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VII: Governance of Sustainability: Boards' Changing Roles
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VII: Governance of Sustainability: Boards' Changing Roles
by John Fraser, Richard Leblanc
The Handbook of Board Governance
Cover
Praise for The Handbook of Board Governance
Title Page
Copyright
Dedication
Foreword
Preface
I: The Board's Responsibilities
Chapter 1: The Handbook of Board Governance: An Introduction and Overview
Introduction and Overview
Diversity of Authorship
Drivers and Impediments to Improved Corporate Governance
Précis of This Handbook's Chapters
Part I: The Board's Responsibilities
Part II: What Makes for a Good Board? Independence, Competency, Dynamics, and Behaviors
Part III: Risk Governance, Assurance, and the Duties of Directors
Part IV: The Rise of Shareholder Accountability
Part V: The Unsolved Governance Problem: Performance Measurement And Executive Pay
Part VI: Governance of Information Technology
Part VII: Governance of Sustainability: Boards' Changing Roles
Part VIII: Governance of Different Forms
Conclusion: Future of Board Governance and Unresolved Issues
Chapter 2: Boards That Lead
A New Model of Collaborative Leadership
“One of the Greatest Business Decisions of All Time”
Monitor and Leader
Duty of Leadership
When to Lead, When to Partner, and When to Stay Out of the Way
Recruiting Directors Who Build Value
The Director's Checklist
Conclusion: Boards That Lead
Notes
References
Chapter 3: Trends in Corporate Governance
Trend 1: Increased Usage of Corporate Governance Codes
Trend 2: Higher Levels of Regulation and Enforcement
Trend 3: Greater Board Diversity
Trend 4: More Focus on Strategy, Value Creation, and Corporate Responsibility
Trend 5: Greater Emphasis on the Governance of Risk
Trend 6: Greater Emphasis on Information Governance
Trend 7: Greater Emphasis on Compensation Governance
Trend 8: Greater Emphasis on Accountability and Responsibility to Shareholders and Other Stakeholders
Trend 9: Increased Usage of Board Evaluations and Board Performance Development
Trend 10: Director and Board Development
Conclusion
Notes
Chapter 4: Governance as a Corporate Discipline
What Is Governance?
Developing the Governance Document
Keeping the Governance Document Up-to-Date
Who Should Have Access to the Governance Document?
What Should the Governance Document Contain?
Summary
Conclusion
Chapter 5: The Nonexecutive Chairman: Toward a Shareholder Value Maximization Role
Key Responsibilities of a High-Performance, Nonexecutive Chairman
Characteristics, Experience, and Skills to Look For in a Chair
Communication with Shareholders
Addressing Concerns of Activist Shareholders
Conclusion
Notes
Chapter 6: CEO Succession: An Owner's Guide for Directors
The Talent Disconnect
The Reluctant Retiree
The Absence of Human Resources
The Assessment Tool Obsession
The Irrelevant Criteria
The Culture Conundrum
The Mysterious Talent Pool
The Never-Ending Transition
The Forever CEO
The Persistent Myth: It's Just for the Big Guys
Conclusion
References
Chapter 7: CEO Succession Planning: CEO Succession Planning
The Market for Chief Executive Officers
CEO Turnover
Incoming CEOs
Models of Succession Planning
Common Practices in Succession
Conclusion
Notes
II: What Makes for a Good Board? Independence, Competency, Dynamics, and Behaviors
Chapter 8: Director Independence, Competency, and Behavior
The Regulatory Focus on Director Independence May Occur at the Expense of Industry Expertise
Moving Beyond Director Independence
Regulatory Emphasis on Director Independence
Boards Should Collectively Decide: How Much Compromising of Director Independence Is Acceptable?
Director Competency
A New Requirement: Board Diversity Matrix
Director Behavior
Assessing Overall Director Effectiveness
Conclusion
Notes
References
Chapter 9: The Criticality of Board Director Team Intelligence (TQ) in Economic Value Creation
The Existing Paradigm Is Long Overdue for a Change
Defining and Measuring Team Intelligence Impact on Corporate Performance
Findings about the Relationship between TQ and Firm Performance
Theoretical Support
Recommendations for Boards
Conclusion
Notes
Chapter 10: Lessons from the Banking Crisis: Leadership and Effective Board Behaviors
Background and Context
Learning from the Banking Crisis
Leadership in the Boardroom
Board Norms
Information Flow
Board Structure and Process
Discussion and Summary
Conclusion
References
Chapter 11: The Challenge of Director Misconduct
Defining Expectations for Director Behavior
Forms of Director Misconduct
Disclosures of Confidential Information
Valued Behaviors for Directors
Appropriate Dissenting Director Behavior
Strategies to Prevent Director Misconduct
Director Resignations: Form 8-K Disclosure Obligations
Addressing Director Misconduct
Conclusion
Note
III: Risk Governance, Assurance, and the Duties of Directors
Chapter 12: The Rise and (Precipitous, Vertiginous, Disastrous) Fall of the Fiduciary Standard
Conclusion
Notes
Chapter 13: The Duties and Liabilities of Directors—Getting the Balance Right
Why Should Directors Have Duties?
The General Duties of Directors under Corporate Law
What Objectives Should Directors Pursue?
The Business Judgment Rule—A Get-Out-of-Jail Card for Directors?
Enforcing Directors' Duties
Beyond Corporate Law—Other Sources of Liability for Directors
Directors' Personal Exposure to Financial or Criminal Liability—Overwhelming Burden or Empty Threat?
Conclusion: The Balance between Personal Accountability and Liability Overkill
Notes
Chapter 14: Best Practices in Parent and Subsidiary Governance
Part I: Overview of Parent and Subsidiary Governance
Part II: Parent Company Liability for the Actions of Subsidiaries
Traditional Exceptions for Holding Parent Companies Liable for Their Subsidiaries
Emerging Tort Law Liability as a New Exception
Part III: Leading-Edge Practices in Subsidiary Governance
How Much Direction and Oversight Should a Parent Corporation Exercise over Its Subsidiaries?
Part IV: Conclusion
Notes
Chapter 15: The Role of the Board in Risk Management Oversight
The Challenges
Risk Management Methodologies
ISO 31000
COSO ERM 2004
Financial Institutions' Regulatory Requirements
What Is Enterprise Risk Management?
Accountability for Board Oversight
Overview of the Board's Role
The Board and Internal Audit
Conclusion
Notes
References
Chapter 16: Board Oversight of Internal Audit: How to Maximize Internal Audit Value
The Internal Audit Mandate
The Relationship of Internal Audit and Enterprise Risk Management (ERM)
The Chief Audit Executive (CAE)
The Independence and Motivation of a CAE
Planning
Reporting Issues
Follow Up on Internal Audit Reports
Building Trust
Conclusion
Appendix
Notes
Chapter 17: Three Lines of Defense versus Five Lines of Assurance: Elevating the Role of the Board and CEO in Risk Governance
The Origins of the Three Lines of Defense (3LoD)
Regulatory Endorsements to Date
3LoD Contrarian Positions
Suboptimal and Even Dangerous Elements of 3LoD
Five Lines of Assurance—What Is It?
Five Lines of Assurance—Why Is It Better?
Benefits of the Five Lines of Assurance versus 3LoD
Conclusion
References
Chapter 18: Commercial and D&O Insurance for Large Corporations: Best Practices in Protecting the Assets and Liabilities of Directors and Officers and Their Organizations
The Key Organizational Risks (Insured and Not Insured)
Directors and Officers Insurance
Summarizing Insurance and Claims for Board Oversight Purposes
Roles and Responsibilities
The Insurance Marketing Process
Conclusion
Appendix A: Checklist of Key D&O Policy Extensions
Appendix B: Broker Responsibilities, Sample Broker Service Agreement
Appendix C: Checklist—The Process for Marketing Large Insurance Programs
Appendix D: Director's Questions
Notes
IV: The Rise of Shareholder Accountability
Chapter 19: The Happy Myth, Sad Reality: Capitalism without Owners Will Fail
Received Wisdom
Ownership
Free—In the Sense of Not Being Accountable—Cash
Drones
Pfizer
ExxonMobil
Capitalism as Corruption
Increased Regulation
Better Boards of Directors
Enlightened Management
Faute de Mieux20—Back to Ownership
Postscript
Notes
References
Chapter 20: Board–Shareholder Engagement1
Part I: 2014—The Year of Engagement
Part II: Factors Supporting Board–Shareholder Engagement
Part III: The Costs and Benefits of Engagement
Part IV: Responses to Increasing Engagement
Part V: Questions for Further Research
Conclusion
Notes
Chapter 21: The Individual's Role in Driving Corporate Governance
From Robots to Democracy
Companies without Owners
Taking Responsibility
Life-Affirming Foundations
When Humans Bring Their Values to the Corporation
Current Pay Practices Work Against Creating Long-Term Value
Status and Power
The Example of Norway
How Much Will Government Help?
Fiduciary Duty
Research Points to Public Opinion as a Driver
Retail Investors Who Made a Difference
Conclusion
Notes
Chapter 22: Thoughts on the Origins and Development of the Modern Corporate Governance Movement and Shareholder Activism
Welcome to the 1980s
Big Daddy and the Birth of the Council of Institutional Investors
The 1990s: The Transition from Defense to Offense
The Birth of Activism
Notes
V: The Unsolved Governance Problem: Performance Measurement and Executive Pay
Chapter 23: Peer Groups: Understanding CEO Compensation and a Proposal for a New Approach
Peer Benchmarking
CEO Successions
Empirical Support
What This Means for CEO Pay
Conclusion
Notes
Chapter 24: The Effective Compensation Committee
Keys to an Effective Compensation Committee
Compensation Committee Charter
Compensation Philosophy
Compensation Committee Calendar
Aligning Pay to Performance: Best Practices
Succession Planning and Talent Development
Say-on-Pay and Shareholder Engagement
Conclusion
Notes
Chapter 25: Human Resource Management: The Role of Boards
Human Resources Information Available to Boards
Human Resources Expertise on the Board
Monitoring Human Resources Effectiveness
Sources of HR Information and Knowledge Gap
What Price Do Boards Pay for the HR Gap?
How Boards Can Address Their HR Effectiveness Gap
Establish Quadruple Bottom Line Public Reporting
Capacity Development
Conclusion
References
Chapter 26: Designing Performance for Long-Term Value: Aligning Business Strategy, Management Structure, and Incentive Design
Defining Performance and Missing Metrics
What About Earnings per Share (EPS) as a Performance Metric?
Connecting Current and Future Value to Total Shareholder Return
Aligning Management Structure with Innovation and Future Value
Current Value, Future Value, and Rethinking Long-Term Incentive Design
Explaining Performance and Pay for Performance
Conclusion
Glossary
Notes
Chapter 27: Measuring and Improving Pay for Performance: Board Oversight of Executive Pay
The Three Basic Objectives of Executive Pay
A Brief History of Executive Pay
Why Percent of Pay at Risk Is Not a Meaningful Measure of Incentive Strength
Measuring the Three Basic Objectives of Executive Pay
The Design Implications of the Measurement Analysis: Perfect Pay Plans
Benchmarking Pay for Performance
Why Say-on-Pay Approval Rates Are So High
Why the Guidance from CalPERS, NACD, ICGN, and ISS Is Not Very Helpful for Directors
The Challenge Facing the Individual Director
Conclusion
Notes
VI: Governance of Information Technology
Chapter 28: Information Technology and Cybersecurity Governance in a Digital World
The Nature of Information Technology
The Evolution of Corporate IT Risk
Effective IT Governance in Practice
The Never Ending Cybersecurity War
Conclusion
Notes
Chapter 29: The Board's Role in the Governance of Enterprise Information and Technology
The Skill Shortage
What Is Governance of Enterprise Information and Technology (GEIT)?
How Bad Is the Board Capability Problem?
Benefits of Boards Building IT Leadership Capability
Winners and Losers
Areas of IT Risk Boards Must Capably Govern
Three Barriers to Effective GEIT
Are Current Governance Oversight Practices Serving Your Board When It Comes to Technology Risk?
IT Governance Reporting to the Market and Investors
The Role of Audit in IT Risk, and the COBIT5 Control Framework
Board Accountabilities and New Competencies
Practical Steps to Get Started Transforming Your Board
Conclusion
Notes
References
VII: Governance of Sustainability: Boards' Changing Roles
Chapter 30: Responsible Boards for a Sustainable Future
What Do All These Developments Mean for the Corporate Boards Around the World?
Role of the Board of Directors
Emerging Standards of Sustainability
Responsible Boards
Crafting the Sustainability Vision
Building Sustainable Boards
Integrating Sustainability into the Organization
Conclusion
Notes
Chapter 31: The Board's Role in Sustainability Governance: Connecting Long-Term Value Creation and Executive Compensation
What Is Sustainability?
The Relationship between Sustainability Performance, Value Creation, and Executive Compensation
The Current State of Sustainability Governance and Compensation on Sustainability Performance
Action Steps
Conclusion
References
Chapter 32: Board Governance for a Better World
Chocolate Is Bittersweet
Volkswagen: A Cautionary Tale
COP21
Boards Build Shareholder Value
Global Challenges Present Opportunities for Businesses
Boards That Lead
Society Holds Businesses Accountable
Boards Must Build a Better World
References
Chapter 33: Corporate Governance: Ethics and Legal Compliance, Risk Management, and Political Activities
Legal Compliance and Ethics
Risk to Reputation
Board Role and Legal Incentives
Board Committees
Corporate Political Role
Conclusion
References
VIII: Governance of Different Forms
Chapter 34: Transforming Nonprofit Boards to Function in the Twenty-First Century
Improving Board Structures and Seeking the Best Board Members
Improving Board Operations
Fundraising—A Team Effort
How Does Your Nonprofit Retain Termed-Out Board Members?
Strategic Planning—Long Term Pays Off
Evaluating the CEO—Rigor Required
Board Compliance—More Than Financials
Conclusion
Notes
Chapter 35: Startup Boards—All In for the Company
Startup Board Evolution
Boards That Are All In
The Cash Nexus
The Path to Exit
Venture Capitalist Conflicts of Interest
Startup Board Diversity
Startup Board Mechanics
Conclusion
Notes
Chapter 36: Systemically Overlooked Anomalies of Governing Small-Cap Companies
One-Size-Fits-All
Conflicts of Interest and Needlessly Dilutive Financings
The Epidemic of Asymmetric Information and Groupthink
When the Selection and Management of Professional Service Providers Creates Enterprise Risk
Conclusion
Notes
Chapter 37: Boards and Value Creation in Family Firms: An Extended Team Production Approach
Understanding Values and Value Creation in Family Firms
Boards and Value Creation in Family Firms
The Extended Team Production Approach for Understanding Boards and Governance
The Contribution of Boards in the Value Chain
Board Competences, Core Capabilities, and the Value Chain
Developing Boardroom Dynamics in Favor of a Team Production Culture
Conclusion
References
Chapter 38: Succession in Family Businesses
Introduction
The Succession Plan
The Prodigal Child System
Qualifications and Employment
The Gender and Age Issues
The Nonfamily Successor (the Hired Gun)
The Family Owners
Conclusion
Notes
Chapter 39: From Regulation to Enforcement of Corporate Governance in the Middle East and North Africa
Capital Markets Supervision Framework
Corporate Governance Enforcement
Priorities for Reform
Conclusion
Notes
References
About the Editor
Richard Leblanc, Editor
About the Authors
Alissa Amico
Yılmaz Argüden
Roger Barker
Andrea Calabrò
Dennis Carey
Ram Charan
Solange Charas
Jay A. Conger
Steven De Haes
Charles M. Elson
Adam J. Epstein
Craig K. Ferrere
Richard Fields
Eugene H. Fram
John R. S. Fraser
Jonas Gabrielsson
Anthony Goodman
Holly J. Gregory
Steven Hall
Steven Hall Jr.
Mary Halton
Lauren C. Hanlon
John M. Holcomb
Morten Huse
Alice Korngold
David F. Larcker
Edward E. Lawler III
Richard Leblanc
Tim J. Leech
Jon Lukomnik
Stephen J. Mallory
Nora McCord
James McRitchie
Nell Minow
Robert A. G. Monks
Mark B. Nadler
Stephen F. O'Byrne
Douglas Y. Park
Chris Pierce
Poonam Puri
Adam Quinton
Drew Stein
Brian Tayan
Greg Timbrell
Michael Useem
Elizabeth L. H. Valentine
Mark Van Clieaf
Henry D. Wolfe
Ronald Zall
Bob Zukis
Index
End User License Agreement
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Chapter 29: The Board's Role in the Governance of Enterprise Information and Technology
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Chapter 30: Responsible Boards for a Sustainable Future
VII
Governance of Sustainability
Boards' Changing Roles
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