The Definitive Guide to High-Performance Corporate Governance Fully updated for the latest research, trends, and regulations, Corporate Governance Matters, Third Edition, offers comprehensive and objective information for everyone seeking to improve corporate governance—from directors to institutional investors to policymakers and researchers. To help you design highly effective governance, David Larcker and Brian Tayan thoroughly examine current options, reviewing what is and isn't known about their impact on organizational performance. Throughout, they take a strictly empirical and non-ideological approach that reflects rigorous statistical and research analysis and real-life examples. They address issues ranging from board structure, processes, operations, and functional responsibilities to institutional investors, outside stakeholders, and alternative forms of governance. New discussions of: Environmental, Social, and Governance (ESG) activity and ratings Stakeholder interests CEO activism CEO misbehavior Cybersecurity risks Extensively revised coverage of: Executive compensation Leadership and succession planning Director recruitment, evaluation, turnover, and more The authors' balanced approach provides useful tools for making better, more informed decisions on governance.

Table of Contents:
Preface     xviii Chapter 1 Introduction to Corporate Governance     1 Self-Interested Executives    4 Defining Corporate Governance     8 Corporate Governance Standards     9 Best Practice or Best Practices? Does “One Size Fit All”?     12 Relationship between Corporate Governance and Firm Performance     13 Endnotes     15 Chapter 2  International Corporate Governance     19 Capital Market Efficiency     19 Legal Tradition     22 Accounting Standards     23 Enforcement of Regulations     25 Societal and Cultural Values     26 Individual National Governance Structures     28     United States     29     United Kingdom     31     Germany     35     Japan     37     South Korea    40     China    41     India    43     Brazil    44     Russia    46 Endnotes    47 Interlude     53 Chapter 3  Board of Directors: Duties and Liability     55 Board Responsibilities     55 Board Independence     56 The Operations of the Board     57     Board Committees     60 Duration of Director Terms     64 Director Elections     64 Removal of Directors     66 Legal Obligations of Directors     66     Fiduciary Duty     67     Environmental, Social, and Governance (ESG)     70     Disclosure Obligations under Securities Laws     71     Legal Enforcement of State Corporate Law (Fiduciary Duties)     72     Legal Enforcement of Federal Securities Laws     73     Director Indemnification and D&O Insurance     73 Endnotes     75 Chapter 4  Board of Directors: Selection, Compensation, and Removal     79 Market for Directors     79     Criteria for Director Recruitment     80     Active CEOs     81     International Experience     82     Special Expertise     82     Diverse Directors     84     Professional Directors     85     Disclosure Requirements for Director Qualifications     86 Director Recruitment Process     87 Director Compensation     90     Ownership Guidelines     95     Board Evaluation     96 Removal of Directors     98 Endnotes     102 Chapter 5  Board of Directors: Structure and Consequences     109 Board Structure     110     Chairman of the Board     113     Lead Independent Director     116     Outside Directors     119     Board Independence     122     Independent Committees     125     Bankers on the Board     126     Financial Experts on Board     127     Politically Connected Boards     127     Employee Representation     129     Boards with “Busy” Directors     131     Interlocked (or Connected) Boards     134     Committee Overlap     135     Board Size     136     Board Diversity     136     Female Directors     138 Summary     139 Endnotes     141 Interlude     150 Chapter 6  Strategy, Performance Measurement, and Risk Management     151 Organizational Strategy     151 Strategy Implementation Process     154 Business Model Development and Testing     156     Example 1: Fast-Food Chain and Employee Turnover     156     Example 2: Financial Services Firm and Investment Advisor Retention     158 Key Performance Measures     159 How Well Are Boards Doing with Performance Measures and Business Models?     162 Risk and Risk Management     164 Risk and Risk Tolerance     165 Risk to the Business Model     166 Risk Management     169 Oversight of Risk Management     172 Assessing Board Performance on Risk Management     174 Cybersecurity     175 Endnotes     177 Chapter 7  CEO Selection, Turnover, and Succession Planning     181 Labor Market for Chief Executive Officers     181 Labor Pool of CEO Talent     184 CEO Turnover     186 Newly Appointed CEOs     191 Models of CEO Succession     193     External Candidate     193     President and/or Chief Operating Officer     195     Horse Race     196     Inside–Outside Model     197 The Succession Process     197 How Well Are Boards Doing with Succession Planning?     201 Executive Search Firms     203 Endnotes     205 Chapter 8  Executive Compensation and Incentives     211 The Controversy over Executive Compensation     212 Competing Theories of CEO Pay     213 Components of Compensation     214 Determining Compensation     218 Compensation Consultants     221 Compensation Levels     221 Ratio of CEO Pay to Other Top Executive Pay     226 Ratio of CEO Pay to Average Employee Pay     229 Compensation Mix     230 Short-Term Incentives     233 Long-Term Incentives     235 Benefits and Perquisites     237 Compensation Disclosure     238 Say-on-Pay     239 Competing Theories of CEO Pay     242 Endnotes     243 Chapter 9  Executive Equity Ownership     251 Equity Ownership and Firm Performance     251 Equity Ownership and Risk     254 Equity Ownership and Agency Costs     259 Accounting Manipulation     260 Manipulation of Equity Grants     261     Other Examples of Value Extraction through Timing     263 Equity Sales and Insider Trading     264 Rule 10b5-1     267 Hedging     269 Pledging     273 Repricing and Exchange Offers     274 Endnotes     277 Chapter 10  Financial Reporting and External Audit     285 The Audit Committee     285 Accounting Quality, Transparency, and Controls     286 Financial Reporting Quality     288     Non-GAAP Reporting     290 Financial Restatements     291 Models to Detect Accounting Manipulations     297 The External Audit     299 Audit Quality     302 Structure of Audit Industry     302 Impact of Sarbanes–Oxley     305 External Auditor as CFO     307 Auditor Rotation     308 Endnotes     310 Chapter 11  The Market for Corporate Control     319 The Market for Corporate Control     320 Stock Market Assessment of Acquiring and Target Firms     324     Who Gets Acquired?     324     Who Gets the Value in a Takeover?     327 Antitakeover Protections     330 Antitakeover Actions     331     Poison Pills     333     Staggered Board     335     State of Incorporation     337     Dual-Class Shares     339 Warding Off Unwanted Acquirers     341 Endnotes     344 Chapter 12  Shareholders and Shareholder Activism     351 The Role of Shareholders     351 Blockholders and Institutional Investors     354 Institutional Investors and Proxy Voting     357 Activist Investors     359     Pension Funds     361     ESG and Socially Responsible Investing     363     Individual Activist Investors     364     Activist Hedge Funds     366 The Rise of Index Investing     370 Shareholder Democracy and Corporate Engagement     371     Majority Voting in Uncontested Director Elections     371     Proxy Access     372     Proxy Voting     372     Corporate Engagement     374 Proxy Advisory Firms     375 Endnotes     381 Chapter 13  Stakeholders and Stakeholder Activism     391 Pressure to Incorporate Stakeholder Interests     392 Legal and Economic Implications     397 Director and CEO Views on Stakeholders    401 ESG Metrics and Disclosure    402 External Assessment of ESG    407 Endnotes    417 Chapter 14  Corporate Governance and ESG Ratings    425 Third-Party Ratings    425 Credit Ratings    426 Commercial Corporate Governance Ratings    428     ISS: Corporate Governance Quotient    428     ISS: Governance Risk Indicators    430     ISS: QualityScore    430     MSCI ESG Governance Metrics    431     Testing the Predictability of Corporate Governance Ratings    432 Governance Rating Systems by Academic Researchers    433 The Viability of Governance Ratings    438 ESG Ratings    439     MSCI ESG    440     Sustainalytics    441     Vigeo Eiris    442     HIP (Human Impact + Profit)    442     ISS E&S Disclosure QualityScore    442     TruValue Labs    443     Evaluation of ESG Ratings    443 Endnotes    444 Chapter 15  Alternative Models of Governance    449 Family-Controlled Corporations    449 Venture-Backed Companies    452 Private Equity-Owned Companies    458 Nonprofit Organizations    462 Endnotes    466 Chapter 16  Summary and Conclusions    473 Testing Remains Insufficient    474 The Current Focus Is Misdirected    475 Important Variables Are Clearly Missing    476 Context Is Important    477 Rights of Shareholders and Stakeholders    478 Endnotes    478 Index    481