The Compensation Committee Handbook, 4th Edition

CHAPTER 5 Corporate Governance

This chapter discusses matters of corporate governance that are of particular interest to compensation committees. The chapter begins with a discussion of the fiduciary duties of care and loyalty, and the role of good faith, owed by corporate directors to the corporation on whose board they serve. The next section addresses practical applications of director fiduciary duties of compensation committee members in specific contexts. The last two sections cover the corporate governance rules of the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) and external compensation policies and guidelines established by various business interest groups, including the Conference Board, the Business Roundtable, Institutional Shareholder Services (ISS), Glass-Lewis & Co., and the Teachers Insurance and Annuity Association–College Retirement Equities Fund (TIAA-CREF).

Fiduciary Duties of Directors

A corporate director stands in a fiduciary relationship to the corporation he or she serves and, as such, has certain duties to the corporation. A fiduciary duty claim brought against a director of a corporation is governed by the law of the state where the corporation is incorporated. For purposes of this chapter, we will assume that the applicable state's business corporation statute is based on the Model Business Corporation Act developed by the Committee on Corporate Laws of the Section of Business Law of the American Bar Association (Model Act). ...