Tag: Corporate governance


Guiding Principles of Good Governance

Stan Magidson is President and CEO of the Institute of Corporate Directors and Chair of the Global Network of Directors Institutes (GNDI). This post is based on a recent GNDI perspectives paper, available here.

The Global Network of Director Institutes (GNDI), the international network of director institutes, has issued a new perspectives paper to guide boards in looking at governance beyond legislative mandates.

The Guiding Principles of Good Governance were developed by GNDI as part of its commitment to provide leadership on governance issues for directors of all organisations to achieve a positive impact.

Aimed at providing a framework of rules and recommendations, the 13 principles laid out in the guideline cover a broad range of governance-related topics including disclosure of practices, independent leadership and relationship with management, among others.

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Human Rights Through A Corporate Governance Lens

George Dallas is Policy Director at International Corporate Governance Network (ICGN). The following post is based on an ICGN publication by Mr. Dallas and Lauren Compere, Managing Director at Boston Common Asset Management; the complete publication, including annexes, is available here.

Human rights [1] are attracting increasing attention from a corporate governance perspective as a dimension of both business ethics and enterprise risk management for companies. Indeed, the ethical and risk dimensions are in many ways intertwined, insofar as ethical lapses or inattention to human rights practices by companies may not only breach the human rights of those affected by corporate behaviour, but may also have material commercial consequences for the company itself. In extreme cases human rights problems can pose a franchise risk to companies [2]; in lesser cases these can increase costs and damage valuable relationships with stakeholders.

In a broad governance context human rights cannot be simply framed as a reputational or “non-financial” risk; the consequences of poor human rights practices can materially impact a company’s stakeholder relations, financial performance and prospects for sustainable value creation. Accordingly, human rights is an issue warranting greater attention from long-term investors as a matter of investment analysis, valuation and engagement with companies.

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More than 300 Research Papers Have Applied the Entrenchment Index of Bebchuk, Cohen and Ferrell (2009)

This post relates to an article by Lucian Bebchuk, Alma Cohen and Allen Ferrel, What Matters in Corporate Governance, available here and discussed on the Forum here. Lucian Bebchuk is William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance, Harvard Law School. Alma Cohen is Professor of Empirical Practice, Harvard Law School. Allen Ferrell is Greenfield Professor of Securities Law, Harvard Law School.

As of May 2015, more than 300 research studies have applied the Entrenchment Index put forward in a study published by Lucian Bebchuk, Alma Cohen and Allen Ferrell, What Matters in Corporate Governance. The papers using the Entrenchment Index, including many papers in leading journals in law, economics and finance, are listed here.

The Bebchuk-Cohen-Ferrell paper, first circulated in 2004 and published in 2009 in the Review of Financial Studies, identified six corporate governance provisions as especially important, demonstrated empirically the significance of these provisions for firm valuation and put forward a governance index, commonly referred to as the “Entrenchment Index,” based on these six provisions. The paper has been cited by more than 650 research studies, and more than 300 of these studies made use of the index in their own empirical analysis.

The Bebchuk-Cohen-Ferrell paper putting forward the Entrenchment Index is available for download here.

Commissioner Gallagher’s and Professor Grundfest’s Wrongful Attack on the Shareholder Rights Project

Jonathan R. Macey is the Sam Harris Professor of Corporate Law, Corporate Finance & Securities Law at Yale University. This post relates to a paper by Commissioner Daniel M. Gallagher and Professor Joseph A. Grundfest, Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors, described on the Forum in a post by Professor Grundfest here. Earlier posts by Professor Macey on the Gallagher/Grundfest paper appear on the Forum here, here, and here, with responses by Professor Grundfest here and here. A joint statement by thirty-four senior corporate and securities law professors from seventeen leading law schools, opining that the allegations in the Gallagher/Grundfest paper are meritless and urging the paper’s co-authors to withdraw these allegations, is available on the Forum here.

Earlier this month, at a University of Pennsylvania Law School’s Institute for Law & Economics Corporate Roundtable, Professor Joseph Grundfest presented to a audience of practitioners and academics the same accusations against Harvard and the Shareholder Rights Project (SRP) that he advanced in his paper (co-authored with soon-to-be departing SEC Commissioner Daniel Gallagher), “Did Harvard Violate the Federal Securities laws? The Campaign Against Classified Boards of Directors” (available here and described on the Forum here). Given Grundfest’s persistence in making these accusations, which have been widely viewed as meritless by corporate and securities law academics (see the statement by 34 senior law professors here ), readers might find of interest a new paper I just posted on SSRN, Commissioner Gallagher’s and Professor Grundfest’s Wrongful Attack on the Shareholder Rights Project, available here.

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Why Run Away from the Evidence?

Bernard S. Sharfman is an adjunct professor of business law at the George Mason University School of Business. Related research from the Program on Corporate Governance about hedge fund activism includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), and The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here). An exchange of posts on the empirical evidence on hedge fund activism between Bebchuk, Brav and Jiang, who urged Wachtell Lipton not to run away from the evidence, and Martin Lipton, who responded to their posts, is available on the Forum here.

Back in September 2013, Lucian Bebchuk, Alon Brav and Wei Jiang posted Don’t Run Away from the Evidence: A Reply to Wachtell Lipton on this blog as a means to rebut the criticism they received on an early draft of their empirical study, The Long-Term Effects of Hedge Fund Activism. In a nutshell, their empirical study found hedge fund activism to create long-term value for both shareholders and the companies they invest in while the lawyers for Wachtell Lipton said the results meant nothing. Based on a recent blog posting by Martin Lipton, the most famous of all the Wachtell partners, Further Recognition of the Adverse Effects of Activist Hedge Funds, the post by Bebchuk, Brav and Jiang did not do anything to change their minds.

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Comparative Study on Economics, Law and Regulation of Corporate Groups

The following post comes to us from Klaus J. Hopt, a professor and director (emeritus) at the Max-Planck-Institute for Comparative and International Private Law, in Hamburg and was advisor inter alia for the European Commission, the German legislator and the Ministries of Finance and of Justice.

The phenomenon of the groups of companies is very common in modern corporate reality. The groups differ greatly as to structure, organization, and ownership. In the US, groups with 100-per cent-owned subsidiaries are common. In continental Europe, the parents usually own less of the subsidiaries, just enough to maintain control. In Germany and Italy pyramids are frequent, i.e., hierarchical groups with various layers of subsidiaries and subsidiaries of subsidiaries forming very complicated group nets. The empirical data on groups of companies are heterogeneous because they are collected for very different regulatory and other objectives, for example for antitrust and merger control regulation or for bank supervision.

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Harvard Convenes the Corporate Governance Roundtable

The Harvard Law School Program on Corporate Governance and the Harvard Law School Program on Institutional Investors convened the Harvard Roundtable on Corporate Governance last Wednesday, March 18. The event brought together for a roundtable discussion 75 prominent experts with a wide range of perspectives on this subject, including those of investors, issuers, advisors, and academics. Participants in the event, and the topics of discussion, are set out below.

The Roundtable, which was co-organized by Lucian Bebchuk, Stephen Davis, and Scott Hirst, was sponsored by a number of co-sponsors (listed here), the supporting organizations of the Program on Corporate Governance (listed on the program site here), and the institutional members of the Harvard Institutional Investor Forum (listed here).

The Roundtable sessions focused on board composition, and other current issues in corporate governance. The Roundtable began with discussion of board composition issues. The participants discussed a variety of issues on the topic, including director experience and skills, director tenure and age, board refreshment, board diversity and board evaluations. The Roundtable then moved to a discussion of proxy access and other current issues in corporate governance, and engagement between issuers and investors on such issues.

The participants in the Harvard Roundtable on Corporate Governance included:

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Disentangling Mutual Fund Governance from Corporate Governance

The following post comes to us from Eric D. Roiter of Boston University School of Law.

Disentangling Mutual Fund Governance from Corporate Governance addresses mutual fund governance, explaining how in recent years it has become entangled with the norms and rules of corporate governance. At one level, it is understandable that mutual funds have been seen simply as a type of ordinary corporation, leading the SEC and the courts to treat mutual fund governance as simply a variation on the theme of corporate governance. Both mutual funds and corporations are separate legal entities, having directors and shareholders. Directors of each are held to fiduciary duties, charged with serving shareholders’ interests, and aspire to best practices. But there are fundamental differences between mutual funds and ordinary corporations, and this article contends that these differences have important implications for the governance of mutual funds, differences that should lead not to further entanglement of fund governance with corporate governance but to disentanglement.

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Shareholders in the United Kingdom

The following post comes to us from Paul L. Davies, Senior Research Fellow at Harris Manchester College, University of Oxford. He was the Allen & Overy Professor of Corporate Law from 2009 to 2014 at University of Oxford, Faculty of Law. Work from the Program on Corporate Governance about lobbying includes Investor Protection and Interest Group Politics by Lucian Bebchuk and Zvika Neeman (discussed on the Forum here).

The United States and the United Kingdom are lumped put together as ‘dispersed shareholder’ jurisdictions and contrasted with the concentrated shareholdings found in the rest of the world. This paper, Shareholders in the United Kingdom, argues that it would be better to view the UK, at least over the past half century, as a semi-dispersed rather than as simply a dispersed shareholder jurisdiction, and that there are interesting contrasts between the UK and the US experience.

Whilst the typical company listed on the main market of the London Stock Exchange certainly lacks a single (or even a cohesive small group) of shareholders with legal control, neither does the typical company display atomised shareholdings, for example, where no single shareholder holds more than 1% of the voting rights. Typically, a coalition of six or so of the largest shareholders can put together enough votes to have a fighting chance of carrying a resolution at a shareholder meeting against the wishes of the management. The question thus becomes one of the incentives and disincentives for those shareholders to coordinate their actions.

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The State of Corporate Governance for 2015

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update.

The balance of power between shareholders and boards of directors is central to the U.S. public corporation’s success as an engine of economic growth, job creation and innovation. Yet that balance is under significant and increasing strain. In 2015, we expect to see continued growth in shareholder activism and engagement, as well as in the influence of shareholder initiatives, including advisory proposals and votes. Time will tell whether, over the long term, tipping the balance to greater shareholder influence will prove beneficial for corporations, their shareholders and our economy at large. In the near term, there is reason to question whether increased shareholder influence on matters that the law has traditionally apportioned to the board is at the expense of other values that are key to the sustainability of healthy corporations. These concerns underlie the issues that will define the state of governance in 2015 and likely beyond:

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  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Breeden
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    Daniel Fischel
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Barry Rosenstein
    Paul Rowe
    Rodman Ward