Boards of Directors and Corporate Governance

Boards of Directors and Corporate Governance

Professor John Coates, Professor Jay Lorsch
Fall 2016 course
W, Th, F 1:15pm - 2:35pm
2 classroom credits

Prerequisite: This course is open to 3Ls and LLMs only. For JD students, having taken (or taking concurrently) Corporations. No prerequisite required for LLM students.

Exam type: No exam.

Note: The first class session will meet on Thursday, September 1. The add/drop deadline is Wednesday, September 7.

This upper-level course uses case studies to examine the central role of the board of directors in the governance of business corporations, and the relationships between the board and other key actors in corporate governance. This course is taught jointly with Harvard Business School Professor Jay Lorsch. Students who take this course will be required to meet at HBS, and to work together in teams with HBS students on joint projects. Grades will be based on participation and team-based paper projects. Students with questions on course format and content should direct them to Professor Coates.

Why This Course?

Most HLS graduates will directly advise corporate boards, and many will also serve on them. Boards are the ultimate authority in all companies, public and private, around the world. 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. For these reasons, understanding what boards are supposed to do, how they function, what issues they have to confront – both legal and practical – are essential knowledge for HLS graduates. The course is designed to include equal numbers of both HBS second-year and Harvard Law School third-year students and will be co-taught with Professor Jay Lorsch from the business school. This is to enable students from HLS and HBS to learn together about boards and corporate governance and also to understand each other’s professional perspectives.

To even the most experienced leaders, corporate governance is complicated and dynamic. The responsibility and functioning of corporate boards are often unclear and misunderstood. The relationships among boards, shareholders, and senior executives, especially the CEOs, are varied and complex, and sometimes fraught with conflict. One goal 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, its executives, and shareholders, as well as the board itself.

A clear understanding of how boards function, is a prerequisite for being effective not only as a director, but as a senior executive and as a shareholder. Such understanding will also be helpful in a career as a consultant, investor, or corporate lawyer by providing you with tools that will allow you to be an effective advisor to top management and corporate boards.

Course Objectives

Thus the primary course goal is to teach you what it means to be a director. You will gain an understanding of the legal, financial, strategic and behavioral issues with which directors must contend. 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, 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 phrase “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. From this perspective, the course will also provide an understanding of why there have been so many corporate and financial failures and scandals in recent years. We also shall discuss the changes in boardroom processes being made 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 issues not only in other countries but also in the governance of private companies, e.g. private equity, venture capital backed enterprises, family-owned and non-profit organizations.

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, and focus briefly (as a recap for law students, and an intro for business students) 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 the governance of private companies, e.g. family-owned, private equity and venture capital-backed companies as well as nonprofit organizations.

In the final module, we will examine how boards deal with the many crisis situations they face, such as hostile takeovers, CEO dismissals, succession and compensation, and unhappy shareholders.

The course will be open to both HBS and HLS students, and we will seek to have a rough balance between the two. Finally, both HBS and HLS students will be expected to complete group projects related to the course content. 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. 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.

The course will meet on Thursdays, Fridays, and some Wednesdays from 1:15-2:35pm. This course will meet at HBS only. Please note that the last class session is expected to take place on November 10th.

Note: Course Materials will be distributed through the MBA Course Distribution office (located in Spangler 027). All enrolled students, including auditors, will be charged a $200 Materials Fee via the term bill. The $200 materials fee covers access to all Board of Directors course materials, both printed and electronic.

Subject Areas: Business Organization, Commercial Law, and Finance