Scores of governments around the world have chosen to introduce international standards as domestic law, even though they were not legally obliged to do so. The drafters of these standards are not sovereigns or international organizations, but transnational regulatory networks: informal meetings of experts from various countries, some with government affiliations, and others without. Networks have puzzled scholars for years. Fascinated by the institutional novelty of the network phenomenon, some theorists praised their speed, informality, and lack of hierarchy. Others were not so enthralled. They were concerned about the influence of interest groups or the weight of big countries. This debate has examined both the inputs to the network phenomenon—preferences—and the outputs—global coordination—but has not discussed the mechanism: how do we get from preferences to standards? How do these networks come together, what is their strategy for their success? My new study, Three Pathways to Global Standards: Private, Regulator, and Ministry Networks, seeks to open up the black box of network standard setting and analyze these mechanisms. It proposes a new theoretical framework that distinguishes among private, regulator, and ministry networks, and presents empirical evidence that illustrates why these three network types appeal to different countries for different reasons.
Posts Tagged ‘Social networks’
In our recent NBER working paper, Powerful Independent Directors, we find that independent directors who are powerful elevate shareholder wealth—in part at least by preventing value-destroying decisions such as economically unsound merger bids and excessive free cash flow retention, by meaningfully linking CEO pay to firm performance, and by forcing out underperforming CEOs. Independent directors who are not powerful do none of these things. These findings may explain why a robust link between independent directors on boards and firm value has proved so elusive; and thereby reconcile Fama’s (1980) thesis that independent directors can maximize shareholder valuations by advising and, where necessary, disciplining or replacing CEOs with the observation of Bebchuk and Fried (2006) that independent directors often do no such thing.
In response to the prevalence of social media sites featuring consumer reviews of various types of businesses, on March 28, 2014, the SEC’s Division of Investment Management published an IM Guidance Update to address concerns arising from the rating of investment advisers on such social media sites (the “Guidance Update”). Specifically, the Guidance Update clarifies the application of the testimonial rule to social media sites featuring consumer reviews, such as Yelp and Angie’s List, and sets forth the parameters for the use of such sites by investment advisers in connection with their marketing materials.
The SEC staff has released new guidance regarding the use of social media such as Twitter in securities offerings, business combinations and proxy contests (as a senior SEC official telegraphed at the Tulane Corporate Law Institute conference). Until now, SEC legending requirements have restricted an issuer’s ability to communicate electronically using Twitter or similar technologies with built-in character limitations before having an effective registration statement for offerees, or definitive proxy statement for stockholders (as the legends generally exceed the character limits). Companies using Twitter and similar media with character limits can now satisfy these legend requirements by using an active hyperlink to the full legend and ensuring that the hyperlink itself clearly conveys that it leads to important information. Although the SEC guidance does not provide example language, hyperlinks styled as “Important Information” or “SEC Legend” would seem to satisfy this standard. Social media platforms that do not have restrictive character limitations, such as Facebook and LinkedIn, must still include the full legend in the body of the message to offerees or stockholders.
The collective behavior of corporate leaders is often critical in corporate wrongdoing, and the CEO often plays the central role. Yet there is no comprehensive study exploring how CEOs and their influence within executive suites and the boardroom impact corporate wrongdoing. In our paper, CEO Connectedness and Corporate Frauds, which was recently made publicly available on SSRN, we focus on the effects of CEOs’ social influence accumulated during the CEO’s tenure through top executive and director appointment decisions.
In our paper, Director Networks and Takeovers, which was recently made publicly available on SSRN, we study the impact of corporate networks on the takeover process. In recent years, some scholars have applied graph theoretical methods in the research on the impact of director networks on managerial decision-making. They found relations between networks and remuneration contracting, the managerial labor market (hiring and firing of top management, attracting non-executive directors), corporate restructuring, and firm and fund performance.
In this paper, we examine the effect of the connections between the acquirer and target firms on the takeover process, more specifically on M&A frequency, the M&A negotiation success and duration, the means of payment in the offer, the M&A expected performance (as reflected in the short term wealth effects of the bidder), the bidder’s CEO compensation subsequent to the M&A, and target director retention rate in the merged company. The idea is that direct connections enable both parties to gather information more easily on the counter party which establishes trust, and that the overall network (which includes the indirect connections) enable firms to scout for suitable takeover targets and collect relevant information on the whole takeover market.
Regulation FD, adopted by the SEC in 2000, prohibits “selective disclosure” by requiring public companies to disclose material information through broadly accessible channels. Thirteen years ago, this meant EDGAR filings, press releases and quarterly earnings calls.
The SEC recently issued a report of investigation under Section 21(a) of the Securities Exchange Act of 1934 regarding its inquiry into a post by Netflix’s CEO on his personal Facebook page. In the report, the SEC affirmed that a company may use social media to communicate with investors without violating Regulation FD – as long as the company had adequately informed the market that material information would be disclosed in this manner. The report states that whether a company’s social media disclosure satisfies Regulation FD will depend upon the principles outlined in the SEC’s 2008 guidance, Commission Guidance on the Use of Company Web Sites, while recapping that guidance in a way that should make these principles more workable for companies that want to use websites, social media and other evolving communication methods to disclose important information to the market.
The Staff of the Securities and Exchange Commission has announced its intention to recommend to the Commission that enforcement proceedings alleging a violation of Regulation FD be instituted against Netflix, Inc. and its CEO, Reed Hastings, because of a posting on Mr. Hastings’ personal Facebook page. Mr. Hastings’ webpage had more than 200,000 followers, including reporters who covered the posting in the traditional press. The posting was also the subject of a tweet by TechCrunch, which has approximately 2.5 million followers on Twitter.
This article, Regulation FD in the Age of Facebook and Twitter: Should the SEC Sue Netflix?, is in the form of an amicus Wells Submission suggesting that the Commission would, for nine distinct reasons, be prudent not to initiate an action on the facts of the Netflix posting. In particular, the public record suggests that the posting did not contain material information, was not a selective disclosure, and because of its spread through social media constituted a “broad non-exclusionary distribution” that did not violate Regulation FD. A prosecution would also diverge dramatically from all prior Regulation FD enforcement proceedings, and would violate the Commission’s prior representations not to “second guess” good faith efforts to comply with Regulation FD. In addition, the posting is not inconsistent with the Commission’s 2008 Guidance on the Use of Company Webpages — guidance that is seriously outdated because of the emergence of social media.
This month marked an important milestone in the development of securities law at its newest frontier: social media. For the first time, the Enforcement Division of the U.S. Securities and Exchange Commission (“SEC”) issued a Wells Notice based on a social media communication. This Wells Notice, which notified Netflix, Inc. and its CEO of the Enforcement Division’s intent to recommend an enforcement case to the Commission, demonstrates the potential for liability arising from disclosures by corporate officers through social media. Although the SEC itself uses social media to disclose important information, the agency has yet to offer formal guidance concerning the use of social media to communicate with the investing public. For this reason, the outcome of the SEC’s investigation into Netflix and its CEO’s social media usage will prove instructive to issuers, directors, corporate officers, investors, and members of the securities and white collar bars.
In the paper, Who Killed the Inner Circle? The End of the Era of the Corporate Interlock Network, which was recently made publicly available on SSRN, I show that the American board interlock network has changed in fundamental ways.
Throughout the 20th century, the American board interlock network—in which companies are linked by shared board directors—exhibited a stable cohesiveness, characterized by short path lengths between companies and the existence of an “inner circle” of well-connected directors. This enduring cohesiveness of the interlock network was both the result of elite social cohesion and a key mechanism for maintaining this elite cohesion (e.g., Mills, 1956; Useem, 1984). The characteristics of the interlock network were so stable that Davis, Yoo, and Baker (2003) asserted that short path lengths and an inner circle were inevitable properties of “networks qua networks”.