- Push for more independent directors instead of managing directors
- Independent, disinterested director
The Sarbanes-Oxley Act (SOX) is a federal law enacted in 2002 in response to major corporate accounting scandals (including Enron and WorldCom). Key aspects include:
- Created stricter regulations for financial reporting and corporate governance
- Established the Public Company Accounting Oversight Board (PCAOB)
- Required senior executives to personally certify financial statements
- Enhanced disclosure requirements for public companies
- Increased penalties for corporate fraud and financial misconduct
The law significantly impacted corporate governance by improving transparency, accountability, and protecting investors from fraudulent financial practices.
- Shareholders - 1
- ‘own’ / fiduciary (all agents are fiduciary, but not all fiduciaries are agents) responsibility / risk bearer
- Own means what? Rights & Responsibilities (bundle of things you can do or must do)
- Slaves weren’t persons… now companies are in the light of voice through $…
- When does an adjective matter? Biological son vs. adopted son. So biology doesn’t matter to determining entities
- Fiduciary:
- Trustee → Beneficiary
- Principal → Agent
- Low discretion - More receiving and executing. Discretion as the variable.
- Vote: But if there are three openings and three candidates… is that really a vote?
- Company - 2
- Employees - 3
- Goldman example - Longterm greedy
- Board Chair -
- Clients Customers - 4
- Myself - 1 vs. 9
- Look in the mirror test, high discretion, personal values into director decision.
- Exit + voice + loyalty, Voice first, then exit, then loyalty
- Community -
- Other Directors -
- A corporate board must be different from a constituency board.
- Can proliferate boards if needed.
- Advisory board vs. governing board
- Executive committee
- Government People
Two duties: Loyalty + Care
Shareholder primacy, yes or no?
- Well, what’s the purpose of the corporation?
- Contractarian theory of the corporation: Firm is a nexus of contracts.
- Shareholders as the residual risk bearers. Everyone else is getting paid, so they should get someone acting in their interest.
- Delaware law = one of many shareholders, agent of residual risk bearer
Duty of Care
- Avoid pressure and push back
- Bring in outside experts
- “we made our decision after careful consideration of what would be in the best long-term interests of the company and its shareholders