Directors around the world are expected to carry out their duties in accordance with applicable local standards of care and fiduciary responsibility; however, the specifics are not uniform and each jurisdiction has its own set of laws, norms and customs. With respect to directors of companies in the United States, the Corporate Director’s Guidebook (Fifth Edition) succinctly describes the baseline standard for director conduct as requiring that directors discharge their duties in good faith and in a manner that they reasonably believe to be in the best interests of the corporation. Directors owe a duty of care and a duty of loyalty to the corporation in discharging their obligations. As such, it is important that a prospective director consider whether or not he or she has the requisite experience to understand and participate in the deliberations of the board, as well as the time that is required in order for him or her to properly monitor and review the activities of the corporation. In addition, a prospective director who may become involved in business dealings with the corporation which may give rise to a conflict of interest must be prepared to fully disclose the nature of his or her interest and submit the transaction to a vote of the board of directors or, in some cases, the shareholders of the corporation.
While the duty of care and the duty of loyalty are the most well-known and widely discussed and analyzed legal obligations of US directors, the Corporate Director’s Guidebook (Fifth Edition) lists the following additional obligations that should be carefully understood by directors:
- Directors have a “duty of disclosure” which includes an obligation to take reasonable steps to ensure that shareholders are furnished with all relevant material information known to the directors when they present shareholders with a voting or investment decision. In addition, in the course of deliberation regarding decisions relating to the corporation director have duty to communicate relevant information to their fellow directors and management.
- Directors have a “duty of confidentiality” that requires that they refrain from public disclosure of all matters involving the corporation. The board should establish, and individual directors should abide by the terms of, confidentiality, insider trading and disclosure policies.
- Directors have a duty to establish and monitor programs for identifying financial, industry and other business risks and for managing such risks to protect the assets and reputation of the corporation.
- Directors have a duty to establish and monitor programs for ensuring that the corporation and its managers and employees comply with all legal requirements in the various jurisdictions in which corporation is conducting business activities.
- Director of public companies have a duty to establish and follow appropriate procedures for ensuring that the corporation’s disclosure documents (e.g., annual reports, quarterly reports, current reports, proxy statements, prospectuses, and earnings releases) fairly present material information about the corporation and its business, financial condition, results, and prospects.
- Directors have a duty to ensure that the activities of the corporation comply with relevant laws and regulations pertaining to employee safety, health and environmental protection and product safety. While this duty overlaps with the duties mentioned above relating to compliance programs the areas of concern are particular important because of their potential impact on the health and morale of employees and general business reputation of the company.
- Directors have a duty to monitor the activities of officers and employees of the corporation with respect to participation in governmental processes, particularly efforts to influence legislative activities and/or the content and tone of regulations and activities designed to either encourage or prevent governmental action. Lobbying activities, including political contributions, can directly impact the reputation of the corporation and when carried out must be done in a manner that complies with applicable laws and regulations.
- Directors have a duty to anticipate the unexpected and develop crisis management programs that can be quickly implemented upon the occurrence of a crisis event with respect to the corporation and its operations such as a natural disaster, terrorist activities, civil unrest or a significant adverse corporate development (e.g., a massive product recall or a infringement lawsuit by a third party threatening the validity of the corporation’s key patent rights).
- Directors have a duty to act fairly and with the utmost integrity in overseeing deliberations regarding significant corporate events such as change-in-control transactions (e.g., proposed sale of the corporation) and election contests.
- Directors have special duties of care during times when the corporation is experiencing financial distress and must be mindful of their expanded obligations beyond shareholders to include creditors and to do their best to ensure that the corporation is able to fulfill its legal obligations to all interested stakeholders.
Many of the duties described above are based on the federal securities laws and are particularly applicable to directors of public companies.
Outside of the US, the path for the development of the concept of directors having fiduciary duties has varied from jurisdiction to jurisdiction and the concept is still quite new in many countries. The rationale for fiduciary duties is best understood from the experience in the US and the United Kingdom, both common law countries, where corporations arose as a means for separating ownership and management and it became clear that some legal framework was needed for the shareholders, as the owners of the corporation, to enforce standards of conduct upon the managers of the corporation. The answer was to view the directors and officers of the corporation as trustees and as trustees these persons had a common law duty to act in the best interests of the shareholders, who were the beneficiaries of the corporation. Eventually civil law jurisdictions, such as Germany, integrated concepts similar to fiduciary duty into their statutes and courts in those countries have developed those concepts through case law. Emerging markets such as China often began by focusing on director conduct (e.g., having “high morals”, avoiding corruption and being “hardworking”) but eventually moved toward standards that emphasized protecting the lawful rights and interests of the corporation, its shareholders and others.
Today most countries around the world, regardless of their stage of economic development or their bias toward common or civil law, have laid out basic principles of fiduciary-type duties for directors and suggested skills, practices and processes that are likely necessary in order for director to effectively discharge their duties. However, each jurisdiction is different and all of the following questions should be considered before selecting a foreign corporate entity for use as a subsidiary or the home for an international joint venture with a local partner:
- What is the legal role of the board (or boards) of directors? Does the board collectively have responsibilities that are distinct from those of the directors individually?
- Can the directors and/or the board (or boards) delegate any of their duties and if so, which ones and to whom, and are there any conditions attached to this delegation in terms of retaining overall responsibility for the action (or inaction) by the delegate?
- What are the legal standards governing the conduct of directors in the performance of their fiduciary duties and do those standards incorporate a care/prudence element or equivalent (civil law) concepts?
- Do these standards include good faith, ‘honesty of purpose’ elements and/or strictures against self-dealing or self-enrichment at a cost to the corporation and/or prohibitions on utilizing corporate opportunities for directors?
- Is there jurisprudence that avoids “second-guessing” director conduct with the benefit of hindsight designed to limit judicial (or regulatory intervention that might chill legitimate business activity (e.g. the business judgment rule)? In other words, are decisions of the directors protected, provided that they have exercised their fiduciary duty and duty of care?
- Are there any initiatives to codify (and/or simplify) the duties of a director? Is there any jurisprudence on how the courts have interpreted these codes or statutory provisions and, if so, have these led to contemporary governance best practice ideas being imported into court decisions?
- Who can bring an enforcement action for a breach of duties by a director? Does the law entertain the concept of a derivative suit (an action brought by shareholders on behalf of the company) or is some form of private action available?
- Can directors be held liable personally for a breach of their duties and, if so, can the company indemnify them and may the company, in turn, obtain insurance and are there limits imposed by statute or otherwise on the indemnity or insurance coverage (e.g. in cases of misrepresentation or fraud)?
The questions above are based on H. Gregory, C. Hansell and L. Hazell, “Comparative Analysis of Fiduciary Duty Papers”, International Developments Subcommittee of the Corporate Governance Committee of the American Bar Association Section of Business Law (2007), and a fuller discussion of cross-border comparison of directors’ fiduciary duties can be found in the article at § 33:252 of Business Transactions Solution on WESTLAW.
There is extensive case law and detailed statutory provisions pertaining to the fiduciary duties of members of the board of directors and directors of public companies, as well as directors of private companies that have received substantial amounts of funding from venture capitalists and institutional investors, regularly attend in-person and online educational institutes and programs that focus on specific legal and ethical issues that they are likely to encounter during their work on the board and its various committees. In contrast, relatively little attention has been paid to the fiduciary duties of those persons who are charged with carrying out the directives of the board and managing the business on a “day-to-day basis”: the officers of the corporation. Case law regarding the duties and obligations of corporate officers is meager and there is no consensus on the applicability of well-known guidelines that are frequently cited when assessing director behavior, such as the “business judgement rule”. Moreover, attorneys purporting to specialize in corporate governance often concentrate their counseling on board members and spend relatively little time working with officers and providing them with guidelines that can be used for them to understand the potential legal ramifications of their conduct and the duties that might be imposed upon them outside of any specific employment-related agreement they might have with the corporation.
Recently scholars and governance commentators have come forward to offer several good reasons for taking specific steps to educate officers regarding their fiduciary obligations to the corporations that they serve. First, it can be expected that the conduct of officers will be subject to increasing scrutiny in a manner similar to the attention that has been focused on directors and thus it is in the interests of both the corporation and its individual officers for officers to understand the legal standards associated with their performance before a lawsuit is filed. Second, it is has been argued that formalized efforts to inform officers of their duties and obligations, and the resources available to them to discharge their duties in a proper and lawful manner, will increase the likelihood that officers will act properly, engage in positive conduct and refrain from actions that further their own interests at the expense of the corporation and its shareholders. Third, investing time and effort in educating officers provides a platform for explaining legal principles and concepts (e.g., duties of loyalty and care) that would otherwise remain vague and uncertain to officers. Experienced attorneys can and should provide officers with examples of how familiar legal principles work in practice and help officers determine when they should stop and seek the guidance of their superiors and counsel. Education fosters a sense of personal responsibility among officers and recognition that they, rather than the corporation’s lawyers, must ultimately be comfortable that their actions are consistent with their fiduciary duties to the corporation. Another byproduct of the attorney involvement in the education process is building a bridge between the officer and the attorney which makes the officer to be more comfortable approaching the attorney for advice and allows the attorney to proactively work with officers to spot and manage potential problems in a way that reduces the risk and potential liabilities for both the officer and the corporation.
Business counselors who will be working the corporate officers of their clients should be trained on the legal framework for the duties of executive team members, officers’ authority and standards of conduct under corporate laws and officers’ duties as a corporate agent under agency law.
All companies, regardless of their size and the industries in which they operate, are facing greater challenges with respect to identifying and managing the environmental risks that are related to their day-to-day activities. It is becoming routine practice for larger companies to create a corporate risk manager position and to have that position report directly to the CEO. Surveys indicate that risk management will continue to be a major concern for corporate executives in the years to come and the areas that are of most concern seem to fall into the following categories:
Corporate governance issues, including the impact of the federal Sarbanes-Oxley Act and the growing interest and active intervention in corporate governance among specific states in the US and in foreign countries. In addition to the costs of actual liability for violation of corporate governance laws and regulations, companies are being forced to invest substantial amounts in compliance programs in order to satisfy the requirements of financial exchanges and business partners who themselves are heavily regulated.
Natural disasters (e.g., hurricanes, flooding and earthquakes) in the US and in foreign countries where companies have substantial assets and/or are engaged in a high volume of business activities.
Higher levels of litigation that can result not only in liability for claims made against a company but also in substantial additional expenses to defend against the lawsuits even if the company is ultimately found not to be liable. Companies are being sued for all sorts of potential claims ranging from products liability to mismanagement of employee benefit plans and the number of active lawsuits that larger companies may be defending at any point in time generally runs into the hundreds.
Physical infrastructure and facilities risks, including the rising costs of maintaining aging facilities and the potential damage to products, property and humans that may occur as the company operates over public roads and railways.
Governmental regulation, apart from the corporate governance issues referred to above, that carries higher costs of compliance which will ultimately cause companies to raise the prices of their products and services and risk loss of market share to competitors.
The list above is by no means all inclusive and companies must also anticipate the possibility of terrorist attacks, unforeseen changes in customer requirements and the entry of new competitors or introduction of new technologies. In addition, as companies do more and more business outside of the US they are exposed to local risks in each foreign country where they are operating including a unique set of laws and regulations and the possibility that changes in the political environment will have a negative impact on foreign companies. Finally, while new communications technologies have revolutionized the way that business is conducted they also create new potential hazards—the risk that a business can be shutdown by natural disasters that disable the communications infrastructure and potential liability for theft of personal information that has been entrusted to companies for safekeeping.
Fortunately the increase in risk has been accompanied by the development of new tools to manage those risks. Even small companies can establish systems to collect and analyze information regarding potential events that may result in losses and insurance companies are working with their customers on enterprise risk management (“ERM”). In fact, a number of providers offer in-person and online courses on various aspects of ERM and companies should seriously consider having all of their top managers participate on a regular basis. Viewed properly, risk management is part of the company’s overall strategic business planning effort to reduce and manage uncertainties in the environment in which the company operates.
Writing for Forbes, Deeb argued that being a “startup CEO” was one of the hardest jobs in the business world given the wide range of skills that were needed in order to be successful and the enormous odds against the new company surviving, and the lack of resources relative to a CEO at a Fortune 500 company. He noted that there is no universal profile for “the best startup CEO” and that people differ in terms of skills, style and personality and companies face different challenges with respect to market conditions; however, in his view there were a handful of “must-have” skills for increasing the chances of being a successful startup CEO that included the following:
- “A clear vision of where the ship is sailing”, which means the ability to articulate and execute a plan for creating a unique and competitive solution to a real world problem for potential customers
- “A finger on the pulse of the industry and competitive trends”, which involves staying on top of trends and collecting information that can be used to steer the company in the direction it needs to stay afloat once the journey has been launched
- “Solid team management skills to keep all employees sailing in the same direction”, which includes articulating the vision to employees, building a consensus for the vision among employees and listening to and implementing ideas from employees about how to improve and achieve the vision
- “Impeccable sales and motivational skills, while maintaining credibility with clients, investors and employees”, which means acting as the “Chief Evangelist” for the new business and generating excitement for the vision while simultaneously demonstrating business judgment, intelligence and credibility
- “Keep the business on plan and budget”, which involves setting and pursuing “achievable proof-of-concept points”, creating strategies for the key drivers of success and putting the right people in place to manage them and relentless tracking progress to spot and address problems quickly
- “Keep the company liquid”, which starts with setting the right proof-of-concept points and then establishing a reasonable timetable to achieve those points and making sure that the company has enough capital, including a cushion, to achieve those goals
Deeb’s suggestions obviously overlap and the startup CEO has to keep each of them in mind as he or she runs the business and interacts with employees, customers and investors. For example, as a practical matter the most important concern of the CEO at the beginning is to “keep the company liquid and in business” and the best way to do this is to be sure that the launch phase business plan is focused on attainment of proof-of-concept points that prospective investors have accepted as reasonable triggers for providing additional funding. At the same time, when budgeting for the pursuit of the initial goals the CEO must be realistic and anticipate the problems will inevitably arise as they usually do for startups. This means that the CEO must have a “Plan B” in mind and must be prepared to make difficult decisions, including salary reductions and even layoffs, in order to keep the company going long enough to find smoother waters.
Source: G. Deeb, “The 6 Must-Have Skills For A Startup CEO”, Forbes (February 12, 2014), [accessed June 24, 2015]
Accepted notions of good corporate governance dictate the implementation of director education programs and regular assessments of the performance of the board of directors and each of the directors individually. This report outlines some of the key elements of an effective program for orienting new directors, providing continuing education to directors during their service on the board and conducting evaluations of board and director performance.
Every new business must deal with various legal and regulatory requirements; however, technology-based companies looking to grow and expand must be particularly mindful of the potential problems and issues in this area. While many entrepreneurs believe they can do their own contracts and use “self-help” books to form and organize their business, an experienced attorney can be invaluable member of the launch group for any fledgling business. While the role of counsel varies depending on the specific type of business and related activities, good legal advice will be essential in each of the following situations:
- Selection of the proper form of legal entity for the new business and completion of formal legal requirements to properly form and organize the chosen entity.
- Advice to the founders and other senior managers on their ongoing legal duties and responsibilities to current and former employers and practical assistance in helping the founders make the transition from their current employment activities without violating any general legal or contractual duties they might have to their employers.
- Preparation of shareholders’ agreements among the founders and among the founders and outside investors.
- Preparation and negotiation of key contracts between the company and its vendors, customers, employees and consultants.
- Development and implementation of strategies for perfecting and protecting the company’s intellectual property rights.
- Advice regarding compliance with statutory financial reporting and other disclosure requirements.
- Advice regarding compliance issues in other substantive legal areas, including laws and regulations pertaining to taxation, labor and employment, real estate, antitrust and competition and securities offerings.
Assuming the attorney has the requisite skills and experience to advise the founders on each of the matters mentioned above (e.g., selection of the proper form of entity, preparation of agreements among the founders and among the founders and outside stakeholders; contract drafting and compliance requirements), the actual terms of engagement may provide that the attorney will render “outside general counsel services” to the selected legal entity and the engagement letter will typically enumerate specific tasks and activities such as business/legal advice, securities law compliance and preparation of offering documents, contract review and negotiation, employment matters, corporate governance counseling, management of intellectual property rights and selection and oversight of outside counsel handling litigation matters. The engagement letter should identify the attorney who will be principally responsible for managing the engagement and he or she should be the person that the senior managers of the entity can turn to for advice on how to address a specific legal or business issue. Other attorneys working with the “principal attorney” may be involved in providing certain services under the engagement letter; however, the principal attorney must be committed to staying involved with the engagement and carefully monitoring the work of all attorneys involved and making sure that the work adheres to mutually agreed schedules and budgets and that the relationship is proceeding as expected.
A formal appraisal process for the senior management personnel of an emerging company can have several important influences on the relationship between the CEO and the members of his or her “inner circle.” First and foremost, a performance appraisal is probably the best way to identify the strengths and weaknesses of the manager in particular situations or over the course of the manager’s regular day-to-day activities. With this information, the appraisal process can be a good opportunity to develop a mutually agreed program to strengthen the weaknesses while simultaneously reinforcing the strengths and finding ways to use those strengths in other areas.
The CEO is therefore able to provide support for senior managers based on a bond of mutual commitment and also is able to provide praise and emotional support to managers that often feel alone and unappreciated given that most of the focus is usually on areas where they need to improve. A formal appraisal process should also include ways for senior managers to express their own needs and ideas and therefore reduce the possibility of misunderstandings between the CEO and the manager with regard to the personal and professional goals of the manager.
When designing a formal performance appraisal process for senior managers, the following issues need to be considered: when and how often the appraisal should be done; what information will be gathered and how it will be gathered; the form and content of the actual evaluation; how should the results of the evaluation be recorded; and how should the results be integrated into the day-to-day activities of the manager during the period following the completion of the review. While performance and compensation are obviously closely related, it is generally recommended that performance and compensation reviews be done separately if at all possible. Studies indicate that the benefits of a performance review are often lost when participants are preoccupied with the fact that they are about to receive new information regarding their compensation. In that case, participants tend to forget that the focus of the performance review should be on their own strengths and weaknesses, and opportunities for improvement and advancement, and become preoccupied with real or perceived comparisons of their performance to others that may arise because of compensation adjustments. Another issue in the case of poor performers is the negative psychological impact of receiving bad news in the evaluation followed quickly by a disappointment in the compensation arena.
The main choices regarding timing of performance reviews is to do all of the senior managers at the same time or spread the reviews out over the course of the year (e.g., conduct a manager’s review on his or her anniversary date of joining the organization). If reviews are all done together this will impose a significant workload on the CEO and will likely increase the possibility that managers will be distracted by comparisons. On the other hand, if reviews are done throughout the year the CEO will be continuously involved in the process and special effort will need to be made to schedule compensation reviews.
When evaluating and communicating information relating to the performance review, the CEO should make every attempt to be systematic, fair and consistent with the methods used for assessment and rewards. When setting goals during the performance evaluation process the CEO should be sure that the goals set for the manager align fully with the reward system established for the manager. In addition, the outcomes of the performance review should be communicated both in writing and orally.
Performance problems for senior managers may arise for a number of reasons including lack of the necessary skills, misunderstandings about the goals and objectives, temporary or permanent personal problems, relationships with co-workers and/or the relationship with the CEO. Solutions vary depending on the type and severity of the problem and should be discussed in detail during the performance review. For example, as appropriate the CEO may arrange for further support or additional training development or may decide to intervene to resolve issues with co-workers. In extreme situations it may be necessary to transfer the manager to other duties or even terminate the relationship if the parties mutually decide that there is no better option. Once the parties have decided on an appropriate plan to address performance weaknesses or other impediments to further improvement, the manager and the CEO should evidence their commitment to the plan both orally and in a brief written memorandum.
A great deal of attention is properly devoted to succession planning for the CEO; however, the directors and the CEO should also be mindful of the impact of the sudden departure of unavailability of other C-level executives who oversee essential areas of the business including marketing, operations, information technology, human resources and finance. Studies among Fortune 500 companies have quantified the risk that companies may have to replace one or more of the top executives. For example, turnover among chief financial officers is increasing due, in part, to the escalating demands placed on that position by new laws and regulations pertaining to corporate governance, accounting procedures and internal controls. It is now common for larger firms to go through multiple CFOs in a relative short period of three to five years. The CEO of a Fortune 500 company can also expect that he or she will need to find new C-level executives for marketing and information technology multiple times during the typical CEO tenure.
A significant percentage of large firms—Fortune 1000 companies—do not have any formal succession plan in place for executives other than the CEO and typically plead that they simply do not have the time and budget to establish and maintain a leadership development program that will ensure that the company has a pool of qualified and informed candidates who can step easily and quickly into new roles as heads of important functional and business units. The problem is even more urgent for smaller companies since the senior executives generally have little or no staff support and therefore horde most of the knowledge about key projects relating to the departments. If they become unavailable there is no one who can quickly fill the gap. For example, if an emerging company suddenly loses its CFO in the middle of negotiations for a new round of venture capital financing or an expansion of the company’s line of credit with its bank the impact may be disastrous since it will take weeks or months to recreate the knowledge and information that the departed CFO should have been able to provide easily to the funding sources. The result may be a failure to close a deal or a closing on terms much less favorable to the company than would have been the case if the CFO was still on board or a qualified replacement was readily available when the CFO left.
A sudden loss of a C-level executive followed by a long period without a replacement can have other adverse effects on a company’s business. For example, studies show that a lack of a smooth transition for a key executive position, regardless of the reasons therefore, can lead to a loss of confidence in the CEO and other senior executives among the employees who would normally report to the person in that position as well as deterioration in employee morale and productivity. In addition, as with the example above regarding negotiations on financing, the lack of leadership causes ongoing projects to stall due to uncertainties about future leadership support. A correlation has also been found between loss of a C-level executive and erosion of stock prices. On the other hand, companies which are able to quickly identify qualified replacements from within are much less likely to run into serious problems if there is a need for a change in the executive team. In fact, a succession plan for C-level executives that relies on talented managers that are already working for the company can be important recruitment and retention tool.
Succession planning for C-level executives should be driven by the CEO and should involve all of the members of the executive team well before there is an urgent and immediate need for a replacement. One way to make sure that the company is not caught unprepared is to make sure that everyone on the executive team is kept abreast of important projects in other departments. The goal is to make sure that all executives know what is going on in the company and can step in to run other departments temporarily and contribute to nominations of qualified candidates from inside the company to take over departments on a permanent basis. The CEO can get others involved by soliciting their input on strategic and business initiatives that require execution across department boundaries including review of annual operating plans, new products and services, acquisitions and major IT projects. In addition, all C-level executives should be required to meet regularly with senior managers in their departments and actively serve as mentors to develop the skills of potential successors. C-level executives should be required to provide input to the human resources department on a regular basis on the performance of key subordinates and the company should launch a professional development program that not only creates a possible successor pool but also generates benefits even before participants are asked to move up in the form of lower turnover rates and great enthusiasm about working for the company.
One of the first things that any new CEO needs to do is set up interviews with other key members of the management team. While the CEO should already be familiar with the job descriptions for department heads and the organization and operational activities of each department the CEO should meet with the top of manager of each functional and business unit to begin to form his or her own independent opinion of the skills and talents of those persons and the manner in which they oversee and manage their units. Among other things, the CEO should ask the other managers about any specific issues or problems they are confronting within the organization and in relations with external parties. For example, the senior manager of the sales group may feel that the customer service department is not providing adequate support for certain important accounts. If that is the case the CEO may need to intervene and attempt to smooth relations between the two units and assist them in develop a process to work together in a way that suits both of their goals and objectives and improves the customer’s experience with the company from the time the first contact is made by sales through the entire post-sale service and support period. In the accounting area the discussion should cover important accounting and tax issues facing the company as well as the content and strength of accounting-related policies and procedures including internal controls and audit procedures. With regard to external relations, the CEO may find that the manufacturing unit needs to reconfigure its supplier network in order to control the costs of procuring raw materials and ensure that components are available on a timely basis to fulfill sales orders. In that situation the CEO will need to work with the senior management of the procurement and manufacturing units to develop and implement an appropriate vendor relations strategy. The initial goal of these discussions is to determine how the CEO, through his or her oversight of the parent unit resources, can immediately assist and support the functional and business units. In addition, however, the CEO should collect feedback on issues or problems that are likely to arise in the future so that they can be factored into the long-term business planning process.
As the CEO conducts the meetings with the department heads he or she should focus on certain core topics and on learning more about how the company, through its managers, actually operates. For example, the CEO needs to go beyond documents that he or she may have received from the company to independently learn about the company’s business, including policies and practices regarding revenue recognition; the elements of revenue and expense for each product line, especially gross margins; any relevant accounting or tax issues that are likely to have an impact on the company or the industry segments in which the company competes; the content and strength of the company’s technology portfolio; and the position of the company vis-à-vis competitors in each of the company’s market segments. When discussing issues such as revenue recognition the CEO should ask about customary practice in the industry and determine whether company practices are consistent with those used by competitors. It is also useful for the CEO to learn as much as possible about the details of how the company’s products are developed, manufactured, distributed, sold and supported. This usually means actual observation of the manufacturing process and attendance at sales presentations. The CEO should also watch how employees go about their day-to-day activities and, most importantly, how their managers interact with them in communicating directions and information regarding the company and the specific tasks and duties that are being assigned to the employees. If possible, the CEO should meet with small groups of employees from several departments to hear first-hand how they feel about the company, their managers and the challenges they are facing on a daily basis.
Last month's post described the methodology developed by Standard & Poor (“S&P”) for analyzing
corporate governance practices in countries and companies and generating a
corporate governance score (“CGS”) that reflected S&P's assessment of a
company’s corporate governance practices and policies and the extent to which
these serve the interests of the company’s financial stakeholders, with an
emphasis on shareholders’ interests. In this month's report we continue the discussion of the S&P model by describing the factors that S&P recommends should be taken into account when conducting country-level analysis of corporate governance practices including inquiries in four main areas: legal infrastructure, regulation,
information infrastructure and market infrastructure.