The Board of Directors and Corporate Governance
Course Number 2010
Professor Jay W. Lorsch
Professor John C. Coates (Harvard Law School)
Jointly-listed at Harvard Law School
Winter; Q3; Q4; 3 credits
Why This Course?
Almost every HBS graduate is going to serve on at least one corporate board in her/his career and likely several of them. Most HLS graduates will directly advise corporate boards, and many will also serve on them. Many HBS and HLS graduates will manage or advise private equity, hedge or other funds invested in corporations, or advise large shareholders of corporations, and many will engage in professional services related to corporate transactions that require board and/or shareholder approval. Finally, both HBS and HLS graduates often become corporate executives. For all of these reasons, a full understanding of corporate governance and the functioning of boards will be valuable.
To even the most experienced leaders, corporate governance is complicated and dynamic. The responsibilities and functioning of corporate boards are often unclear or misunderstood. The relationships among boards, shareholders, and executives are varied, complex and sometimes fraught with conflict. The purpose of this course is to lift this foggy uncertainty and provide you a clear understanding of corporate governance: what boards do and why many are effective, while others fail leading to problems for their company and the board itself. With this perspective you will be prepared to join and serve on boards, or advise boards or executives or shareholders, with a clear understanding of what is expected of you and how to be most effective.
Thus the primary course goal is to teach you what it is to be a director. You will gain an understanding of the legal, financial, managerial and behavioral issues with which directors must contend to be effective. When you enter a boardroom in the future, you will do so with a framework for understanding the complex dynamics among directors, executives, and their shareholders. You will also have an understanding of key elements of the work boards must do including, strategic reviews, selecting, evaluating and compensating CEOs and other senior executives, director selection, managing top executive succession and dealing with various corporate crises. You will also gain an appreciation of the costs and rewards of board service.
A related goal is to acquaint you with the broader corporate governance systems in the U.S. and other major countries. The term corporate governance system refers to the institutional system of stock markets, government regulatory agencies, professional firms, as well as boards which are expected to oversee corporate activities on behalf of shareholders and the public. From this perspective, the course will provide you with an understanding of the reasons there have been so many corporate and financial failures and scandals in recent years. We shall also discuss the changes in boardroom processes which are being undertaken in the hope of preventing such problems in the future.
While the primary focus will be on U.S. public companies, we shall also devote time to consider these same issues in other countries but also in the governance of private companies, e.g. private equity, venture capital backed enterprises, family-owned and also non-profit organizations. Nonprofit boards may, in fact, be where many Harvard graduates will begin their board service!
Course Content and Organization
The course consists of twenty classes. The first module provides a basic introduction to the institutions that affect boardroom dynamics. We will also begin with an examination of the role of shareholders and their relationship to boards. Next, we will focus briefly on the legal situation of board members. In the second module, we shall discuss the activities of boards under normal circumstances, including who serves on boards, the nature of director and CEO dynamics, the board's role in strategy, in selecting, evaluating and rewarding the CEO, and in assuring transparent financial reporting. The next module will focus on how boards deal with crisis situations such as hostile takeovers, CEO dismissals, succession and compensation, and unhappy shareholders. In the final module, we will examine the governance of private companies, e.g. family-owned, private equity and venture capital-backed companies as well as nonprofit organizations.
The course will be open to both HBS and HLS students, and we will seek to have a roughly even balance between the two. In addition to the material described above, HLS students will also be expected to take a one-credit parallel course on the details of relevant law (including agency, partnership, corporate and governance-related aspects of securities law); HBS students may but are not required to take this course, which will physically be taught on the law school campus.
Finally, both HBS and HLS students will be expected to complete group projects related to corporate governance. Students will be divided into teams consisting of both HBS and HLS students, with the goal of encouraging each group of future professionals to develop an appreciation for the characteristics of the other's background, skills and training. Projects should focus on issues recently faced by boards of a public or private company or of a non-profit. They may also examine changing norms and regulations within the broader corporate governance system in the U.S. or other countries. The faculty will provide assistance in identifying relevant topics, and must approve each group's topic.
Learning and Evaluation
The basic learning for the course takes place through preparation for and participation in class discussion. Therefore, for HBS students, class participation -- not just frequency, but also quality and your contribution to moving the discussion forward -- will count for 50% of the grade. Written projects will account for the other 50% of the grade. For HLS students, participation and projects will each account for 1/3rd of the final grade, and students will also take an in-class one-hour short-answer exam on the legal material covered at HLS, which will account for the remaining 1/3rd of the grade.