ESSENTIALS of Corporate Governance Sanjay Anand John Wiley & Sons, Inc. ESSENTIALS of Corporate Governance Essentials Series TheEssentialsSerieswascreatedforbusybusinessadvisoryandcorporateprofessionals.The books in this series were designed so that these busy professionals can quickly acquire knowledgeandskillsincorebusinessareas. Eachbookprovidesneed-to-havefundamentalsforthoseprofessionalswhomust: (cid:1) Getuptospeedquickly,becausetheyhavebeenpromotedtoanewpositionorhave broadenedtheirresponsibilityscope (cid:1) Manageanewfunctionalarea (cid:1) Brushuponnewdevelopmentsintheirareaofresponsibility (cid:1) Addmorevaluetotheircompanyorclients Otherbooksinthisseriesinclude: EssentialsofAccountsPayable,MaryS.Schaeffer EssentialsofBalancedScorecard,MohanNair EssentialsofCapacityManagement,ReginaldTomasYu-Lee EssentialsofCapitalBudgeting,JamesSagner EssentialsofCashFlow,H.A.Schaeffer,Jr. EssentialsofCorporatePerformanceMeasurement,GeorgeT.Friedlob,LydiaL.F.Schleifer, andFranklinJ.Plewa,Jr. EssentialsofCostManagement,JoeandCatherineStenzel EssentialsofCredit,Collections,andAccountsReceivable,MaryS.Schaeffer EssentialsofCRM:AGuidetoCustomerRelationshipManagement,BryanBergeron EssentialsofFinancialAnalysis,GeorgeT.FriedlobandLydiaL.F.Schleifer EssentialsofFinancialRiskManagement,KarenA.Horcher EssentialsofIntellectualProperty,PaulJ.LernerandAlexanderI.Poltorak EssentialsofKnowledgeManagement,BryanBergeron EssentialsofPatents,AndyGibbsandBobDeMatteis EssentialsofPayrollManagementandAccounting,StevenM.Bragg EssentialsofSarbanes-Oxley,SanjayAnand EssentialsofSharedServices,BryanBergeron EssentialsofSupplyChainManagement,MichaelHugos EssentialsofTrademarksandUnfairCompetition,DanaShilling EssentialsofTreasury,KarenA.Horcher EssentialsofManagingCorporateCash,MicheleAllman-WardandJamesSagner EssentialsofXBRL,BryanBergeron Formoreinformationonanyoftheabovetitles,pleasevisitwww.wiley.com. ESSENTIALS of Corporate Governance Sanjay Anand John Wiley & Sons, Inc. Thisbookisprintedonacid-freepaper.(cid:2)1 Copyright#2008SanjayAnand.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. WileyBicentennialLogo:RichardJ.Pacifico. PublishedsimultaneouslyinCanada. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorby anymeans,electronic,mechanical,photocopying,recording,scanning,orotherwise,exceptaspermitted underSection107or108ofthe1976UnitedStatesCopyrightAct,withouteitherthepriorwritten permissionofthePublisher,orauthorizationthroughpaymentoftheappropriateper-copyfeetothe CopyrightClearanceCenter,Inc.,222RosewoodDrive,Danvers,MA01923,978-750-8400,fax978- 646-8600,orontheWebatwww.copyright.com.RequeststothePublisherforpermissionshouldbe addressedtothePermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030, 201-748-6011,fax201-748-6008,oronlineathttp://www.wiley.com/go/permissions. LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbesteffortsin preparingthisbook,theymakenorepresentationsorwarrantieswithrespecttotheaccuracyor completenessofthecontentsofthisbookandspecificallydisclaimanyimpliedwarrantiesof merchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreatedorextendedbysales representativesorwrittensalesmaterials.Theadviceandstrategiescontainedhereinmaynotbesuitablefor yoursituation.Youshouldconsultwithaprofessionalwhereappropriate.Neitherthepublishernorauthor shallbeliableforanylossofprofitoranyothercommercialdamages,includingbutnotlimitedtospecial, incidental,consequential,orotherdamages. Forgeneralinformationonourotherproductsandservices,ortechnicalsupport,pleasecontactour CustomerCareDepartmentwithintheUnitedStatesat800-762-2974,outsidetheUnitedStatesat 317-572-3993orfax317-572-4002. Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsinprintmaynot beavailableinelectronicbooks. FormoreinformationaboutWileyproducts,visitourwebsiteathttp://www.wiley.com. LibraryofCongressCataloging-in-PublicationData Anand,Sanjay. Essentialsofcorporategovernance/SanjayAnand. p.cm. Includesindex. ISBN978-0-470-13981-3(pbk.) 1.Corporategovernance. I.Title. HD2741.A6462007 338.6–dc22 2007014934 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 To my wife Contents Foreword ix Preface xiii PartOne Background 1 Corporations 3 2 History 17 PartTwo ThePlayers 3 Shareholders 29 4 BoardofDirectors 39 5 CEOandChairperson 61 PartThree GoodGovernance 6 GoodCorporateGovernance:AnIntroduction 75 7 SignsofTrouble 91 8 ChangesMadeThroughCorporateGovernance 107 9 RegulationsandStrategiesforCorporate Governance 121 PartFour InternationalPerspective 10 InternationalCorporateGovernance 145 11 CorporateGovernanceinEmergingMarkets: AsiaandLatinAmerica 155 vii