Marc Goergen's Blog, page 3

CEO Political Ideology, Shareholder Primacy and Dividend Policy

What is the purpose of a corporation? While common law, which prevails in Anglo-Saxon countries, prescribes that the purpose of a firm is to maximize shareholder value, other legal systems tend to accord at least some importance to stakeholders other than the shareholders. For example, the German corporate law system explicitly refers to employee interests while making employee representation on boards of directors mandatory subject to firm size. While such countrywide explanations are useful in answering the question about what the purpose of a corporation should be, they are not helpful for furthering our understanding of the reasons behind the observed heterogeneity in the behaviour of firms from the same legal regime. For example, why do some firms from the same legal regime follow a more shareholder-centric approach while others prioritize the welfare of their employees over their shareholder? Importantly, how do these differences in approach affect firm policy? Read more here.

Corporate Governance for New Ventures - Course Outline

This is an updated version of my 2019 course outline, which can be found here. All of the practical cases can be obtained from Harvard Business Publishing.
COURSE DESCRIPTIONWho Should Take this Course?
Corporate governance is frequently reduced to compliance and box ticking. This course will show you that corporate governance is more than this and that it can be used proactively to create value. The course will also show you that the optimal corporate governance arrangements vary across firms: What may be optimal for a mature firm may not work for an early venture, and vice-versa.

This course is aimed at three different constituencies. First, it is aimed at budding entrepreneurs who want to know more about designing the governance of their ventures in view of ultimately going public. Second, it is also aimed at those who aspire to a career as a non-executive director. Finally, the course should also be of interest to investors and other parties interested in how corporate control, ownership and governance vary across the world.
Course OverviewThis course aims to introduce you to recent developments in the theory and practice of corporate governance. The course starts by reviewing the conflicts of interests from which corporations may suffer, considering their control and ownership as well as the institutional and legal environment. The course proposes ways of mitigating such conflicts of interests. It also questions the simplistic view of the corporation as a device for creating solely value for its shareholders. For once, there is growing pressure on corporations – from both society at large and some professional investors – to be socially responsible. In addition, the course reviews leading edge topics in corporate governance, with special emphasis on corporate governance issues pertaining to young ventures and firms that are about to go public. Importantly, the course adopts an international perspective by comparing the main corporate governance systems across the world.
EMPLOYABILITYSince the first codes of best practice in corporate governance emerged during the 1990s, corporate governance has been constantly on the agenda. Corporate governance affects what can and cannot be done within and by an organisation. In turn, the actions and decisions of an organisation also affect its corporate governance. This makes corporate governance a vital part of any organisation. In addition, investors and stock market authorities value companies with strong governance. Hence, knowledge about corporate governance is increasingly valued by employers. Such knowledge may also open up new career opportunities such as independent, non-executive directorships.
LEARNING OBJECTIVESOn completion of the course you should be able to:
Evaluate the current state of corporate governance in an international contextDescribe differences in corporate control and managerial power across the worldAssess the potential conflicts of interests that may arise in various corporate governance environmentsUnderstand the main roles of the board of directors and issues pertaining to board composition and board gender balanceExplain the potential consequences of weak corporate governance on corporate decision making and firm valueComprehend investors’ expectations about corporate governance arrangementsBe aware of biases in human behaviour and how they may affect corporate governanceAnalyse the importance and development of corporate social responsibility and socially responsible investmentDifferentiate the corporate governance needs of a young venture from those of a more mature businessDiscuss how firms from weak corporate governance systems can improve their access to capital by cross-listing in a better system SYLLABUS Defining corporate governance and key theoretical modelsCorporate control across the worldControl versus ownership rightsBoards of directorsBehavioural biases and corporate governanceCorporate governance regulation in an international contextCorporate governance in initial public offerings and cross-listingsCorporate social responsibility (CSR) and socially responsible investment (SRI)READING LISTGoergen, M. (2018), Corporate Governance. A Global Perspective, Andover: Cengage, ISBN 978-1-4737-5917-6.
PROGRAMMESession 1Introduction
Defining corporate governance and key concepts
B.C.: Goergen (2018)
Session 2Case discussion
P.C.: Battle for the Soul of Capitalism: Unilever and the Kraft Heinz Takeover Bid (A) (317127-PDF-ENG)
Sessions 3 – 4Corporate control across the world
Control versus ownership rights
B.C.: Goergen (2018), chapters 2-3
Student presentations (Session 4): Identifying ownership, control and special shareholder rights for a case company
Session 5Case discussion
P.C.: Magna International, Inc. (A) (211044-PDF-ENG)
P.C.: Magna International, Inc. (B) (211045-PDF-ENG)
Session 6Board crisis simulation
P.C.: Board Crisis Simulation (BCS) (A) (IN1169-PDF-ENG)
P.C.: Board Crisis Simulation (BCS) (B) Profiles (IN1170-PDF-ENG)
B.C.: Goergen (2018), chapters 7-8
Session 7Case discussion
P.C.: A Corporate Governance Breach at SingPost (SMU173-PDF-ENG)
Session 8Boards of directors and behavioural biases
Simulations
No preparation required for the simulations and all material will be made available during the session
B.C.: Goergen (2018), chapter 12
Session 9Student presentations: Corporate governance regulation in a country of your choice
B.C.: Goergen (2018), chapters 4 and 6; Padgett (2011), chapter 7
Session 10Corporate governance in initial public offerings and cross-listings
B.C.: Goergen (2018), chapters 10-11; no equivalent chapters in Padgett (2011)
Session 11Case discussion
P.C.: Alibaba Goes Public (A) (115029-PDF-ENG)
Session 12Case discussion
P.C.: The Uber Board Deliberates: Is Good Governance Worth the Firing of an Entrepreneurial Founder? (CU242-PDF-ENG)
Session 13Corporate social responsibility (CSR) and socially responsible investment (SRI)
B.C.: Goergen (2018), chapter 13; Padgett (2011), limited coverage in chapter 4
Session 14Case discussion
P.C.: Dieselgate – Heavy Fumes Exhausting the Volkswagen Group (HK1089-PDF-ENG)
Session 15Final exam

When Women Are on Boards, Male CEOs Are Less Over-confident

A number of governments (notably those in India, California, and parts of Europe) are pushing for greater female representation in the boardroom. And several studies suggest why: Having women on the board results better acquisition and investment decisions and in less aggressive risk-taking, yielding benefits for shareholders. What’s less clear is why these effects happen. See more.

The effects of women on boards are also discussed in chapter 7 of my corporate governance textbook.

When Women Are on Boards, Male CEOs Are Less Overconfident

A number of governments (notably those in India, California, and parts of Europe) are pushing for greater female representation in the boardroom. And several studies suggest why: Having women on the board results better acquisition and investment decisions and in less aggressive risk-taking, yielding benefits for shareholders. What’s less clear is why these effects happen. See more.

The effects of women on boards are also discussed in chapter 7 of my corporate governance textbook.

Trust and Shareholder Voting

Voting at annual general shareholder meetings (AGMs) has been shown to be valuable. This makes perfect sense as voting gives shareholders a say on important corporate decisions, such as the composition of the board of directors and the approval of mergers and acquisitions. It also enables shareholders to express their support or dissent of the current management. Surprisingly though, voter turnout at AGMs across the world is relatively low with an average of slightly less than 60 percent of voting shares. Nevertheless, there is variation across countries with voter turnout ranging from a low of 41 percent in New Zealand to a high of 100 percent in Cyprus. In addition, the average approval rates for management-initiated proposals range between 84 percent and 100 percent, indicating that shareholders are less likely to show dissent to the firm’s management in some countries compared to others. What explains these variations across countries? ... Read more

How an Issuer’s Multiple Credit Ratings Can Affect Its IPO

While the list of prospective issuers with credit ratings is lengthy, literature is sparse on how ratings from multiple credit rating agencies (CRAs) affect the performance of a company’s initial public offering (IPO). Our research is motivated by the lack of such literature and by Sangiorgi and Spatt (2017), who argue that multiple ratings are socially optimal if the benefit of the additional rating outweighs the cost of information production. This argument aligns with the “shopping hypothesis” and “information production hypothesis” of Bongaerts et al. (2012). Under the former hypothesis, issuers “shop” for an additional rating in hopes of improving … Read more

Firms’ Rationales for CEO Duality: Evidence from a Mandatory Disclosure Regulation

The common practice of combining the roles of the CEO and chairman of the board (CEO duality) has been the topic of one of the longest debates in corporate governance. On the one side, a majority of S&P 500 firms combine the two roles. On the other side, investors and governance experts—via shareholder proposals and public campaigns—frequently pressure firms into separating the two roles, emphasizing a lack of effective managerial oversight under CEO duality. Nevertheless, most such proposals do not receive majority support, which suggests disagreement among shareholders about the value of CEO duality. Such disagreement is consistent with the inconclusive academic literature on the relation between CEO duality and firm performance (for a review, see Krause, Semadeni, and Cannella, 2014), as well as the lack of reliability of extant studies likely suffering from the non-random choice of board structures. The above discussion highlights the need for both practitioners and scholars to better understand why firms combine or separate the CEO and chairman roles.

Read more here.

Chapter 1 - "Corporate Governance. A Global Perspective" - Multiple-choice Quiz

Chapter 1 by ProProfs

Corporate Governance Course

COURSE DESCRIPTIONThis is a slightly different version of the course outline I published sometime ago and which can be found here.
Who Should Take this Course
Corporate governance is frequently reduced to compliance and box ticking. This course will show you that corporate governance is more than this and that it can be used proactively to create value.
This course is aimed at three different constituencies. First, it is aimed at budding entrepreneurs who want to know more about designing the governance of their ventures in view of ultimately going public. Second, it is also aimed at those who aspire to a career as a non-executive director. Finally, the course should also be of interest to investors and other parties interested in how corporate control, ownership and governance vary across the world.
Course Overview
This course aims to introduce you to recent developments in the theory and practice of corporate governance. The course starts by reviewing the conflicts of interests from which corporations may suffer, considering their control and ownership as well as the institutional and legal environment. The course proposes ways of mitigating such conflicts of interests. It also questions the simplistic view of the corporation as a device for creating solely value for its shareholders. For once, there is growing pressure on corporations – from both society at large and some professional investors – to be socially responsible. In addition, the course reviews leading edge topics in corporate governance, including corporate governance issues pertaining to young ventures and firms that are about to go public as well as behavioural issues at the board level. Importantly, the course adopts an international perspective by comparing the main corporate governance systems across the world.
LEARNING OBJECTIVES
On completion of the module you should be able to:
Evaluate the current state of corporate governance in an international contextDescribe differences in corporate control and managerial power across the worldAssess the potential conflicts of interests that may arise in various corporate governance environmentsUnderstand the main roles of the board of directors and issues pertaining to board composition and board gender balanceCritically evaluate the effectiveness of the main corporate governance mechanisms and their impact on firm valueExplain the potential consequences of weak corporate governance as well as behavioural biases on corporate decision making and firm valueAnalyse the importance and development of corporate social responsibility and socially responsible investmentDifferentiate the corporate governance needs of a young venture from those of a more mature businessDiscuss how firms from weak corporate governance systems can improve their access to capital by cross-listing in a better system
SYLLABUS
Defining corporate governance and key theoretical modelsCorporate control across the worldControl versus ownership rightsTaxonomies of corporate governance systemsBoards of directorsIncentivising managers Corporate governance regulation in an international contextCorporate governance in initial public offerings and cross-listingsBehavioural biases and corporate governanceCorporate social responsibility and socially responsible investment
READING LIST
The main reading and textbook for this module is:Goergen, M. (2018), Corporate Governance. A Global Perspective, Andover: Cengage, ISBN 978-1-4737-5917-6.
PROGRAMME
Session 1Defining corporate governance and key theoretical modelsB.C.: Goergen (2018), chapter 1
Sessions 2-3Corporate control across the worldControl versus ownership rightsB.C.: Goergen (2018), chapters 2-3
Session 4Identifying ownership, control and special shareholder rights for a case companyMaterial will be made available in advance of the session            Sessions 5-6Taxonomies of corporate governance systemsB.C.: Goergen (2018), chapter 4
Sessions 7-9Boards of directorsIncentivising managers B.C.: Goergen (2018), chapters 7-8
Sessions 10-11Corporate governance regulation in an international contextB.C.: Goergen (2018), chapter 6
Session 12Corporate governance in initial public offerings and cross-listingsB.C.: Goergen (2018), chapters 10-11
Session 13Behavioural biases and corporate governanceB.C.: Goergen (2018), chapter 12
Session 14Behavioural experiments
Session 15Corporate social responsibility and socially responsible investmentB.C.: Goergen (2018), chapter 13

ADDITIONAL COURSE RESOURCESWebsites·        Prof. Marc Goergen’s blog:http://profmarcgoergen.com/
·        European Corporate Governance Institute (ECGI): http://www.ecgi.global/)A free, extensive library covering most national and international codes of corporate governance can be found on the website of the European Corporate Governance Institute (ECGI): http://ecgi.global/content/codes  ·        Andrei Shleifer’s publications and dataset website:http://scholar.harvard.edu/shleifer/publications ·        Social Sciences Research Network:http://www.ssrn.com/

Too Much of a Good Thing Is Not Necessarily Better

Starting with the 1992 Cadbury Report in the UK, the emphasis of most codes of best practice has been on ensuring a sufficient number of independent directors on corporate boards. Successive codes of best practice have then attempted to increase the number of independent directors even further. It is then no surprise that Spain's Iberdrola has won successive prizes for its corporate governance. Indeed, nine of Iberdrola's 14 members of its board of directors are independent directors with another three being external directors and the remaining two being executives.

Iberdrola's board of directors, Source: https://www.iberdrola.com/corporate-governance/board-directors
So does having more independent directors on a board always mean better corporate governance? Well, not necessarily. First, the academic literature on the value consequences of board independence – with board independence typically measured by the percentage of independent directors on the board – has found little or no evidence of an effect of board independence on firm performance and value. Still, this literature is riddled with major methodological issues, which make it difficult to obtain conclusive evidence as to the existence and form of a link between board independence and firm performance. Many will also remember the case of the British bank Northern Rock, which experienced the first bank run for more than 150 years in 2007. Northern Rock had exemplary corporate governance as it was in full compliance with the Combined Code, the then UK code of best practice in corporate governance. The problem with Northern Rock was that its independent directors did not have a clue about its risky business model, which consisted of financing mortgages, i.e. long-term loans for house purchases, via the money market, a market for raising funds with maturities ranging from overnight to just below a year. When the money market collapsed during summer 2007, Northern Rock was in deep trouble. Its independent directors simply had not had the expert knowledge to ask Northern Rock's the right questions about the appropriateness and riskiness of its business model.

Second, corporate governance theory (yes, there is such a thing!) suggests that the balance between executive and independent directors matters and that this balance is determined by the firm's needs for monitoring and advice from its board. Mature firms with large free cash flows, such as Iberdrola, likely require more monitoring than advice from their board of directors. For such firms, more rather than fewer independent directors would be the best way forward in terms of ensuring good corporate governance. In contrast, smaller, younger and high-growth firms require advice rather than monitoring from their board. For such firms, a board dominated by independent directors may make the executives feel uncomfortable about seeking advice from the board. Hence, and contrary to most codes of best practice, more independent directors does not necessarily equate to better corporate governance for all firms. One size does not fit all when it comes to corporate governance.

Returning to Iberdrola, one expects this firm's monitoring needs to exceed its needs for advice as it is a mature firm and in a relatively safe industry. Hence, more rather than fewer independent directors seems the way forward. Still, Iberdrola also has CEO-chairman duality as Mr José Ignacio Sánchez Galán assumes the roles of both CEO and chairman. And, he has been on Iberdrola's board since 2001, a tenure well beyond the maximum tenure recommended by various international codes of best practice, including the French, German and UK codes. To be fair, Iberdrola has a vice-chair, Ms Inés Macho Stadler, to counterbalance the power of the CEO-chair. Still, she has also been on the board for a long time with her initial appointment dating back to 2006. Apart from Mr Sánchez Galán, Mr Francisco Martínez Córcoles is the only other executive on the board. However, he has only been on the board since March 2017. As a result of all the above, one could criticize Iberdrola's board of over-reliance on the all powerful CEO-chair.

Legal disclaimer: This blog reflects my personal opinion and not necessarily that of my employer. Any links to external websites are provided for information only and I am neither responsible nor do I endorse any of the information provided by these websites.