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Corporate Governance: A Pragmatic Guide for Auditors, Directors,

Investors, and Accountants
Vasant Raval
 Corporate Governance
A Pragmatic Guide for
Auditors, Directors, Investors,
and Accountants

Vasant Raval
Professor Emeritus
Creighton University
First edition published 2020
by CRC Press
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Library of Congress Cataloging-in-Publication Data

Names: Raval, Vasant H. (Vasant Harishanker), 1940- author.

Title: Corporate governance : a pragmatic guide for auditors, directors, investors, and
accountants / Vasant Raval.
Description: Boca, Raton : CRC Press, 2020. | Series: Internal audit and it audit |
Includes bibliographical references and index.
Identifiers: LCCN 2019056025 | ISBN 9780367468866 (hardback) |
ISBN 9780367862756 (paperback) | ISBN 9781003031796 (ebook)
Subjects: LCSH: Corporate governance.
Classification: LCC HD2741 .R38 2020 | DDC 338.6–dc23
LC record available at https://lccn.loc.gov/2019056025

Visit the Taylor & Francis Web site at

www.taylorandfrancis.com
and the CRC Press Web site at
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Auerbach Publishing
To my soulmate
Prafulla
Contents

About the Author, ix

Foreword, xi
Preface, xiii

PART I Cornerstones 1

CHAPTER 1 ■ Governance Matters 3

CHAPTER 2 ■ Conceptual Foundations 15

CHAPTER 3 ■ Governance and Risk 35

CHAPTER 4 ■ Ethical Dimensions of Corporate Governance 45

PART II Governance Roles and Structure 59

CHAPTER 5 ■ Role Players in Corporate Governance 61

CHAPTER 6 ■ The Board of Directors 73

CHAPTER 7 ■ Shareholders 93

CHAPTER 8 ■ Internal Auditing Function 105

vii
viii ■ Contents

CHAPTER 9 ■ Financial Reporting and External Auditing 121

PART III Governance in Action 139

CHAPTER 10 ■ The Board in Action 141

CHAPTER 11 ■ Management and the Board 157

CHAPTER 12 ■ Shareholder Communication and

Engagement 179

CHAPTER 13 ■ Organizational Wrongdoing 195

PART IV Other Topics 207

CHAPTER 14 ■ Governance of Non-Public Organizations 209

CHAPTER 15 ■ Horizons of Corporate Governance 225

APPENDIX A: LIST OF ACRONYMS, 241

APPENDIX B: LIST OF WEB-BASED RESOURCES, 243

INDEX, 245
About the Author

Vasant Raval received his Doctor of Business Administration degree from

Indiana University in 1976. Prior to joining Creighton University in 1981,
he was a faculty member at the University of Windsor, Canada, for six
years. After a long, productive tenure at Creighton University, he was
awarded professor emeritus status in 2019. A graduate of University of
Mumbai (B.Com.) and Indiana State University (MBA), he has also
worked as a consultant, management accountant, and auditor in industry
and government. His research and teaching interests include executive
financial fraud, corporate governance, information ethics, information
security, accounting education, and managerial accounting. Most of his
research is applied in nature, and is qualitative and multi-disciplinary. He
holds professional certifications in information systems audit and control
and in management accounting. He is a member of the Information
Systems Audit and Control Association (ISACA) and currently serves on
the governing board of the Academy of Global Business Research and
Practice (AGBRP).
An author/coauthor of over 70 papers and four books, Vasant served as
Associate Dean and Director of Graduate Business Programs (1987–1996),
and as Chair of the Department of Accounting (2002–2005) at Creighton
University. Between 2002 and 2010, he was a board member and chair of
the audit committee of two public companies in the USA, and also served
on the audit committee of Douglas County, Nebraska, USA He enjoys
reading, traveling, and water coloring.

ix
Foreword

The corporate governance environment is fraught with tension and

complexity. Tension emanates from inherent conflicts infused into the
human condition. Even when we endeavor to pursue the wellbeing of
others, self-interest is never far behind. Moreover, interest-based claims
from an array of stakeholders – including shareholders, employees,
governments, and communities – often present competing demands.
When these relational complexities are layered upon pragmatic chal­
lenges of providing goods and services that meet the demands of
a constantly changing marketplace, formidable challenges are presented.
The modern corporation has managed to navigate these challenges
successfully, albeit with some mistakes and failures along the way.
Governance practices have evolved to address the dynamics of changing
sources of tension. Past failures often become catalysts for change, and
human efforts to avoid repeating past mistakes often focus on laws and
regulations – which helps to explain their expanding role in corporate
life. At the governance level, laws and regulations are translated into
policies and algorithms that drive compliance efforts, which are critical
components for governance models.
Rules rooted in history can serve as guides, but they cannot foretell
the needs of the future. Effective governance requires creative and
strategic judgments for firms to thrive in a world of innovation and
change. These strategies demand more flexible and consultative pro­
cesses, which are capable of drawing from specialized knowledge and
experience and adapting to dynamic conditions.
Dr. Raval brings a keen understanding of this tension and complexity
to this book, which is designed to provide an accessible and helpful map
to assess this environment. His efforts are informed not only by
academic theory, but also by personal experience as an auditor and

xi
xii ■ Foreword

board member. He is a reliable guide because he has traveled this

landscape before, and he knows it well.
Readers from different academic and professional backgrounds will
find that his book provides lucid explanations of key concepts, institu­
tions, and processes, as well as helpful schematics to illustrate relational
complexities within systems that have emerged in the governance
environment. Blending theory and pragmatic guidance, he also manages
to highlight problems that continue to perplex and challenge us.
Dr. Raval’s guidance will empower governance professionals and those
who advise them to meet those challenges in the years to come.
Edward A. Morse, Professor of Law and McGrath North
Mullin & Kratz Endowed Chair in Business Law,
Creighton University School of Law
Preface

It has been a long time since I first thought about writing a book on
corporate governance. It is a field that is very old in its elemental form
and yet is constantly evolving. Many disciplines have a stake in it,
including economics, finance, accounting, law, leadership, management,
and organizational behavior. An intriguing area, but at the same time, it
is difficult to set its boundaries and view the whole picture.
A primary purpose of this book is to provide as complete a picture of
the current state of corporate governance in the USA as I could. I find
numerous resources that discuss specific aspects of corporate govern­
ance, but few show the entire picture and how different components
dovetail with each other. To represent the whole, I start with founda­
tions of governance, identify players in the area, discuss the triad
between shareholder, the board, and management, and determine key
issues in various aspects of corporate governance. For this, I had to
draw essential threads from the theory, regulatory requirements, empiri­
cal research, media coverage, and my own personal experience. Each of
these sources has its limits. For example, regulation often leans on the
goal of compliance which is not enough to draw the complete picture.
And empirical research is relatively new in this field and often is
constrained by the number of variables controlled in the analysis,
something one cannot fully achieve in practice. My own board experi­
ence was with two public companies, each with less than one billion
dollars in annual revenue. Although not representative of the entire
economy, it was enough to excite me to look into governance issues
much more deeply. Besides, most challenges in corporate governance, I
believe, arise at the early stages in the company’s lifecycle, so the
exposure proved to be relevant.
This book integrates and illustrates. A variety of different concepts
are involved in governance, but how they relate to one’s role in

xiii
xiv ■ Preface

governance is missing or at best sketchy. Therefore, significant efforts

were made to explain and integrate concepts throughout the book. To
provide practical insights, these concepts have been generously illu­
strated using recent cases. Thus, neither the theory nor the practice
floats separately; rather, the two go hand-in-hand.
The discussion in this book is organized into four parts: cornerstones,
governance roles and structure, governance in action, and other topics.
Part One, the cornerstones, provides the foundation to comprehend the
reason for, and nature of, corporate governance. Here, not much is
discussed from the history, mainly to keep the focus and conserve space.
The conceptual foundations establish the key precepts that drive gov­
ernance. Without knowing key concepts and how they connect with
each other, any discussion on issues of governance would sound fuzzy
and perhaps aimless. Part Two begins with a discussion of players
involved in corporate governance and relationships among them. Each
of the key players and their role is discussed in the remaining chapters
in this part. Part Three covers the dynamics of governance. Here the
chapters are organized to examine the board room dynamics, interac­
tion between the board and management, and communication with
shareholders. The final chapter covers financial fraud; its articulation is
based on a recent holistic fraud model, called the Disposition-based
Fraud Model. In Part Four, two separate themes are explored: govern­
ance of nonpublic organizations, including not-for-profit (or nonprofit)
organizations, and future directions in corporate governance.
This book should prove to be a great resource for those who have
majored in one of the disciplines mentioned in the opening paragraph. If
you are a professional accountant, securities lawyer, economist, financial
analyst, or an auditor – to name a few – you will find the book helpful in
understanding the entire landscape of governance in a few short hours.
Anyone entering the ecosystem of corporate governance could use this
book as a guide to (1) develop insights, (2) become a proactive player in
governance, and (3) potentially make fewer errors in trudging through
issues and challenges as they surface. Additionally, anyone who seriously
invests their savings in the financial markets would benefit from reading
the book. For them, the book facilitates a meaningful understanding of
their interaction with the financial markets. Presumably, comprehension
of the big picture could result in better investment choices. Seasoned
 Preface ■ xv

directors and those who have been already involved in the governance
arena may find the book helpful only as a review, and perhaps to coach
others entering the field. To keep the scope achievable in a modest size
book, the emphasis is placed on U.S.-based companies; where possible,
differences in governance around the world are identified. While this
book is not written as a textbook, it can be used as a reference book in any
offering of a course at graduate- or undergraduate-level that relates to
corporate governance.
I am grateful to many remarkable individuals who have made this
book feasible. Dan Swanson has been nudging me for years to write the
book; his subtle but powerful encouragement is behind the creation of
this book. Lively discussions with my friends and professional collea­
gues, Krishnakant Mankad, Edward Morse, and Manoj Vora – have
helped me develop my thoughts on issues and challenges of governance.
At Taylor & Francis, Richard O’Hanley promptly and positively
responded to the book proposal and upon his retirement, Randi Cohen
provided continued support and guidance. Gabriella Williams and Lara
Spieker offered editorial help and counsel toward the publication of the
book. Joyce Van Dusen, my friend and a professional colleague, pored
over the book manuscript for hours, so that the book is compositionally
error-free, and readable; her dedicated support in editing the book has
made all the difference in producing a grammatically correct and
clearly-worded work. Finally, my former colleagues in the world of
business leadership have expanded my vision greatly. Through them, I
have vicariously learned a great deal about life, work, ethics, and
leadership. I am deeply grateful to Bharat Desai, George Mrkonic, and
Prashant Ranade for being excellent executive mentors and leaders in
the field.
Hope you will enjoy reading the book and benefit from it.
Vasant Raval
 I
Cornerstones

1
 CHAPTER 1

Governance Matters

An overarching purpose of governance is to maintain trust in those who

manage others’ interests. The idea of governance applies to any group
or entity, not just corporations. Take, for example, the neighborhood
homeowners’ association. It directs and controls what happens to the
neighborhood in the immediate future and in the long run. The
association initiates rules such as how the park inside the neighborhood
will be used, where in the neighborhood speed bumps should be
installed, and how pets will be handled in the public areas by their
owners. In addition, the association enforces covenants that deal with
the external look of each house, approves modifications to existing
structures, and addresses complaints regarding violation of the covenant
by any of the members. The governance structure permits the neighbor­
hood to preserve its esthetics, help maintain the infrastructure such as
roads and parks within the neighborhood, help protect the area from
criminal activities, and keep the valuation of homes attractive. Many of
these benefits would not occur if the houses in an area were not subject
to governance by the homeowners’ association. In essence, the associa­
tion is trusted by the homeowners to do the right thing in their best
interests. The cost of membership imposed on each owner is probably
worth the discipline imposed on the neighborhood as a whole.
What works for a small organization becomes almost a necessity for
a corporation with fiduciary accountability to its investors. At the core
of corporate governance is a system that directs and controls the
organization. Corporate governance is an evolving discipline that has
been around for as long as public limited companies have existed. In

3
4 ■ Corporate Governance

recent years, corporate governance is clarified as GRC – governance,

risk, and compliance – thus embedding the major governance respon­
sibilities of risk management and compliance with the laws and regula­
tions into its fold. As such, implicit in effective corporate governance is
an interplay of several disciplines including accounting, finance, risk
management, leadership, law, information technology, communication,
and organizational behavior.
The purpose of corporate governance is to direct and control the
activities of an organization by establishing structures, rules, and proce­
dures for decision making. There is no set formula to translate this into
what it means for a corporation; every case is different. Take, for
example, a company that provided IT outsourcing services and due to
continued growth, set up a major offshore center for this purpose. The
idea was to benefit from access to skills at a very reasonable price.
Practically, almost all client services were performed by this center with
about ten thousand employees at the overseas center. The board
considered the significance of the offshore center and attendant risks
and decided that it would meet at the offshore location at least once
every year for a longer than an average board meeting. As is evident in
the board’s decision, the business model, company’s maturity stage, rate
of growth, and changing risks should dictate appropriate governance
steps. The governance in action is highly influenced by the complexity
of the firm, uncertainty faced by the company, and the need for
adaptation in changing environments.

MEANING OF GOVERNANCE
Governance means to regulate internally. The term governor in the field
of engineering implies some mechanism that will measure and regulate
the key outcomes of the device. An example is the centrifugal governor
which regulates the machine’s speed by exerting centrifugal force on
rotating weights driven by the machine output shaft. Synonyms for
governance include protector, steersman, and pilot. Each term describes
some component of governance but, by itself, is not sufficient to express
the overall spirit of governance. Collectively, these terms imply the need
to govern – to protect, steer in a certain direction, or to pilot its
trajectory and control its flight path. In engineering, the device is
separately identifiable from the mechanism that regulates the
 Governance Matters ■ 5

performance of the device. In corporate governance, at least notionally,

one may identify the company and its management as the “device” and
the board of directors as the “mechanism.” In the future, this idea of
physical separation may be defied as, for example, in the case of
a driverless car, where the car itself has the artificial intelligence to self-
govern its particular journey.
As long as the owner and the business are essentially the same (that
is, the owner directly controls the business), there is no need for
a separate force to regulate the business. However, once the owner is
separated from the management of the business, the owner – who now
has very little control over the firm – becomes concerned about how
well the business is doing. A corporation as a separate legal entity does
just this; it separates the owners – providers of equity – from the
management of company operations and strategy.
Corporations may be public companies or private companies. In
private companies the owners are likely to be somewhat hands-on in
the management of the business. As a result, there may not be as severe
a need to govern as there would be for a company whose voting shares
are publicly traded and owned by many, often numerous, investors.
Foreign public companies that participate in the U.S. financial markets
are, for all practical purposes, treated the same as public companies. The
shares of foreign companies are usually listed in the U.S. financial
markets as American Depository Receipts (ADRs), a negotiable certifi­
cate issued by a U.S. depository bank representing a specified number of
shares, perhaps even a fraction of a share.
The separation of shareholders from management is accompanied by
a vast amount of equity invested by the shareholders; their financial
well-being is tied to how well their company is doing. After all, they are
the ones who put at risk their investment in the owner equity of the
company; although the management may be managing the company,
they are at the risk of losing their investment if the company does not
do well. At the same time, as a group, they wield considerable influence
as providers of capital they invest in the company.

Shareholders and Management

If you look at who has invested in the voting shares of a company, you
might find individual investors, banks and other financial institutions,
6 ■ Corporate Governance

retirement funds, charities, mutual funds, hedge funds, and exchange

traded funds (ETFs). Such dispersed ownership may be appropriate for
raising equity, but it certainly does not lend itself to owners having an
intention or interest in direct management of the company. Today’s
complex businesses working in a dynamic environment require the
expertise of dedicated professional management.
By design, shareholders agree to not get involved in the management
of the company. And the managers agree to do the best they can to
achieve the goals of the company directed primarily toward increasing
shareholder equity in the business. So, the relationship is mutual:
shareholders benefit when the company prospers, and management is
rewarded as they lead the company to do well. What could go wrong in
this relationship? Perhaps management fails to deliver or expends
a disproportionate amount of resources to do so. It could be that
management chooses alternatives that are more (or less) risky according
to the owners, or that are not what the owners would pick. Thus, there
is a built-in tension between the two.
An additional factor contributing to the complexity of the relation­
ship between the shareholders and management is the issue of informa­
tion asymmetry between the two. Management runs the show and,
therefore, has all the data and information they need; on the other
hand, the shareholders do not have access to information unless, and
only to the extent, required by regulatory measures. While full access to
all company data is neither desired nor expected by the shareholders,
they do expect that information necessary for the governance of man­
agement will be available to them in a timely manner and in appro­
priate detail.
Finally, even with the arrangement of having professional manage­
ment conduct the affairs of the company to grow value for the share­
holders, the dispersed group is too large and practically unable to
manage directly their agent, the top brass in the company. To solve
this problem, shareholders elect a group of representatives as directors
to form the board of directors. The board in turn provides oversight on
management in the interest of the shareholders. Conceptually, another
layer of principal-agent is added: management (agent) reports to the
board (principal) who is an agent of the shareholders (principal). Thus,
the burden of governing the company falls on the few organized as the
 Governance Matters ■ 7

FIGURE 1.1 Agency in corporate governance.

board of directors of the company. Figure 1.1 provides an overview of

the agency in corporate governance.

AGENCY PROBLEM
The idea of an owner having an agent manage the affairs of the owner-
entity is not new; it has surfaced in various contexts. An apartment
complex can hire a fulltime resident manager to manage the complex,
a city can outsource the running of its mass transit system to another entity,
and a shopping mall can hire services of a security firm to ensure that the
mall is secure and people visiting or working in the mall shops are safe. The
owner is called the principal and the manager, the agent. The principal-
agent relationship is articulated in the widely known agency theory.
Within the context of the agency theory lies the agency problem or
agency dilemma. Take, for example, a medical doctor’s clinic that has
acquired a new diagnostic machine. The machine is expensive, and the
clinic would like to generate as much cash flow from it as possible in
a relatively short period of time. The doctor may desire to recommend
more of his patients for the diagnostics available through this machine,
although in some cases there may be little need for the diagnosis. The
8 ■ Corporate Governance

patient trusts the doctor as his agent, but the outcome for the patient
turns out to be more expensive and less fruitful!
The agency problem vividly illustrates that conflicts of interest may
exist in an agency. Where conflict of interest emerges, the behavior of
management – the agent – may not be aligned to the best interests of
the shareholders – the principal. To manage their risk, owners would
want to control senior management to generate management behavior
congruent with shareholder interests. For this, the shareholders may
deploy control mechanisms such as the following:

A. Regularly scheduled meetings between shareholders and manage­

ment, for example, quarterly conference calls.
B. Publicly available media coverage of the company and the indus­
try to which it belongs.
C. Pay-for-performance: an instrumentality designed in the compen­
sation plans for the top executives wherein the shareholder inter­
ests are aligned with management incentives.

Agency Costs
Agency costs are a result of the possible deviation of agent behavior
from the principal’s expectations. Where such deviations are antici­
pated, the principal may develop measures to control such behavior;
this, in turn, will result in agency costs. Unexpected deviations, while
they cannot be controlled, will still result in some losses or other
consequences, which are also a part of agency costs. The aggregate
agency costs are normally classified as follows:

• Bonding costs: Costs of preplanned mechanisms agreed between

the shareholders and management. These include proactive initia­
tives that will stabilize and align shareholder expectations with
management’s behavior. A performance-based compensation plan
for top executives is an example of bonding costs.
• Monitoring costs: Costs incurred to observe and control manage­
ment’s behavior and to verify the results of the company financial
 Governance Matters ■ 9

performance through an independent audit. While excessive mon­

itoring intrudes on management’s freedom to steer the enterprise,
too little monitoring could cause behavior contrary to shareholder
expectations. As a result, moderation in monitoring activities is
a desirable attribute.
• Residual loss: Residual losses arise from conflicts of interest which
cannot be controlled due to lack of alignment between share­
holder and management interests. Consequently, management
misbehavior causes additional costs or losses to the shareholders.

Figure 1.2 provides an overview of the origin of agency costs.

Other Theories
While the agency theory has gained a great deal of attention in the
corporate governance field, competing theories have been proposed.
These include transaction cost theory, resource dependency theory,
and stewardship theory.

FIGURE 1.2 An overview of the agency costs.

10 ■ Corporate Governance

Transaction Cost Theory (TCT) provides insights into why organiza­

tions are structured in certain ways and how they cope with uncertainty.
If assets to be deployed by the firm are too specific (that is, have limited
alternative uses in the outside market), chances are, the firm would
prefer to own or control such assets. This reduces the amount of
uncertainty. If the environmental uncertainty stems from the supply-
side of inputs, it is likely that the firm would consider vertical integra­
tion of its operations by acquiring the sources of supply. For example,
an oil refinery would also own crude oil producing facilities. The
understanding of the organization structure, how it is staged to cope
with uncertainty, and how it is changing over time in response to
changing uncertainty is important from the perspective of risk manage­
ment and resource allocation within the firm. Strategic decisions, such
as make-or-buy, can be contextualized and assessed effectively using
insights from the TCT.
An organization is essentially a collection of resources, tangible and
intangible. The mix of resources owned or controlled by the organization
results in the strength or power to the organization. This potentially
powerful mix of assets is leveraged in dealing with the external factors,
such as the customers, suppliers, and competitors. Management in this
perspective is co-opted onto the common goal of shareholder value
maximization. According to this theory, called the stewardship theory,
the board members become key partners in helping management create
alliances, exchanges, and strategic partnerships, thus reducing uncertainty
and improving reliability of the company performance. In this context,
board members provide valuable advice, create preferential access to
information and resources, and establish legitimacy in relation to external
entities. Multiple board memberships are valued in this context, for they
allow relatively easy access to opportunities for the company.
Whereas the agency theory emphasizes conformance and compliance
under the assumption that management may not act in consonance
with the best interests of shareholders, the stewardship theory proposes
that the goals of the board of directors (shareholders’ representatives)
are aligned with those of management and, therefore, a proactive and
cooperative mode of governance is appropriate. Shared common agenda
with full support for each other (board and the management) is implied
in the stewardship theory.
 Governance Matters ■ 11

In sum, no single theory paints a complete picture. The stewardship

theory focuses on the alignment between the board and management,
while the agency theory is centered on possible gaps, or misalignment in
the objectives of the two – the board and management – and the
consequent need for monitoring. The TCT uniquely stands out as the
one that focuses on internal organizational structures and how these
help manage uncertainty that the firm faces. Overall, it appears that the
agency theory has gained considerable foothold in helping develop
corporate governance perspectives; other theories have provided com­
plementary perspectives missing in the agency theory, or are otherwise
useful in developing a better understanding of the governance context.
Wherever the destiny of two entities (management and shareholders)
is tied together, dependency occurs. While dependency cannot be
avoided, the fact that their futures are intertwined cannot be ignored.
As a result, a mutual bond between the two needs to be supported.
A glue that binds the two is trust in each other. Without the trust, or in
a violation of trust, less than desirable outcomes may occur, hurting
either or both entities. In corporate governance, the concept of trust is
central to support the separation of investors from the entity they invest
in, represented primarily by management.

TRUST IN THE AGENT

The society runs on trust; it cannot function without people and
organizations trusting each other. Predictability, efficiency, and reliabil­
ity are some of the outcomes of trusting others. The city transit bus
shows up on time, taking you to your desired destination. A Lyft driver
picks you up for a ride to the airport and safely gets you to the airport
in time for you to take the flight. Every household picks up and
properly bags their waste for the city crew to collect it from the curb.
These and numerous other duties we perform are the outcome of
trusting people and organizations within society. The breakdown of
trust would mean chaos, ruled by the rulebreakers commonly known as
the hawks!
Trust – which is always given (or placed), not received – is funda­
mental to both trade and investments. Without trust in the economic
system, the flow of resources into the economy will not occur. Investors
need to be able to trust the financial system to put their savings to work
12 ■ Corporate Governance

in Corporate America. To quote Warren Buffett, “Trust is like the air

we breathe. When it’s present, nobody really notices. But if it’s absent,
everybody notices.” Trust levels could be lower following a corporate
fraud or the award of an outsize compensation package to the chief
executive. Trust could be compromised by any single event, such as the
theft of Capital One Financial’s customer data stored on Amazon’s
cloud. Instances like this can shake the trust of investors and cause
a significant shift in asset allocations within the financial market.
At the corporate level, trust between shareholders and management is
implied. The shareholders are choosing to have management manage
the firm in their best interests; they place trust in management. How­
ever, there always is a concern if this arrangement will work out. To
guard against violation of trust, investors would insist on control
mechanisms, such as those described in the agency theory discussion
above. In other words, the agency theory suggests how protection
against the risks of misaligned behavior can be structured within the
agency between the shareholders and the company they own.
Many of the protections against the fragility of implied trust are in
the spirit of what is often called “trust, but verify.” Shareholders need
the assurance that things are in order and they are getting truthful
information regarding the firm’s performance. This process based on
trust but verify hinges upon the idea that the agents that shareholders
elect are independent in their thinking, competent, ethical, and objec­
tive. Thus, verification should be independent, leading to the idea of
independence of those in charge of governance, including external
auditors, from management and the company they govern.

Governance Matters
The significance of governance has experienced ebbs and tides with the
economic times; if the times are good, presumably little attention is paid
to corporate governance; if the times are bad, much more attention is
devoted to the governance. Similarly, the laws and regulations dealing
with corporate governance have also received much greater attention
immediately following major episodes of economic disasters (e.g., 2008
recession) or corporate meltdowns (e.g., Enron). Such a reactionary
approach to regulation does not necessarily result in best measures;
however, lawmakers often try to appease their constituency with a quick
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 Fig. 11
The Swing is Made upon One Ski Instead of Using Both as in the
Christiania Swing

Closely akin to side-slipping is the Christiania swing with the stick,

which is accomplished by pressing with both heels at the same time,
while the stick digs well into the snow above. This variation of the
side slip is easily done, and the skier is turned sharply uphill to come
to a quick stop. When a sharp hill is met with, that is considered a bit
too steep to take straight, this swing with the stick may be made by
taking a zigzag course down grade steering clear of any obstacles
by snowplowing, stemming, or side-slipping; and turning the corners,
or “tacking,” by making use of the Christiania swing and the stick, as
shown in Fig. 10.
The “S”-turn may likewise be used for turning corners, without the
necessity for stopping to make the ordinary kick turn. A good way to
learn this useful movement is to run straight downhill in a snowplow
position, reduce the speed to a comfortable walking pace with the
stick, and stem with the ski. If this is done with the right ski, the “S”-
turn is made by throwing practically the whole weight of the body on
the right ski, at the heel, and pressing it outward while the stick is
carried ahead and below the skier. If the heels are kept well apart,
and the toes close together, the skier will have no trouble about
swinging around in a curve and be off on the other tack. About the
only difficulty in making the “S”-turn is the position of the body, which
must be thrown somewhat out and away from the hill. To the novice
this at first seems to invite a fall, but a few trials will soon prove that
the weight of the body must be thrown on the foot which circles on
the outside of the curve, hence the apparently unnatural position of
the body is essential for a good turn. By bringing the stick well
forward and downhill, the skier uses his staff as a pivot upon which
the turn is made.
The Christiania swing, made without the stick, is a favorite with
expert ski runners when running on rough and steep ground and is a
good way of stopping. The swing may be made both to the right and
left. To make it to the right, keep the skis close together, the right a
trifle in advance, with the weight of the body equally on both feet and
with knees slightly bent. Now throw the weight more forward and
upon the toes, while the heels are carried forward and outward to the
left. The body must lean to the right—the direction in which the swing
is made—and twisted somewhat at the waist; and the sharper the
turn, the more the body must lean sideways to keep the balance.
The swing to the left is made in the, same fashion, only the left ski
should be a trifle advanced and the body thrown to the left.

Fig. 12
To Make the Jump the Skier Assumes the Easy Position Required for
Coasting Downhill

The Telemark swing is more difficult to master than the Christiania

swing, because it is done on one foot, or ski, instead of using both,
and as it is less powerful than the latter, it is of far less use for
stopping. To make the Telemark swing to the right, assume the
regular position for downhill coasting, and, advancing the left foot,
turn the ski so that it rests on its edge as when making the
snowplow, throw the body to the right and lean in toward the slope to
keep the balance. To make the swing to the left, advance the right
foot, turn the body to the left and lean as before. This is shown in
Fig. 11. The Telemark turn is, in fact, made in the same manner as
stemming, and the sharpness of the swing rests altogether upon the
quickness with which the heel is thrown outward and the body turned
in the direction the skier desires to swing. The swing is made upon
one ski, and the key to the whole swing is the knack of raising the
heel of the other foot off its ski until it rests upon the toes. That this is
hard to do goes with the telling, and the novice should first acquire
the knack of balancing by running straight downhill with the weight
thrown on one foot. When this can be done, and not before then, the
skier is ready to practice the turn. The Telemark swing, like all other
turns, is easily acquired at slow and moderate speeds, and becomes
more and more difficult to make as the speed is increased and the
turn is made more sharply and quickly.
Jumping on skis is one of the most exhilarating winter sports, and
it is a pity that it is not more popular wherever a medium-heavy fall of
snow occurs. While touring on skis across a hilly country, there will
be many natural jumps to encounter, for drifts, stumps, rocks, and
other rises in the ground, when well covered and padded with snow,
make good jumping-off places. While but a few skiers may have
attempted such high leaps as the famous Holmenkollen,
Fiskertorpet, or Foldberg, all who have done much ski running have
done a little jumping, since, when running downhill, an unexpected
dip is often encountered, and a rise in the ground causes the skier to
leave the ground for a short distance and alight several feet below.
Doubtless the skier has enjoyed the flying-like sensation of this brief
moment, and very likely he has climbed the hill to repeat the jump.
Moreover, this has very likely demonstrated that the distance of the
jump depends upon the height of the dip, the speed of the skier
passing over it, and likewise upon the spring of the body on the take-
off. In making a jump of any height, the take-off may be level,
pointing up or even downhill, and constructed with framework
extending out from the hillside, or consist merely of a large boulder,
or a pile of logs, well padded with snow. The height of the slope
chosen will, of course, regulate the distance of the jump, and the
place where the jumper alights should be fairly steep, since, if the
skier lands upon a level place great difficulty will be experienced in
keeping the balance, therefore the usual jumping hill, where jumping
competitions are held, is provided with a 30°, or steeper, landing
place, and this merges gradually into the outrun, or slope,
connecting the hill with the level ground below.
 Fig. 13
Each Member of the Party should be Provided with a Ruck Sack of Good
Capacity

For the safety of the skier, the snow should be firm but not icy or
hard, and this is easily done by packing the snow down well by
means of the skis. A good, thick padding of snow is of course
essential, and a thickness of 2 ft. is really needed at the landing
place and at the take-off. In our more northerly sections, plenty of
snow usually falls, but wherever a few sportsmen get together, it is
an easy matter to shovel sufficient snow to prepare a good and safe
jumping hill.
To gain confidence and acquire some useful experience in
jumping, the novice should practice leaping from a 2-ft. rise and
gradually increase the height of the take-off by piling more snow
upon it to increase its height. One or two packing cases firmly placed
upon a smooth, steep hillside, and well padded with 2 ft. of well-
trodden snow, will make a nice take-off. For the beginning the take-
off may point slightly downhill or be fashioned level, and as the skier
becomes more proficient, snow may be added to the edge so that
the take-off will send the jumper well up into the air.
The knack of jumping is nothing more than balancing the body
upon alighting, and the steeper the landing place the easier it is to
keep the balance. To make the jump in good form, the skier assumes
the easy position required for coasting downhill, as shown in Fig. 12.
When within a dozen yards of the take-off the body is lowered until
the skier is in a crouching position with the arms extending back as
in the act of jumping. Arriving within a couple of yards of the dip the
body and arms are thrown forward, which transfers the weight of the
body upon the toes, and the body is straightened up and the arms
are raised not unlike the wings of a bird, to keep the perfect balance
of the body. The straightening up of the body, known to skiers as “the
sats,” is the leap proper and must be timed so that the body
assumes an erect position when the jumper is not less than 12 ft.
from the edge of the take-off. The beginner will invariably jump too
late, but after a little practice, and profiting by numerous mistakes,
the take-off will be timed correctly. Alighting after a jump is best done
by advancing one ski a trifle to keep the balance, and bending the
knees a bit to lessen the impact. The jumper ends with the Telemark
or Christiania swing.
When taking tours of any length on skis, each member of the party
should be provided with a ruck sack of good capacity. That of the
expanding type, made with two outside pockets, and with gores at
the sides, is a good, sensible pack. It should be made of 8-oz.
waterproof khaki and fitted with shoulder straps of good width, to
prevent chafing the shoulders. Leather ruck sacks are sometimes
used, but are heavier in weight and more expensive but no better.
One member of the party should carry some kind of repairing outfit,
consisting of an awl, a length of leather thong, a few spare straps
and a stout cord, or string. These sacks are shown in Fig. 13.
 Knife, Fork, and Spoon Holder

The Holder Keeps the Cutlery in a Position for Easy Selection and Grasping

The holder is made of a piece of sheet copper of sufficient

thickness to support the number of pieces of cutlery used. The piece
is notched to admit the different pieces, and its back edge is bent at
right angles to provide means of fastening it to a support, a wall or
the back of the kitchen cabinet. It will save space, as well as time,
since it is much easier to grasp one of the articles when wanted than
if they are kept in a drawer.—Contributed by L. E. Turner, New York
City.
 Making Round Rods for Fish Poles
In looking forward to the enjoyment that may be had in the spring,
it is well to prepare and overhaul the fishing apparatus or the
shooting equipment. In doing so, it may be necessary to make a joint
for the fish rod or perhaps a rod for the gun. These can be easily cut
if they are sized and run through holes made in a piece of thin metal
as follows: Make several holes of the desired sizes in a steel plate,
and ream them out with a rather dull taper reamer, so as to leave a
bur on one side. This bur should be filed down almost level with the
surface of the metal, leaving the edges flat and sharp. If a rod of
wood from which the article is to be made is put in a hole and drawn
through from the opposite side to the bur, a nice round rod will result.
As the rod becomes smaller, use a smaller hole until the required
diameter is obtained. A saw plate that is not too thin is about the
proper thing to use for the steel plate. It will be necessary to draw the
temper to make the holes, but it is not necessary to retemper it after
the holes are made.

¶Celery keeps well in a small box of dry sand.

 A Ski Sled
By GEORGE J. EGELBERG

T he sled is built low and wide so that it will not tip easily. The skis, or
runners, are cut 10 ft. long and 6 in. wide, from 1-in. ash boards
that are straight-grained. At the points where the curve is to be
formed, plane off about ¹⁄₄ in. on the upper side, but do not plane off
any at the very tip end. This will allow the skis to be more easily
bent. If it is not handy to steam the skis, put them in boiling water,
and be sure that at least 1¹⁄₂ ft. of the points are covered. Provide a
cover for the vessel, so that only very little steam may escape. Let
them boil for at least one hour. A good method of bending the points
is shown. When the skis are taken from the water, put them as
quickly as possible in the bending blocks, side by side, and bend
them with a slow, even pressure. Weight the extending ends and
leave the skis in the blocks 8 or 10 hours to dry. Sharpen the points
after they are bent.
The Runners are Shaped Like a Ski and are Joined Together with Knees for
the Top Board

The sled will run easier if the skis have a slight rocker curve. To
make this curve, have the center block 6 in. while the two end blocks
are 5¹⁄₂ in. high. A ¹⁄₄-in. flat-head bolt is run through the ski, the
block, and the cross strip. The holes are countersunk in the surface
for the heads of the bolts. The top is made of three 6-in. boards,
fastened to the crosspieces. It is a good plan to brace the tips of the
skis with a 2-in. strip.
 Clocks for the Craftsman

An Ordinary Alarm Clock Mounted in a Wood Base Made in Elaborate

Designs to Resemble a Timepiece of High Value; yet Inexpensive to Make

Three designs of clocks are shown, which can be easily made in

oak, or other wood, that will match other furniture. The sizes of the
pieces required are given by the dimensions in the drawings.
The clock is a matter of choice. Prices in most stores range from
75 cents up and the works are of the ordinary alarm-clock variety.
After selecting the clock the small legs as well as the back plate are
removed. The hole cut in the wood for the clock must be a snug fit,
and after placing it in position, the back plate is replaced.
The finish may be a wax or gloss, as desired, and directions for
applying it will be found on the can containing the material.
 A Compact Galvanometer
A small portable galvanometer is one of the most useful
instruments to the electrical experimenter. There are continually
arising instances where it is necessary to test through and identify
certain wires, for which purpose a small galvanometer and a dry cell
are quite sufficient. For comparing the resistances by the well-known
Wheatstone-bridge method, a galvanometer is, of course,
indispensable. If the winding is made suitable, or by placing a shunt
across the terminals to reduce the deflection, a small galvanometer
will roughly indicate the current passing and thus enable one to
compare his dry cells and eliminate the weak ones. Rough voltage
comparisons may also be made by placing a resistance in series
with the galvanometer.
For constructing this instrument, a good pocket compass, of about
2-in. diameter, must be procured. Prepare a neat little box with the
four edges accurately beveled off. On the under side of this, carefully
cut a channel, about ¹⁄₂ in. wide and 2¹⁄₂ in. long, to a depth that will
bring the bottom of the slot within ¹⁄₈ in. of the top of the base block.
Place two binding posts on the base, as indicated, and secure the
compass in place with cement, or by two very small nails put through
the bottom. If the glass cannot be removed, it will be necessary to
solder the nail heads to the bottom of the compass box, after having
carefully removed the lacquer.
The correct wiring will depend on the strength of the current
handled. It is, however, very easy to get an idea of what the
deflection will be under certain conditions by merely making a
preliminary trial, after winding a few turns of any magnet or bell wire
at hand around a small piece of wood, and slipping the coil so
formed into the slot on the under side of the base block. The winding
may be from two or three turns of heavy wire up to several hundred
turns of fine magnet wire, but after one or two trials, the maker will
have no trouble in determining his particular requirements.
 Galvanometer Made of a Compass Set on a Wood Base, with Coil and Wire
Connections

The final coil should be wound lengthwise on a wood core, and the
whole packed neatly into the slot. Connect up the ends to the binding
posts, and then glue in a thin piece to hold the coil in place.
By drilling a small horizontal hole through the base, as indicated
by the two dotted lines in the top view of the working drawings, and
inserting a small bar magnet, ¹⁄₈ in. in diameter, or less, the
instrument may be rendered independent of the earth’s magnetism
and used without reference to the north point. Such a controlling
magnet reduces the time required to bring the needle to rest after it
has been violently reflected.

¶Woodwork about a house, when primed with white lead made quite
thin in raw linseed oil, will never blister unless moisture gets back of
it. Yellow-ocher priming will cause blistering at any time up to 20
years.
 A Perpetual Calendar

It is Only Necessary to Change the Sliding Pieces to Set the Calendar for
Each Month

It is only necessary to set this calendar the first of each month, by

sliding the insertions up or down, to get the proper month or week.
The calendar, as it is shown, is set for January, 1916. Saturday is the
first day and Friday the seventh, and so on. It is not confusing and
can be read either by the day or date. If the day is known it will show
the date, and if the date is known it will show the day. The illustration
clearly shows the parts, which can be cut from heavy paper or
cardboard.
 Heater for the Experimenter
A convenient small heater for heating liquids in experimental work,
and even in making a hot drink where there is no gas, can be readily
made from an ordinary oil lamp and a small round can, having a
crimped-on head or bottom. The can should be of such diameter that
the prongs of the lamp burner will hold it firmly in place. A hole
should be made in the bottom of the can. It is then placed, upside
down, on the lamp burner. If the top comes too far from the flame,
cut off a strip around the edge.—Contributed by Clarence S. H.
Anderson, Worcester, Massachusetts.
 A Camp Chair Constitutes the Body of the Sled and the Legs are Equipped
with Runners

A Folding Ice Sled

On a smooth ice surface, or on hard snow, the sled shown will run
easily, and a skater can push another with surprising speed by a light
push on the shoulders while the rider rests his feet on the front of the
runners. The sled is light, and it can be folded up and carried under
the arm. It is also handy for putting on the skates, or for use in a
crowded car.
 Any camp stool will do for the main part of the sled. Holes are
bored in the ends of the legs to receive the lugs on the runners
snugly. If the builder is not equipped with a forge, a blacksmith will
make the runners cheaply. The sliding surfaces of the runners are
smoothed with a file.—Contributed by Thomas Lappin, Portland,
Ore.

¶A column of water 27.6 in. will have a pressure of 1 lb. per square
inch.
 Cleaning Tinware with Milk
Some housewives advise a system of dry-cleaning for tinware for
the reason that it insures a surface free from rust which is less liable
to burn. Where washing is preferred, however, a little milk added to
the water proves more satisfactory than either soap or soda, its
peculiarly solvent effect upon grease obviating all necessity for hard
scouring, which latter will wear the tin coating and gradually cause
the article to become useless for holding food and more apt to rust
into holes.—Contributed by J. E. Pouliot, Ottawa, Can.