Posts Tagged ‘Corporate governance’

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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Compliance and Risk Management: Area for Legal Teaching and Scholarship?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday May 22, 2014 at 9:25 am
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Editor’s Note: The following post comes to us from Geoffrey P. Miller, Stuyvesant P. Comfort Professor of Law at New York University School of Law.

Compliance is hot.

Pick up the New York Times or the Wall Street Journal and you are likely to find a story about yet another huge fine for regulatory infractions.

In early May, to take a recent example, BNB Paribas, the big French bank, admitted that the $1.1 billion it had set aside for infractions involving sanctions regimes would not be nearly enough to cover its expected liability.

A billion dollars is a big number, but it is hardly the largest penalty we have seen in recent years. It is dwarfed, for example, by the more than $13 billion JPMorgan Chase agreed to pay to various regulatory agencies for mortgage infractions.

Numbers like these command attention.

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Looking at Corporate Governance from the Investor’s Perspective

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday April 24, 2014 at 9:08 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at Emory University School of Law’s Corporate Governance Lecture Series; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Corporate governance has always been an important topic. It is even more so today, as many Americans recognize the need to develop a more robust corporate governance regime in the aftermath of the deepest financial crisis since the Great Depression.

Although the recent financial crisis—aptly named the “Great Recession”—has many fathers, there is ample evidence that poor corporate governance, including weak risk management standards at many financial institutions, contributed to the devastation wrought by the crisis. For example, it has been reported that senior executives at both AIG and Merrill Lynch tried to warn their respective management teams of excessive exposure to subprime mortgages, but were rebuffed or ignored. These and other failures of oversight continue to remind us that good corporate governance is essential to the stability of our capital markets and our economy, as well as the protection of investors.

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The Corporate Governance Movement, Banks and the Financial Crisis

Editor’s Note: Brian Cheffins is a Professor of Corporate Law at the University of Cambridge.

The primary function of corporate governance in the United States has been to address the managerial agency cost problem that afflicts publicly traded companies with dispersed share ownership. Berle and Means threw the spotlight on this type of agency cost problem—using different nomenclature—in their famous 1932 book The Modern Corporation and Private Property. Nevertheless, it was only in the 1970s that the now ubiquitous corporate governance movement began. Why did the corporate governance movement gain momentum in the U.S. when it did? And given its belated arrival, why did it flourish during ensuing decades?

…continue reading: The Corporate Governance Movement, Banks and the Financial Crisis

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