Posts Tagged ‘Management’

Revisiting Executive Pay in Family-Controlled Firms

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday November 24, 2014 at 9:13 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Juyoung Cheong of the Korea Advanced Institute of Science and Technology and Woochan Kim of the Department of Finance at Korea University Business School.

In our paper, Revisiting Executive Pay in Family-Controlled Firms, which was recently made publicly available on SSRN, we reexamine executive pay in family-controlled firms and challenge the findings in the existing literature.

According to the prior literature, family executives of family-controlled firms receive lower compensation than non-family executives. Using 82 family-controlled firms in the U.S. in 1988, McConaughy (2000) report that family CEOs are paid lower compensation than non-family CEOs. Likewise, Gomez-Mejia, Larraza-Kintana, and Makri (2003) show similar findings using a sample of 253 family-controlled firms in the U.S. during 1995-98.

…continue reading: Revisiting Executive Pay in Family-Controlled Firms

Corporate Investment and Stock Market Listing: A Puzzle?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 20, 2014 at 9:18 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from John Asker, Professor of Economics at UCLA; Joan Farre-Mensa of the Entrepreneurial Management Unit at Harvard Business School; and Alexander Ljungqvist, Professor of Finance at NYU.

Economists have long worried that a stock market listing can induce short-termist pressures that distort the investment decisions of public firms. Back in 1985 Narayanan wrote in the Journal of Finance that “American managers tend to make decisions that yield short-term gains at the expense of the long-term interests of the shareholders.” More recently, a growing number of commentators blame the sluggish performance of the U.S. economy since the 2008–2009 financial crisis on short-termism. For example, in a recent Harvard Business Review article, Barton and Wiseman, global managing director at McKinsey & Co. and CEO of the Canada Pension Plan Investment Board, respectively, argue that “the ongoing short-termism in the business world is undermining corporate investment, holding back economic growth.”

Yet, systematic empirical evidence of widespread short-termism has proved elusive, largely because identifying its effects is challenging. A chief challenge is the difficulty of finding a plausible counterfactual for how firms would invest absent short-termist pressures. In our paper, Corporate Investment and Stock Market Listing: A Puzzle?, which is forthcoming at the Review of Financial Studies, we address this difficulty by comparing the investment behavior of stock market-listed firms to that of comparable privately held firms, using a novel panel dataset of private U.S. firms covering more than 400,000 firm years over the period 2001–2011. Building on prior work, our key identification assumption is that, on average, private firms suffer from fewer agency problems and, in particular, are subject to fewer short-termist pressures than are their listed counterparts. This assumption is motivated by the fact that private firms are often owner managed and, even when not, are both illiquid and typically have highly concentrated ownership. These features encourage their owners to monitor management more closely to ensure long-term value is maximized.

…continue reading: Corporate Investment and Stock Market Listing: A Puzzle?

Shirking CEOs

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 18, 2014 at 9:11 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Lee Biggerstaff of the Department of Finance at Miami University of Ohio; David Cicero of the Department of Finance at the University of Alabama; and Andy Puckett of the Department of Finance at the University of Tennessee, Knoxville.

Anytime you hire someone there is always a risk that they will not complete their task with the level of diligence that you had anticipated. Unless you monitor the hired party at all times, which can be extremely inefficient, they always have the temptation to “shirk” their responsibilities and avoid the hard work required to do an excellent job. In our paper, FORE! An Analysis of CEO Shirking, which was recently made publicly available on SSRN, we provide evidence that some CEOs of public companies in the U.S. succumb to the same temptation to shirk their duties to shareholders by choosing leisure consumption over the hard work required to maximize firm values.

…continue reading: Shirking CEOs

Cyber Security, Cyber Governance, and Cyber Insurance

Posted by Paul Ferrillo, Weil, Gotshal & Manges LLP, on Thursday November 13, 2014 at 9:07 am
  • Print
  • email
  • Twitter
Editor’s Note: Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on an article authored by Mr. Ferrillo and Christine Marciano, President of Cyber Data Risk Managers.

JP Morgan Chase. Community Health Systems. The Home Depot. Kmart. There has been no shortage of data breaches in recent weeks—with new developments on an almost daily basis. The age of cyber hactivisim, cyber extortion, and cyber terrorism is here, and it is not going away any time soon.

Data security issues are no longer just an IT Department concern. Indeed, they have become a matter of corporate survival, and therefore companies should incorporate them into enterprise risk management and insurance risk transfer mechanisms, just as they regularly insure other hazards of doing business. As the number of data breaches has increased, the demand for cyber insurance has likewise dramatically increased more than that for any other insurance product in recent years. Every board of directors should be questioning its officers and management as to “whether or not its company should be purchasing cyber insurance to mitigate its cyber risk.” If management answers, “Oh, it costs too much,” or “Oh, it will never pay off,” second opinions should be obtained. Rapidly. Because neither answer is correct.

…continue reading: Cyber Security, Cyber Governance, and Cyber Insurance

Governance and Comovement Under Common Ownership

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 12, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Alex Edmans, Professor of Finance at London Business School; Doron Levit of the Finance Department at the University of Pennsylvania; and Devin Reilly of the Department of Economics at the University of Pennsylvania.

Most existing theories of blockholder governance consider a single firm. However, in reality, many institutional investors hold blocks in multiple firms. In our paper, Governance and Comovement Under Common Ownership, which was recently made publicly available on SSRN, we study the implications of common ownership for corporate governance and asset pricing. In particular, we address two broad questions. First, does holding multiple blocks weaken governance by spreading a blockholder too thinly, as commonly believed? If not, under what conditions can multi-firm ownership improve governance? Second, can common ownership lead to correlation between stocks with independent fundamentals, and if so, in which direction?

…continue reading: Governance and Comovement Under Common Ownership

Executive Gatekeepers: Useful and Divertible Governance?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday September 30, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Adair Morse of the Finance Group at the University of California, Berkeley; and Wei Wang and Serena Wu, both of Queen’s School of Business, Canada.

In our paper, Executive Gatekeepers: Useful and Divertible Governance?, which was recently made publicly available on SSRN, we study the role of executive gatekeepers in preventing governance failures, and the counter-incentive effects created by equity compensation. Specifically, we examine the following two questions. First, do executive gatekeepers actually improve governance in the average firm? Second, does the effectiveness of gatekeepers in ensuring compliance and/or reducing corporate misconduct depend on their incentive contracts?

…continue reading: Executive Gatekeepers: Useful and Divertible Governance?

Update on Directors’ and Officers’ Insurance in Bankruptcy

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday September 24, 2014 at 9:02 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Douglas K. Mayer, Of Counsel in the Restructuring and Finance Department at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum by Mr. Mayer, Martin J.E. Arms, and Emil A. Kleinhaus.

Directors’ and officers’ (“D&O”) insurance coverage continues to represent a key element of corporate risk management. See memo of July 28 2009. A decision in the bankruptcy of commodities brokerage MF Global, In re MF Global Holdings Ltd., No. 11-15059 (S.D.N.Y. Sept. 4, 2014), provides a recent illustration of how D&O insurance may be treated upon the bankruptcy of the insured company, depending on the specific structure and terms of the insurance at issue.

…continue reading: Update on Directors’ and Officers’ Insurance in Bankruptcy

Radical Shareholder Primacy

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday September 24, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from David Millon, the J.B. Stombock Professor of Law at Washington and Lee University.

My article, Radical Shareholder Primacy, written for a symposium on the history of corporate social responsibility, seeks to make sense of the surprising disagreement within the corporate law academy on the foundational legal question of corporate purpose: does the law require shareholder primacy or not? I argue that disagreement on this question is due to an unappreciated ambiguity in the shareholder primacy idea. I identify two models of shareholder primacy, the “radical” and the “traditional.” Radical shareholder primacy makes strong claims about both shareholder governance rights, conceiving of management as the shareholders’ agent, and also about corporate purpose, insisting that corporate law mandates shareholder wealth maximization. Because there is no legal basis for either of these claims, those who deny that shareholder primacy is the law are correct at least as to this model. However, the traditional version of shareholder primacy accords to shareholders a special place in the corporation’s governance structure vis-à-vis the corporation’s nonshareholder stakeholders, for example, with respect to voting rights and the right to bring derivative suits. Beyond this privileged position in the horizontal dimension, there is no maximization mandate and corporate law does very little to provide shareholders with the tools necessary to exercise governance powers; there is no primacy in the vertical dimension or on the question of corporate purpose. Nevertheless, this conception of shareholder primacy—modest as it is—is enshrined in corporate law. Those who deny that shareholder primacy is the law need to acknowledge this fact, but once it is understood that traditional shareholder primacy has little in common with the radical version there is no reason to be reluctant to do so.

…continue reading: Radical Shareholder Primacy

The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday September 23, 2014 at 9:17 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Wulf A. Kaal and Timothy Lacine of University of St. Thomas School of Law.

The increasing use of Non- and Deferred Prosecution Agreements (N/DPAs) has enabled federal prosecutors to incrementally expand their traditional role, exemplifying a shift in prosecutorial culture from an ex-post focus on punishment to an ex-ante emphasis on compliance. N/DPAs are contractual arrangements between the government and corporate entities that allow the government to impose sanctions against the respective entity and set up institutional changes in exchange for the government’s agreement to forego further investigation and corporate criminal indictment. N/DPAs enable corporations to resolve allegations of corporate criminal conduct, strengthen corporate compliance mechanisms to prevent corporate wrongdoing in the future, and mitigate the risks that collateral consequences of a conviction can bring for companies, their shareholders, employees, and the economy.

…continue reading: The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance

Real Effects of Frequent Financial Reporting

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday September 19, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Arthur Kraft of Cass Business School, City University London, and Rahul Vashishtha and Mohan Venkatachalam, both of the Accounting Area at Duke University.

In our paper, Real Effects of Frequent Financial Reporting, which was recently made publicly available on SSRN, we examine the impact of financial reporting frequency on firms’ investment decisions. Whether increased financial reporting frequency improves or adversely influences a manager’s investments decision is ambiguous. On the one hand, increased transparency through higher reporting frequency can beneficially affect firms’ investment decisions in two ways. First, increased transparency can reduce firms’ cost of capital and improve access to external financing, allowing firms to invest in a larger set of positive NPV projects. Second, increased transparency can improve external monitoring and help mitigate over- or under-investment stemming from managerial agency problems. On the other hand, frequent reporting can distort investment decisions. In particular, frequent reporting can cause managers to make myopic investment decisions that boost short-term performance measures at the cost of long run firm value. Which of these two forces dominate is an open empirical question that we explore in this study.

…continue reading: Real Effects of Frequent Financial Reporting

Next Page »
 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine