Corporate Governance

Corporate governance is a major part of publically traded companies.  There are 3 major themes or common roots for underperforming businesses.  They include Capital Allocation, Compensation structure, and a succession plan.

A business and its board must understand the cost of capital and the returns of their business.
The compensation structure should not be based on revenue and EPS rather a performance based bonus structure.
A succession plan should always be at the top of the current leadership’s thought process because it is key to the future.  GE does a great job with succession.

To Do
-Adopt a sound capital allocation philosophy (Highest and best use) – usually growing your core business
-Require a rolling 3 year business plan tied to compensation
– Include a return metric in long term compensation
– Tie succession to compensation and severance
– Communicate all of the above to share holders