Corporate Governance Matters, 4th Edition

Description

• Copyright 2026
• Dimensions: 7" x 9-1/8"
• Pages: 528
• Edition: 4th

• Book
• ISBN-10: 0-13-546310-6
• ISBN-13: 978-0-13-546310-9

The Definitive Guide to High-Performance Corporate Governance

Fully updated to reflect the latest research, trends, and regulations, Corporate Governance Matters, Fourth Edition, is the definitive resource for anyone seeking to improve corporate governance practices--from directors and institutional investors to policymakers and researchers. This edition offers comprehensive, objective insights grounded in rigorous analysis and real-world examples, covering new discussions on ESG ratings, stakeholder interests, CEO behavior, and artificial intelligence.

David Larcker and Brian Tayan examine today's most pressing governance challenges, including board effectiveness, shareholder activism, organizational risk, and systemic breakdowns. Their empirical, non-ideological approach helps readers understand the impact of governance structures and processes on organizational performance, equipping them to make informed decisions in an increasingly complex environment.

Extensively revised coverage of:

• International corporate governance
• Compensation, equity ownership, incentives, and the labor market for CEOs
• Optimal board structure, tradeoffs, and consequences
• Governance, organizational strategy, business models, and risk management
• Succession planning
• Alternative corporate governance structures, including family controlled businesses, nonprofits, private equity, and venture capital
• Financial reporting and external audit
• The market for corporate control
• Roles of institutional and activist shareholders
• Governance ratings, and more

Features:

• Objectively and fully addresses every component of governance, with no axe to grind: explains what's known and what isn't, helping leaders make better choices in the face of uncertainty
• Brings together new academic research, updated examples and statistics, and a complete decision-making framework
• Includes expanded discussions of environmental and social issues in governance, board effectiveness, CEO succession and compensation, cyber risk, and shareholder activism

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Sample Content

Table of Contents

Acknowledgments     xv

About the Authors     xvii

Preface      xviii

Chapter 1. Introduction to Corporate Governance      1

Self-Interested Executives       4

Defining Corporate Governance       8

Corporate Governance Standards      9

Best Practice or Best Practices? Does One Size Fit All?       12

Relationship between Corporate Governance and Firm Performance      13

Endnotes       16

Chapter 2. International Corporate Governance       21

Capital Market Efficiency       21

Legal Tradition      24

Accounting Standards       25

Enforcement of Regulations      27

Societal and Cultural Values      28

Individual National Governance Structures       30

Endnotes       46

Interlude      52

Chapter 3. Board of Directors: Duties and Liability      53

Board Responsibilities      53

Board Independence     54

The Operations of the Board       55

Duration of Director Terms      63

Director Elections       63

Removal of Directors      66

Legal Obligations of Directors      66

Endnotes       78

Chapter 4. Board of Directors: Selection, Compensation, and Removal      83

Market for Directors      83

Director Recruitment Process      91

Director Compensation       93

Removal of Directors      100

Endnotes      104

Chapter 5. Board of Directors: Structure and Consequences       111

Board Structure      112

Summary       143

Endnotes       144

Interlude      153

Chapter 6. Strategy, Performance Measurement, and Risk Management      155

Organizational Strategy       156

Strategy Implementation Process      158

Business Model Development and Testing      160

Key Performance Measures      163

How Well Are Boards Doing with Performance Measures and Business Models?       166

Risk and Risk Management       168

Risk and Risk Tolerance      169

Risk to the Business Model      170

Risk Management      173

Oversight of Risk Management      176

Assessing Board Performance on Risk Management       178

Cybersecurity       180

Endnotes       182

Chapter 7. CEO Selection, Turnover, and Succession Planning      187

Labor Market for Chief Executive Officers       187

Labor Pool of CEO Talent       190

CEO Turnover       193

Newly Appointed CEOs      196

Models of CEO Succession       198

The Succession Process       201

How Well Are Boards Doing with Succession Planning?       205

Executive Search Firms       207

Endnotes       209

Chapter 8. Executive Compensation and Incentives       217

The Controversy over Executive Compensation       218

Competing Theories of CEO Pay       219

Components of Compensation      220

Determining Compensation       225

Compensation Consultants       227

Compensation Levels       228

Ratio of CEO Pay to Other Top Executive Pay       233

Ratio of CEO Pay to Average Employee Pay       235

Compensation Mix      236

Short-Term Incentives       239

Long-Term Incentives      241

Benefits and Perquisites       244

Compensation Disclosure       245

Say-on-Pay       247

Competing Theories of CEO Pay       249

Endnotes       250

Chapter 9. Executive Equity Ownership      259

Equity Ownership and Firm Performance      259

Equity Ownership and Risk      262

Equity Ownership and Agency Costs       268

Accounting Manipulation       268

Manipulation of Equity Grants      269

Equity Sales and Insider Trading      272

Rule 10b5-1      275

Hedging       278

Pledging      282

Repricing and Exchange Offers      284

Endnotes       286

Chapter 10. Financial Reporting and External Audit      295

The Audit Committee      296

Accounting Quality, Transparency, and Controls       296

Financial Reporting Quality      298

Financial Restatements      302

Models to Detect Accounting Manipulations       307

The External Audit      309

Audit Quality      312

Structure of Audit Industry      313

Impact of the SarbanesOxley Act      315

External Auditor as CFO      317

Auditor Rotation       318

Endnotes       320

Chapter 11. The Market for Corporate Control       329

The Market for Corporate Control       330

Stock Market Assessment of Acquiring and Target Firms       334

Antitakeover Protections       340

Antitakeover Actions       341

Warding Off Unwanted Acquirers      351

Endnotes       354

Chapter 12. Shareholders and Shareholder Activism       361

The Role of Shareholders      361

Blockholders and Institutional Investors       364

Institutional Investors and Proxy Voting      367

Activist Investors      369

The Rise of Index Investing       379

Shareholder Democracy and Corporate Engagement       380

Proxy Advisory Firms       384

Endnotes       389

Chapter 13. Stakeholders and Stakeholder Activism       399

Pressure to Incorporate Stakeholder Interests      400

Legal and Economic Implications       404

Director and CEO Views on Stakeholders       408

ESG Metrics and Disclosure      409

External Assessment of ESG       413

Endnotes       421

Chapter 14. Corporate Governance and ESG Ratings      429

Third-Party Ratings       429

Credit Ratings      430

Commercial Corporate Governance Ratings      432

Governance Rating Systems by Academic Researchers       437

The Viability of Governance Ratings       442

ESG Ratings      443

Endnotes       448

Chapter 15. Alternative Models of Governance      451

Family-Controlled Corporations      451

Venture-Backed Companies       454

Special Purpose Acquisition Companies       461

Private EquityOwned Companies      462

Nonprofit Organizations      465

Endnotes       469

Chapter 16. Summary and Conclusions       475

Testing Remains Insufficient      476

The Current Focus Is Misdirected      476

Important Variables Are Clearly Missing       478

Context Is Important       479

Rights of Shareholders and Stakeholders       479

Endnotes       480

Index 481

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