Lisa M. Mezzetti
Cohen Milstein Sellers & Toll PLLC
Dirk Schlimm
Jenoir Management Consultants
Bernard S. Sharfman
Independent
Abstract:
Good corporate governance practices at a publicly held firm will not necessarily be good practices at a publicly traded firm in which there is a controlling shareholder. This is because board independence, a key concept in structuring appropriate corporate governance practices, has a different meaning when a controlling shareholder is present.
However, identifying whether or not a board is truly independent is just the first step in evaluating the quality of corporate governance at a controlled corporation. After all, a controlling shareholder still has the power to dominate an independent board through his direct voting power and by threats of removal. Therefore, a proper evaluation requires knowledge of those corporate governance practices that a controlled company uses to monitor and manage the decision-making influence of the controlling shareholder. Furthermore, to make sure these practices are optimal, a subjective analysis of just how the controlling shareholder interacts with the board is required. In addition, the focus of such a subjective analysis must go primarily to an evaluation of the character of the controlling shareholder and his/her motivations regarding the welfare of the company.
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