Corporate governance

Evaluate the governance of a firm you might consider working for and compare it to the firm’s top competitor. The main purpose of the exercise is to help make a connection between different governance elements (e.g., board composition, equity holdings by directors, executive compensation) and a firm’s financial performance.

Proxy statements are typically available from a firm’s Web site (look for an “Investors” submenu). You can also access proxy statements and other government filings such as the 10-K from the SEC’s EDGAR database ( ). Alongside the proxy you should also be able to access the firm’s annual report. Here you will find information concerning performance, governance, and the firm’s outlook, among other matters. The EDGAR database and firm website should be sufficient for this exercise however, if you prefer, FactSet and several other online resources can be used instead. Some of the forms may be quite long, literally hundreds of pages, so use the search function to quickly find some of the following information:

• Compensation plans (for both the CEO and board members; be sure to look for difference between fixed and incentive compensation)
• Board composition (e.g., board size, insiders and outsiders, interlocking directorates, functional experience, how many active CEOs, how many retired CEOs, what is the demographic makeup, and age diversity)
• Committees (e.g., how many, composition, compensation)
• Stock ownership by officers and directors—identify beneficial ownership from stock owned (you will need to look through the notes of the ownership tables to comprehend this)
• Ownership concentration—how much of the firm’s outstanding stock is owned by institutions, individuals, insiders? How many large-block shareholders are there (5 percent or more owners)?
• Does the firm utilize a duality structure for the CEO and chair of the board?
• Is there a lead director who is not an officer of the company?
• Activities by activist shareholders regarding corporate governance issues of concern
• Are there any managerial defense tactics employed by the firm? For example, what does it take for a shareholder proposal to come to a vote and be adopted?
• What is the firm’s code of conduct?

Prepare a 1-2 page report and a graphical comparison of performance that addresses the following points:

• Summarize the key aspects of the firms’ governance mechanisms.
• Create a single graph covering the last 10-year historical stock performance for both companies.
• Highlight key differences between your target firm and its competitor.
• Based on your review of the firm’s governance, did you change your opinion of the firm’s desirability as an employer? Why or why not?
• How does the target firm compare to the main competitor you’ve chosen?

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