MGST 451: Chpt 3 - Intl govs

many civil law jurisdictions, dual mandate is separated into

two boards

common law vs civil law: common law

• shareholder centric

• provide more legal protections for minority shareholders

• Stock markets have higher valuations

common law vs civil law: civil law

• stakeholder centric

• more legal protections for employees and society

• there's lower unemployment and wage disparity in some civil law jurisdictions

• civil jurisdictions, companies often need to turn to alternative funding sources (banks, wealthy families)

germany: supervisory board

• Monitors corporation (approves financials, decides if dividends will be paid out)

• Appoints, supervises, and can dismiss management board

• No executives allowed

• Must include labour representation (1/3 to ½ depending on how large firm is)

• Can cap CEO pay (ex: Volkswagen capped pay at 10 million Euros)

germany: management board

• Makes operational and strategic decisions

• Executives, managers

china: board of supervisors

• Monitors directors and management

• Reviews finances, regulatory/legal compliance

• Must have 1/3 employee representation

• Often has governmental actors

china: board of directors

• Responsible for overseeing strategic management of company

• Appoints the managers

Role of the Chair

leader of board

• Set the agenda and work plan

• Preside over the meeting, manages meeting efficiency

• Ensures directors are informed/properly briefed

• Counsels individual directors

• Link person between committee heads and board, board and management

• Examples: When Tim Cook steps down in fall 2026, he will become chair and John Ternus will step into role of CEO

Pros to Having Separation of CEO and Chair

• Clear separation of responsibility

• Gives CEO more time to focus on strategy

• Gives the board more objectivity, independence, better oversight

• Good when a company has a new CEO

Cons to Having Separation of CEO and Chair

• Creates duplication in leadership

• Slower decision making

• Can lead to inefficiency

• Blurred authority

• Can lead to personality conflicts (Iger/Chapek at Disney)

alternative having separation of CEO and Chair

Lead independent director

responsibilities of Lead independent director

• Coordinate meetings of the independent directors

• Act as point person between independent directors and the CEO

• Can be a contact person for shareholders

• Examples: NVIDA, Starbucks, Goldman Sachs, Blackrock all have lead independent directors

how are directors chosen

• Nominated by the Board of Directors

• Voted on by the shareholders at annual shareholder meeting

what does apple allow for

proxy access: The right for some shareholders to nominate directors

if there is a proxy challenge, what happens?

the elections becomes contested

• they would do regular voting

• directors with the most votes gets elected

have there been recent proxy challenges at apple?

no

Why might a proxy challenge happen?

• hostile takeover attempt - hostile firm may attempt to replace the board

• activist management - activist investor dissatisfied with the firm's performance may put forward a small group of directors where they can participate in the management of the firm

how can you block a hostile takeover

poison pill

poison pill

By allowing shareholders (excluding the hostile bidder) to purchase additional shares at a steep discount once a threshold (e.g., 20%) is crossed, it severely dilutes the acquirer's stake, making the takeover prohibitively expensive

how can you avoid a firm takeover via proxy battle?

use a staggered board

• each year, only 1/3 seats are up for election

• if there are 9 seats, it would take take 2 years to have majority position

audit committee

Independence Requirement: Must be 100% independent in the US and Canada

• Monitor choice of accounting principles

• Hire and oversee external audit; oversee internal audit

• Oversee regulatory compliance and monitor risk

• All must be financially literate; one must be a financial expert; min. 3 directors

Compensation Committee

Independence Requirement: Must be 100% independent in the US, recommend independent in Canada

• Set the CEO's and directors' compensation

• Set performance-related goals and monitor CEO performance relative to goals

• Hire compensation consultants

• Advise CEO on executive pay

nominating committee

Independence Requirement: Must be 100% independent in the US, recommend independent in Canada

• Identify, evaluate, nominate directors

• Hire external consultants to identify nominees

• Manage CEO and directors evaluation process

• May be responsible for CEO succession planning

• Though some leave this to the whole board or may even have a succession planning committee