“Official Positions” of Good Corporate Governance
  • The board of directors should represent — meaning, be constituted of — shareholders
  • The company should be run for the purpose of maximizing the present value of expected cash flows to shareholders
  • There should be a constant dialog at the board level which includes larger shareholders about the best way to achieve the purpose
  • When the opportunity for capital/equity is low, money should flow out of the company; share buybacks and dividends are the way for money to flow out
  • When the opportunity is high, capital should flow back in; a rights offering (with transferable rights) is the cheapest and fairest way for money to flow back in
  • The annual report should have an essay or letter by the chairman (who is ultimately responsible for achieving the stated purpose) reiterating the objective, discussing the level of achievement in the prior year and outlining the strategy that has been agreed upon to pursue it going forward
  • It is unfair for a majority or manager to retain employees or operations for sentimental reasons unless they satisfy the purpose of maximizing the present value of expected cash flows to shareholders
  • Anyone responsible for achieving the objective should have the necessary grounding in finance and economics to understand how to carry the work out (study an agreed upon bibliography)
  • Management/corporate “shareholder defense”/takeover defense mechanisms such as staggered boards, poison pills, limits on shareholder meetings and proposals, secrecy/lack of disclosure destroy shareholder value by driving a wedge between ownership and control