Microsoft was started in the year 1975 by Bill Gates and Paul Allen and it is omnipresent by the fact that the Windows operating system and Microsoft Office suite are dominant in their markets. The presence of Microsoft is strong in all areas of computer software; ranging from end-user applications to programming software.
This important mechanism ensures effective governance in any organization. At Microsoft, chair of the board in independent and is elected after one year of service by the members of the board who are also independent, while the CEO and co-founder Bill gates are not independent. Board of directors is therefore independent. Of the 14 members of the board, 12 of them are independent. Therefore, since the directors are independent, the board of directors is also independent. Fundamentally, independence is clearly defined such that the directors do not have interest in the company that is capable of affecting the genuine independence and objective judgment (SEC.GOV, 2018).
Companies perform better when corporate board members are not overcommitted. In Microsoft, the CEO and the chair of the board are two designations held by different people since 2000. The separation of the duties gives the chief executive officer ample time and space to focus on managing the company business and operations and gives the chair enough chance to focus on board matters, more so in the light of the high level of regulation and scrutiny of public company boards. According to Mallinckrodt, this separation allows the independence of the board in its role of oversight duties of evaluating and assessing the chief executive officer and management (SEC.GOV, 2018).
Board sizes need to be determined by the size of the company so that the performance of the firm can improve. According to agency theory, optimal corporate board size performs its duties of advising, monitoring, and disciplining management and hence improving the performance of the firm in the industry (Band, 1992). In Microsoft, the board consists of 14 which is congruent to the firm size that operates all over the world (SEC.GOV, 2018).
In Microsoft, there is a compensation committee that maintains Semler Brossy Consulting Group, LLC to give advice to the committee on trends in the market concerning executive compensation, proposals on management compensation schemes and decisions concerning executive compensation. Semler group operates independently and as such, the compensation committee has come up with Compensation Consultant Independence Standards which require the committee to assess the level of independence of the Compensation Consultant (SEC.GOV, 2018).
Microsoft offers its board members vacations and paid time offs, health insurance coverage and employee discounts. These rewards are important to the board members because they offer a motivation to them and instill hard work ethics in them (SEC.GOV, 2018).
The Board of Directors at Microsoft oversees the CEO succession planning. There has a clear outline of the procedures followed for one to earn a promotion or become a member of the board of directors. Through elections held during the company's annual general meeting, board members are elected to serve for one year (SEC.GOV, 2018).
Executive pay at times tends to go overboard depending on the management. These managerial excesses are able to render a company bankrupt and hence liquidated as a result. In Microsoft, the compensation committee and the board came up with a means of transforming the executive pay program to include significant attributes of performance in the year 2015 and the implementation started in 2016. (SEC.GOV, 2018).
Annual Board Election Meetings
At Microsoft, the election of board members is done yearly and the elected members serve for one year. A board member can be re-elected on successive years depending on his output and other factors. Shareholders vote for the board of directors. As demonstrated, the company has outlined clear election guidelines for members of its board of directors. This outline ensures smooth transition and continuity within the company management and board (SEC.GOV, 2018).
This strategy is aimed at shielding a company against a takeover bid through use of new, prohibitive cost that should be paid after the takeover. According to the Microsoft proxies, director stock award replaced the company's pension plan for directors. This meant that the amount of stock would be large such that no company could afford to present a bid to take over the company (SEC.GOV, 2018).
Sec.Gov, 2018, https://www.sec.gov/Archives/edgar/data/789019/000119312518300115/d588721ddef14a1.pdf. Accessed 27 Nov 2018.
Band, D. (1992). Corporate governance: Why agency theory is not enough. European Management Journal, 10(4), 453-459.
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