The Asian Corporate Governance Association (ACGA), an independent non-profit association based in Hong Kong and one of the region’s foremost organizations working in the emerging field of corporate governance, is seeking applications for the new position of Research Director – China / Hong Kong. ACGA carries out its work through research, education and advocacy in 11 Asian markets and this position marks an expansion of the Association’s contribution to China. Continue Reading →
Tag Archives | research
The Investor Responsibility Research Center Institute (IRRCi) is accepting submissions for its second annual competition for research that examines the interaction of the real economy with investment theory. Two papers – one academic and one practitioner – each will receive the “2013 IRRC Institute Research Award” along with a $10,000 award. A blue-ribbon panel of renowned judges with broad finance and investment experience will carefully review submissions and select two winning papers.
Companies that tout social responsibility and whose managers contribute to political action committees tend to provide higher returns to shareholders, suggests a new University of California,
Davis, study Strange Bedfellows? – Voluntary CSR Disclosure and Politics. Continue Reading →
Blair, Margaret M., The Four Functions of Corporate Personhood (April 9, 2012). Vanderbilt Law and Economics Research Paper No. 12-13; Vanderbilt Public Law Research Paper No. 12-15. Available at SSRN. Abstract follows:
In this article I argue that the legal device of creating separate juridical “persons” for certain business activities Continue Reading →
The Investor Responsibility Research Center (IRRC) Institute announce its second annual competition for research that examines the interaction of the real economy with investment theory. Two papers – one academic and one practitioner – each will receive the “2013 IRRC Institute Research Award” along with a $10,000 award. A blue-ribbon panel of renowned judges with broad finance and investment experience Continue Reading →
Last week, the Conference Board and FactSet Research Systems announced a joint initiative to analyze and disseminate aggregate data from the annual general meetings (AGMs) of U.S. public companies. Continue Reading →
According to the Commerce Department, the financial sector accounted for 8.4% of U.S. gross domestic product last year, higher than its previous peak in 2006. In 1950, the financial sector accounted for just 2.8% of GDP. Continue Reading →
Trust and Human Resource Management, edited by Rosalind Searle and Denise Skinner highlight trust as key to human resource management (HRM) from pre-entry to post-employment. The collection will be of great value to academics in the HR field and to practitioners interested in enhancing trust levels in their organizations.
Trust has long been associated with organizational effectiveness, efficiency and performance that can more easily grow in a climate of high motivation, Continue Reading →
I heard Charles L. Howard discuss working on ombuds issues and his book The Organizational Ombudsman during panel presentations at the Silicon Valley Chapter of the National Association of Corporate Directors and at Stanford University. With all the advantages such offices offer to corporations I was wondering why more corporations haven’t set up programs.
At the recent NACD Directorship 100 program I asked that question during a panel focused on whistle-blowing and other mechanisms to report and resolve ethical issues. None of the panelists had any experience with organizational ombudsman at the companies they represented. Looking to the audience of several hundred, they too Continue Reading →
European Policy Perspectives: Tuesday, December 6, 2011, 2:30 PM GMT, 3:30 PM CET. Presented by ISS’ Jean-Nicolas Caprasse, Head of Business, Europe; Daniel Jarman, Head of U.K. Research; Thomas von Oehsen, Head of German-Dutch Research, ISS and Eva Chauvet, Senior Analyst, French Research, ISS, this webinar will give an overview of key updates to ISS’ benchmark European proxy voting policies for the 2012 proxy season.
U.S. Policy Perspectives: Wednesday, December 7, 2011, 11:00 AM EST. Presented by ISS’ Dr. Martha Carter, Head of Governance Research; Carol Bowie, Head of U.S. Compensation Research; and Patrick McGurn, Special Counsel, it will give an overview of key updates to ISS’ benchmark U.S. proxy voting policies for the 2012 proxy season.
I welcome the Manhattan Institute‘s Center for Legal Policy to the corporate governance debate.
The Manhattan Institute launched its Proxy Monitor project. The ProxyMonitor.org database assembles information on the 150 largest corporations (by revenues, as ranked by Fortune magazine) and currently includes searchable and sortable information on every shareholder proposal submitted at each company from 2008 through August 1, 2011. (Earlier years’ proposals, and a broader data set of companies, will be added to the database in the months ahead.)
Unless current shareowners suffer a penalty for having CEOs who engage in earnings manipulation and insider trading they are likely to encourage such unethical and damaging behavior, finds a study by Ramy Elitzur, since choosing less ethical managers may be in the best interests of current shareholders, but not future ones.
Many accountants believed that markets are efficient and as such, Continue Reading →
Even thought the SEC’s final regulations for the Dodd-Frank whistleblower program just became effective on August 12, 2011, the agency has already filed its first report on the whistleblower program. During the first seven weeks of the program, the agency received 334 whistleblower tips.
The SEC itself cautions that “due to the relatively recent launch of the program Continue Reading →
First, the IRRC Deadline of November 18 for Research Entries approaches. This is your chance to change the predominant paradigm of Modern Portfolio Theory.
Second, Institutional Shareholder Services Inc. (ISS) extended the comment period on their 2012 proxy voting policies until November 7th. Institutional investors, individual investors, corporate issuers, and governance market participants are invited to provide feedback on ISS’ policy updates. ISS did a specific outreach to CorpGov.net readers, so I Continue Reading →
Friday, November 18, 2011 is the deadline to enter the IRRC Institute’s competition for research that examines the interaction of the real economy with investment theory. Two papers – one academic and one practitioner – will receive the new “IRRC Institute Research Award” along with a $10,000 award.
Maybe it is just me, but I’ve got a feeling if you win this award you won’t have to go through the usual gauntlet to get your paper published in a respectable journal. (see cartoon at left by Nearing Zero)
The following panel of renowned judges with broad finance and investment experience will carefully review submissions and select two Continue Reading →
Institutional Shareholder Services Inc. (ISS) opened its comment period for their 2012 proxy voting policies. Institutional investors, corporate issuers, and governance market participants are invited to provide feedback on ISS’ policy updates until October 31. According to Martha Carter, ISS’ Head of Global Research,
ISS firmly believes that incorporating multiple views on corporate governance issues is critical for effective policy formulation. The uniquely transparent and collaborative nature of our policy formulation process serves not only to inform our policies, but also helps to create a higher level of understanding and dialogue across the corporate governance community.
I submitted comments to earlier draft policies and will participate in this round as well. I hope readers do the same. It is great that ISS uses such a transparent process, consistent with what they expect of corporations.
Over 300 respondents weighed in on issues ranging from executive compensation and director independence, to engagement triggers and social & environmental issues. The full results from the survey are posted to ISS’ Policy Gateway.
ISS will release its final 2012 U.S. and International Policy updates in the week of November 14 and its Global Policy Summary and Concise Guidelines in December.
GMI and Si2 announced a strategic partnership to provide seamless
subscription access, account management and special pricing to the firms’ ESG Board Briefing Research, Shareholder Proposal Analysis, and Executive Pay Scorecards. The combination of GMI’s compensation analysis with Si2’s expert insights into key environmental and social issues and proposal analysis may create a vital new resource for Continue Reading →
A George Washington Law School survey that asked alumni which elective courses had proven the most useful to them and which electives they wish they had taken. Here are the top 3 ranked courses on usefulness: Continue Reading →
Quality independent directors are hard to find today. Ask Azim Premji. India’s third-largest IT company, Wipro, is about to join the horde of companies violating Sebi norms by keeping independent directors beyond the suggested nine-year maximum tenure.
After the Storm: The Unregulated Effect of a Corporate Governance Crisis Continue Reading →
The ERIAL (Ethnographic Research in Illinois Academic Libraries) project — a series of studies conducted at Illinois Wesleyan, DePaul University, and Northeastern Illinois University, and the University of Continue Reading →
The Delaware Journal of Corporate Law recently announced their hosting of the 27th Annual Francis G. Pileggi Distinguished Lecture in Law with the above topic by Professor Jill E. Fisch. The lecturer is a leading voice in the field of corporation law, and the lecture provides the Delaware Bar, particularly the members of the bench on both the Court of Chancery and the Supreme Court, an opportunity to challenge academia with practical concerns. The notice is available here. Registration information is available here. September 23, 2011 in Wilmington.
Jill E. Fisch is a nationally known scholar, whose work focuses on the intersection of business and law, including the role of regulation and litigation in addressing limitations in the disciplinary power of the capital markets. Her 1997 paper, Retroactivity and Legal Change: An Equilibrium Approach (Harvard Law Review), introduced a new framework for retroactivity analysis that could apply to both adjudication and legislation. Her 2003 paper (with Stephen Choi), How to Fix Wall Street: A Voucher Financing Proposal for Securities Intermediaries (Yale Law Journal), proposed a voucher financing mechanism to increase accountability for securities intermediaries such as research analysts, proxy advisors and credit rating agencies.
The Destructive Ambiguity of Federal Proxy Access posits that private ordering, within the framework of existing state regulation, offers a more flexible mechanism for maintaining equilibrium in the allocation of power between shareholder and managers. The article concludes by outlining the federal regulatory changes necessary to enable effective private ordering.
Business Ethics and Corporate Sustainability contains fourteen essays examining mainstream business models with the aim of designing more sustainable systems with regard to corporate responsibility issues, such as the environment and human rights, while reducing overall risk profiles and increasing legitimacy.
Christopher J. Cowton, for example, examines the moral status of corporations, their collective responsibility and systems of blame distribution. While it makes sense to blame a corporate entity as a first approximation, that should be only the first step in determining blameworthiness. Leaving blame as resting with BP for the Gulf oil spill, risks failing to identify and blame culpable individuals. Cowton moves us away from reified notions of corporate moral agency, to focus on methods of tracing responsibility in detail to specific individuals according to governance and responsibility frameworks. People are moral agents; corporations are not. Johan Wempe advances this notion further, examining notions of role responsibility.
Kevin T. Jackson retraces Aristotelian notions of generosity as a moral virtue and ends with a promising direction in his discussion of venture philanthropy, which in some respects, harkens back to businesses during the Middle Ages. Wouldn’t it be great if entrepreneurs started measuring themselves not by how much money Continue Reading →
Wharton Professor of Management Witold Henisz and two co-authors researched the role that stakeholder events played in companies’ efforts to maximize profits. Their paper, Spinning Gold: The Financial Returns to External Stakeholder Engagement, found the value of stakeholder relationships worth twice as much as the value of physical Continue Reading →
News Corp got Andrew Dominguez and Eben Esterhuizen to thinking about why boards fail. They came up with the following:
- No Repercussions: Shareholder lawsuits don’t pose much of a threat to an incompetent board. Most U.S. companies incorporate in Delaware, where state laws exempt board members from financial liability for their actions.
- Poor Data: Some boards receive too little or too much information – or just plain bad information. This often occurs when a company’s management is trying to manipulate the Continue Reading →
The Corporate Transactions Handbook by Lawrence Hsieh is an annually supplemented legal guide designed to help attorneys, bankers and, I would add, boardmembers, to become fully acquainted with the major legal issues related to a variety of corporate transactions in the most popular practice areas.
One unusual characteristic of the book, especially for a legal handbook on such a complex topic, is the lack of footnotes. This, and the extensive use of flow-charts and graphs (over 200), add to the guide’s readability. For me, the graphics are its major strength or improvement over other such guides I have read.
One of the potentially more interesting chapters for board members is Key Deal Point Issues, which provides an overview of some of the most commonly negotiated non-structural issues such as creating a collar, where parties agree to both a floor and cap, much like having a collar or call and a put to yield greater certainty to the value of a stock. An earnout provision can be used to bump up the purchase price or a portion thereof, based on the performance of the target after the closing date. This can be very helpful when the buyer wants target managers to stay onboard for some time after the transaction. The chapter provides a good guide to concepts such as representations, covenants, closing conditions, qualifiers and indemnification that boardmembers should be familiar with so they can properly assess proposed transactions.
These basic transaction types are discussed in much more detail in following chapters along with many other topics. Corporate Transactions Handbook covers a big subject, running in multi-dimensions from liabilities, consents, tax consequences, and transaction types to takeover defenses, securities laws and loan structuring. Lawrence Hsieh explains the broad range possibilities and potential pitfalls in enough depth to get most through more than the basics.
The Business Roundtable and Chamber of Commerce made their case and the Court found the SEC rulemaking on proxy access arbitrary and capricious “for having failed once again… to adequately assess the economic effects of a new rule.”
The SEC rules certainly didn’t come out the way Les Greenberg and I envisioned when we petitioned back in the summer of 2002. Ours was a simple proposal, summed up in one sentence:
The intended effect of the suggested modifications is that the solicitation of proxies for all nominees for Director positions, who meet the other legal requirements, be required to be included in the Company’s proxy materials.
I didn’t realize Just how bad the actual language is that got adopted until I read an illuminating paper by Jill E. Fisch of the University of Pennsylvania, The Destructive Ambiguity of Federal Proxy Access. I urge everyone who cares about this critical issue to read Fisch’s paper.
Yes, I had noticed the SEC’s rule requires an awful lot of disclosures and the three percent/three year holding requirements certainly eliminate any involvement I might have had in any nomination process. But I didn’t notice all the other possible triggers re various required schedules and filings and I hadn’t read all the requirements of schedule 14N and other impediments Fisch explains so well.
I was actually pinning my hopes on the amendments to Rule 14a-8 and hadn’t noticed users of that rule must comply with the complete filing and disclosure requirements of Regulation 14A in a similar manner to shareowners who mount a proxy contest.
Fisch argues, like many who advocate “private ordering,” the SEC is poorly suited for regulating corporate governance and that existing state regulation offers a preferable, more flexible framework. Unlike some others, at least part of her rationale is that SEC rules impede, rather than facilitate, shareowner participation.
Interesting is Fisch’s analysis of the possible reasons why the SEC went ahead with a rulemaking that is largely unusable. I’ll list them here but urge you to read her full explorations:
- Rule 14a-11 may simply reflect caution. Draw the rule as tightly as possible to “test the waters” with very few cases.
- Not doing something may have been viewed as a “sign of weakness.”
- Making it more restrictive may have reduced the incentive for business interests to sue… they did anyway.
- It isn’t a tool to increase the direct effectiveness of shareowners but is more of a communication device for sounding displeasure, providing another platform whereby shareowners can speak to each other.
- Raise the level of director discomfort without presenting a real threat.
- Maybe the SEC simply lost perspective on what they were trying to do by responding to critics with additional requirements that yielded unintended consequences.
The SEC’s efforts to avoid all possible bad effects or “unintended consequences,” may have led it to choose instead a rule that has no consequences, intended or otherwise…
Any debate over proxy access that fails to evaluate its effect on the allocation of power between shareholders and managers is, over proxy access is, however, destructively ambiguous, because the best argument in favor of proxy access – increasing board accountability – requires that proxy access increase shareholder power.
As those of us committed to proxy access start over again, difficult but not impossible in the current political climate, we would do well to take Fisch’s advice on an alternative approach:
- The SEC should amend Regulation 14a to require the issuer to disclose, in its proxy statement, all properly-nominated director candidates, regardless of whether the nomination is made by a nominating committee, a shareholder or some other mechanism. Provide for comparable disclosures, regardless of the source of the nomination.
- Amend Rule 14a-4 to require the issuer’s proxy card to give shareholders the opportunity to vote for any of the candidates included in the proxy statement. The proxy card would thus constitute a universal ballot for all properly-nominated candidates.
- Encourage firm-specific experiments by retaining the recently adopted amendments to the election exclusion under Rule 14a-8 authorizing the inclusion of shareholder proposals concerning the process by which directors are selected.
There was no need for the SEC to try to determine the optimal level of shareholder nominating power. The area would have been free for state law and issuer-specific experimentation if the SEC had simply held, seventy years ago, that issuers were required to disclose the existence of all properly nominated director candidates on the issuer’s proxy statement and to provide shareholders with a chance to vote on the election of such candidates.
Given how long debate has raged on, it wouldn’t hurt to step back and get it right. In this case, simple is certainly better. The first step is to reexamine 14a-8, which was also stayed by the SEC because the amendment was “designed to complement” the proxy access rule and the SEC viewed its changes as “intertwined.” We must now unwind the two rules to see what is left in the 14a-8 amendments. I will probably be urging the SEC to lift the stay on 14a-8 amendments and will likely ask for additional amendments to provide for a robust form of private ordering, as discussed above. More to come. Please send me your thoughts and analysis.
I’m on the editorial advisory board of the Critical Studies on Corporate Responsibility, Governance and Sustainability series of books to be published by Emerald and so am helping them scour the world for contributing authors. The next book in the series will be edited by Dr. Suzanne Young, Associate Professor, La Trobe University, Australia, and Professor Stephen Gates, Audencia Nantes School of Management, France. The topic is Institutional Investors and Corporate Responses: Actors, Power and Responses. How Do Institutional Investors Use Their Power to Promote the Sustainability Agenda? How Do Corporations Respond?
In many economies, institutional investors such as pension funds hold the largest share of stocks, and as such are the dominant shareholder class. They are increasingly using their power to bring about a change of corporate Continue Reading →
A roundup of academic research from the world of IR studies via IR Papers: Quiz edition, 29 Jun 2011. I missed 3 out of 9 questions but guessed at several.
New research from Cesare Fracassi of the Department of Finance at the University of Texas at Austin and Geoffrey Tate of the Department of Finance at the University of California, Los Angeles finds that board composition should be a continuing target of regulatory reforms.
Our results suggest that having directors with external network ties to the CEO may undermine the effectiveness of corporate governance.
We find that firms in which a high percentage of independent directors have external network ties to the CEO make more frequent acquisitions than firms with fewer CEO-director connections. Moreover, these acquisitions destroy shareholder value on average, particularly in firms which also have weak shareholder rights..
We find evidence that external governance mechanisms can substitute for weak internal governance. The negative reaction to merger bids among firms with many network ties between independent directors and the CEO and the reduction in Tobin’s Q are strongest in firms with weak shareholder rights.
More at External Networking and Internal Firm Governance, HLS Forum on Corporate Governance and Financial Regulation, June 29, 2011.
The IRRC Institute announced a competition for research that examines the interaction of the real economy with investment theory. Two papers – one academic and one practitioner – will receive the new “IRRC Institute Research Award” along with a $10,000 award. Of course, we would like both prizes to go to CorpGov.net readers. One of many books you might want to read in preparing your paper is Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, Cash Flow, Stock Price, Governance, and Special Situations by Robert A. G. Monks and Alexandra Reed Lajoux.
The following panel of renowned judges with broad finance and investment experience will carefully review submissions and select two winning papers: Continue Reading →
Like many, I read that a proposal at McDonalds to halt marketing to kids, retire Ronald McDonald, and report on links between fast food and children’s health, failed… winning only 6% of shares voted. Every change has to start somewhere.
However, I also learned from a reliable source that a proposal submitted by Florida SBA, with the assistance of the American Corporate Governance Institute (ACGI) to declassify the board won 77%. It was a real cooperative effort, with Dan Nielsen, the Director of Socially Responsible Investing at Christian Brothers Investment Services, presenting the proposal at the meeting.
It is great to see shareowners working together and even more exciting to learn about ACGI, which I see Nell Minow already discussed a bit back on May 10. Minow writes a little on the evolution of classified boards, cites a study that finds they insulate directors while providing no apparent benefit and discusses the campaign by Florida SBA and the Nathan Cummings Foundation to address many of the 10% of large Continue Reading →
From Enron to Lehman Brothers and the subprime financial disaster, we’ve seen the worst decade ever in my lifetime for equities, down 3.3%. Is it time to start stuffing our money into the mattress or is it time to learn something about corporate valuation from two experts?
Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, Cash Flow, Stock Price, Governance, and Special Situations by Robert A. G. Monks and Alexandra Reed Lajoux will inevitably be compared with Security Analysis: The Classic 1934 Edition by Benjamin Graham and David Dodd. Corporate Valuation comes out favorably.
Yes, we have learned a lot during the last seventy years; Monks and Lajoux take readers on a tour Continue Reading →
Ralph Ward publishes a great little newsletter with quick bites of information for corporate directors. His Boardroom Insider is one of the few publications I always read cover to cover. (It helps that it is usually about 4-6 pages.) In the latest issue, among other articles, he reviews Julie Garland McLellan’s Presenting to Boards. I also reviewed McLellan’s book here but thought it worthy of a second opinion from Ward, especially since he has writtenfour books for directors. I skip his brief introduction.
Here’s a taste, looking at a particularly tricky board situation — how do you present to the board when it’s “acting up?” Since the board is at the peak of the company, and its outside members tend to have pretty impressive egos, getting everyone to focus, work as a team, and stick to the rules can be like herding cats. McLellan pinpoints the top “unproductive behaviours” that can make boardroom presentations a misery:
- Confidentiality. Is there a member of the board who tends to prove leaky to outside sources? If you’re presenting highly-sensitive info, it may be wise to ask the chair to give a quick comment to the full board on their fiduciary duty to maintain the privacy of board info. If you’re a non-employee presenting info to this board from the outside, you have every right to stress the importance of confidentiality of what you’re sharing.
- One conversation. “Sidebar”whispering or even discussions among directors during the presentation, if done at all, should be very brief and quiet. If a chat continues, McLellan advises the presenter “look to the chairman to see if he or she will say something.” Should this fail, just stop talking until the chatters get the point (don’t try to out-shout them). Boardrooms may be intense at times, but should never be rude.
- Personal animosity. This director and that director just don’t play well together, and your presentation gives them a chance to squabble. Perhaps you’re trying to make your case to differing factions on the board, who agree on nothing. Maybe a director makes clear he just doesn’t like you. “This is definitely the chairman’s job to sort out,” writes McLellan.
- Harping on. You may have a tightly planned presentation, but a member of the board can easily derail it with repetitive, off-topic, or ill-timed questions. Or, perhaps, one point in your spiel leads the board off into a 10- minute digression on why the company’s delivery trucks are painted blue rather than white. In any case, appeal to the chair to put discussion and questions off until the end. Since the board chair is the director most acutely aware of covering a full agenda with limited time, expect results.
Corporate Governance and the Business Life Cycle (Corporate Governance in the New Global Economy), Igor Filatotchev (Editor)
Most of the empirical literature on corporate governance is rooted in agency theory. While the principle-agent relationship and monitoring play a central role, governance is also concerned with entrepreneurship and contextual issues. The editor has chosen a good cross section of articles to help develop a framework to understand organizational governance and its life-cycle evolution. Part 1 addresses general interrelationships; part 2 moves us to IPOs; part 3 more mature firms; and part 4 declining firms and buy-outs.
One of the more interesting chapters is by Matthew D. Lynall, Brian R. Golden and Amy J. Hillman, which points to the importance of dominate power at the time of board formation. Path dependence suggests a board composition that meets environmental needs at one Continue Reading →
Corporate Governance: An International Review has been one of our “stakeholders” from the beginning. The July issue, which I just got around to reading, provides excellent articles around the general theme of research on shareholder action.
Antecedents of Shareholder Activism in Target Firms: Evidence from a Multi-Country Study, by William Q. Judge, Ajai Gaur, and Maureen I. Muller-Kahle, looked at shareholder activism targeted at firms located in three common law countries (i.e., USA, UK, and Australia) and three civil law countries (Japan, Germany, and South Korea) during the 2003–07 time period.
Findings: Activists target firms with two motives (a) to improve the financial performance, and (b) to improve the social performance of the firm. Firm size is unrelated to financial activism, but positively related to social activism; ownership concentration is negatively related to both financial and social activism; and prior profitability is negatively related to financial activism, but positively related to social activism. These relationships in the case of financial activism are generally stronger in common law legal systems, whereas those in the case of social activism are generally stronger in environments with a greater level of income inequality.
Takeaway: Boards need to understand the motivations of shareowners and open two-way lines of communication. Expect social activism to rise with growing income inequality. Continue Reading →