Posts Tagged ‘Corporate governance’

Corporate Governance and the Creation of the SEC

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday October 20, 2014 at 8:59 am
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Editor’s Note: The following post comes to us from Arevik Avedian of Harvard Law School; Henrik Cronqvist, Professor of Finance from China Europe International Business School (CEIBS); and Marc Weidenmier, Professor of Economics at Claremont Colleges.

Severe turmoil in financial markets—whether the Panic of 1826, the Wall Street Crash of 1929, or the Global Financial Crisis of 2008—often raises significant concerns about the effectiveness of pre-existing securities market regulation. In turn, such concerns tend to result in calls for more and stricter government regulation of corporations and financial markets. It is widely considered that the most significant change to U.S. financial regulation in the past 100 years was the Securities Act of 1933 and the subsequent creation of the Securities and Exchange Commission (SEC) to enforce it. Before the SEC creation, federal securities market regulation was essentially absent in the U.S. In our paper, Corporate Governance and the Creation of the SEC, which was recently made publicly available on SSRN, we examine how companies listing in the U.S. responded to this significant increase in the provision of government-sponsored corporate governance. Specifically, did this landmark legislation have any significant effects on board governance (e.g., the independence of boards) and firm valuations?

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Corporate Governance Enforcement in the Middle East and North Africa

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday October 12, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Alissa Amico, corporate governance project manager for the Middle East and North Africa at the Organization for Economic Co-Operation and Development (OECD), and is based on an OECD Corporate Governance Working Paper by Ms. Amico; the complete publication is available here.

As an echo of the last financial crisis, the two themes that have arguably dominated the corporate governance debate globally are investor activism and corporate governance enforcement. Recent years have seen by all accounts the highest rates of institutional investor activism on a range of issues such as executive remuneration, non-financial disclosure and board composition, and at the same time, increased oversight and enforcement. Stewardship-oriented initiatives and rigorous enforcement activity by securities but also banking sector regulators have seen a level of heightened interest in Europe and North America, and to a lesser extent in emerging markets.

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The State of State Competition for Incorporations

Posted by Marcel Kahan, NYU School of Law, on Monday September 22, 2014 at 9:05 am
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Editor’s Note: Marcel Kahan is the George T. Lowy Professor of Law at the New York University School of Law.

The competition by states for incorporations has long been the subject of extensive scholarship. Views of this competition differ radically. While some commentators regard it as “The Genius of American Corporate Law,” others believe it leads to a “Race to the Bottom” and yet others have taken the position that it barely exists. Despite this lack of consensus among corporate law scholars, scholars in other fields have treated state competition for incorporations as a paradigm case of regulatory competition.

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Stakeholder Governance, Competition and Firm Value

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday September 4, 2014 at 9:11 am
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Editor’s Note: The following post comes to us from Franklin Allen, Professor of Economics at the University of Pennsylvania and Imperial College London; Elena Carletti, Professor of Finance at Bocconi University; and Robert Marquez, Professor of Finance at the University of California, Davis.

Academic literature has typically analyzed corporate governance from an agency perspective, sometimes referred to as separation of ownership and control between investors and managers. This reflects the view in the US, UK and many other Anglo-Saxon countries, where the law clearly specifies that shareholders are the owners of the firm and managers have a fiduciary duty to act in their interests. However, firms’ objectives vary across other countries, and often deviate significantly from the paradigm of shareholder value maximization. A salient example is Germany, where the system of co-determination requires large firms to have an equal number of seats for employees and shareholders in the supervisory board in order to pursue the interests of all parties (see Rieckers and Spindler, 2004, and Schmidt, 2004). Similarly, stakeholders’ interests are pursued through direct or indirect representation of employees in companies’ boards in countries like Austria, the Netherlands, Denmark, Sweden, Luxembourg and France (Wymeersch, 1998, and Ginglinger, Megginson, and Waxin, 2009), or through other arrangements and social norms in countries like China and Japan (Wang and Huang, 2006, Dore, 2000, Jackson and Miyajima, 2007, and Milhaupt 2001).

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From Institutional Theories to Private Pensions

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday September 3, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Martin Gelter, Associate Professor of Law at Fordham University.

I recently posted my forthcoming book chapter, From Institutional Theories to Private Pensions (in Company Law and CSR: New Legal and Economic Challenges, Ivan Tchotourian ed., Bruylant 2014) on SSRN.

Corporate governance is sometimes described by political scientists as a three-player game between capital, management, and labor. Yet, in most contemporary debates about corporate governance among lawyers and economists, especially in the English-speaking world, the agency problem and conflicts of interest between shareholders and management seem to be single conflict of interest to which much attention is paid. In this chapter, which builds on previously published law review articles, I attempt to put this observation into a larger historical context, arguing that the nearly exclusive focus on the concern of shareholders is historically and geographically contingent. Differences between conflicts of interest in different corporate governance systems have long been recognized in the scholarly literature. Most obviously, it is well known that the majority-minority agency problem is more salient than the one between shareholders and managers in countries where concentrated ownership is more common. However, it is also worthwhile to look at other conflicts in the tripartite structure of corporate governance that may be equally relevant, at least under certain circumstances. Most importantly, the interests of employees are often relegated either to employment law, or are interpreted as an aspect of corporate social responsibility and thus dismissed as an issue promoted by “sandals-wearing activists” that are effectively only a distributive concern.

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Symbolic Corporate Governance Politics

Posted by Marcel Kahan, NYU School of Law, on Monday August 11, 2014 at 9:12 am
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Editor’s Note: Marcel Kahan is the George T. Lowy Professor of Law at the New York University School of Law. This post is based on a paper co-authored by Professor Kahan and Edward Rock, Saul A. Fox Distinguished Professor of Business Law at the University of Pennsylvania School of Law.

Corporate governance politics display a peculiar feature: while the rhetoric is often heated, the material stakes are often low. Consider, for example, shareholder resolutions requesting boards to redeem poison pills. Anti-pill resolutions were the most common type of shareholder proposal from 1987–2004, received significant shareholder support, and led many companies to dismantle their pills. Yet, because pills can be reinstated at any time, dismantling a pill has no impact on a company’s ability to resist a hostile bid. Although shareholder activists may claim that these proposals vindicate shareholder power against entrenched managers, we are struck by the fact that these same activists have not made any serious efforts to impose effective constraints on boards, for example, by pushing for restrictions on the use of pills in the certificate of incorporation. Other contested governance issues, such as proxy access and majority voting, exhibit a similar pattern: much ado about largely symbolic change.

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The Corporate Governance of Sovereign Wealth Funds

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday August 7, 2014 at 9:07 am
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Editor’s Note: The following post comes to us from Maria Cristina Ungureanu, a Corporate Governance Advisor at Sodali.

Initiatives of shareholder engagement must take into consideration the modern, complex nature of share ownership. Shareholders can no longer be considered as a single group, instead the shareholder base may include a range of institutional investors, hedge funds, private equity funds, sovereign wealth funds and other activist investors. There has been a significant transformation of institutional holdings in recent years, and company boards will need to adjust their behaviour and the nature in which these engage with these new categories of investors.

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Sovereign Shareholder Activism: How SWFs Can Engage in Corporate Governance

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday August 7, 2014 at 9:07 am
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Editor’s Note: The following post comes to us from Paul Rose, Professor of Law at Moritz College of Law, Ohio State University.

As the number of—and assets controlled by—sovereign wealth funds (SWFs) has increased dramatically in recent years, so too has scrutiny about how SWFs are making use of these assets. With respect to equity investments in publicly traded firms, one facet of this concern is that SWFs will become activist shareholders. This concern arises in part because of an equivocation of the term “activist” and a misunderstanding of the regulatory consequences of certain kinds of activism by SWFs.

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Revisiting American Exceptionalism

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 5, 2014 at 9:03 am
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Editor’s Note: The following post comes to us from Naomi R. Lamoreaux, Stanley B. Resor Professor of Economics and History, Yale University, and Research Associate, NBER.

The legal rules governing businesses’ organizational choices have varied across nations along two main dimensions: the number of different forms that firms could adopt; and the extent to which firms had the contractual freedom to modify the available forms to suit their needs. Until the last quarter of the twentieth century, businesses in the U.S. had a narrower range of forms from which to choose than their counterparts in most other countries and also much less ability to modify the basic forms contractually. In the recent NBER Working Paper, Revisiting American Exceptionalism: Democracy and the Regulation of Corporate Governance in Nineteenth-Century Pennsylvania, I explore the exceptional character of the U.S. legal rules by focusing on the different structure of U.S. and British general incorporation laws.

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What Is a Board’s Role in a Family Business?

Editor’s Note: Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Catherine Bromilow and John Morrow; the complete publication, including interview insights, is available here.

Individual- and family-owned businesses are a vital part of our economy. If you or your family owns such a company you understand how important the company’s success is to your personal wealth and to future generations. If you’re a nonfamily executive at a family company, you also recognize that its profitability and resilience is vital to your job security and financial well-being.

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