An extensive body of literature that spans accounting, corporate finance, management, and other adjacent disciplines examines the relationship between senior executives’ contractual incentives (e.g., bonus plans, stock and option holdings) and various properties of their firms’ financial reporting and disclosures. The collective evidence that emerges from this vast literature is not only surprisingly mixed, but also largely neglects consideration of the contractual incentives of employees lower in the organizational hierarchy. This is a particularly conspicuous oversight since many of these subordinates (e.g., financial accountants, cost accountants, internal auditors, and other accounting and finance employees) have more direct access to, and … Read more
Over the past several decades, researchers have taken a serious look at the quality of CEO succession planning at publicly traded corporations. The results have not been encouraging. The evidence suggests that many companies are slow to terminate an under-performing CEO, are caught flat-footed in the event of a sudden CEO departure, and are often unprepared to identify a viable or permanent successor.
The research, however, is not without its shortcomings. A central challenge facing researchers is that it is very difficult for outside observers to determine whether the board in fact terminated the CEO. Rarely does a board explicitly … Read more
Critics of the shareholder-primacy model assert that it is flawed because it encourages managers to adopt a myopic view of profit generation that forgoes necessary investment and creates externalities borne by society. These critics argue that greater attention should be paid to the interests of non-investor stakeholders and that by investing in initiatives and programs to promote the interests of these groups, the corporation will create long-term value that is larger, more sustainable, and more equitably shared among investors and society. This concept is known as ESG (environmental, social, and governance) investing.
Advocacy for a more stakeholder-centric governance model, however, … Read more
In recent years, there has been considerable criticism of the amount of money that CEOs earn to run the largest U.S. companies. Governance researchers have expended considerable resources examining executive compensation in an effort to determine whether pay levels are set fairly. The results of these studies are generally mixed.
An important and related question, however, is rarely asked: Just how scarce is CEO talent? How many people are very well qualified to run a large, publicly traded company? These questions have important implications for CEO pay levels, performance measurement, succession planning, and internal talent development.
CEO Talent Pool
Recently, … Read more
Individual investors are active participants in the shareholder resolution process. According to Proxy Monitor, shareholder proposals sponsored by individual investors represent approximately one-quarter of the total number of shareholder resolutions voted on each year. During the 10-year period 2006-2015, individual investors brought forth over 1,100 resolutions at Fortune 500 companies. These resolutions span a vast array of topics, including proposed changes to board structure, executive compensation, shareholder rights, and corporate social policy (see Figure 1). 
Figure 1: Individual Shareholder Resolutions, per Company (2006-2015)
Individual activism is a controversial topic. Critics contend that the large number of proposals filed … Read more
We recently published a paper on CEO compensation and value sharing between executives and shareholders. The paper is available here.
CEO compensation is a controversial subject that evokes considerable debate on whether public company CEOs are paid correctly relative to corporate performance. A recent survey by Heidrick & Struggles and the Rock Center for Corporate Governance highlights the extreme disconnect between public perception of CEO pay and the perception of directors responsible for designing pay packages at Fortune 500 companies. While 65 percent of directors believe that CEO pay is not a problem, a full 70 percent of the … Read more
We recently published a paper on lessons that for-profit and nonprofit directors can learn from one another about improving organizational governance. The full paper is available here.
For-profit and nonprofit organizations exist for different reasons: for-profits to generate a return on investment for shareholders and nonprofits to pursue charitable and social activities unrelated to commerce. The obligations of the boards of both entities, however, are similar. Both are responsible for oversight of the organization, including reviewing strategy, finances, and performance. Both are also responsible for hiring and firing the CEO (or executive director), evaluating performance, and setting compensation. They … Read more
We recently published a study (“2015 Investor Survey: Deconstructing Proxy Statements”) in collaboration with RR Donnelley and Equilar that examines how institutional investors use the information in corporate proxies to make voting and investment decisions. Full results are available here.
We find that institutional investors are highly dissatisfied with the quality of information that they receive about corporate governance policies and practices in the annual proxy. Across the board, investors want proxies to be shorter, more concise, more candid, and less legal. Fifty-five percent of investors believe that the typical proxy statement is too long. Forty-eight percent believe … Read more
Professor David Larcker is Morgan Stanley Director of the Center for Leadership Development and Research at the Stanford Graduate School of Business. Brian Tayan is a researcher in the center. They are co-authors of the book A Real Look at Real World Corporate Governance.
There is very little discussion in the research literature about the professional coaching and advising of senior executives at the very top of organizations. We conducted our survey to help fill this gap with descriptive information that provides the basis for careful thinking about coaching.
We find that approximately one in three CEOs receives coaching or … Read more