Jay W. Lorsch
Louis E. Kirstein Professor of Human Relations
Tel: (617) 495-6413
jlorsch@hbs.edu
Rakesh Khurana
Marvin Bower Professor of Leadership Development
Tel: (617) 495-4137
rkhurana@hbs.edu
Why This Course?
Why should a second year MBA student take a course about board of directors and corporate governance? For the same reasons you take courses about other issues facing CEOs and other corporate leaders. Most graduates of HBS will end up in top management. Most HBS graduates will also serve on multiple boards of directors of public, private, and non-profit organizations. A clear understanding of how boards function and the issues their members face is a prerequisite to being an effective director. The course also will be helpful if you plan a career as a consultant, investment banker or investor by providing tools that will allow you to be an effective advisor to top managers, corporate boards, and in making investment decisions based on rigorous evaluations about the quality of a firm's governance.
Course Objectives
The primary goal of the course is to equip you to be an effective board member or advisor to boards. You will gain an understanding of the legal, financial, managerial and behavioral issues with which directors must contend to be effective in performing their duties. When you enter a boardroom in the future, you will do so with a framework for understanding the complex dynamics between directors, executives, and their shareholders. You will also have an understanding of key elements of corporate governance activities and the work boards must do including, strategic reviews, evaluating and compensation CEOs, director selection, and managing top executive succession. You will also gain an appreciation of the costs and rewards of board service.
A related goal is to acquaint you with 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, legal duties of the board, and professional firms, which are expected to oversee corporate activities on behalf of shareholders and the public, e.g. the media and political representatives.) From this perspective, the course will provide you with an understanding of the reasons there have been so many corporate scandals in recent years, which have led to the loss of shareholder and debt holder value, as well as jobs. We shall also discuss the changes in boardroom processes that have been proposed in the hope of preventing such problems in the future.
While the primary focus will be on U.S. public companies that set the general framework for corporate governance, we shall also devote time to consider these issues in other countries and in the governance of private companies, e.g. private equity, venture capital backed enterprises, and non-profit organizations.
Content and Organization
The course is 29-sessions of class work plus a final exam. The first module provides a basic introduction to the activities and institutions that affect boardroom dynamics. We will begin with an examination of the role of shareholders and their relationship to boards of directors. 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 the nature of director and CEO dynamics, 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, CEO succession, compensation, and unhappy shareholders. In module three, we will examine the governance of private companies, e.g. family-owned, private equity and venture capital boards, and nonprofit organizations.
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