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Shareholders pay considerable attention to the choice of executive selected as the new CEO whenever a change in leadership takes place. However, without an inside look at the leading candidates to assume the CEO role, it is difficult for shareholders to tell whether the board has made the correct choice. In this Closer Look, we examine CEO succession events among the largest 100 companies over a ten-year period to determine what happens to the executives who were not selected (i.e., the “succession losers”) and how they perform relative to those who were selected (the “succession winners”).We ask: Are the executives selected for the CEO role really better than those passed over? What are the implications for understanding the labor market for executive talent? Are differences in performance due to operating conditions or quality of available talent? Are boards better at identifying CEO talent than other research generally suggests?The Stanford Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books “Corporate Governance Matters” and “A Real Look at Real World Corporate Governance.”

Shareholders of public companies are not responsible for designing executive compensation packages. Still, a shareholder vote on compensation is required in two circumstances: when a company wants to establish an equity-based compensation plan, and annually as part of the Dodd Frank requirement shareholders have an advisory “say on pay.” In deciding how to vote, shareholders rely on information provided in the annual proxy.Recently, shareholder groups have sued companies for inadequate disclosure. They allege that the companies provide insufficient disclosure to determine how they should vote on these matters.We explore this issue in closer detail and ask: How much disclosure is too much disclosure? If a company follows SEC guidelines, why is this not sufficient? When do lawsuits cross the line from legitimate to frivolous? If disclosure litigation is successful, what other board decisions would be subject to potential lawsuits?Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Americans tend to admire powerful leaders. Powerful leaders are seen as exerting influence over their organizations and shaping outcomes around them. CEO power can be exercised across a wide spectrum of decisions, including those regarding corporate strategy, operations, acquisitions, organizational design, culture, and governance.However, it is not clear the extent to which having a powerful CEO is beneficial to an organization. CEO power can be positive or negative, depending how it is manifested and how it is exercised.We examine this topic in greater detail, and ask: Are shareholders better or worse off with a powerful CEO? Where should the board draw the line between giving its CEO discretion and providing appropriate oversight? How much power is too much power?Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

There is a consistent pattern that emerges when a company suffers from a major governance failure: the stock price falls, the company faces lawsuits, and there is elevated turnover in both the executive suite and the boardroom. The impact on the careers of the former executives and directors of these companies is less clear. Recent experience suggests that many CEOs and directors of failed companies are able to retain outside directorships – and even obtain new ones – following their forced departures.1. Should this be a concern for shareholders? 2. What is the standard by which the culpability of an executive or director should be measured? When are they too tainted by their experience to serve at other companies?3. Is it plausible that officers and directors involved in an accounting or ethical problem can learn valuable lessons from the experience?Read the attached Closer Look and let us know what you think.Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Many institutional investors rely on a proxy advisory firm to assist them in voting the company proxy and fulfilling their fiduciary responsibility to vote in the interest of beneficial shareholders. The largest and most influential proxy advisory firm is Institutional Shareholder Services (ISS). The recommendations of ISS are not inconsequential. Academic and professional research suggests that a recommendation by ISS can change the outcome of a vote by 15 to 20 percent, depending on the matter of the proposal.At the same time, there is little evidence that proxy advisory recommendations are correct or that they improve corporate outcomes. In fact recent research suggests that they might actually decrease shareholder value.We examine these issues as they relate to ISS guidelines for exchange offers and option repricings: Do proxy advisors have appropriate incentive to verify that their recommendations are correct?Should board members require evidence that ISS guidelines are value increasing before they adjust their policies to gain a favorable recommendation?Proxy advisory firms enjoy significant barriers to entry and little competition. Is this desirable for shareholders?Related Research Paper on SSRN: The Role of Proxy Advisory Firms in Stock Option Exchanges; Authors: David F. Larcker , Allan L. McCall and Gaizka Ormazabal , Stanford Graduate School of Business: http://ssrn.com/abstract=1811130.Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Companies include equity in a compensation package to align the interests of management with those of shareholders. It is not uncommon for an executive who has been employed at a company for many years to accumulate a substantial dollar ownership position in the company. With a concentration of wealth in a single financial asset, the executive may want to limit his or her exposure by hedging a portion of the position through financial instruments or pledging shares as collateral for a loan. While there are many reasons why a board may want to allow an executive to hedge or pledge an equity ownership position, there are also many reasons why this may be a cause for concern. We examine these issues in detail. Can boards explain why they do or do not allow executive hedging? If an executive has hedged the equity position, why does the board continue to grant new equity and not cash? Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

In July 2006, Barracuda became the largest investor in Tarco International. In a meeting with management, Barracuda’s managing director advised that strong measures needed to be taken to improve operating performance. If management failed, Barracuda would force a sale of the company. In response, the board of Tarco hired FD, a leading financial communications consultancy specializing in strategic investor relations. The board asked FD to compile extensive research on the Tarco’s shareholder base, investor perception of the company and management performance, predictive voting on potential proxy proposals, and tactics used by Barracuda in previous activist engagements. Armed with this data, the board had to decide what steps to take, if any, to keep Barracuda at bay and ensure that Tarco retained the support of its investors.Also see CG20B Sharks in the Water: Battling an Activist Investor for Corporate Control (B).