Assignment 4: The Corporate Rundown
The following are specific course learning outcomes associated with this assignment: • Use technology and information resources to research issues in advanced financial management. • Write clearly and concisely about advanced financial management using proper writing mechanics.
Introduction: • At the risk of repeating ourselves, let’s let Mr. Charlie Munger, co-chairman of Berkshire- Hathaway, say his piece on the power of financial incentives once more: “Never, ever think about something else when you should be thinking about the power of incentives.” Of course, we agree, and we want you to learn how to evaluate financial incentives that you’ll discover in the corporate world. We also want you to be able to assess relatively strong and weak corporate governance systems. That’s the crux of this final assignment. • First, what we’d like you to do is to identify a public company (preferably one that you’re familiar with from prior assignments). Then, we’d like you to examine and analyze its governance principles, structures, and practices. • We firmly believe that the effective financial decision-maker will understand the power that governance and strong systems have over financial performance, and thus it’s important to train ourselves to be acutely aware of these issues. Here’s how we recommend approaching the assignment: o Head to edgar.sec.gov to access your company’s financial statements (or any site where you feel comfortable accessing your company’s financial statements, including the company’s own homepage). o Pull up the proxy statement (it’s also called the 14A, the DEF14A, and occasionally the PRE14A). o Read the statement in its entirety and reflect.
Write a 3-4 page paper in which you do the following: 1. Determine whether the board seems appropriately constituted. Are these people qualified to be governing a business of this type? (Read their bios and even Google them for more info.) 2. Assess the committees the board members sit on. Are they appropriately staffed? 3. Assess the management. How long have they been with the company? What is their relative experience? 4. Evaluate the board’s philosophy on executive compensation. 5. Discuss the metrics tied to the CEO’s inventive compensation. Are they sound metrics or not? 6. Determine if compensation is reasonable considering the company’s financial performance. 7. Determine if related-party transactions (sometimes called “transactions with related parties”) exist, and if they do, whether they are reasonable.
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