Active investors are required to the matrix of skills to consider when seating an effective corporate board

Business Ethics

 

Active investors are required to the matrix of skills to consider when seating an effective corporate board

 

Case (20 Marks)

What’s on the minds of the people serving on boards or hoping to be? What can be learned about corporate governance trends by knowing the answer? What do the issues business executives are wrestling with add to the picture? Santa Clara University’s Markkula Center for Applied Ethics provides quarterly programming for Silicon Valley business executives through its Business Ethics Partnership. Stanford University’s Rock Center for Corporate Governance provides annual programming for board directors

and others aiming to explore corporate governance hot topics. The Silicon Valley Director’s Exchange, affiliated with the Rock Center, provides monthly programming on similar topics. I serve on the board of SVDx, staff the Markkula Center’s Business Ethics

Program and attended the recent Rock Center Director’s College at Stanford. Listening is perhaps an underrated activity, but opportunities to do so at these programs in the first six months of 2015 reveal these trends worth watching for the remainder of the

year and into 2016. They also helped to illustrate the shifts in corporate governance trends over the past decade. The pendulum is swinging back from concern solely with shareholders to a broader set of stakeholders, from the vantage point of the corporate

boardroom, based on comments across a variety of topical discussions and panels. Board directors and governance scholars readily accept a board’s role in protecting the interest of shareholders but can also now draw links to shareholder interests from the interests of other constituents, such as employees or the environment, when considering the impact of climate change. The introduction of KKR’s Green Portfolio, in partnership with the Environmental Defense Fund in 2007, is one example of direct ways environmental impact is being accounted for in business, but it is not the only way. Board directors are fully engaged on the impact to a company’s long term value not only of measures taken to ensure the company’s sustainability, but the planet’s as well. Thoughtful exchanges in discussions about public relations, mergers and acquisitions, and climate risk and opportunity as a disruptor suggest that directors accept that corporations need to account for broader interests because these interests do have an impact on shareholder value. Additionally, demographic trends, like the increase of millennial in the workforce, introduce a need to consider what those workers are seeking in their relationship with employers. Diversity of perspective has long been supported in research and practice as a goal boards should pursue when assembling participants. Corporations are experiencing greater vulnerability to activist shareholders if an investor’s point of view is not represented on the board in the current environment. The rise of LBOs and the reality that many activists are larger corporations than the ones they target highlight a balancing act being played out in boardrooms: acknowledge

more stakeholders as their interests affect share price over time but be sure current shareholders feel first among equals. At a minimum, add active investors to the matrix of skills to consider when seating an effective corporate board.

 

Answer the following question.

 

Q1. Give an overview of the case.

 

Q2. “Active investors are required to the matrix of skills to consider when seating an effective corporate board.” Discuss.

Active investors are required to the matrix of skills to consider when seating an effective corporate board

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