Alan: Welcome back I’m here today with Dr. Douglas Park. He’s an attorney with the Rimon Law Firm located in Palo Alto. Doug, welcome to today’s show.
Doug: Thank you Alan, I’m happy to be here.
Alan: Doug, can you tell us about your background?
Doug: I went to Harvard College as an undergraduate and I studied everything and everything there, anything and everything there. And after finishing there, I decided that I wanted to become a professor of business and management. Because I wanted to influence how companies, executives and board members made decisions, took actions, to affect and improve the performance of the companies that they were part of. So, I came out to California at the Stanford Business School, study strategy and organizational behavior and I was here and I learned a lot about Silicon Valley, the start up economy, but I also learned a lot about corporate governance issues both from business and a legal perspective. So after I finished up here at Stanford, I was looking for a faculty job. And I decided to look globally. The reason for that is it’s 1997, and business was becoming increasingly international and global, even 15 years ago Alan. So, I was lucky enough to get a position at the Hong Kong University of Science Technology, that was just a perfect time to go there. It’s 1997, Hong Kong was going to be under the control of China again after a hundred years of British control, and Hong Kong is the gateway to the Chinese economy. And so, it was a fascinating time to be there and to study what was going on in East Asia at that time. So, I taught the students ranging from undergraduates up to senior executives, taught strategy, entrepreneurship, organizational behavior and I also consulted to companies doing business throughout China and East Asia. And after a number of years, I decided that I wanted to work more closely with companies and business people. And I felt a really good way to do that was by learning the law and becoming a corporate attorney. So, I returned to the United States, went to law school at the University of Michigan and actually finished up my third year here at Stanford Law School. And I've been back here in Silicon Valley for the last 9, 10 years now with my family and I've been a corporate and securities attorney working with a broad range of clients on really critical business and legal issues.
Alan: So, as a corporate securities attorney you deal a lot with corporate governance, what exactly is corporate governance?
Doug: That’s a very good question Alan, because sometimes there’s a bit of confusion about what corporate governance is. So, it starts really at the center with the company, the Corporation, and there’re really three parties surrounding the Corporation that are really critical in the corporate governance system and make, make up that system. First, is the Board of Directors which everyone is very familiar with. They have the duty to make decisions that are in the best interests of the Corporation. Secondly, is the shareholders, the parties that own the stock of the corporation and have some economic rights to the value that the company creates. And finally, there’s management, management deals with the day-to-day operations and makes decisions on a daily basis that affect the performance of the Corporation. Well, the board, one of the responsibilities of the board, is to make sure that management is doing a good job and is acting in the interests of the shareholders. And so the shareholders are interested in what the board is doing and they want the board to be properly overseeing and engaging with management. They also want to make sure that management is doing things that are in the shareholders interest and not simply in the interest of personal interests of the executives.
Alan: What is the benefits of good governance and the harm that can come from bad governance?
Doug: So, let me talk a little bit about, actually, the second part which is what are some of the downsides of poor corporate governance. So one thing that we've seen recently, in the news, is stories about scandals or controversies at some of the iconic companies in America. Think about some of the companies here in Silicon Valley, Hewlett-Packard which is gone through a string of corporate governance issues and problems and has been in the news for that for many years. Now the recent firing of the CEO at Yahoo, before Marissa Mayer was brought on board and the way that, that situation was handled by the Board of Directors; the Board of Directors received a lot of criticism for that. So there can be, not only implications for the companies reputation, its image in the public and with shareholders and investors but also in terms of performance. We ought, there’s very good evidence Alan, that poor corporate governance, when the board is not adequately doing its job and when executives are taking advantage of their position, that can actually damage the company's performance and hurt shareholder interests.
Alan: We need to take a quick break Dr. Park, and when we come back I’d like to talk about the startup companies and how governance issues work there. We’ll be right back after these messages
Alan: Welcome back, I’m visiting here today with Dr. Douglas Park, he’s an attorney with the Rimon Law Group, located in Palo Alto, California. Dr. Park before the break we were talking about corporate governance. I’d like to turn the page now into, some of the key governance issues that startup companies face?
Doug: That’s interesting Alan, because I work with a lot of startups, in fact, I teach a class on starting startups at Stanford University. And one of the things that I often notice in talking with entrepreneurs, is that they don't think very much about the governance of their companies. Because they’re so focused on developing the product, getting customers, receiving financing from Angels or venture capitalists, and that’s certainly where they should be focusing their efforts, but governance is critical because it will have a lot to do with how successful their startup is going to be. So, there’s a couple of key issues in my experience Alan, that entrepreneurs and startups need to focus on with respect to governance. One, is the relationship between the CEO and the board. Oftentimes the CEO who is often the founder of the company needs to really pay attention to how he or she is managing that relationship with the board. The entrepreneur needs to develop a relationship of trust and confidence with the board knowing that giving the board the strong impression and comfort that he or she is doing what is going to make the company successful. A second issue Alan that startups need to think about in terms of governance, is growing the company; how are they going to grow the company? So, it's about the company strategy and about the company's business model and again the board can be an incredible resource for the entrepreneurs or the founding team to implement and execute successful business model. The third issue that often comes up Alan is the exit strategy. Sooner or later the investors will want the entrepreneurs to, they will want an exit event, a liquidity event so that the investors can reap a return on their investment. That might be in the form of a merger or acquisition to a larger company or in the form of an IPO. But regardless, there needs to be planning by both the executives and the board for such an event.
Alan: What suggestions do you have to offer for startups?
Doug: Well number one is, is to gain knowledge about these governance issues. A second one is to actively manage the relationship with the board. Prepare for board meetings, not only in terms of what's going to go on in the board meeting but even before and after. Have a constant conversation with your board members, that's really critical, you’re not, you shouldn’t be talking to them only when something is going wrong or at the appointed time for the board meeting, rather you should be constantly communicating with them getting feedback; that's how you develop this level of comfort and trust and confidence that you really want to achieve with your board members.
Alan: You know it’s at Stanford, the students in there, are they actively in startups right now, are they thinking about doing it or what stage do you see your typical student?
Doug: I see, my students are really at all stages Alan. Some of them are serial entrepreneurs and they've already started another startup and they've even developed a product and they’re now getting ready to go out and sell it. Others just have a seed of an idea in their mind and they want to test it out. They want to get feedback from other students, they want to learn more about how they can refine and improve their idea and their team, their product and how they might go out and get ready to ask investors for money.
Alan: I'm visiting here today with Dr. Douglas Park he teaches at Stanford University on strategy for companies, startups and also as a practicing attorney at the Rimon Law Group located in Palo Alto California. We’ll be right back after these messages.
Alan: Welcome back, we’re visiting here today with Dr. Douglas Park, he’s an attorney with Rimon Law Group located in Palo Alto California and also an instructor it Stanford University for startup companies. Dr. Park, I want to move into public companies in this segment. What are some of the key issues and hot topics that public companies face today?
Doug: There’re really quite a few Alan, but I'll just narrow down to a couple core issues. First is executive compensation, there is increasing concern and complaints really, by shareholders and other stakeholders about the disconnect between executive compensation and the company's performance. So, these parties really want to see that there's a greater alignment between the CEOs compensation package and the company's performance. Secondly, is the composition of the Board of Directors in terms of skills, experiences and even diversity on the Board of Directors. So with the world changing so quickly around us Alan, with globalization of business with the increasing importance in rise of social media and technologies including the recent Securities and Exchange Commission decision allowing companies to disclose material information through social media, it's extremely important that board members be current and up-to-date on these tech, these new technological trends including cyber security issues.
Alan: You know, how does executive compensation relate to all this?
Doug: So the idea is that the CEO and the top managers, again are acting in many ways on behalf of the shareholders as so the job of the executives is to take actions to make decisions to set strategies that are going to improve the economic performance of the company which should benefit the shareholders and the investors. Now if there is a connection, and if this connection between the executives’ compensation package and the company's performance the thinking is that the executives will be more incentivizing and motivated to act in the interest of the shareholders as opposed to simply acting to increase their own compensation.
Alan: How does a board’s composition come about?
Doug: Typically what happens is that the, the management team, in fact, often suggests a slate of directors for election at the shareholder meeting. And so the, sometimes there's also input from the board members, often there is, but usually outsiders, people who are not on the board or not on the executive team don't really have a lot of influence on who will be put up for election to the Board of Directors. So, there's been a push in many quarters for increased access to the proxy for putting, for allowing other parties to nominate directors for election. And so that's, that's a big issue in governance these days as well.
Alan: Can you tell us a bit about the increasing emphasis on ESG's or Environmental Social Governance by large institutional investors?
Doug: I’d be happy to Alan, in effect, that’s an area that I've become increasingly involved in, recently was appointed to the board of advisors for the responsible investment at Harvard University Coalition, I’ve been working in the area of sustainability as well. And so, increasingly large institutional investors are realizing that factors other than simple pure financial factors like revenues, profits and losses are important and affect the financial performance of the company. And so these investors are asking and, companies to put more emphasis on looking at issues like, is the business model sustainable over time? Is the company protecting and maintaining and building its intellectual property resources, including its brand and its reputation, not simply patents trademarks and copyrights? Does the company’s hiring practices aligned with the company's culture, is the company hiring the right kind of people? What kind of relationship does the Corporation have with the local community, are they being a good citizen in the community through volunteer efforts or philanthropic efforts in their local community? To make the place where they do business a better place for their customers as well as the company?
Alan: You know, I always like to see that last statement and when the company becomes involved in the community, since it employs so many people, that giving back fills an important part.
Doug: Absolutely, and more and more companies are disclosing that, increasingly Alan, there’s interest by stock exchanges going forward in the next 10 years of requiring public companies to disclose nonfinancial information to shareholders in addition there are non-profit as well as coalitions of various parties to encourage the disclosure of factors of these environmental social and governance factors that are affecting the bottom line of the companies. And one thing that is…
Alan: Dr. Park we got to wrap this up, we’re coming up on the break, how does a person contact you, if they’d like to engage your services?
Doug: Sure, so they can contact me at RimonLaw.com, that's probably the best way to do that.
Alan: That’s R I M O N L A W dot C O M?
Alan: Dr. Douglas Park, Rimon Law Group, and we’ve appreciated having you here on today’s show
Doug: Thank very much Alan.
Alan: We’ll be right back after these messages
About Dr. Douglas Y. Park
Douglas Y. Park is a Partner and Chief Sustainability Officer at Rimon PC, in Palo Alto, California. He specializes in solving problems in corporate governance, corporate and securities law, and strategy for companies, board members, and investors. A recognized authority on corporate governance, Doug has been quoted in Time.com, Reuters, Agenda (a Financial Times service for corporate directors), Corporate Secretary, and other publications.
With an active advisory in sustainability and responsible investment issues, Doug serves on the Board of Advisors of the Responsible Investment at Harvard Coalition. Additionally, Triple Pundit named him one of the “25 Hottest Sustainability Professionals.” He teaches classes on Starting Startups and Mergers and Acquisitions at the Stanford Continuing Studies Program. Doug received his J.D. from the University of Michigan Law School, his Ph.D. in Strategy and Organization from the Stanford Graduate School of Business, and his B.A. magna cum laude with highest honors in Sociology from Harvard University.