Stanford Closer Look Series

Explore topics, Issues and Controversies in Corporate Governance 

The Closer Look series is a collection of short studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue and explain why it is important.

 Sign up to receive the latest Closer Look by emailing: corpgovernance@gsb.stanford.edu.

2014

Case No. Topic Author(s)

CGRP-43

Follow the Money: Compensation, Risk, and the Financial Crisis

Wall Street bankers had considerable incentive to take risk prior to the financial crisis of 2008. How well do boards understand the relation between compensation and risk?

Keywords: 2008 financial crisis, risk-taking incentives, executive compensation, board of directors risk oversight, risk tolerance, financial incentives, corporate governance

David F. Larcker, Gaizka Ormazabal, Brian Tayan, and Daniel J. Taylor

CGRP-42

Does the Composition of a Company’s Shareholder Base Really Matter?

Corporations dedicate significant time to managing their shareholder base. Does the composition of a company’s shareholder base really impact corporate decision making and stock-market value?

Keywords: shareholder base, shareholder investment horizon, managing the shareholder base, shareholder influence, shareholder composition, corporate governance, long-term or short-term shareholders

Anne Beyer, David Larcker, Brian Tayan

CGRP-41

Lululemon: A Sheer Debacle in Risk Management

In 2013, Lululemon recalled its black women’s yoga pants for being “too sheer,” setting off a series of PR-related disasters that damaged the company’s reputation.  Why are companies so ill-prepared to manage risk? 

Keywords: social media, social media monitoring, corporate risk management, reputational risks, corporate governance

David Larcker, Sarah M. Larcker, Brian Tayan

CGRP-40

Josh Hardy and the #SaveJosh Army: How Corporate Risk Escalates and Accelerates through Social Media

In five days, the story of a biotechnology company’s refusal to provide a life-saving drug to a 7-year old boy battling cancer captured national attention. Why aren’t more companies prepared to deal with the reputational risks that emerge through social media?

 Keywords: social media, social media monitoring, corporate risk management, reputational risks, corporate governance

David Larcker; Sarah M. Larcker, Brian Tayan

CGRP-39

Seven Myths of CEO Succession

Many believe that the selection of the CEO is the most important decision that a board can make. Why aren’t more companies prepared for a change at the top?

Keywords: corporate governance, CEO succession, succession planning, succession planning myths, board of directors

David Larcker; Stephen A. Miles, Brian Tayan

CGRP-38

Corporate Governance According to Charles T. Munger

Munger advocates that corporate governance systems become more simple, rather than more complex, and rely on trust rather than compliance to instill ethical behavior in employees and executives.   Would his system work?

Keywords: corporate governance systems, role of trust in governance, incentives and control, high-trust organizations, organizational trust, governance structure

David Larcker; Brian Tayan

2013

Case No. Topic Author(s)

CGRP-37

Sneak Preview: How ISS Dictates Equity Plan Design

Proxy advisory firms have long been known to influence the voting decisions of institutional investors.  Now, a growing body of evidence suggests that they also influence company decisions in equity plan design.  Should shareholders and the SEC be concerned?

Keywords: proxy advisory firms. proxy advisors, institutional investors proxy votes, corporate governance 

Ian D. Gow, David F. Larcker, Allan L. McCall, and Brian Tayan

CGRP-36

Separation Anxiety: The Impact of CEO Divorce on Shareholders

Divorce can impact the control, productivity, and economic incentives of an executive. Should shareholders and boards be concerned when a CEO and spouse separate?

Keywords: CEO divorce, executive divorce, disclosure and transparency 

David Larcker; Allan L. McCall; Brian Tayan

CGRP-35

Pioneering Women on Boards: Pathways of the First Female Directors

We examine the biographies and professional experiences of the female directors of Fortune 250 companies. How have pathways for women changed? Are the oportunities and obstacles today the same or different?

Keywords: women on boards, diversity, board of directors, corporate boards, board diversity, corporate governance, gender, women, directors

David Larcker; Brian Tayan

CGRP-34

Trust: The Unwritten Contract in Corporate Governance

High-trust organizations are characterized by lower bureaucracy, simpler procedures, and higher productivity. Would shareholders be better off if companies had fewer controls and instead spent more time fostering trust?

Keywords: high-trust organizations, organizational trust, governance structure, corporate culture

David Larcker; Brian Tayan

CGRP-33

Risk Management Breakdown at AXA Rosenberg: The Curious Case of a Quant Manager Trusted Too Much

We examine the governance structure and events that led to the breakdown of private investment firm AXA Rosenberg and the lifetime ban of a legendary finance professor from the securities industry.  Is it possible for a board to monitor a renowned executive with a strong personality and specialized knowledge?

Keywords: risk management, board of directors oversight, agency theory, governance structure, personality factors, separation and control, corporate governance

David Larcker; Brian Tayan

CGRP-32

Where Experts Get It Wrong: Independence vs. Leadership in Corporate Governance

There is no evidence that having an independent chairman benefits companies, but there is evidence that CEOs with different personalities require different levels of oversight.  Why isn’t more attention paid to context in corporate governance?

Keywords: corporate governance, CEO and executive leadership, CEO personality, CEO-Chairman duality

David Larcker; Brian Tayan

CGRP-31

And then a Miracle Happens!: How Do Proxy Advisory Firms Develop Their Voting Recommendations?


The process that proxy advisory firms use to develop their voting policies suffers from serious potential issues.  How exactly do they decide that a policy is “correct”? 

Keywords: corporate governance, proxy advisors, proxy voting, proxy advisory services

David Larcker; Allan L. McCall; Brian Tayan

2012

Case No. Topic Author(s)

CGRP-30

Union Activism: Do Union Pension Funds Act Solely in the Interest of Beneficiaries?

Union pension funds are active in the proxy process, sponsoring approximately one-third of shareholder proposals each year.  How do union pension funds determine which positions to advocate and which companies to target?  Are their proposals made solely in the interest of pension beneficiaries? 

David F. Larcker; Brian Tayan

CGRP-29

Shareholder Lawsuits: Where Is the Line Between Legitimate and Frivolous?

Recently, shareholder groups have sued companies for inadequate disclosure in the annual proxy.  They allege that companies provide insufficient disclosure to determine how to vote on “say on pay.”  If a company follows SEC guidelines, why is this not sufficient? 

Keywords: corporate governance, shareholder lawsuits, shareholder litigation, proxy voting, say-on-pay, executive compensation 

David F. Larcker; Brian Tayan

CGRP-28

Is a Powerful CEO Good or Bad for Shareholders?

Americans tend to admire powerful leaders. However, it is not clear the extent to which having a powerful CEO is beneficial to an organization. How much power is too much power?

Keywords: Corporate Governance, CEO, leadership, executive power, power dynamics

David F. Larcker; Brian Tayan

CGRP-27

The responsibility of corporate monitors is to safeguard assets and reduce agency costs.  Should monitors be paid bonuses?  If so, what form should they take and what performance targets should be used?

Keywords: Corporate Governance, executive compensation, executive pay, fixed or contingent pay, general counsel, governance monitors

David F. Larcker; Brian Tayan

CGRP-26

Ten Myths of 'Say on Pay'

The public believes that “say on pay” reduces executive compensation and leads to improved compensation practices.  The research evidence, however, shows this is not the case.  Is it time to rethink say on pay?

Keywords: Corporate Governance, Say-on-Pay, Executive Compensation, Equity Compensation, Executive Pay, Shareholder voting

David F. Larcker; Allan McCall; Gaizka Ormazabal; Brian Tayan

CGRP-25

Monitoring Risks Before They Go Viral: Is it Time for the Board to Embrace Social Media?

Given the pervasiveness of social media, should the board of directors pay closer attention to the information exchanged on these sites?  Can this information be used to improve oversight and risk management?

Keywords: social media, corporate governance, board of directors, reputational damage

David F. Larcker; Sarah M. Larcker; Brian Tayan

CGRP-24

Sudden Death of a CEO: Are Companies Prepared When Lightning Strikes?

The sudden death of a CEO can provide insight into the quality of succession planning at a company.  Why don’t more companies have a truly operational plan in place?

Keywords: CEO succession planning, corporate governance, boards role in succession planning

David F. Larcker; Brian Tayan

CGRP-23

What Is CEO Talent Worth?

The topic of executive compensation elicits strong emotions but somewhat less critical analysis.  How much value creation should be attributable to the efforts of the CEO?  What percent of this value should be fairly offered as compensation?

Keywords: executive compensation, CEO pay, pay for performance, incentives

David F. Larcker; Usman Liaqat; Brian Tayan

2011

Case No. Topic Author(s)

CGRP-22

What Does It Mean for an Executive To Make A Million?

Executive compensation figures are not what they seem. Executive pay packages contain a diverse mix of incentives whose ultimate value is often quite different from their expected value. Why don't companies clearly differentiate between expected, earned and realized pay?

Keywords: corporate governance, executive compensation, earned versus realized pay, Black Scholes

David F. Larcker; Allan McCall; Brian Tayan

CGRP-21

Leadership Challenges at Hewlett-Packard: Through the Looking Glass

Hewlett-Packard has faced numerous leadership and strategic changes over the last twelve years.  It has also been involved in more than its fair share of controversies.

Are these signs of governance failure at the board level?

Keywords: corporate governance, CEO Succession planning, strategy & risk, board of directors decision-making

David F. Larcker; Brian Tayan

CGRP-20

The NCAA Adopts “Dodd-Frank”: A Fable

In this fictitious tale, we apply the governance provisions of Dodd-Frank to the world of college football.  If they would not work in that setting, should we expect them to work in business?

Keywords: Dodd-Frank, NCAA, governance provisions

David F. Larcker; Brian Tayan

CGRP-19

Scarlet Letter: Are the CEOs and Directors of Failed Companies “Tainted”?

Recent experience suggests that many CEOs and directors of failed companies are able to obtain or retain directorships at other companies after their departure.  Should this be a concern for shareholders?

Keywords: CEOs, board of directors, failed companies

David F. Larcker; Brian Tayan

CGRP18

Are Current CEOs the Best Board Members?

By many measures, current CEOs should be the best candidates to serve on the board of directors.  However, recent survey evidence suggests this may not be the case.  Should companies reassess the importance of this criteria when looking for new board members?

Keywords: active CEOs as board members, board of directors survey

David F. Larcker; Brian Tayan

CGRP-17

Seven Myths of Executive Compensation

The public perception is that executives are overpaid and that compensation contracts are not structured in the best interest of shareholders. Why don’t experts rely on research to arrive at informed and fact-based solutions?

Keywords: corporate governance, executive compensation, pay-for-performance, say-on-pay, pay equity, incentives, corporate governance research, corporate governance practices

David F. Larcker; Brian Tayan

CGRP-16

Seven Myths of Corporate Governance

This case examines seven commonly accepted myths about corporate governance. How can we expect managerial behavior and firm performance to improve, if practitioners continue to rely on myths rather than facts to guide their decisions?

Keywords: corporate governance, board of directors, governance structure, executive compensation, pay-for-performance, say-on-pay, CEO succession, corporate governance regulations, corporate governance research, corporate governance best practices

David F. Larcker; Brian Tayan

CGRP-15

Tesla Motors: The Evolution of Governance from Inception to IPO 

We examine prominent features of the governance system of Tesla Motors, as it has evolved from inception to IPO. Now that Tesla is public, how is its governance likely to change in the future?

Keywords: Tesla, corporate governance, IPO, governance structure, board of directors, antitakeover protections, executive compensation

David F. Larcker; Brian Tayan

CGRP-14

The Resignation of David Sokol: Mountain or Molehill for Berkshire Hathaway?

In 2011, David Sokol, CEO of Berkshire Hathaway’s energy subsidiary, purchased $10 million of Lubrizol stock days before recommending that Berkshire Hathaway acquire the firm. Did Sokol’s actions reflect a broad governance failure for the firm?

Keywords: Berkshire Hathaway, Warren Buffet, David Sokol, corporate governance, insider trading

David F. Larcker; Brian Tayan

CGRP-13

Do ISS Voting Recommendations Create Shareholder Value?

The recommendations of Institutional Shareholder Services are influential in the proxy voting process, particularly in matters relating to equity compensation and exchange offers. What evidence is there that these recommendations increase shareholder value?

Related research paper: The Role of Proxy Advisory Firms in Stock Option Exchanges
by David F. Larcker, Gaizka Ormazabal and Allan McCall

Keywords: proxy advisory firms; stock option exchanges; institutional shareholder voting, proxy voting

David F. Larcker; Brian Tayan

CGRP-12

CEO Health Disclosure at Apple: A Public or Private Matter?

In recent years, much attention has been paid to CEO succession planning as a risk management issue, particularly at companies whose CEOs are experiencing health issues. How much information should the company disclose on the health of the CEO?

Keywords: CEO succession, enterprise risk, disclosure & transparency

David F. Larcker; Brian Tayan

2010

Case No. Topic Author(s)

CGRP-11

Pledge (and Hedge) Allegiance to the Company

Some executives who accumulate a substantial ownership position in the company hedge or pledge their shares to limit their financial risk. Should the board of directors allow this to occur?

Keywords: executive compensation, equity hedging, equity pledging, hedging, pledging 

David F. Larcker; Brian Tayan

CGRP-10

Sensitivity of CEO Wealth to Stock Price: A New Tool for Assessing Pay for Performance

In recent years, there has been considerable debate as to whether CEO compensation is actually correlated with performance in U.S. companies. Why don’t shareholders and stakeholders examine the relation between CEO wealth and stock price to measure pay for performance and detect the potential for “excessive” risk taking?

The authors would like to thank Equilar Inc. for providing access to the raw executive compensation and equity ownership data in this Closer Look.

Keywords: pay for performance, compensation, risk management, corporate governance

David F. Larcker; Brian Tayan

CGRP-09

Pro Forma Earnings: What’s Wrong with GAAP?

In recent years, there has been a proliferation of non-GAAP metrics to supplement audited financial statements. Are these adjustments being made for the benefit of shareholders, or to distort financial results?

Keywords: GAAP, non-GAAP accounting, transparency, financial statements, financial reporting, corporate governance

David F. Larcker; Brian Tayan

CGRP-08


Director Networks: Good for the Director, Good for Shareholders 

A director’s social and professional network contributes many positive benefits that increase shareholder value. Why isn’t more attention paid to the relation between personal networks and governance quality?

Related Research

Boardroom Centrality and Stock Returns 
Working paper dated: July 24, 2010
Authors: David F. Larcker, Stanford University - Graduate School of Business; Eric C. So, Stanford Graduate School of Business,
Charles C. Y. Wang, Stanford University

Keywords: interlocking directorates, board networks, board of directors, corporate governance

David F. Larcker; Brian Tayan

CGRP-07

Financial Manipulation: Words Don't Lie

Linguists and psychologists have developed techniques to identify deceptive language and behavior. Why don’t shareholders use these same techniques to evaluate the truthfulness of management and detect financial manipulation?

Related GSB News coverageIs That CEO Telling the Truth?

How do you tell if CEOs are not being truthful during quarterly earnings conference calls? Stanford Graduate School of Business researchers have developed a model to analyze the words and phrases used during these calls and found some specific speech patterns that give clues.

Keywords: transparency, disclosure, accounting restatements, corporate governance, linguistic studies

David F. Larcker; Brian Tayan

CGRP-06

Proxy Access: A Sheep, or Wolf in Sheep's Clothing?

In recent years, there has been considerable controversy about whether shareholders should be able to nominate candidates to serve on the board of directors. What impact would proxy access have on director elections? Would it improve or impair governance quality?

Keywords: proxy access, shareholder democracy, corporate governance

David F. Larcker; Brian Tayan

CGRP-05

CEO Succession Planning: Who’s Behind Door Number One?

One of the most important decisions that a board of directors must make is the selection of the CEO. What type of disclosure can provide shareholders with insight into succession planning?

Related teaching case ($):
Multimillionaire Matchmaker: An Inside Look at CEO Succession Planning 

Keywords: succession planning, disclosure, board of directors, corporate governance

David F. Larcker; Brian Tayan

CGRP-04

A Historical Look At Compensation and Disclosure: Cool and Refreshing! 

Compensation and disclosure have grown very complex over time. Is this complexity necessary? Should it be simplified?

Keywords: compensation, disclosure, proxy statements, corporate governance

David F. Larcker; Brian Tayan

CGRP-03

Lehman Brothers: Peeking Under the Board Facade

Experts place considerable emphasis on the board structure. Many boards now look indistinguishable, and yet can differ very much in terms of oversight quality. Has an emphasis on board structure led to a decrease in board quality? 

Keywords: board of directors, board structure, corporate governance, regulatory oversight

David F. Larcker; Brian Tayan

CGRP-02

Berkshire Hathaway: The Role of Trust in Governance 

The governance structure of Berkshire Hathaway is remarkably different from that of other corporations, and most of its features do not conform to the “best practices” recommended by experts. Why is this an important exception, and what can it teach us about best practices in governance?

Related Teaching Case ($):
The Management of Berkshire Hathaway; Case Number: CG-16; Publication Year: 2009

Keywords: corporate governance, governance structure, management integrity, risk management

David F. Larcker; Brian Tayan

CGRP-01

Institutional Shareholder Services: The Uninvited Guest at the Equity Table

In recent years, RiskMetrics has played an influential role in the proxy voting process. Several companies, however, are critical of the methodology it uses to inform its recommendations, particularly with regards to equity compensation. Is it appropriate that they have this much influence?

Related Teaching Case ($):
There's a New Sheriff in Town: Institutional Shareholder Services Case Number: CG-07 Publication Year: 2007 

Keywords: corporate governance, proxy voting, proxy access, ratings

David F. Larcker;
Brian Tayan