Question

How does Amazon's (AMZN) board of directors or senior management influence the creation and maintenance of the governance of the firm and how this affects the value of the firm?

Answer 1

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The board of Amazon explicitly states that they believe in "A fundamental measure of our success will be the shareholder value we create over the long term." From the very beginning, the emphasis of the company has been on the long term and as a result, decisions are made which weigh tradeoffs differently than some other companies. Accordingly, it is important to communicate to the shareholders about the fundamental management and decision-making approach so that t is consistent with the company's investment philosophy. The main focus is on :-

• Focus relentlessly on customers.
• Make bold investment decisions in light of long-term leadership considerations rather than short-term profitability considerations. Some of these bold investments will pay off, others will not, and the board admits to have to learn lessons in either case.
• Focus on cash. When forced to choose between optimizing the appearance of GAAP accounting and maximizing the present value of future cash flows, the company resorts to take the cash flows.
• The company understands the importance of continually reinforcing a cost-conscious culture.
• Focuses on hiring and retaining versatile and talented employees, and weight their compensation to significant stock ownership rather than cash. Their success is largely attributed to their ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.

They are firm believers that the long-term interests of shareholders are tightly linked to the interests of the customers. For the most part, the gambles that Amazon took paid dividends throughout the 2010s. It ramped up its overseas operations, acquired startups, and built out Amazon Web Services into a cloud-computing hub. In total, the company's net income rose from $1.2 billion in 2010 to more than $10 billion in 2018.