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ALTERNATIVE MODELS OF GOVERNANCE, Among public companies governance features are imposed by regulators. listing exchanges and capital market pressure,However other organizational structures exist. Family controlled businesses,Venture backed companies. Private equity owned companies,Nonprofit organizations. The governance features of these firms will reflect the issues they face. regarding purpose ownership and control,1 FAMILY CONTROLLED CORPORATIONS.
Family controlled businesses are those in which a founder or founding. family member maintains a presence as shareholder director or manager. Large ownership position aligns interests with minority investors. Long term orientation see the company as their legacy. Vigilant oversight of management strategy risk and compensation. Might exert disproportionate control relative to ownership stake. Might extract private benefits at the cost of minority shareholders. Might be excessively risk averse, Percentage of large corporations that are family controlled. Emerging markets 60,United States 30,McKinsey Co,1 FAMILY CONTROLLED CORPORATIONS. Family controlled corporations tend to, Exhibit superior long term performance especially when the founder. serves as CEO, Maintain better employee relations stronger culture. Be less prepared for CEO succession make worse selection choices. Demonstrate higher earnings quality, Exhibit less transparency engage in higher levels of insider trading.
Anderson and Reed 2003 Mueller and Philippon 2011 P rez Gonz les 2006 Ali Chen and Radhakrishnan 2007 Anderson Duru and Reeb. 2 VENTURE BACKED COMPANIES,Venture capital VC firms. Provide initial and early stage capital to small high growth companies. Focus on rapidly changing industries where potential returns and risk are high. Reduce risk by investing in a diversified portfolio a few highly successful. investments offset a large number of losses,Venture capital funds. Structured as a limited partnership,Capital is committed for 10 years. Capital is returned to investors when companies are sold or go public IPO. VC firm receives percent of the profits carried interest. 2 VENTURE BACKED COMPANIES,Board of directors, Tightly controlled 4 directors 2 of whom are members of VC firm. Low independence 56 of directors CEO rarely serves as chairman 15. No formal audit comp or governance committees until run up to IPO. Executive compensation,Heavily weighted toward equity based awards.
Prior to IPO CEO holds 15 of equity top five managers 26 total directors and. officers 63,Antitakeover protections,Remain tightly controlled following IPO. 77 staggered board 15 dual class shares 69 restrict shareholder rights. Wongsunwai 2007 Daines and Klausner 2001 Proskauer. 2 VENTURE BACKED COMPANIES, Venture capitalists tend to positively impact the firms they invest in. Contribute to the professionalization of start ups by replacing founder. with outside CEO introducing stock options and influencing HR policies. Encourage innovation investment in research and deal activity. Demonstrate higher earnings quality, Positive effects are most pronounced among companies backed by high. quality VC firms, Hellman and Puri 2002 Celikyurt Sevilir and Shivdasani 2014 Hochberg 2012 Klausner 2013 Wongsunwai. 2007 Krishnan Ivanov Masulis and Singh 2011,3 PRIVATE EQUITY OWNED COMPANIES.
Private equity firms are privately held investment firms that invest in. businesses for the benefit of retail and institutional investors. Tend to target mature companies that generate substantial free cash flow. to support a leveraged capital structure, Following acquisition the target undergoes a complete change in. management board strategy and capital structure, If successful the private equity firm sells the company back to the public or. to a strategic or financial buyer, The private equity firm earns a carried interest and returns the remaining. proceeds to investors,3 PRIVATE EQUITY OWNED COMPANIES. Board of directors, Small 5 to 7 directors heavily represented by insiders.
Closely involved in strategic and operating decisions. Require more time than public boards 54 days v 19 days per year. Executive compensation, Lower salary but higher total pay opportunity than public company CEOs. CEO equity stake in company doubles following sale to PE firm. Performance targets shifted from qualitative to profitability measures. Equity awards contain a mix of performance and time vested awards. Capital structure, Debt to equity ratio triples following acquisition 25 to 71. Acharya Kehoe and Reyner 2008 Leslie and Oyer 2009 Cronqvist and Fahlenbrach. 2013 Guo Hotchkiss and Song 2011,3 PRIVATE EQUITY OWNED COMPANIES. Private equity owners have an uncertain impact on the firms they invest in. Tend to outperform publicly traded companies, Are aggressive in redirecting investment from less productive to more. productive activities, Still it is unclear the extent to which returns are driven by operating.
improvement rather than increases in leverage and tax reduction. Research is mixed on how private and public equity returns compare on a. risk adjusted basis, Kaplan and Sensoy 2014 Guo Hotchkiss and Song 2011 Acharya Gottschalg Hahn and Kehoe 2013. Davis Haltiwanger Handley Jarmin Lerner and Miranda 2014. 4 NONPROFIT ORGANIZATIONS, Nonprofit organizations operate in a wide range of activities including. Social and legal services,Arts and culture,Health services. Civic fraternal and religious organizations, Tax exempt under rule 501 c of the Internal Revenue Code. Have a stakeholder rather than shareholder orientation. 4 NONPROFIT ORGANIZATIONS,Board of directors,Large 16 members BOARD ATTRIBUTE.
U S AVERAGE, CEO rarely serves as chairman NUMBER OF DIRECTORS 16. Directors often have significant NUMBER OF MEETINGS PER YEAR 6. fundraising obligations NOM GOV COMMITTEE 77,Audit committee not required AUDIT COMMITTEE 73. COMPENSATION COMMITTEE 45, Executive compensation DIRECTORS RECEIVE COMPENSATION 18. DIRECTORS REQUIRED TO DONATE 75,Significantly lower than for profit. DIRECTORS REQUIRED TO FUNDRAISE 57,companies 123 000 median.
FEMALE DIRECTORS 36,Comprised of salary and cash,bonus NACD 2016. 4 NONPROFIT ORGANIZATIONS, Governance quality varies significantly across organizations. Many board members do not fully understand their obligations as directors. Many do not understand strategy mission and performance of the. organization, Many nonprofits lack formal governance processes external audit internal. controls succession planning board evaluations, Nonprofits with weak controls are more likely to exhibit agency. problems e g understate or shift costs to appear more efficient. Stanford University BoardSource and GuideStar 2015 Harris Petrovits and Yetman 2015 Krishnan and Yetman. BIBLIOGRAPHY, McKinsey Co Perspectives on Founder and Family Owned Businesses October2014.
Ronald C Anderson and David M Reeb Founding Family Ownership and Firm Performance Evidence from the S P 500 2003. Journal of Finance, Holger M Mueller and Thomas Philippon Family Firms and Labor Relations 2011 American Economic Journal Macroeconomics. Francisco P rez Gonz lez Inherited Control and Firm Performance 2006 American EconomicReview. Ashiq Ali Tai Yuan Chen and Suresh Radhakrishnan Corporate Disclosures by Family Firms 2007 Journal of Accounting and. Ronald C Anderson Augustine Duru and David M Reeb Founders Heirs and Corporate Opacity in the United States 2009 Journal. of Financial Economics, Thomson Reuters 2014 National Venture Capital Association Yearbook 2014. Wan Wongsunwai Does Venture Capitalist Quality Affect Corporate Governance 2007 Harvard Business School working paper. Robert Daines and Michael Klausner Do IPO Charters Maximize Firm Value Antitakeover Protection in IPOs 2001 Journal of Law. Economics and Organization,Proskauer LLP 2015 IPO Study 2015. Thomas Hellman and Manju Puri Venture Capital and Professionalization of Start Up Firms Empirical Evidence 2002 Journal of. BIBLIOGRAPHY, Ugur Celikyurt Merih Sevilir and Anil Shivdasani Venture Capitalists on Boards of Mature Public Firms 2014 Review of Financial. Yael V Hochberg Venture Capital and Corporate Governance in the Newly Public Firm 2012 Review of Finance. Michael Klausner Fact and Fiction in Corporate Law and Governance 2013 Stanford Law Review. C N V Krishnan Vladimir I Ivanov Ronald W Masulis and Ajai K Singh Venture Capital Reputation Post IPO Performance and. Corporate Governance 2011 Journal of Financial and QuantitativeAnalysis. Viral Acharya Conor Kehoe and Michael Reyner Governance and Value Creation Evidence from Private Equity 2009 McKinsey. Phillip Leslie and Paul Oyer Managerial Incentives and Value Creation Evidence from Private Equity 2009 EFA 2009 Bergen. Meetings Paper, Henrik Cronqvist and Rudiger Fahlenbrach CEO Contract Design How Do Strong Principals Do It 2013 Journal of Financial.
Shourun Guo Edith S Hotchkiss and Weihong Song Do Buyouts Still Create Value 2011 Journal of Finance. Steven Neil Kaplan and Berk A Sensoy Private Equity Performance A Survey 2014 Social Science Research Network. ALTERNATIVE MODELS OF GOVERNANCE Among public companies governance features are imposed by regulators listing exchanges and capital market pressure However other organizational structures exist Family controlled businesses Venture backed companies Private equity owned companies Nonprofit organizations The governance features of these firms will reflect the

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