Jay W. Lorsch is the Louis Kirstein Professor of Human Relations at the Harvard Business School. He is editor of The Future of Boards: Meeting the Governance Challenges of the Twenty-First Century (2012) He is the author of over a dozen books, the most recent of which are Back to the Drawing Board: Designing Boards for a Complex World (with Colin B. Carter, 2003), Aligning the Stars: How to Succeed When Professionals Drive Results (with Thomas J. Tierney, 2002), and Pawns or Potentates: The Reality of America's Corporate Boards (1989). Organization and Environment (with Paul R. Lawrence) won the Academy of Management's Best Management Book of the Year Award and the James A. Hamilton Book Award of the College of Hospital Administrators in 1969.
Having taught in all of Harvard Business School's educational programs, he was Chairman of the Doctoral Programs, Senior Associate Dean and Chair of the Executive Education Programs from 1991-1995, Senior Associate Dean and Director of Research from 1986-1991, Chairman of the Advanced Management Programs from 1980-1985, and prior to that was Chairman of the Organizational Behavior Unit. He is currently Chairman of the Harvard Business School Global Corporate Governance Initiative and Faculty Chairman of the Executive Education Corporate Governance Series. As a consultant, he has had as clients such diverse companies as Applied Materials, Berkshire Partners, Biogen Idec, Citicorp, Cleary Gottlieb, Steen & Hamilton LLP, Deloitte Touche, DLA Piper Rudnick, Goldman Sachs, Kellwood Company, MassMutual Financial Group, Tyco International, Shire Pharmaceuticals and Sullivan & Cromwell LLC. He is a member of the Board of Directors of New Sector Alliance as well as The Antioch Review National Advisory Board. He formerly served on the boards of Benckiser (now Reckitt Benckiser), Blasland Bouck & Lee Inc., Brunswick Corporation, Sandy Corporation and CA, Inc.; he also served on the Advisory Board of U.S. Foodservice. He currently serves on the Board of Trustees of Antioch College and Cambridge at Home, as well as the Global Advisory Board of the Women's Tennis Association.
He is a graduate of Antioch College (1955) with a M.S. degree in Business from Columbia University (1956) and a Doctor of Business Administration from Harvard Business School (1964). At Columbia, he was a Samuel Bronfman Fellow in Democratic Business Administration. From 1956-59, he served as a Lieutenant in the U.S. Army Finance Corps.
Professor Lorsch is a Fellow of the American Academy of Arts & Sciences.
This book is a collection of chapters written by Harvard Business School faculty and alums who have experience with corporate boards. It will provide a uniquely HBS perspective on the future of boards.
Lorsch, J. W., and Paul R. Lawrence. Organizational Development: Diagnosis and Action. Reading, MA: Addison-Wesley Publishing Company, 1969.
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Lawrence, Paul R., and J. W. Lorsch. Organization and Environment. Boston, MA: Harvard Business School, Division of Research, 1967. (Reissued as a Harvard Business School Classic, Harvard Business School Press, 1986.)
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In this essay, my goal is to explore why, despite the tireless efforts of talented people, research on corporate governance has been slow and uneven, and where that research should turn to next to be most valuable to practitioners. My belief is that the most fruitful work thus far has recognized that corporate boards are dynamic social systems, has identified all the forces that shape those systems, and has acknowledged that boards should seek to represent a wide variety of stakeholders, not just shareholders. The best way for me to establish this argument is to trace the history of research on corporate boards and analyze the trends in that research, including the relative value of the types of data that researchers in this field have used. Ultimately, I identify what I consider to be the best path forward in studying these complex social systems. I have made a deliberate choice to focus primarily on research that reflects firsthand experience with boards rather than on research that utilizes data derived from questionnaires and other secondary sources. Not everyone will agree with my choices, but my hope is that my perspective will nonetheless provide some guidance for people working in this evolving field to understand the true complexity of corporate boards.
When organizations get into big trouble, fixing the culture is usually the prescription. That's what most everyone said GM needed to do after its recall crisis in 2014—and ever since, CEO Mary Barra has been focusing on creating "the right environment" to promote accountability and head off future disasters. The corporate leaders we have interviewed say that culture isn't something you "fix." Rather cultural change is what you get after you've put new processes or structures in place to tackle tough business challenges like reworking an outdated strategy or business model. The culture evolves as you do that important work.
It's a complex question with significant considerations, including how open the CEO is likely to be to such advice, the company's situation, and the characteristics of the board.
We offer opinions on how management and corporate boards of directors can best manage investor relations with activist stockholders such as hedge funds who are demanding major changes within a corporation to improve stockholder return. Beverage industry firm PepsiCo is cited in support of the contention that creating and maintaining a long-term strategic plan is of value in thwarting such investors. Executives and directors are advised to analyze their corporations from the point of view of an activist investor, to create harmony within the board of directors, and to measure performance against specific and publicly stated goals.
This article outlines several significant changes in corporate boardrooms over the past twenty-five years and uses those lessons to propose a thought experiment about how boards can be shaped in the future. Professor Lorsch argues that the major problems in the last twenty-five years have been the negative, unindended consequences of reforms and the inability to balance the interests of the various stakeholders. Future policymakers should turn their attention to resolving these issues, because they have the potential to thwart other attempts at progress.
Lorsch, Jay W. "America's Changing Corporate Boardrooms: The Last Twenty-Five Years." Harvard Business Law Review 3, no. 1 (Spring 2013): 119–134.
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Predicting the challenges boards will face in the years ahead requires an understanding of how they and the governance they have provided has evolved in past years, as well as the challenges they face in the years ahead. Since I have been serving on and doing research about public company boards over the past twenty-five years, I believe I have a clear sense of the state of corporate governance in the United States and in much of Western Europe. Not surprisingly, my crystal ball for predicting future developments and demands on boards cannot be so clear.
The article looks at the role outside shareholders play in corporate governance in the U.S., and the relationship between companies' shareholders and managers, as of 2012. It recounts the shift beginning in the 1970s toward shareholders claiming an increasing amount of power relative to corporate managers. The authors argue that shareholders have not benefited much from the trend. They suggest that shareholders as a category are not well positioned to guide corporate decisions or to discipline management. They also discuss problems in two other roles shareholders play with respect to corporations, as a source of funds and as aggregators of information about corporations by way of their decisions to buy or sell stock.
Lorsch, Jay W. "A Progress Report on U.S. Corporate Governance." Corporate Governance in Canada and the United States: A Comparative View. One Issue, Two Voices, no. 5 (April 2006): 2–8.
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Lorsch, Jay W. Commentaire critique de "Leadership Passages". Manageris: la lettre de synthèse des meilleurs ouvrages de management , no. 139 (Juillet–Aout 2005): 18.
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Lorsch, Jay W., Duke K. Bristow, Paul D. Lapides, Chuck King, and T.K. Kerstetter. "Building a Better Board." Roundtable Discussion. Special Supplement Corporate Board Member (2001): 12–19.
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Lorsch, Jay W. "Board Challenges 2009." Chap. 9 in Corporate Governance and the Global Financial Crisis: International Perspectives, edited by William Sun, Jim Stewart, and David Pollard, 165–187. Cambridge University Press, 2012.
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The idea of a contingency theory of leadership is not novel. In the 1960s several scholars conducted research and proposed such an approach arguing that the style of leadership that would be most effective depended upon the situation (Fiedler, Tannenbaum and Schmidt, and Vroom and Yetton). This work was an integral part of the wave of organizational behavior research that led to what we labeled a "Contingency Theory" of organizations at the time. Like much of the early contingency work, these efforts on leadership suffered from some limitations. First, while there was an agreement that the appropriate leadership style did depend on situational contingencies, there was not complete agreement about what such factors were. For example, all three of the authors cited indicated that the appropriate leadership style did depend upon the nature of the task, specifically how certain or uncertain it was. However Vroom and Yetton defined the task as decision making, while the others were not so specific about the type of task.
Lorsch, Jay W. "Governance Information in Knowledge-Based Companies." Chap. 14 in Knowledge Creation and Management: New Challenges for Managers, edited by Kazuo Ichijo and Ikujiro Nonaka, 229–239. New York: Oxford University Press, 2006.
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Lorsch, Jay W. "Products, Customers, and Front-Line Employees." Chap. 6 in What Managers Say, What Employees Hear, edited by Regina Fazio Maruca, 55–62. Westport, CT: Praeger, 2006.
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Lorsch, Jay W. "Empowering the Board, Revisited." In The Accountable Corporation, Vol. 1: Corporate Governance, edited by Marc J. Epstein and Kirk O. Hanson. Praeger, 2005.
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Lipton, Martin, and Jay W. Lorsch. "The Professionalization of Corporate Directors." In Restoring Trust in American Business, edited by Jay W. Lorsch, A. Zelleke, and Leslie Berlowitz. Cambridge: American Academy of Arts and Sciences, 2005.
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Lorsch, J. W. "Corporate Governance." In Concise International Encyclopedia of Business and Management, edited by Malcolm Warner. Thomson Learning, 1997.
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Lorsch, J. W. "German Corporate Governance and Management: An American's Perspective." In ZFBF, edited by Axel v. Weder. Dusseldorf: Verlagsgruppe Handelsblatt, 1996.
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Lorsch, J. W., and E. MacIver. "Corporate Governance and Investment Time Horizons." In Capital Choices: Changing the Way America Invests in Industry, edited by M. E. Porter. Washington, D.C.: Council on Competitiveness, 1992.
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Uber Technologies Inc., the popular ride-hailing company, entered 2017 having doubled its bookings in 2016 and achieving a valuation of nearly $70 billion, making it the largest venture capital-backed company in the world. Co-founder and CEO Travis Kalanick embodied the company, with a hard-charging attitude embedded in the company’s workplace culture that allowed it to successfully take on the entrenched taxi industry. Uber looked to enjoy another year of global growth in 2017, until lawsuits and a cascading series of scandals surrounding that same workplace culture led a group of powerful investors to seek Kalanick’s resignation to protect their investment. This case presents an overview of the growth of Uber, the impact of Kalanick, and the role that Uber’s board of directors had in shaping the company’s growth. It centers on the factors leading to Uber board members and investors to call for Kalanick’s resignation, focusing on how board oversight can help shape company culture and how entrepreneurial boards deal with founder CEOs. It then deals with the events that happened in the aftermath of Kalanick's resignation, including the appointment of Dara Khosrowshahi as CEO and the changes, the lawsuit brought against Kalanick by venture capital firm Benchmark Capital, and the governance changes proposed at the end of September 2017.
As 2012 approached the woes of the financial crisis seemed to be fading, companies were resuming business as usual and some of the scrutiny on corporate governance practices began to recede as well. That is until another major financial scandal emerged in Japan in the fall of 2011. It was slowly revealed that the 92-year-old camera and medical photo-imaging company, Olympus, had been hiding its losses for more than a decade—to the tune of $1.7 billion—long before the current economic pressures, slow job growth, and poor investor confidence plagued the global economy. The fraud renewed the focus on corporate governance policies world-wide, but especially in Japan, where the lack of board independence and a deep-rooted corporate culture entrenched in personal loyalties fostered an environment that made it difficult for scandals such as this to be unveiled, let alone for whistleblowers to come forward about them.
Tim Blanchard struggles to balance all the demands facing him as a partner of a consulting firm. He must decide how to serve clients, mentor his people, provide strategy and direction to the high-tech group, and spend time with family.
Lorsch, Jay, and Emily Irving. "A Nonprofit Board in Transition at Farrington Nature Linc." Harvard Business School Case 418-066, March 2018.
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CSI's business unit managers gathered around the downstairs conference room for the company's weekly meeting to discuss project bids. Cristina WaldAshley Hartman, who was in charge of finding projects for the engineering firm to work on, read through several she had identified while others in the room took notes. Since CSI's founding thirty-five years ago, the company had grown substantially. The growth so far had been fueled by the company's ability to diversify into other services in the construction and engineering space. CSI had a strong market and customer base in Uruguay but realized that in order to be successful it needed to expand internationally. One of the key objectives for CSI in 2016 was to build a clear plan for this expansion and design an organizational structure which could support its growth.
Francisco J. Riberas sat in his office reflecting on his first summer working at the family business, in 1989. Growing up, Francisco Riberas had learned about the company through conversations with his father, Francisco Riberas Pampliega, over the dinner table and in their business trips. From a young age his father had instilled in him and his brother the importance of hard work, compassion, and integrity and given him opportunities to gain exposure to all aspects of the business.
Lorsch, Jay, Emily McTague, and Rosa Maria Fite. "A Succession as the Engine for Success." Harvard Business School Case 416-060, May 2016. (Revised June 2016.)
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On January 9, 2015, Nelson Peltz of Trian Fund Management launched a proxy fight for four out of the twelve seats on the DuPont board. The fund had previously published a public letter addressed to shareholders outlining its proposal to break the company into three areas: agriculture and nutrition, industrial materials, and performance chemicals and criticizing the company for its poor performance. CEO and Chairman Ellen Kullman and her board were left with the difficult decision. Should they allow four of Trian's nominees onto their board, knowing that it would mean replacing four highly experienced and valuable directors or should they go face to face with Peltz in a very public proxy fight?
Proxy access grants shareholders meeting certain ownership requirements the right to nominate directors for election to the board without going through a typical proxy contest. In August 2010 the SEC approved a rule granting proxy access for shareholders meeting specific ownership requirements. The rule was challenged by US Chamber of Commerce and overturned in July 2011. Shortly after the rule was overturned, rules governing shareholder proposal process were amended so that shareholders could put forward proposals on proxy access at individual companies. Proxy access did not garner significant attention during the first two proxy seasons after the rule was amended. However in the 2015 proxy season, over 100 companies received proxy access proposals. This case chronicles the debate on proxy access from the perspective of institutional investors, shareholders, and US company's board of directors and management.
The presentation supplement is designed to be used in conjunction with the case "McKinsey & Co. - Protecting its Reputation (A) and (B)," HBS No. 414-021 and 414-022.
McKinsey & Co—Protecting its Reputation (A&B) is a field case written from the perspective of the Firm's Managing Director Dominic Barton. The two cases describe the actions McKinsey & Co took to protect the firm's reputation after the Rajat Gupta matter.
The purpose of the case is to: (1) Evaluate how a Firm communicates with its various constituents after a major securities violation. (2) Discuss the importance of confidentiality and trust between consulting firms and their clients and what firms can do to protect this trust. (3) Think about how culture and values are spread in a firm as it grows in size and scope.
Lorsch, Jay, and Emily McTague. "McKinsey & Co.—Protecting its Reputation (A) and (B)." Harvard Business School Teaching Note 415-067, March 2015.
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The firing of Market Basket CEO Arthur T. Demoulas by his cousin, Arthur S. Demoulas, and directors affiliated with him set off employee protests throughout the grocery store chain. Industry specialists estimated that Market Basket was losing close to ten million dollars each day in lost business and inventory due to the protests. A long history of legal battles had destroyed the relationship between the families of the two cousins. This case describes the complexities of corporate governance for a family-owned organization.
In October 2004 Fernández Pujals, founder of Telepizza, an international home delivery pizza business, bought 24.9% of Jazztel (€90 million), a telecom company. At the time, Jazztel was near bankruptcy and needed a capital injection to finish the year. Over the next ten years, Fernández Pujals led the restructuring of Jazztel's debt, reached an agreement with the former monopoly Telefónica, set up internal call centers, and transformed Jazztel into the fastest growing broadband operator in Spain. The case describes how Fernández Pujals designed and managed the board and led Jazztel towards profitable growth.
Citation:
Lorsch, Jay, and Emily McTague. "Jazztel." Harvard Business School Case 415-042, November 2014.
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On Tuesday March 15, 2011, all 1,200 global Partners of McKinsey & Co. gathered at the Gaylord National Hotel & Convention Center near Washington, DC for their annual Partners' conference. The atmosphere was tense as Partners, in addition to their normal agenda, discussed the Galleon Group insider-trading trial and the recent allegations against the Firm's former Managing Director, Rajat Gupta. Three months earlier Senior Partner, Anil Kumar, pled guilty to providing confidential information about McKinsey clients he served to Galleon Group founder Raj Rajaratnam. The McKinsey Partners were shocked and dismayed by the actions of Kumar, as well as the recent allegations against Gupta and were closely monitoring the situation. Could a former Managing Director of their Firm have conspired to enable insider trading? And if so, what did that mean for the future of the Firm?
On Tuesday March 15, 2011, all 1,200 global Partners of McKinsey & Co. gathered at the Gaylord National Hotel & Convention Center near Washington, DC for their annual Partners' conference. The atmosphere was tense as Partners, in addition to their normal agenda, discussed the Galleon Group insider-trading trial and the recent allegations against the Firm's former Managing Director, Rajat Gupta. Three months earlier Senior Partner, Anil Kumar, pled guilty to providing confidential information about McKinsey clients he served to Galleon Group founder Raj Rajaratnam. The McKinsey Partners were shocked and dismayed by the actions of Kumar, as well as the recent allegations against Gupta and were closely monitoring the situation. Could a former Managing Director of their Firm have conspired to enable insider trading? And if so, what did that mean for the future of the Firm?
In December 1997 United Rentals (URI) went public on the NYSE. Ten years later, during the peak of the economic meltdown, the company's performance was in decline. United Rentals had experienced its share of problems in the prior years and was still struggling to emerge from this turmoil.
In the spring of 2008, the recession had decimated the company's core business, construction equipment rental. The economic downturn resulted in a significant decrease in North American construction and industrial activities and had adversely affected the company's revenues and operating result. The stock of the company quickly fell from the mid-$30 range in late 2007 to $3 in March 2009. In addition, two of the company's former chief financial officers had been charged with securities fraud and other violations, by both the U.S. Attorney's office and the SEC.
The Board was faced with the resignation of the founder and chairman, management succession issues, the failed merger with Cerberus, and the lawsuit in Delaware. The Board was responsible for overseeing the change in a number of senior management and board positions which became increasingly difficult due to the turmoil and poor performance of the company. Recruiting and retaining talent in senior management and the board was central to the success of the company, which relied on their people for strong performance. In addition the company's total indebtedness was approximately $3.3 billion, including $146 million of subordinated convertible debenture. The company's substantial indebtedness had the potential to have adverse consequences in a number of ways, including: increase their vulnerability to adverse economic, industry or competitive developments; require the company to devote a substantial portion of their cash flow to debt service, reduce the funds available for other purposes; limit their ability to obtain additional financing; and decrease their profitability or cash flow. And the company was still dealing with multiple purported class action and derivative lawsuits that had been filed against it. It was during this time the board started looking for candidates both for the CEO and Chairman positions.
In April 2012, Jenne Britell, the Chairman of the board of directors of United Rentals, Inc. (NYSE: URI) was preparing her notes for an upcoming stockholders' meeting. It was a meeting unlike most other meetings she had chaired. Stockholders were about to vote on a transaction that was perhaps the ultimate fulfillment of the founders' original vision. She was reminded of the company's founding just 15 years earlier and its meteoric growth. With a considerable sense of achievement and satisfaction, she reflected on her tenure as board chair commencing five years ago. Elected to the board in 2006 and then unanimously selected by her peers as Chairman in June 2008, Britell led the board through the aftermath of a tumultuous period that included senior management and board changes, a SEC investigation, financial restatements, the jilting of the company by Cerberus Capital Management in a transaction to acquire URI, and the deepest recession to hit the global economy since the Great Depression. At the meeting, stockholders would be asked to consider approval of a merger agreement between URI, the largest equipment rental company in the world, with RSC, the second largest equipment rental company in the world and URI's largest competitor. The meeting would mark the triumph of a new governance model and company strategy whose development and implementation Britell and CEO Michael Kneeland had led. As Britell reflected on the hard won gains, she also looked forward to the challenges and opportunities that lay ahead as the company managed the integration of RSC's operations with URI and the integration of three new board members from the acquired company. She also reflected on how governance and strategy could continue to evolve as the company planned for the next five years.
Lorsch, Jay W., and Kathleen Durante. "United Rentals (B)." Harvard Business School Supplement 414-031, July 2013. (Revised October 2013.)
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On July 12, 2012, Bill Ackman's Pershing Square Capital Management announced publicly that it had purchased about $2 billion of Procter and Gamble (P&G) stock. Shares in the company closed up 3.75% the day the disclosure was made public. Ackman told the New York Times that Pershing would be a major P&G shareholder. "We think it's an underrated stock," he said. "We think there is a lot of great opportunity there."
During the next several months there was little or no public discussion of the matter although people familiar with the situation reported that Ackman held conversations with P&G directors individually. Then, on April 24, 2013, P&G announced that its 3rd quarter earnings had risen 6%. However its 4th quarter forecast fell short of Wall Street's expectations. Shares fell 5% based on this outlook. P&G results were lagging its peers by 4% in 2012 and 2% in the first quarter of 2013.
Then, abruptly in late May, CEO Robert A. McDonald, who was 59, resigned. The board selected A.J. Lafley, (65) who had been McDonald's predecessor to return to lead the company. There was speculation about how long Lafley would stay and in what direction he would take the company. On June 6th, P&G announced that Lafley had appointed four senior executives to lead the company's major businesses, reporting directly to him.
On January 29, 2013, Elliott Management, a hedge fund run by Paul E. Singer, which owned 4.5% of Hess Corporation stock, put forward a slate of five independent directors it wanted elected to improve the company's performance. Elliott argued that Hess lacked focus and was distracted by ventures outside its core exploration and production business. Further it argued that John Hess, CEO and son of the founder, was more interested in "maintaining a family dynasty than instilling accountability and addressing chronic underperformance."
In early 2013 the leaders of McKinsey & Co., were reflecting, as they did periodically, on the path forward for their firm. Founded in Chicago in 1926 by James O. McKinsey (Mac), with only a small staff in one office, the firm had grown to be a global company with more than 17,000 firm members, including more than 9,000 consultants. It was arguably the world's preeminent management consulting firm. This case describes the history of events and decisions which have led to this enviable record of success, and poses the questions before the firm's senior leaders in 2013. What should be their path forward? Could the firm continue to grow successfully with its current strategy, organization, and culture?
Jay W. Lorsch, Suraj Srinivasan and Kathleen Durante
This case outlines Michael Woodford's awards and honors, after having been fired from Olympus in October 2011. It discusses the repercussions following an investigation into the fraud and the report that was released thereafter. It also discusses the lawsuit that followed (filed by Woodford against Olympus), its settlement, and the new Olympus board and the fate of the Olympus executives who were at Olympus while the scandal occurred.
This case outlines the takeover attempt by activist investor, Carl Icahn, for the Clorox Company. The board of the company repeatedly rejected Icahn's offers as inadequate. He made three bids over the course of three months.
Lorsch, Jay W., and Kathleen Durante. "Carl Icahn and Clorox." Harvard Business School Case 412-078, December 2011. (Revised September 2015.)
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The global economy entered a crippling recession in the fourth quarter of 2008 and Dow lost its primary source of funding for its planned acquisition of Rohm and Haas.
Dow's board and management team worked on arranging appropriate financing to complete the acquisition of Rohm and Haas. Meanwhile, the board of Rohm and Haas filed suit against Dow after it delayed the completion of the acquisition.
In 2003, the Norwegian Parliament amended the Public Limited Companies Act in order to achieve greater representation of women on corporate boards. According to the amendment, all state-owned companies and public limited companies were required to have at least 40% women on their boards. This case uses first-hand accounts from Norwegian directors to document the Norwegian business community's reaction to the quota, how Norwegian boards sought women directors, and the transferability of the quota law to other nations.
RiskMetrics Group, a risk and governance consultancy, had a great deal of influence on U.S. companies. This case examines the history and growth of the company, the governance services it offers, the extent of its impact on shareholders, the controversy surrounding its conflicts of interest, and the impact it has had on directors.
The Board of Directors of Computer Associates deals with pressure from the U.S. Department of Justice as its members try to gain better insight into the accounting practices of the company's top management team.
Lorsch, Jay W., and Melissa Barton. "Trouble in Islandia; Computer Associates 2001 - 2004." Harvard Business School Case 411-112, June 2011.
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Mark Hurd resigned as the CEO of Hewlett Packard in 2010 after the board discovered that he had misfiled expense reports and paid an H.P. contractor for unsubstantiated work. After Hurd left H.P., he joined Oracle, an H.P. competitor. Soon thereafter, the H.P. board appointed a new CEO following an eight-week search.
The AIG Board underwent significant restructuring after the company was bailed out by the U.S. government in September 2008 in the midst of the financial crisis.
Larry Scott, the new CEO of the Women's Tennis Association, arrives amidst turmoil. Players and tournaments clash over opposing interests. As a result, the board members who represent them are equally divided and feel conflicted about their role. They aren't sure how to help their constituents while also fulfilling their duty of oversight of the WTA as a whole. In order to make women's tennis more popular and profitable, Scott must find a way to get the board of directors to resolve their differences and work together for the greater good of the organization.
ValueAct, a San Francisco investment firm, makes an investment in PerSe Technologies. The partners of ValueAct build relationships with the PerSe board and management. Eventually ValueAct is given a seat on the PerSe board and is able to influence a significant imprint in PerSe's performance.
The Delphi Corp.'s board of directors faces a transition as lead director Thomas Wyman approaches mandatory retirement. Chairman and CEO J.T. Battenberg reflects on Delphi's history and its successful reinvention by Wyman and Battenberg when it separated from its 100-year-old parent company, GM. Examines how boards of directors interact with top management and how management can work effectively with an active board.
Lorsch, Jay W., Rakesh Khurana, and Sonya Sanchez. "Delphi Corporation (A)." Harvard Business School Case 402-033, June 2002. (Revised January 2010.)
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In 2006, amidst shareholder upset over CEO Robert Nardelli's compensation and Home Depot's declining stock price, Relational Investors decided to further investigate the situation. As experts in turning around underperforming and undervalued companies, Relational's principals saw opportunities for Home Depot to improve its stock price through changes in strategy, corporate governance, and capital allocation. In particular, Relational felt Nardelli's growth plan for the company had caused the decline in the stock price. Relational decided to invest in Home Depot and intended to initiate a proxy fight if the board did not reassess the company's strategy. Shortly thereafter, Nardelli left Home Depot and the board offered Relational a board seat. This case describes Relational's analysis of the problems at Home Depot, why they decided to invest, and how they went about getting their recommendations implemented.
An audit committee chair considers how he can help his committee become more effective given the increasing regulatory demands on audit committees. He also wrestles with the lack of specificity in audit committee duties and whether his committee should take on additional responsibilities. In particular, he considers the growing concern over risk oversight and wonders what kinds of risks the audit committee should consider and whether they should be the sole repository for risk management. This case includes a historical overview of the beginnings and evolution of audit committees, and the laws and regulations that have affected their role over time.
The remuneration committee at Shell decided to exercise their discretionary power to award five top executives a bonus for 2008, even though they had not met the necessary performance measures under the compensation plan. Proxy advisors RiskMetrics and the British Association of Insurers advise their clients to vote against the plan at the upcoming 2009 annual meeting. The Shell remuneration committee wonders how the shareholders will react.
At the 2009 Shell annual meeting, the majority of shareholders vote against the exclusive pay package. The B case compares the remuneration committee perspective (and their rationale for using discretion to award the bonuses) as well as the shareholder perspective (and their rationale for reacting so strongly against the pay package).
Describes the dilemma faced by Emmanuel Ferreira, a fund manager at OppenheimerFunds. As the largest shareholder and a long-time investor in software publisher Take-Two Interactive, Ferreira contemplates whether or not to get involved with other investors in trying to replace the board of directors at Take-Two Interactive. The company has been encountering a number of problems with its accounting methods and in the design of its products, etc. All of this has led to a depressed stock price, which is of serious concern to the manager(s) at OppenheimerFunds as well as to other investors. This leads a media turnaround firm to contact OppenheimerFunds and other large Take-Two shareholders with the intention of ousting the company's board, replacing management, and rejuvenating the company. No fund manager at OppenheimerFunds has ever pursued such an action, and the case invites readers to weigh the pros and cons of Ferreira's options.
Lorsch, Jay W., and Kaitlyn Simpson. "Partner Promotion and Development at DLA Piper." Harvard Business School Case 409-026, November 2008.
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Describes the governance issues facing the Board of Governors of the American Red Cross. After a series of issues--FDA consent decree on its blood operations; the response to 9/11 and Hurricane Katrina--the Red Cross board was under pressure to fix its governance from the public, the media, and from Congress. Describes the Red Cross governance structure and practices in place and the process used to examine them.
Briefly describes the trend in 2006 and 2007 in the United States to give shareholders an advisory vote on executive compensation. Highlights a few examples where shareholders have successfully garnered a majority in support of an advisory vote measure on company proxy ballots, and describes discussion within Congress on the matter.
Looks at the multinational company, Philips Electronics, which is headquartered in the Netherlands, as an example of a company with a two-tiered board. The company is governed by both a supervisory board and a board of management. Examines the role, dynamic, and best practices of each of the two boards. Additionally, the case examines the relationship between the two boards and the key factors in determining that relationship.
Lorsch, Jay W., and Alexis Chernak. "Philips Electronics N.V." Harvard Business School Case 407-047, September 2006. (Revised February 2008.)
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Focuses on the decision made by leadership at Allianz AG, the German insurance and financial services company, to complete a cross-border merger with the Italian insurance and financial services company, RAS. Allianz, however, could not complete the cross-border merger by remaining a German corporation under the current German statutes. Allianz, however, could conduct the cross-border merger as a European company according to the Statute of the European Community (Societas Europaea, or SE), which was recently passed by the European Union and adopted into German law. Examines the rationale for the decision made by the Allianz supervisory board and the board of management in addition to the process of becoming an SE, including the change in the composition of the supervisory board as a result of the merger and the conversion to an SE.
The board of directors of Medtronic, Inc., a company known for its commitment to effective corporate governance, must prepare for the departure of Chairman and CEO Bill George and the retirement of four long-time directors. The company had experienced rapid growth in the early 1990s as well as significant change in the composition of its board. Now the Medtronic directors must evaluate how the board has changed, how it will continue to change, and how it should prepare for the future.
Krishna G. Palepu, Jay W. Lorsch, Carin-Isabel Knoop and Eliot Sherman
In September 2006 it was revealed that the Hewlett-Packard Company (HP) had been carrying out an extended investigation of its own employees, board members, and journalists outside the company. The investigation was launched in response to a series of leaks to the press that could only have come from highly placed members of the company. Fully understanding the context of the events of September, however, requires knowledge of board personalities and events that began under former CEO Carly Fiorina and continued thought the successful turnaround under her successor, Mark Hurd. As such, special focus is given to the individual board personalities and their conflicts over this time in order to fully explore the environment in which the investigation would later take place.
Examines the resignation of Philip Purcell as chairman and CEO of Morgan Stanley as a result of poor performance and cultural problems, as well as his relationship to the board of directors.
Focuses on DLA Piper, a global law firm resulting from the merger of the combined U.S. firm Piper Rudnick Gray Cary and the British firm DLA. At the time of the merger, the firms had similar strategies for the future and approaches to clients. While figuring out some of the details in order to successfully merge, the firm leadership has many questions about how to further align the merged firms in terms of strategy, people and systems, structure, culture, and leadership. Examines some of the steps the firm plans to take in the future to achieve greater alignment in order to move from being several local and regional entities to becoming one global firm.
Describes the musings of the managing partner of a law firm as he returns from an executive education program. He thinks about the many issues confronting him and his firm. Teaching Purpose: To prepare executive education participants to return to their companies and implement what they have learned.
Jay W. Lorsch, V.G. Narayanan, Krishna G. Palepu, Lisa Brem and Ashley Robertson
Reckitt Benckiser plc has developed an executive compensation system. This case outlines the structure of the system, its emphasis on performance-based pay and a global outlook, and explains the role of the human resources department, the board of directors, and company shareholders in determining pay. It raises questions about how to balance incentive remuneration effectively in recruiting and retaining top managers, while addressing shareholder concerns about executive compensation.
Faced with the need to hire a new president, The Walt Disney Co. pursued Michael Ovitz, a founder of the Creative Artist Agency. Although initially disinterested, Ovitz engaged in negotiations with Michael Eisner, CEO of The Walt Disney Co., in the summer of 1995 before accepting an offer. Ovitz officially began as president on October 1 of that year. While the hiring of Ovitz was at first heralded as a coup for Disney, Eisner and senior executives began to have doubts about Ovitz's fit with the company culture. By the summer of 1996, Eisner decided Ovitz had to be fired. He began conversations with members of the board of directors, who agreed Ovitz's contract should be terminated. Ovitz left the company at the end of the year with a sizable severance package.
Raises issues about how the nature and function of a board changes as a company moves from ownership by its employees, including the founder, to ownership by a private equity firm, Fremont Partners, culminating in a highly successful IPO. Gives students the opportunity to consider changes in board membership, board duties, and responsibilities. Teaching Purpose: To enable students to think about improving corporate governance at a specific company.
Lorsch, Jay W., Dwight B. Crane, and Ashley Robertson. "Kinetic Concepts, Inc." Harvard Business School Case 405-042, October 2004. (Revised July 2005.)
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Raises issues about how the nature and function of a board changes as its company moves from ownership by its employees (including the founder) to ownership by a private equity firm, Hellman & Friedman, to public ownership. Teaching Purpose: To consider changes in board membership, board duties, and board responsibilities. A rewritten version of an earlier case.
Raises issues about the role of boards of directors in compensating CEOs and, specifically, the rewards granted to CEOs for arranging a change-of-control for their companies.
Describes the experiences of audit committee chairmen in responding to and implementing the Sarbanes-Oxley Act. Teaching Purpose: To help students understand the impact of the Sarbanes-Oxley Act on audit committees.
Examines the changes in corporate governance at WorldCom/MCI as proposed by the company's court-appointed corporate monitor, Richard Breeden. Following the largest bankruptcy ever and the downfall of the company, Breeden wrote "Restoring Trust," a report comprised of 78 recommendations for the future governance of the company. Teaching Purpose: To think about how to improve corporate governance at a specific company.
A Hispanic executive is considering whether to join the board of directors of a company and receives advice from several more experienced directors. Teaching Purpose: To focus on the issues related to joining a board of directors.
Provides a history of the board of directors of the Coca-Cola Co. through 2003. Describes the evolution in the board's membership, practices, and structure and the role it played in the company's governance. Questions are raised about the relationship between the board and top management, especially how the board is carrying out its responsibilities in the 21st century.
Describes the U.S. Securities and Exchange Commission's 2003 proposal to allow shareholders to nominate a "short slate" of directors for the board of listed companies. Includes comment letters for and against the proposal.
Discusses how CEOs should think about bringing strategic issues to the board, what issues to bring, how to position them, and which information to provide.
Quickturn Design Systems, Inc. faces a hostile takeover bid from its competitor, Mentor Graphics. Mentor makes the bid at a moment when Quickturn's stock price is depressed and the company is defending against a patent suit filed by Mentor. The two companies have a history of patent disputes, all of which Quickturn has won. Teaching Purpose: Examines the Quickturn board's fiduciary duties in the context of a hostile takeover as well as the effectiveness and legality of various defensive measures.
Lorsch, Jay W. "RJR Nabisco Board, The: Guardians of the Gate? (A) and (B) TN." Harvard Business School Teaching Note 401-020, February 2001.
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Jay O. Light, Jay W. Lorsch, James O. Sailer and Katharina Pick
The largest state pension fund continues the evolution of its approach to corporate governance contemplating "relationship investing" and other new approaches.
Light, Jay O., Jay W. Lorsch, James O. Sailer, and Katharina Pick. "California PERS (B)." Harvard Business School Case 201-091, February 2001.
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Examines California Public Employees Retirement System (CalPERS), the world's fourth largest pension fund. Dale Hanson, CEO of CalPERS, has a problem; how does he use CalPERS' influence as the holder of a small percentage of 1,300 American companies to put pressure on corporate America to achieve better returns for shareholders? The case discusses the constraints which confront CalPERS as a quasi-state agency and describes their efforts to improve corporate governance to date.
Light, Jay O., Jay W. Lorsch, and James O. Sailer. "California PERS (A)." Harvard Business School Case 291-045, July 1991. (Revised August 2000.)
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Discusses the trend toward formal evaluations, by boards of directors, of CEO performance. The benefits and challenges of CEO evaluation are discussed and a particular process of CEO evaluation at Dayton Hudson Corp. is described. Teaching Purpose: To introduce issues surrounding formal CEO evaluation, and the benefits, the challenges, and the characteristics of one already existing process.
In August 1994, Lyondell Petrochemical Co.'s corporate parent and largest single shareholder effectively shed its stock, resulting in the resignation of 5 of its 11 directors. The remaining outside directors immediately acted to overhaul the executive compensation plan used to pay the CEO and other top officers. This case examines the role played by the compensation committee of the board of directors in this initiative. Also addresses several important aspects of the compensation process, including the role played by outside consultants, appropriate ways of measuring performance, and the motivational impact of pay plans on management.
Begins with a company history, tracing the tenures of founder Del E. Webb and his successor as chairman and CEO, Robert H. Johnson. Johnson inherited a diversified company that was involved in construction, real estate development (including the famous Sun City), and the hotel-casino business. Johnson left Del Webb near bankruptcy in 1981, and renowned turnaround artist Robert K. Swanson was brought in to rescue the company. Describes Swanson's turnaround scheme and proceeds to highlight the misgivings of several corporate managers toward Swanson's managerial style, boardroom appointment, and strategic plans. When CFO Phil Dion was promoted to president and nominated to the board in 1987, he began to challenge Swanson aggressively. The board, which comprised many of Swanson's close friends and business colleagues, was supportive of Swanson. In the fall of 1987, crisis hit. The company was forced to take a close to $100 million write-down, the stock price took a dive, and Swanson and three board members resigned. The remaining board members were left with a faltering company and no succession plan.
On November 16, 1987, the Del Webb board appointed Phil Dion chairman and CEO. This case outlines the development and implementation of a strategy to focus exclusively on real estate development and to liquidate all other assets. Discusses the appointment of two new board members to fill the slots vacated by the directors who followed Swanson out the door. Proceeds to describe the activities of two investors: Ronald Brierly of Industrial Equity Pacific and James Cotter of Webcott Holdings. Independently of one another, these investors had each purchased over 9% of Del Webb stock at a premium just before the stock price plummeted in the fall of 1987. These investors laid low for over a year, waiting to see if the descent in the stock price had been a temporary blip or a sustaining trend. When they concluded it was the latter, each investor approached Dion with the request that he be allowed to put a representative on the Del Webb board.
Dion and the other Del Webb directors were open to having Industrial Equity Pacific (IEP) and Webcott Holdings representation on the board. The IEP representative was perceived as reserved and lacking in sophistication. Cotter of Webcott, however, struck the directors as savvy but antagonistic and disruptive. Cotter's goal was to position the company as a possible takeover target, and he agitated in the boardroom for changes that he felt would open up the company to potential acquirers. He also launched a proxy battle in an attempt to eliminate Dion's golden parachute and the company's poison pill.
Describes the situation facing the head of a rapidly growing industry-focused group within a consulting company. Highlights the dilemmas of being a "producing manager" (i.e., a professional who has both individual production as well as management responsibilities). Issues raised include: delegation, developing subordinates, developing an agenda, and building an organization.
In January 1993, the American Express board met to decide who would succeed James D. Robinson, III as chairman and CEO. The board needed to act in the spotlight of intense media and investor scrutiny, and after leaks had revealed that there was a conflict among the board members about whether Robinson should have been asked to leave. The board needed to find a way of calming the public's concern over the future of American Express, at the same time choosing a leadership structure that would lead American Express for the foreseeable future. The case brings up several critical issues revolving around CEO succession and performance evaluation: What should the board take into account when deciding when to ask a CEO to step down? What kinds of processes can boards institute so that such battles over CEO succession will not ensue?
MG Corp., a U.S. subsidiary of Germany's international conglomerate, Metallgesellschaft, engaged in a disastrous hedging strategy that nearly dragged the entire enterprise into bankruptcy. This case explores issues of responsibility and accountability among the relevant boards. In doing so, it highlights the German two-tier board system of governance.
Lorsch, Jay W., Cynthia A. Montgomery, and Lisa J. Chadderdon. "General Mills Board and Strategic Planning and Lukens Inc., The: The Melters' Committee (A) & (B) TN." Harvard Business School Teaching Note 796-082, February 1996. (Revised June 1996.)
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Growth in the banking field has produced new demands on the "back office." Traditional management practices in check processing and paper handling operations have resulted in ten years of cost increases and quality loss. New manager of the operating group faces an action question--can he turn the back office into a production-oriented factory?
Eastman Chemical Co. spun off from Kodak in 1993. The CEO of Eastman, Earnest Deavenport did not want the new company's board any members of the Kodak board to include, so he initiated a deliberate and thorough process to build an entirely new board that he hoped would be on the cutting edge. This case describes the selection process and documents the backgrounds of the chosen directors. Discusses the board's first year at work, and it records the reflections "one year in" of Deavenport and some of the board members.
Examines the General Mills Board of Directors' role in the General Mills joint venture with Nestle S.A. to sell cereals outside of North America. It raises the more general question of the appropriate role for the board of directors in strategy formulation.
Describes the history and unique operating principles of the most successful corporate law firm in the country. Closes with a lengthy quotation by Martin Lipton, who is one of the firm's founding partners and who is described in an American Lawyer article as the "Elvis Presley of the M&A field." Lipton reflects on certain activities that the firm carries out aimed at building its reputation. Whether or not these activities constitute marketing is left an open question.
Growth in demands on the bank's "back office" required a totally new approach to management. New stress on systems orientation, objectives, measurement, process design and control has resulted in lower costs, fewer people, and higher quality. Also resulted in fear, suspicion, and alienation in middle management. How to get the benefits of change without the unanticipated consequences?
The CEO and chairman of Alantar, Inc. is confronted with the problem of how to create a more effective board of directors and also how to provide for his own successor.
Robert D. Walter, chairman and CEO of Cardinal Health, Inc., responds to questions regarding Cardinal's board and its influence on the acquisition of and merger with Whitmire Distribution.
Discusses the management practices of William Aramony at the United Way of America (UWA). First, the case describes the United Way movement, focusing on both the local chapters and the national organization. Second, it sets forth the Washington Post reports that lead to the UWA scandal. Third, it shows how the board of governors, the local chapters, Aramony, and donors responded to the scandal.
Analyzes the measures taken by the United Way of America (UWA) and its board of governors in response to the 1992 Washington Post reports that lead to the UWA scandal.
Discusses the process a CEO/chairman goes through in creating a new board. Specifically, follows a CEO's decision-making process in selecting board members. Also includes decisions about the selection process for board members and the structure and process of board meetings.
In December, 1986 the General Motors Board of Directors must decide whether to accept the buyout agreement between GM and Ross Perot, a director of GM and its largest stockholder. The agreement called for GM to purchase all of Perot's GM shares in exchange for his resignation from the GM board and his resignation as Chairman of EDS, the company Perot founded in 1963 and sold to GM in 1984. The case chronicles a history of the Perot/GM merger, and the friction between Perot and GM management which led to the buyout agreement.
Discusses the final formation of Praxair's board. Lists the members chosen with their backgrounds. Also describes the selection process of board members, and the structure and process of board meetings.
Describes the Dayton Hudson CEO evaluation process, one of the most intensive in corporate America today. The board of directors' role in the evaluation is examined, as is the question of whether the Dayton Hudson CEO evaluation process should serve as a model for other corporations.
Charles Hugel, the chairman of RJR Nabisco, receives a call from RJR Nabisco's CEO, Ross Johnson; Johnson plans to present an LBO plan to the board of directors at the board meeting the following week. The case details Hugel's actions as chairman, and describes the events leading up to the bidding deadline for the company. The special committee of RJR Nabisco's board must decide which of the three groups vying for the company submitted the best bid.
The special committee of the RJR Nabisco board has extended the bidding deadline for the company by 10 days. The case explains the process by which Kohlberg Kravis Roberts and the management group bid against one another for ownership of RJR Nabisco. The board of directors is left with a decision: who has submitted the best bid?
American Airlines is pursuing a growth strategy through international and domestic route expansion. At the same time, the airline is working hard to cut costs while trying to provide the best customer service possible. Is this strategy achievable given the recent surge in jet fuel prices and the competitive framework of the industry?
Professor Jackson is offered a spot on the slate of directors that Harold Simmons, Lockheed's largest shareholder, has nominated for Lockheed's board to oppose the slate nominated by Lockheed in the Spring, 1990 elections. Jackson must decide whether to join Simmons' slate. The case raises the issue of what factors one should take into account in deciding whether or not to join such a slate, and the broad question of the role of proxy fights in corporate governance.
Deals with the organizational designer trying to create a structure, rewards, and a system of measurement that are compatible with the external environment, strategy, tasks, the members of the organization, management style, and the existing culture.
Brown, Milton P., and Jay W. Lorsch. "Allied Stores Corp. (B)." Harvard Business School Case 381-087, December 1980. (Revised February 1981.)
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Lorsch, Jay W., and Robert G. Eccles Jr. "Progressive Corp. (A)." Harvard Business School Case 381-088, December 1980. (Revised February 1981.)
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Lorsch, Jay W., and David E. Bloom. "Viewing U.S. Economic Prospects Through a Demographic Lens." Reporter 44, no. 4 (December 2012): 12–17.
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The data gathering has been completed and an article is being written about the role shareholders can and cannot play in corporate governance. This article should be completed by the spring of 2012.
This project is examining, on a continuing basis, the evolving practice of allowing shareholders to have a vote on top executive compensation. The expected product will be an article explaining the limitations of this effort to give shareholders voice.
This project, which is just beginning, will be a questionnaire survey of directors of public companies in the U.S. The goal of the survey will be to understand the views of directors about their jobs and the changing legal, regulatory, and institutional climate in which they must work. The product will be a book describing the current views of these important actors.
Awards & Honors
Jay W. Lorsch was elected to Directorship magazine's Corporate Governance Hall of Fame in 2009. Hall of Fame members are a select number of exemplary individuals who have so uniquely contributed to the shape of modern corporate governance that they deserve special recognition.
