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Management: Performance

MGT 427 - Corporate Governance. Management: Performance. Faisal AlSager. Week 9. Objectives. To highlight the rising importance of managers To clarify what shareholders want from managers To raise some of the shareholders’ concerns. Manager’s Influence.

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Management: Performance

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  1. MGT 427 - Corporate Governance Management: Performance • Faisal AlSager Week 9

  2. Objectives • To highlight the rising importance of managers • To clarify what shareholders want from managers • To raise some of the shareholders’ concerns

  3. Manager’s Influence • In the 1990’s, managers have become more noticeable • CNN’s Ted Turner, Intel’s Andy Grove, Amazon’s Jeff Bezos, and GE’s Jack Welch

  4. Issues with Managers • Shareholders and employees share concerns about managers • Mainly, the tens of millions of dollars they receive • Also, how long will the manager positively impact the share price? Usually, it’s on short-term only • And as we know, many CEOs have not set a good example of responsible share ownership

  5. What Do We Want from the CEO? • Change is the only certainty in business • Thus, we want a CEO who is able, by virtue of ability, expertise, resources, motivation, and authority, not just to keep the company ready for change but ready also to benefit from changes • The CEO must be powerful enough to do the job • BUT he/she must be accountable enough to make sure the job is done correctly • CEO decisions must be in the long-term interests of shareholders rather than in his/her own interests

  6. How Do We Achieve that Balance? • Answer: Executive Compensation • Shareholders prefer a compensation plan with maximum variability • Management prefer a compensation plan with maximum security

  7. Measuring CEO’s Performance? • Question: How Can we measure a CEO’s performance? • Answer: we usually use same measures we use for measuring the company’s performance

  8. Challenge • The biggest challenge a company faces is not failure, but success! • Giants of the 1960s became problems of the 1980s and 1990s (Xerox, Kodak, General Motors) • Giants of the 1990s became problems of the 2000s (Enron, Tyco, Global Crossing, WorldCom)

  9. What Caused Failures? • Company’s failure was the effect of bad governance • Same person held the following positions: • CEO • chairman of the board • CEO of the largest operating division • chairman of the nominating committee of the board • trustee of the 25 percent of the company’s stock

  10. Executive Compensation • One important issue of governance is excessive CEO compensation • This issue was the first corporate issue to be the focus of the press • This issue has the most direct impact on shareholder value • To the shareholder, compensation represent an investment opportunity: • how much will the return on investment be? • Is it going to sustain?

  11. References • Corporate Governance (4th Edition): Monks, R. and Minow, N. 2004. (Publisher: Wiley-Blackwell)

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