclusion: incentives did not cause the crisis.
“Ex ante, these risks looked profitable for shareholders. Ex post, these risks had
unexpected poor outcomes. These poor outcomes are not evidence of CEOs acting
in their own interest at the expense of shareholder wealth.”
11. STOCK OPTIONS MIGHT ENCOURAGE MISREPORTING
• Armstrong, Larcker, Ormazabal, and Taylor (2013) examine whether stock
options are associated with financial misreporting.
• Sample: 20,445 firm-year observations (2,446 firms) between 1992-2009.
• Find that vega is positively related to future financial restatements.
• Conclusion: higher sensitivity to stock price volatility gives incentive to
misreport.
“Equity portfolios provide managers with incentive to misreport not
because they tie the manager’s wealth to equity value, but because
they tie the manager’s wealth to equity risk.”
12. FURTHER EVIDENCE OPTIONS ENCOURAGE MANIPULATION
• Kim, Li, and Zhang (2011) examine whether CFOs with large option
holdings hide bad news to prevent (delay) stock price declines.
• Sample: 29,638 firm-year observations between 1993-2009.
• Find that abnormally high option holdings are associated with future
crashes.
• (Crash = one-week stock returns 3.2 standard deviations below mean.)
• Conclusion: options encourage managers to hide bad news.
13. CONCLUSION
• Stock options encourage risk taking.
• Risk taking is positive when it increases company value through investment
in attractive (but uncertain) projects.
• Risk taking is negative when it involves decisions and behaviors not in the
interest of shareholders.
• Unfortunately, no standard litmus test exists to differentiate between
“acceptable” risk and “excessive” risk.
• The board of directors and shareholders need to weigh the potential
positive and negative implications of stock option compensation in their
companies.
14. BIBLIOGRAPHY
Shivaram Rajgopal and Terry Shevlin. Empirical Evidence on the Relationship Between Stock Option Compensation and Risk
Taking. 2002. Journal of Accounting & Economics.
W. M. Gerard Sanders and Donald C. Hambrick. Swinging for the Fences: The Effects of CEO Stock Options on Company Risk Taking
and Performance. 2007. Academy of Management Journal.
Jeff L. Coles, Naveen D. Daniel, and Lalitha Naveen. Managerial Incentives and Risk-Taking. 2006. Journal of Financial Economics.
Todd A. Gormley, David A. Matsa, and Todd Milbourn. CEO Compensation and Corporate Risk: Evidence from a Natural Experiment.
2013. Journal of Accounting and Economics.
Christopher S. Armstrong and Rahul Vashishtha. Executive Stock Options, Differential Risk-taking Incentives, and Firm Value. 2012.
Journal of Financial Economics.
David F. Larcker, Gaizka Ormazabal, Brian Tayan, and Daniel J. Taylor. Follow the Money: Compensation, Risk, and the Financial
Crisis. September 8, 2014. Stanford Closer Look Series.
Rüdiger Fahlenbrach and René M. Stulz. Bank CEO Incentives and the Credit Crisis. 2011. Journal of Financial Economics.
Christopher S. Armstrong, David F. Larcker, Gaizka Ormazabal, and Daniel J. Taylor. The Relation between Equity Incentives and
Misreporting: the Role of Risk-taking incentives. 2013. Journal of Financial Economics.
Jeong-Bon Kim, Yinghua Li, and Liandong Zhang. CFOs versus CEOs: Equity Incentives and Crashes. 2011. Journal of Financial
Economics.