Governance Aches and Pains: Is Bad Governance Chronic?

15 Pages Posted: 14 Apr 2016 Last revised: 26 Apr 2016

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: April 14, 2016

Abstract

Institutional investors pay considerable attention to the quality of a company’s governance. Unfortunately, it is difficult for outside observers to reliably gauge governance quality. Oftentimes, poor governance manifests itself only after decisions have been made and their outcomes known. We examine four companies that have had experienced chronic governance-related problems in the past, including Massey Energy, Nabors Industries, Yahoo!, and Chesapeake Energy. We ask: How can shareholders diagnose the issues facing a company to determine whether they are the result of bad corporate governance? How can shareholders tell if the CEO or the board is the root cause of the problem? How can shareholders tell if the board is “captured” by the CEO? How can shareholders tell when a company begins to “drift”? How can they tell if the “right” CEO is in charge?

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.

Keywords: Corporate governance, risk management, ethics, agency problems, agency costs, CEO compensation, executive pay, pay for performance, compensation committees, board of directors, independent board, CEO succession, corporate governance research

JEL Classification: G3, G31, G34

Suggested Citation

Larcker, David F. and Tayan, Brian, Governance Aches and Pains: Is Bad Governance Chronic? (April 14, 2016). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-54; Stanford University Graduate School of Business Research Paper No. 16-19. Available at SSRN: https://ssrn.com/abstract=2765003

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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