Subject:
Corporate Governance Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large.
Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders’ welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below).
There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance. (Wikipedia Jan 2010)
The Buyback Era
By John Schroy, on March 21st, 2006 | 
The Federal Reserve national flow of funds accounts show that over the last five years, net sales of corporate equities by US households proceeded faster than corporations could match with buyback programs. The relative size and correlation between household stock sales and corporate equity buybacks indicates that most liquidations by individuals are related to executive option programs.
From 2001 to 2005, net equity sales by households totaled $1,156 billion, which suggests that corporate profits transferred to option holders in half a decade may have been on the order of one trillion dollars.
The Asset-Lite Movement
By John Schroy, on March 17th, 2006 | 
Federal Reserve national flow of funds accounts for the years 1995-2004 show that corporate tangible assets, as a percent of total corporate assets, dropped from 56.7% in 1995 to 49.7% in 2004. Tangible corporate assets would have had to been $1.4 trillion greater in 2004 to represent the same percentage of total assets as in 1995.
This is an indication of the success of the asset-lite movement and the pervasive flight from “asset-heavy endeavors”.
Corporate governance in 2005
By John Schroy, on March 16th, 2006 | 
Repurchases of company stock, mostly under the safe harbor exemption from market manipulation provided by SEC Rule 10b-18, set an all time record of $366 billion (net) in 2005. This was 260% of levels in 2004 and 880% of buybacks in 2002.
Despite extremely aggressive tactics of corporate management to manipulate stock prices upwards and give value to option and bonus plans, stock prices rose only about 3% in 2005, on average.
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