Monthly Archives: April 2017

CEO Power and Board Dynamics

John Graham is D. Richard Mead, Jr. Family Professor at Duke University’s Fuqua School of Business. This post is based on a recent paper by Professor Graham; Hyunseob Kim, Assistant Professor of Finance at SC Johnson Graduate School of Management at Cornell University; and Mark Leary, Associate Professor of Finance at Washington University in St. Louis.

Corporate boards are expected to oversee and monitor managers on behalf of shareholders. However, too much monitoring by the board can hinder the ability of management teams to make nimble, optimal decisions. In equilibrium, theory suggests that talented CEOs, whose skills match well to the firms they manage, should be optimally monitored less intensely by the board. Theory also suggests that inside directors (who have other ties or past work experience with the firm) are likely to monitor the CEO less intensely. Thus, an equilibrium outcome may result in talented CEOs working at firms with less independent boards of directors and the independence of the board falling over the tenure of a given CEO.

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Cash Holdings and Labor Heterogeneity: The Role of Skilled Labor

Mohamed Ghaly is Assistant Professor of Finance at Lancaster University and Konstantinos Stathopoulos is Professor of Accounting and Finance at the University of Manchester’s Alliance Manchester Business School. This post is based on a recent article by Professor Ghaly, Professor Stathopoulos, and Viet Anh Dang, Associate Professor of Finance at the University of Manchester’s Alliance Manchester Business School.

In today’s competitive labor market, many firms are facing challenges in recruiting and retaining talent. The Manpower Group, a leader in human resource consultancy, has been conducting a worldwide “Talent Shortage Survey” in recent years. In 2015, 38% of 41,000 employers in 42 countries reported difficulty filling jobs due to lack of available skills. In the presence of skill shortages firms should hold onto their valuable hard-to-replace human capital, even during economic downturns. But what are firms prepared to do in their efforts to keep skilled employees? In our article, Cash Holdings and Labor Heterogeneity: The Role of Skilled Labor, which was recently accepted for publication in the Review of Financial Studies, we examine how firms’ cash reserves are determined by their reliance on skilled workers. We show that firms with a higher share of skilled workers hold more precautionary cash.

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As the U.S. Seeks to Roll Back Regulations, the European Parliament Adopts New Corporate Governance Rules

Cydney S. Posner is Special Counsel at Cooley LLP. This post is based on a Cooley publication.

Just when the U.S. is looking at how to roll back its regulations on corporations (among others) (see, e.g., this PubCo postthis PubCo post and this PubCo post), the rest of the world seems to be headed in the opposite direction. On Tuesday, the EU Parliament approved a Shareholder Rights Directive, which introduces, among other things, the concept of binding say-on-pay votes for companies listed in EU markets (over 8,000 of them). The Directive also includes some interesting measures intended to impede short-termism. According to the press release fact sheet issued by the European Commission, the Directive must still be adopted by the European Council (expected shortly) and, assuming adoption, will become effective two years thereafter.

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