Corporate Governance Deviance

Ruth V. Aguilera is Distinguished Professor of International Business and Strategy at Northeastern University and Visiting Professor at ESADE Business School; William Q. Judge is E.V. Williams Chair of Strategic Leadership & Professor of Strategic Management at Old Dominion University; and Siri Terjesen is Dean’s Faculty Fellow in Entrepreneurship and Director of the AU Center for Innovation at American University and Adjunct Professor at Norwegian School of Economics. This post is based on their recent article, forthcoming in Academy of Management Review.

Societies throughout the world utilize a wide range of corporate governance mechanisms to govern their corporations. Normally, most societies use rules and norms to get corporations to conform to traditional corporate governance practices; and most corporations do conform to this national governance logic. However, some corporations do not conform to the logic in which they are embedded. When this deviation happens, we note that corporate governance deviance has occurred. The purpose of our article was to explain what corporate governance deviance is, and why, when, and how firms engage in governance deviance.


Is There a Gender Gap in CEO Compensation?

Vishal Gupta is associate professor of Management; Sandra Mortal is associate professor of Economics, Finance, & Legal Studies; and Xiaohu Guo is a PhD candidate at the University of Alabama Culverhouse College of Commerce. This post is based on their recent article, forthcoming in Strategic Management Journal.

Our research examines whether there is a gender pay gap in CEO compensation. Issues surrounding the gender pay gap have attracted considerable academic and media attention over the past few decades (Blau & Kahn, 2017). The growing presence of women in CEO roles has spurred interest in understanding how gender may affect the treatment of those who, against significant odds, manage to reach the top of the organizational hierarchy. Compensation captures the monetary value an organization subscribes to the contributions and importance of its individual employees, including the chief executive. The remuneration given to a manager for his or her job has “many consequences for that manager, the top management team, the organization, and stakeholders in the organization”, so that executive compensation is of compelling interest to researchers and practitioners (Finkelstein, Hambrick, & Cannella, 2009). It is therefore not surprising that a large and vibrant body of research exists on the topic of CEO compensation, though much less consideration has been given to the possible influence of gender on CEO compensation (perhaps, because of the relative scarcity of women CEOs in the past).


Lazard’s 1Q 2018 Activism Review

Jim Rossman is head of Shareholder Advisory at Lazard. This post is based on a Lazard publication by Mr. Rossman. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here);  Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

Key Observations on the Activist Environment in 1Q 2018

Source: Activist Insight, FactSet and public filings as of 3/31/2018.
Note: All data is for campaigns conducted globally by U.S. and European activists at companies with market capitalizations greater than $500 million at time of campaign announcement.

1. Activist activity reached new heights in 1Q 2018 both in terms of capital deployed and campaigns initiated

  •  ~$25bn of capital was deployed in new campaigns in 1Q 2018—the most in any quarter on record
    • 1Q 2018 saw major campaigns by emerging activists such as SailingStone, Jericho Capital and Vulcan Value, while some traditional activists such as Corvex, Pershing Square and Trian were relatively inactive
  • 73 new campaigns were initiated in 1Q 2018—the highest quarterly activity on record
  • 65 Board seats were won in 1Q 2018—well ahead of 2016 YTD and 2017 YTD—while an additional 78 seats are “in play”
    • Starboard Value was the leading activist in forcing Board turnover, with 41 seats targeted in 1Q 2018


Corporate Culture Risk and the Board

Carey Oven is National Managing Partner at Deloitte & Touche LLP and Bob Lamm is Independent Senior Advisor at the Center for Board Effectiveness at Deloitte LLP. This post is based on their Deloitte publication.

Introduction: “Where was the board?”

Recent corporate scandals linked to problematic company cultures have resulted in questions such as “where was the board?” and “shouldn’t the board have known?” In some cases, board members themselves may have wondered why they were not informed of cultural problems and asked, “should we have conducted more due diligence?”

These and similar questions, and the responsibility to protect both their companies’ and their own reputations, are leading directors to look for ways to better monitor corporate culture and to understand potential cultural risks and address problems before they get out of control.

The purposes of this post are to help define “culture” and why it matters, and to provide practical suggestions for overseeing culture risk.


Weekly Roundup: April 13–19, 2018

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This roundup contains a collection of the posts published on the Forum during the week of April 13–19, 2018.

2018 Proposed Amendments to the Delaware General Corporation Law

Portfolio Manager Compensation in the U.S. Mutual Fund Industry

Ten Crypto-Financing Caveats

HLS Program Seeks Academic Fellows

Measuring Effectiveness: Roadmap to Assessing System-Level and SDG Investing

The Importance of Alleging Control: Between Corwin and MFW

Steven M. Haas is a partner and Meghan Garrant is an associate at Hunton Andrews Kurth LLP. This post is based on a Hunton Andrews Kurth publication, and is part of the Delaware law series; links to other posts in the series are available hereRelated research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders, by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here).

The Delaware Court of Chancery recently held that individual members of Rouse Properties Inc.’s board of directors, who negotiated and approved a merger with the company’s largest stockholder in 2016, were protected under Corwin [1] by the business judgment rule from claims by plaintiff stockholders that the board, allegedly controlled by the stockholder, had breached their fiduciary duties.


In Re Rouse Properties, Inc. Fiduciary Litigation [2] arose out of the 2016 merger between Rouse Properties Inc. (“Rouse”), a Delaware corporation and real estate investment trust, and Brookfield Asset Management, Inc. (“Brookfield”), a Canadian global asset management corporation. In January 2016, Brookfield, owning 33.5% of the outstanding shares of Rouse, made an offer to acquire all of Rouse’s remaining outstanding shares for $17 per share. In response, Rouse formed a special committee of independent directors to negotiate with Brookfield and consider strategic alternatives. The parties ultimately agreed on a price of $18.25 per share and signed a merger agreement, which was subsequently approved by 82.44% of Rouse’s non-Brookfield-affiliated shares.


Measuring Effectiveness: Roadmap to Assessing System-Level and SDG Investing

Steve Lydenberg is founder and CEO and William Burckart is president and COO of The Investment Integration Project (TIIP). This post is based on a TIIP report by Mr. Lydenberg and Mr. Burckart.

As responsible investment in its various forms [1] makes increasing inroads into the investment community, the question of how such investors set their goals and measure their progress toward these goals is of ever greater importance.

As to their financial goals, the answer is relatively clear: traditional investors integrating environmental, social and governance concerns into the security selection are seeking either competitive or enhanced returns, while investors with a philanthropic mission may be willing to accept concessionary returns or combine conventional investments with philanthropic activities.


How Should Financial Regulators Handle the Bitcoin Era?

William Magnuson is an Associate Professor at Texas A&M Law School. This post is based on a recent article by Professor Magnuson, forthcoming in the Stanford Journal of Law, Business & Finance.

Financial regulators in the United States and abroad have recently trained their sights on innovations at the intersection of finance and technology. Cryptocurrencies like Bitcoin and Ethereum have come under fire, as have other fintech firms. But despite a flurry of activity and increasing attention to the issue, regulators have struggled to apply old law to new facts. In a recent article, Financial Regulation in the Bitcoin Era, forthcoming in the Stanford Journal of Law, Business & Finance, I argue that existing models of financial regulation are ill-equipped to handle the problems that will arise in the Bitcoin era, and I propose a set of guiding principles for a more effective financial regulatory regime.


HLS Program Seeks Academic Fellows

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The Harvard Law School Program on Corporate Governance is seeking applications from highly qualified candidates who are interested in working with the Program, and Program Director Lucian Bebchuk, as Post-Graduate Academic Fellows in the areas of corporate governance and law and finance. Candidates should be interested in spending two to three years at Harvard Law School (longer periods may be possible). Candidates should have a J.D., LL.M., or S.J.D. from a U.S. law school, or a Ph.D. in economics, finance, or related areas by the time they commence their fellowship. Candidates still pursuing an S.J.D. or Ph.D. are eligible so long as they will have completed their program’s coursework requirements by the time they start.

During the term of their appointment, Post-Graduate Academic Fellows work on research and corporate governance activities of the Program, depending on their skills, interests, and Program needs. Fellows may also work on their own research and publishing in preparation for a career in academia or policy research. A significant number of former Fellows of the Program now teach in leading law schools in the U.S. and abroad.

Applications are considered on a rolling basis, and the start date is flexible. Interested candidates should submit a CV, transcripts, a writing sample, a list of references, and cover letter to the coordinator of the Program, Ms. Jordan Figueroa, at The cover letter should describe the candidate’s experience, reasons for seeking the position, career plans, and the kinds of projects and activities in which he or she would like to be involved at the Program. The position includes Harvard University benefits and a competitive fellowship salary.

Ten Crypto-Financing Caveats

John Reed Stark is President at John Reed Stark Consulting, LLC. This post is based on a publication authored by Mr. Stark.

Floyd “Money” Mayweather is one of the greatest pound-for-pound boxers in history, while DJ Khaled is a brilliant musical artist and wildly popular Internet phenomenon. The two superstars actually have a lot in common.

They are both: astute, accomplished and prosperous entrepreneurs; larger-than-life personas, with tens of millions of online followers and fans; and extraordinary success stories rooted in hard work, endless creativity and brilliant execution.

But those are not the only traits they share.


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