Deborah Hicks Midanek, Principal, Prevail Investments, LLC; Vice Chairman & Independent Director, Innovate MS., USA

Part I: The System and How It Came To Be 1

Chapter 1: How Our Governance System Began 3

The First Limited Liability Corporation 3

Amsterdam Stock Exchange Established to List VOC Securities 4

VOC Completes Initial Public Offering, Possibly World's First 4

The Governance of VOC Establishes the Model 5

The Lords Seventeen Governance Structure Drawn from Guild

System 5

VOC Confronts a Large Activist Shareholder 6

. . . And a Bear Syndicate 6

The Corporate Form Advances and Spreads-And with It, the Board 7

Corporations Arrived in the New World 8

And Bubbles Burst 9

Chapter 2: The Emergence of the Corporation in United States 11

New York Pioneers Simple Incorporation Procedure 11

Boston Manufacturing Company is First Private Corporation in United

States 12

Corporations Gain Power Under State Control 13

Economic Opportunity Expands; Farmers and Artisans Suffer

Disruption 14

Corporate Control is Concentrated 15

How J.D. Rockefeller Went from Rags to Riches 15

The Government Fights Back, Kind Of 16

Early Days of the New York Stock Exchange 17

Teddy Busts the Trusts 19

Government Power Takes on Commercial Power: Teddy v J.P. 19

Unintended Consequences Lead to More Antitrust Laws 20

Chapter 3: Post-World War I Developments 23

The Stock Market Crashes 23

The Great Depression and FDR's New Deal 23

Safety Net for Banks Created 24

Regulation of Securities and Securities Markets Takes Root 25

Safety Net Extended to Citizens as Social Security is Born 25

Frustration Sets in as Unemployment Persists 26

Government and Business Mobilize for World War II 27

Roosevelt and Business Create Formidable Alliance 27

Solidarity Works Miracles 28

Wartime Success Reaches Far Beyond Battlefields 29

Chapter 4: The Glow Following World War II 31

The 1950s Board Role 31

Stock Market Investing is Patriotic Duty 32

The Nifty Fifty Catches On 33

Investor Relations Become a Corporate Function 34

Chapter 5: Shifting Dynamics from 1970 to 2000 35

Agency Theory is Born 35

The Stock Market Corrects 36

Outrage over the Wreck of Penn Central Fuels New Focus on Board

Role 36

Broad Corruption Revealed Leads to Focus on Governance Per Se 37

The Board as Overseer Takes Root as Independent Directors Become

Desirable 38

The Definition of Independence Proves Elusive; We Know It When We

See It 38

The 1980s Board Role: The Board Becomes Important 39

Mighty Institutional Investors Weigh In 40

The Courts Recognize Independent Judgment of the Board as Mission

Critical 41

Economic Uncertainty and Social Unrest Reduce American

Confidence 42

Market Crashes on Black Monday 42

Changing Market Forces Become Visible 43

NYSE Establishes Safeguards 43

The 1990s Board: Independence Criteria Tighten as Equity Linked

Compensation Grows 44

True Independence Grows in Value 45

Equity Linked Compensation Creates Moral Hazard 46

Independence of Mind Needs Help from Independence of

Process 46

Revolving CEOs 47

Chapter 6: Post 2000 Intensification of Focus on the Board 49

Corruption Eruption Leads to Sarbanes Oxley and Growing Focus on

Board 50

The Functioning of the Board of Directors Gains Attention 52

Sarbanes-Oxley Act 54

Part II: The Players and Capital Market Forces 59

Chapter 7: The Rise of Independent/Disinterested Directors 61

Considering Independent Director Effectiveness 61

Dueling Definitions 62

New York Stock Exchange Listing Requirements Stress Independence of

Directors 62

Independent Directors Fill a Structural and Legal Need 66

Chapter 8: The Rise of Institutional Investors 69

Mutual Fund Development 69

Comments from Mutual Fund Leader John C. Bogle 71

The Growth of Passive Investing 74

The Defined Benefit Pension Plan Grows 75

Employee Retirement Income Security Act of 1974 (ERISA) Strengthens

Pension Rules 76

The Defined Benefit Pension Plan Declines 77

Retirement Assets Shift into Mutual Funds 78

Public Sector Pension Plans 78

The Growing Pension Crisis 79

Investing by Public and Private Plan Fiduciaries 80

Shifting Patterns of Share Ownership in United States 82

The Perils and Possibilities of Concentrated Share Ownership 83

The Rise of Proxy Advisor Power 84

Proxy Advisors Helped Interpret High Volume of Information 85

Responsible Voting of Proxies in Best Interests of Clients

Required 85

Proxy Advisors Take Heed: Physician, Heal Thyself 86

Chapter 9: The Impact of The Great Inflation 89

The Seeds of the Great Inflation Are Sown by the Fateful Phillips

Curve 89

Our Economy Fights Another War, on Several Fronts 91

Employment v. Inflation 91

Federal Reserve Chairman Volcker Toughs It Out 92

Impact of Prolonged Inflation on Capital Market Innovation 94

Securitization Solves a Genuine Problem, and Turns the World Upside

Down 94

Not Your Daddy's Trading Floor 95

Interest Rate Arbitrage Comes of Age with the Swap Market 96

Chapter 10: Mortgage Backed Securities and Structured Products

Conundrums 99

Using Securitization Techniques, the Sky Was the Limit-Or Maybe

Not 100

The Mortgage Derivative Market Implodes 101

Hark, Securitization of Sub Prime Mortgages Begins 101

Earnings as Defined by Generally Accepted Accounting Principles May

Not Create Cash 102

Sub Prime Industry Almost Died in 1998 103

Public Policy Starts the Subprime Cycle Again 103

Repeal of Glass Steagall Act Allows Commercial Banks and Investment

Banks to Compete 104

And We Pushed Ourselves into the Abyss 105

Low Interest Rates Fuel Frenzies in Multiple Arenas 105

Collateralized Debt Obligations Explode, In More Ways Than

One 106

The Abyss Itself 106

Multiple Financial Institutions Fail 107

And WaMu, Too, Bites the Dust 108

Chapter 11: The Aftermath of the Abyss 111

Chapter 12: The Rise of Leveraged Buyouts, High Yield Bonds, and Private

Equity Investment 113

No Longer Your Granddaddy's Way to Buy a Company 113

The Venture Capital Firm is Born 114

The Private Equity Fund is Born 114

The Leveraged Buy Out Arrives 115

Pension Plans Buy in to Private Equity Investing 116

The Hostile Takeover Epidemic 117

The Role of Michael Milken 117

Milken Flexes His Funding Muscles 118

Corporate Titans Are Shaken by an Upstart 119

The Government Fights Back-For Real 119

Giuliani Plays Hardball with RICO Threat 120

Milken Pleads, and NOT to Engaging in Insider Trading 121

And Drexel Fails 122

And Restructures Its Own Board of Directors 122

Lasting Impact of Milken and Drexel Burnham 123

Private Equity Goes Public 123

Chapter 13: The Rise of Hedge Funds and Emergence of Aggressive

Activism 125

Hedge Funds Remain Largely Opaque and Unregulated 125

Hedge Funds Emerge as Activists 126

Traditional Institutional Investors Join the Fray...