corporate governance

What regulations allow corporations to do what Cendant did

1 - Cendant 's corporate governance

Usually , the control of a company is divided between two bodies : the board of directors , and the shareholders ' general meeting . All questions around corporate governance go back to how these two bodies share power

The rules that organise their relations are defined by two sources

- Cendant Corporation By-Laws

The 15 membres board of directors determines the compensation of senior executives , including Silveman

The board of directors set up a 3-members compensation comitee (all three outside directors

) who is in charge of developping a compensation strategy that will attract and retain talented executives ( ie 'be competitive with similar companies and compensate them fairly for their performance ) and approve the details of executive pay package spelled out in written agreements

- Delaware Corporate Law general principles

All directors , considering the enormous power they get from shareholders have fiduciary duties of loyalty , due care , good faith and candor to all stockholder

one share , one vote , but shareholders are allowed to vote on their own proposals at the annual meeting , as their proposals are allowed by the SEC (Securities and Exchange Commission ) if a few conditions are met , such as owning 2 '000 worth companie 's securities for at least one year , keeping the proposal shorter than 500 words , presenting the proposal in person at annual meeting and meeting a few formal procedures

The powers of the general assembly of shareholders are generally aimed at all questions having an impact on By-Laws (company organisation , but can also be aimed at corporate social responsibility issues

The board of directors , representing the actual management of the firm is therefore entitled to express its opinion on the proposal before the vote , or even petition the SEC to exclude it

2 - What allowed Cendant to reduce Silverman 's compensation but not to the extend to which Catholic Equity Fund 's proposal was requesting it

Silverman 's employment agreement was signed in 1991 , when Cendant Corporation as such did not even exist (merger between HFS and CUC International dated 1998

Sarbanes-Oxley Act and all good Corporate Governance principles only existed in 2002

Silverman was compensated between 1998 and 2002 according to this employment contract

But , under the pressure of shareholders in 2002 , Cendant 's board and Silverman agreed to eliminate options from his pay and negociated a new agreement

The new agreement was created by Silverman and proposed for approval to the compensation comitee who approved it without any change

This was his right according to By-Laws , but shareholders complained that it was not right according to

Sarbanes-Oxley Act (prohibiting company loans to executives , and

general principles of due care and loyalty to shareholders , obviously prohibiting to reward a CEO without any performance goal or even if malfeasance was detected

In this case , corporate governance worked well , as it enabled shareholders to obtain a significant lowering in Silverman 's compensation package , but also enabled management to adjust the compensation to a level that was...