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Corporate Governance – Law and Business

New York University

Syllabus

MGMT‐GB.3318.30/LAW‐LW.10042.001

Term: Spring 2018

Dates: February 7 – May 2 (No class March 14)

Meeting Times: Wednesday, 6:10 – 9:10 pm

Classroom: Vanderbilt Hall Room 216

Professors: Karen Brenner / Helen Scott

Email: kbrenner@stern.nyu.edu / helen.scott@nyu.edu

Offices: 44 West 4th Street, Suite 7‐146 / 40 Washington Square South, 338

Office Hours: By appointment

Teaching Assistant:

Email:

Course Objectives:

This section of Corporate Governance includes faculty and students from both the Stern School of

Business and the NYU School of Law. The objective is to facilitate professional interaction and joint

work between students from both schools.

The emphasis in this course is on the interdisciplinary legal and business aspects of corporate

governance. The dominance of the corporation in the modern economy has brought enormous

challenges for civil society and for the boards of directors charged with overseeing the corporation’s

affairs. The purpose of this course is to examine the role of the corporation in society; the evolution

of US corporate governance standards; the structure, makeup, priorities and culture of boards;

shareholder and stakeholder engagement, including shareholder activism; international governance;

and corporate citizenship.

Course Description:

This course focuses primarily on for‐profit, publicly traded corporations. Students are challenged to

understand the system and structure in which corporations function and to think critically about the

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framework for effective corporate governance. This will include an understanding of the structural

relationships determining authority and responsibility for the corporation and their associated

complexities. Students will be assigned foundational readings and cases associated with each topic and

will be asked to examine issues from both legal and business perspectives.

Readings:

Readings are available as follows:

‐ NYU Classes site under “Resources”

‐ Course Pack which may be purchased at the NYU Bookstore (726 Broadway)

Grading:

The weights for the student’s overall grade are:

‐ Class participation 25%

‐ Three short papers 30%

‐ Individual company presentation 10%

‐ Team project/presentation 35%

(No more than 35% of the students will receive a grade of A or A‐)

Class participation:

Your obligation in this course is to prepare for class discussion by thorough reading and analysis of

the assigned material before each class. Readings and case discussions are an essential part of the

course. All students are responsible for being prepared to discuss all of the study questions before

coming to class. The instructor will ask students to present the assigned materials as a basis for

discussion.

Short Papers:

Each student should prepare a written analysis of one study question from three different classes. The

course requirement is to complete three short papers during the semester. The papers must be

submitted on NYU Classes before the class addresses the topic in class. These analyses should be 3‐4

pages in length (typed and double‐spaced). The papers will be evaluated based upon the systematic and

thorough application of the relevant concepts addressed in the readings. The papers are due on or

before Sessions 3, 5, and 8.

Individual Company Presentation:

Within the first two weeks of class, each student is to select a public company, traded on the US

markets, to follow throughout the semester. The teaching assistant must approve the company you

select within the first two‐week period. No more than two students may cover the same company. The

presentation is to be 5 minutes and may, but is not required to, include slides. If slides are to be used

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please limit them in number, i.e. no more than 5. Students should identify and address one or two

issues about their company from those topics covered in class. This will be discussed in greater detail

on the first day of class.

Team Project/Presentation:

On the first or second day of class each student will be assigned to a team and a case for presentation

later in the semester. The teams will be asked to prepare a 20‐minute presentation of the case. The

presentation should integrate the themes addressed throughout the semester and include a discussion

of the relevant legal and business issues, including market and industry context, as appropriate. The

presentation should address not only the situation as it existed but an analysis of alternative

approaches, if appropriate, that may have yielded a preferred result. After the presentation, the team

is expected to lead the class in a 5‐minute discussion. The team is required to submit a “hard copy” of

the presentation to the professors at the beginning of the discussion and EACH member of the team is

REQUIRED to submit a confidential team evaluation at the conclusion of the presentation. The cases

for presentation are relatively well known and therefore information is readily available. Options

surrounding the presentation format will be discussed in greater detail the first day of class. Your

presentation may not exceed 25 slides (including title page, table of contents…).

Sessions # 1‐3:

The role and purpose of the corporation; The evolution of U.S. corporate governance; on whose

interest does the board of directors act? ; Fiduciary duties

Session # 1 Readings: Foundational:

1. The American Corporation, Ralph Gomory & Richard Sylla

2. Our Schizophrenic Conception of the Business Corporation, William T. Allen, 14 Cardozo L.

Rev. 261 (1992)

3. Directors Who Do Not Direct, William O. Douglas, 47 Harvard Law Review 1305 (1934)

4. The Error at the Heart of Corporate Leadership, Joseph L. Bower and Lynn S. Paine, HBR May-June 2017

Cases:

5. Legal Parameters of Director’s Fiduciary Duties (these cases are to be presented by law

school student volunteers‐ the presentations will address the background of the case,

findings of the court and relevance to governance in no more than 5‐10 minutes per case):

o Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App. Ct. 1968). o Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). o Unocal Corp. v. Mesa Petroleum Co, 493 A.2d 946 (Del. 1985). o Revlon, Inc. v. Macandrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).

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o Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140 (Del. 1989). o Caremark International Inc. Derivative Litigation, In re Caremark Int'l, 698 A.2d 959 (Del.

Ch. 1996).

Session # 1 Questions:

1. What are we seeking to achieve in getting corporate governance “right?”

2. What are the significant findings of the cases and what are the implications for board conduct?

3. What were Douglas’ concerns regarding corporate governance and how do they

compare/contrast with the governance challenges raised by Allen, Gomory & Sylla, and

Bower and Paine?

Session # 2:

What are the current structure, makeup, priorities and culture of corporate boards? ; Best Practices

in Constructing a Board of Directors; Independence; Committee requirements

Session # 2 Readings:

Foundational:

1. The Uneasy Case for the Inside Director, Lisa M. Fairfax, 96 Iowa Law Review 127 (2010), The

George Washington University Law School

2. NYSE Listed Company Manual Section 303A

3. Commonsense Corporate Governance Principles

4. The Firing Line, Philippa Maister, Corporate Counsel, July 1, 2012 5. Corporate Governance Update: Director Tenure Remains a Focus of Investors and Activists,

David A. Katz and Laura A. McIntosh, New York Law Journal, July 28, 2016

6. Valeant Has Few Options to Remove a Recalcitrant Director, Steven Davidoff Solomon, March

23, 2016, NY Times

7. What Matters in Governance?, Martijn Cremers, Saura Masconale and Simone M. Sepe, The

CLS Blue Sky Blog, March 16, 2017

Cases:

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8. Tyco International: Corporate Governance, Rakesh Khurana and James Weber, www.hbr.org

HBS 9‐408‐059

Session # 2 Questions:

1. How do the independence criteria, and tenure or term limits impact the functioning of the board?

2. How would you assess Breen’s decision, in Tyco, to completely replace his board of directors?

What principles guided his new board creation strategy? Do you agree/disagree and why?

Session # 3 Readings: Foundational:

1. Unrealized Potential: Misconceptions About Corporate Purpose and New Opportunities for

Business Education, Miguel Padro, The Aspen Institute Business & Society Program, May

28, 2014

2. Why We Should Stop Teaching Dodge V. Ford, Lynn A. Stout, 3 Va. L. & Bus. Rev. 163 (2008)

3. Unequal Shares, James Surowiecki, The New Yorker, May 28, 2012

4. Shareholders Vote With Their Dollars to Have Less of a Say, Steven Davidoff Solomon, NY Times, November 4, 2015

5. Tech Founders Want IPO Riches Without Those Pesky Shareholders, Maureen Farrell, WSJ, April 3, 2017

Cases:

6. Veridian: Putting A Value on Values, Rakesh Khurana, Joel Podolny and Jaan Elias, www.hbr.org

HBS 9‐406‐028

7. Letter From Mark Zuckerberg, Facebook Prospectus 2012

Session # 3 Questions:

1. How do Stout’s views on the concept of the business corporation impact the board of

directors’ decision making in the Veridian case?

2. How does values based management (Veridian and Facebook) relate to shareholder

interest and corporate purpose? What are the implications of dual class shares on these

issues?

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Session # 4: Diversity; CEO Oversight Session #4 Readings: Note- There are two sections in this class- Diversity and CEO Oversight Diversity: Foundational:

1. Has ‘Diversity’ Lost It’s Meaning?, Ana Holmes, October 27, 2015

2. US board composition: male, stale and frail?, Stephen Foley and Jennifer Bissel, Financial

Times, August 16, 2016

3. Gender Quotas For Corporate Boards: Options For Legal Design in The United States, Anne

Alstott, 2014, Faculty Scholarship Series Paper 4868

4. The Multilicity of Regulatory Responses to Remedy the Gender Imbalance on Company

Boards, Linda Senden, Utrecht Law Review Volume 10, Issue 5 , December 2014

5. German Law Requires More Women on Corporate Boards, New York Times, March 6,

2015, Alison Smale

6. Gender Diversity on Boards A Review of Global Trends, Edward Kamonjoh, ISS, September

25, 2015

Cases:

7. What Google Learned From It’s Quest to Build the Perfect Team, Charles Duhigg, February 25, 2016, NY Times

8. The Bottom Line on Board Diversity: A cost‐Benefit Analysis of the Business Rationales for

Diversity on Corporate Boards, Lisa M. Fairfax, 2005 Wis. L. Rev. 795 (Focus on Part 3)

9. An Activist for the Poor Joins Pepsi’s Board. Is That Ethical?, David Gelles, New York Times,

October 28, 2016

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CEO Oversight:

Foundational:

1. Scoundrels in the C-Suite: How Should the Board Respond When A CEO’s Bad Behavior Makes

the News, David F. Larcker and Brian Tayan, May 10, 2016, Stanford Closer Look Series

(Consider questions 1-3)

2. Disclosure About Steve Jobs’s Illness: Apple Should Provide It, the SEC Should Require It, Ben

W. Heineman Jr., The Atlantic, January 2011

3. Disclosure of Steve Job’s Illness: Round 2, Ben W. Heineman Jr., The Atlantic, January 2011

4. Apple Disclosures About Jobs Said to Face SEC Review, David Scheer and Connie

Guglielmo, Bloomberg, January 21, 2009

5. A Sick CEO’s Full Disclosure, Michael V. Copeland, Fortune Magazine, October 7, 2010

Cases:

6. Boeing CEO Resigns Over Affair with Subordinate, Renae Merle

7. CEO Pay at Valeant: Does Extreme Compensation Create Extreme Risk, David F. Larcker and Brian Tayan, April 28, 2016, Stanford Closer Look Series (Consider questions 1-6)

8. Clawbacks in the Era of Trump, John C. Coffee Jr., New York Law Journal, November 17,2016

9. A Better Way to Reward CEOs, Philip Delves Broughton, WSJ, July 31, 2017

Session # 4 Questions:

1. Reflecting on the readings above, in creating a board of directors how important is the issue

of diversity and in what ways? Is the “business case” important to the issue? How would you

advise a BOD to consider diversity?

2. Is mandating diversity on a Board of Directors desirable from a company and/or

societal standpoint?

3. What principles/process should a BOD consider when dealing with a CEO whose service

is impaired? Should there be a policy to inform the process?

Session # 5: Role of Investors

Session #5 Readings:

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Foundational:

1. Overcoming Short‐termism: A Call for a More Responsible Approach to Investment and Business

Management, The Aspen Institute, September 9, 2009

2. Focusing Capital on the Long Term, HBR, January 2014, Dominic Barton and Mark Wiseman

3. Investor Stewardship Group: 1. The Principles 2. Corporate Governance Principles for Listed Companies, Effective January 1, 2018

4. Vanguard 2017 Investment Stewardship Report

5. Hidden Power of the Big Three? Passive index funds, re-concentration of corporate

ownership, and new financial risk, Jan Fichtner, Eelkw M. Heemskerk and Javier Garcia-

Bernanrdo, Working Paper October 28, 2016 http://corpnet.uva.nl

6. ETF revolution is not without cost, The Short View, Robin Wigglesworth, FT, July 6, 2017

7. Index Eligibility as Governance Battlefield: Why the System is Not Broken and We Can Live

With Dual Class Issuers, Ethan A. Klingsberg, Cleary M&A and Corporate Governance

Watch, June 21, 2017

8. Analysis: Differentiated Voting Rights in Europe, January 23, 2015, Governance Weekly

9. France Answers Hostile Bids with The Two‐Vote Share, New York Times, May 19, 2015,

Steven Davidoff Solomon

Cases:

10. BlackRock letter from Laurence D. Fink, January 23, 2017

11. Vanguard An Open Letter to Directors of Public Companies Worldwide, August 31, 2017

12. The Thorny Task of Advocating Good Corporate Behavior, Steven Davidoff Solomon, NY

Times, March 24, 2015

13. Stock Indexes Push Back Against Dual-Class Listings, Chris Dieterich, Maureen Farrell and

Sarah Krouse, WSJ, August 2, 2017

Session # 5 Questions:

1. What are the concerns regarding short‐termism? How do investors and boards best address

these concerns?

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2. Are there governance structures or regulatory responses that can mitigate or overcome short‐

termism?

3. What are the implications of the growth of passive index funds and the institutional

concentration of corporate ownership?

Session #6:

Shareholder and stakeholder engagement‐ Shareholder Activism; Proxy Voting

Session # 6 Readings: Foundational:

1. Corporate Governance Update: 13(d) Reporting Inadequacies in an Era of Speed and

Innovation, New York Law Journal, September 24, 2015

2. Corporate Governance Update: Holding Activists and Proxy Advisory Firms Accountable? New

York Law Journal, May 26, 2016

3. Executive Compensation Proxy Advisory White Paper‐ A Call for change in the Proxy Advisory

Industry Status Quo‐ The Case for Greater Accountability and Oversight, January 2011 (Pages 1‐

27, 41‐43, 52‐53)

4. BlackRock, “Our Engagement Priorities for 2017-2018”

5. Engagement: The Missing Middle Approach in the Bebchuk-Strine Debate, Matthew J. Mallow and Jasmin Sethi, NYU Journal of Law and Business, Volume 12, Spring 2016, Number 2

6. Some Big Public Pension Funds Are Behaving Like Activist Investors, Randall Smith, NY

Times, November 28, 2013

7. Lively Debate on the Influence of Proxy Advisory Firms, David Gelles, NY Times, December 5,

2013

8. Proxy Monitor 2016 Reports – Review charts in reports, particularly the Proxy Access report.

9. US Corporate Governance: Board of Directors Remain Under the Microscope, January 2015,

Skadden’s 2015 Insights, Marc S. Gerber

10. An Activism-Shy BlackRock Throws a Surprise Punch, Steven Davidoff Solomon, April 5, 2016, NY Times

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Cases:

11. Sharks in the Water: Battling an Activist Investor for Corporate Control (A), Stanford Graduate

School of Business, www.hbr.org, Case CG‐20A‐PDF‐ENG

12. Ethan Allen’s Revolutionary Defense, Corporate Board Member, Third Quarter 2016

Session # 6 Questions:

1. How should the concept of securities ownership disclosure be addressed by the corporate

law system? Are reforms necessary? If so, specify.

2. How has the role of proxy advisory firms evolved? What are the most significant

challenges posed by such firms today and what remedies may be appropriate?

3. What makes hedge funds more likely than other institutional investors to take on an activist

role? Where/how have they been effective?

4. Based on the information provided in “Sharks in the Water” (Exhibit 4), what actions do you

expect Barracuda/Tarco to take next? Explain your reasoning. Based on the information

provided in Exhibits 5 and 6, what level of support does the company/ Barracuda currently have

from the shareholder base? If Barracuda were to initiate a proxy fight, what level of support

would it receive from other shareholders of Tarco (Exhibit 7)? What role would RiskMetrics/ISS

play in the proxy process? Consider the possible actions outlined in Exhibit 8 of “Sharks in the

Water.” Which of these would you recommend to the board? What other actions might Tarco

take?

Session #7: International Corporate Governance

Session # 7 Readings: Foundational:

1. G20/OECD Principles of Governance, September 2015

2. OECD Guidelines for Multinational Enterprises 2011, Preface, General Policies, Concepts

and Principles (Pages 13‐20)

3. UK Corporate Governance Code, April 2016 (Pages 1‐6)

4. UN Global Compact/ UN Principles for Responsible Investment

5. Models of Corporate Governance: Who’s the Fairest of Them All? Rock Center For Corporate

Governance, January 15, 2008, CG-11 (Consider questions in case)

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6. Corporate Governance Reform- The Government Response to the Green Paper Consultation,

Department for Business, Energy & Industrial Strategy, August 2017, Executive Summary pages

2-7; www.parliament.uk Conclusions and Recommendations

7. New EU legislation to promote sustainable and transparent companies for the long-term,

March 14, 2017

Cases:

8. From Microsoft, A Novel Way to Mandate Sick Leave, New York Times, March 26, 2015, Claire

Cain Miller

9. Tata: Leadership with Trust, Oana Branzei, Richard Ivey School of Business, The University of

Western Ontario, 910M25

Session # 7 Questions:

1. Describe/contrast the US system of governance with the UK and EU proposals. Would you

recommend the US adopt any proposals and, if so, why?

2. Tata executives are to create a ten‐year strategic plan. Given the evolving global environmental

and social responsibilities addressed in the case, what changes would you recommend for Tata

and why?

Session # 8:

Corporate Citizenship

Session #8 Readings: Foundational:

1. The Social Responsibility of Business is to Increase Its Profits, Milton Friedman, New York

Times Magazine, September 13, 1970

2. Super capitalism, Robert B. Reich, Chapter 5, Politics Diverted (Pages 168‐208)

3. Guiding Principles on Business and Human Rights, 2011, Section 2‐ Corporate Responsibility to

Respect Human Rights

4. Business and Society in the Coming Decades, Kathleen McLaughlin and Doug

McMillon, McKinsey & Co., April 2015

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5. Creating Shared Value, Michael E. Porter and Mark R. Kramer, Harvard Business Review,

January‐February 2011

Cases:

6. For Pepsi, a Business Decision With Social Benefit, Stephanie Strom, New York Times,

February 21, 2011

7. Unilever: In Search of the Good Business, The Economist, August 9, 2014

Business Speaking on Social Issues: Foundational:

1. Big Business Speaks Up on Social Issues, Mark Peters and Rachel Emma Silverman, Wall

Street Journal, April 17, 2016

2. Wal‐Mart Emerges as Unlikely Social Force, New York Times, April 1, 2015, Hiroko Tibuchi

and Michael Barbaro

3. Legal teams rally to defend the rule of law, Special Report FT General Counsel 2017, Lindsay

Fortado, June 20, 2017

Cases:

4. Salesforce’s Marc Benioff Has Kicked Off New Era of Corporate Activism, Monica Langley, Wall Street Journal, May 2, 2016

5. Mozilla CEO Brendan Eich Steps Down, April 4, 2014, The Wall Street Journal

6. The Moral Voice of Corporate America, David Gelles, NY Times, August 19, 2017

Session #8 Questions:

1. Drawing from the readings, articulate your conception of the role of Corporate Citizenship.

Is it about ensuring compliance with the law or is it something beyond compliance? Discuss

the implications for corporate governance.

2. How is a manager who believes in embedding corporate citizenship principles into the mission

of the firm to manage potentially conflicting interests of shareholders and stakeholders from a

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corporate governance perspective? Integrating the Friedman’s, Reich’s, and Allen (from session

#1) readings, is this a reliable remedy for managing social or environmental ills?

3. Do corporations have social obligations to civil society (integrate cases)? What role should

corporations have in advancing social/political agendas?

Session # 9: Session #9 Reading: Case: 1. FANUC Corporation: Reassessing the Firm’s Governance and Financial Policies, Benjamin C. Esty and Akiko Kanno, HBS N9-216-042, June 7, 2016

Session #9 Question:

1. What recommendations should Dr. Y. Inaba make to his board regarding financial and governance policies? What are the implications of your recommendations to the firm in the short and long term? What would the implications be to civil society if other companies followed a similar path?

Sessions # 10‐11: Team Presentations

Session #12: Individual Company Presentations