Class time 8:00
Pfizer Proxy Statement
1. Three major roles/responsibilities of the board of directors The board of directors is the ultimate decision making body of the company. The board of directors has a strong, independent oversight function, enhanced by the committees that are comprised entirely of board members (such as audit, compensation, corporate governance, regulatory and compliance, and science and technology). Each committee is responsible for additional roles and responsibilities. For example, the audit committee must decide on the registered public accounting firm to use for the audit. They also supervise the internal controls and risk management of the company, as well as all financial reporting. Another example is the Compensation Committee which must decide on the executive compensation program. The board of directors also selects the CEO and other members of senior management. It acts as an advisor and counselor to management and monitors its performance. In addition, the board and committee processes and procedures provide substantial independent oversight of the chief executive officer’s performance, annual evaluation of the CEO’s performance against pre-determined goals, and a separate evaluation assessing the CEO’s interactions with the board. The above roles can be found in the proxy statement of Pfizer. More generally, the textbook relates five main functions of the board: to hire evaluate and perhaps fire the top management, to vote on major operating proposals, to vote on major financial decisions, to offer expert advice to management, and to make sure the firm’s activities and financial condition are accurately reported to shareholders. 2. List three criteria used to evaluate a public company and how Pfizer compares Three criteria that can be used to evaluate a public company board are whether they have experienced and successful experts serving on the board, if the board has a higher fraction of non-insiders (independent directors), and if the board is smaller to eliminate free riders. The average board size for all US companies is 10, with 7 independent members. Pfizer has several very successful and recognizable business leaders on their board, including the former CEOs of General Mills (Sanger), as well as Gillette and Nabisco (Kilts). They also have a former Congressman (Gray) and a former Vassar College President (Fergusson). They have a larger board, with 15 members. This is not ideal, 50% larger than average. The board is remarkable for how many members are considered independent (although I wonder if there is some bias as to what is “independent”). Of the 13 members up for election, only one of the them is NOT independent (the CEO and Chairman of the board, Ian Read). 3. What was the approximate total average compensation for serving on the board of Pfizer in 2012? Approximately, what proportion of the total compensation is cash vs. non-cash? Should a non-employee director be considered independent if they receive compensation for serving on the board? The approximate total average compensation for serving on the board of Pfizer is $137,500 in cash and $137,500 in Pfizer stock for a total of $275,000, with half of the compensation being cash and half being non-cash. Because of chairing other boards and other compensation, the actual average total compensation in both cash and noncash for all directors was calculated to be $291,990 (including charitable contributions under matching gift programs). Pfizer also requires each non-employee director to own $550,000 worth of Pfizer stock by 5 years from the date of election. To qualify as independent for Pfizer, a non-employee director must have no material relationship with the company other than as a director. There are also guidelines about the directors and immediate families about employment with the company or the public accounting firm. Exceptions include that the director is an employee of another...
Please join StudyMode to read the full document