RMIT International University Vietnam

BUSM 4403 Ethics and Governance

A3 – Governance Research Essay

Subject Code: BUSM 4403

Subject Name: Ethics and Governance

Location & Campus RMIT Vietnam, HCMC

Class Group Number: SG-G01

Student Name: Luong Vien Tai

Student Number: S3651323

Your Teacher: Burkhard Schrage

Word Count: 1569

 GoPro’s Corporate Governance

Introduction

The term corporate governance can be defined as “a system of supervising mechanisms by

which all the crucial input suppliers must assure returns on their assets in the corporation,
without endangering its long-term survival and prosperity” (Calopa et al. 2015). In addition,
public companies require to meet all the corporate governance principles when listed on the
stock exchange, these principles include board independence, board purpose &
responsibilities, interaction, expertise, meeting, disclosure and committees (nominating,
compensation, audit) (Anonymous 2002). The corporate governance plays a crucial role in
today’s business world and a strong corporate governance can enhance value of stakeholders
and firm financial performance (Cohen 2002). This research focused on GoPro corporate
governance to see how the firm perform and manage the board of directors.

GoPro is an innovative firm that founded in 2002 by Nick Woodman with the focus of
producing cameras and drones along with apps and accessories for users to capture their
experiences in life. For user to capture their experiences, GoPro has created many events such
as sailing festivals, cowboy downhill especially the mountain games that organized annually
(GoPro 2019). The company had its initial public offering (IPO) at the Nasdag Stock
Exchange on June 26, 2014 with the share price of $24 (Downie 2016). After critically
analyzed the corporate governance of GoPro, it has shown the ownership structure of GoPro
is concentrated as Mr. Woodman is served as both CEO and Chairman positions which
means he has the power to influence the board of directors and likely to run the business in
their own self-interest (Heugens 2009) and Mr. Woodman is currently hold more than 33
million shares and has the voting power up to 73% (GoPro 2018). Moreover, the CEO Mr.
Woodman has volunteered to sign a waiver agreement with the company in 2018 to received
annual base salary of $1 and no cash bonus. In this paper, the corporate governance of GoPro
will be analyzed critically to identify the strengths and weaknesses, in this case, board
independence of GoPro has positive relationship with firm performance while CEO duality
brings negative impact. In order for GoPro to practice a good corporate governance,
recommendation is provided to solve the problem of CEO duality and hope to enhance the
company financial performance.

Board Independence
The board of directors of GoPro includes both executive and non-executive directors to
ensure there are not any group or individual dominated the decisions of the board. Among 13
people from both executive officers and directors, 8 of them are independent directors which
includes Admad-Taylor, Goldman, Gotcher, Lanzone, Lurie, Welts, Lyne and Zalanick,
currently Mr. Goldman is served as lead independent director (GoPro 2018). In the board
independence, independent directors are non-executive directors who have not been
employed by the firm and do not have any relationships with the company, senior
management and shareholders, these directors should not hold share of the company and have
no circumstances in affecting director’s judgement (Nailesh 2013). In addition, independent
directors also known as strategic advisors, they require knowledge and skills to maintain the
sustainable growth for the corporate and protect the interest and the right of shareholders,
they must be an expert in certain fields or at least have experience about financial statement
(Palmberg 2015). According to Basiru (2016), agency theory is a principal that explained the
relationship between principal and agent and the agency problem is arise when the interest
between these two are not aligned. From agency theory perspective, the involvement of
outside directors on the board will help to minimize the principal-agent conflict by
monitoring the management, at the same time, reduce the opportunistic behavior of the
management which in turn can improve the financial performance of a firm and bring
positive effect on board activism (Scarborough et al. 2010).

Referring to the GoPro case, the firm has a good corporate governance practice when having
the majority of the board members are independent that is determined by the board that a
particular director is independent. Moreover, GoPro independent directors are expertise with
experiences gained from different fields and these members are spread among the firm audit
committee, compensation and leadership committee, nominating and governance committee.
For example, Mr. Goldman who has been served Chief Financial Officer of Yahoo Inc. and
currently served as the President of Hillspire LLC and the chair of audit committee. Not only
Mr. Goldman has experiences, there is also Admad-Taylor who has worked for Facebook and
Mr. Gotcher who is an independent private investor.

CEO Duality

CEO duality is a term that defined as the position where the chairperson and CEO is
combined, in order words, this means GoPro firm is unitary board structure (Honor 2010) as
Mr. Woodman who is served as both CEO and chairman positions (GoPro 2018). In addition,
serving in both these roles can increase the power of CEO in the board and can be dominated
in making decisions and managing the operations of the firms (Petra 2005) which would lead
to conflict between the board and the management in terms of interest. According to Schimid
& Zimmermann (2008), they state that “The function of the chairman is to run board
meetings and oversee the process of hiring, firing, evaluating and compensating the CEO”
and the CEO is responsible for day-to-day operations of the company, hence, the conflict of
interest arises when there is a combined position. Moreover, the presence of CEO duality is
likely to effect the acquisition performance of the firm negatively as well as on board
activism due to directors are not free to decide, question and discuss corporate issues (Desai
et al. 2003; Scarborough et al. 2010). Furthermore, having the dual CEO-chair in the
leadership may create concern for the company’s shareholders as it can negatively affect the
position of directors in the board, in order words, directors may be hesitated to speak up and
comment on the actions of their boss who is served as both CEO and chairman positions
because their actions can have direct influence to their position (Nili 2019). Consequently, it
would decrease oversight of management and negatively effect to firm performance.

Recommendation

 Splitting the role of CEO and Chairman

The objective of separating the role CEO and chairman is to enhance the corporate
governance of GoPro and to minimize the conflict of interests between the board and the
management. The split role in corporations has been widely recommended and there are
empirical evidences have found that an independent chairman structure brings benefits to
firm performance. Since 2007, there are 35% of S&P 500 boards has separated the
chairperson and CEO, the number increased dramatically to 48% in 2017 and reached 52% in
2019 (Nili 2019). This statistic has shown that many firms are concerned about the combined
position which hindered the board’s ability to oversee the management, hence, the practice of
splitting duality roles is increasing. In addition, an independent director should hold the chair
position at GoPro when the splitting process takes place in order to separate the duties
between CEO and chairman (Adrian et al. 2013). Moreover, the conflict of interests can be
avoided when having the board of CEO non-duality as CEO will not be dominated the board
of directors which in turn CEO cannot pursue their own self-interest and shareholders interest
are better protected (Abels & Martelli 2013). As a result, directors will be free to give their
ideas and decisions to the CEO in evaluating of management and planning corporate strategy
which can improve GoPro financial performance. According to Saibaba & Ansari (2011),
many large corporations with CEO non-duality tend to have higher sales revenue, profits,
shareholder returns and return on assets.

Furthermore, the splitting duality roles can help both CEO and chairman to focus on their
responsibilities, CEO will focus more on managing the company’s activities and chairman
will focus on leading the board by monitoring management’s decisions. From the agency
theory, appointing independent non-executive chairman is likely to enhance firms’ financial
performance as separate leadership structure can ensure better monitoring role of the board
and the role of independent non-executive chairman is important if the CEO become
powerful and influential (Rahman et al. 2015).

Conclusion

In conclusion, although GoPro corporate governance is seemed to be adequate that met all the
corporate governance principles in terms of committees, board independence, expertise,
meeting, interaction, etc., there is still a drawback of having Mr. Woodman who is served as
both CEO and chairman positions which brings the conflict of interests between the board
and the management, not all, it also directly effect to the board of directors in providing
decisions which can negatively effect to firm financial performance. Hence, recommendation
is provided to separate the role of CEO and chairman of Mr. Woodman in order to improve
the oversight management and bring better performance.
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