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Corporate Governance Systems
Transcript of Corporate Governance Systems
Olamide Omorodion Corporate Governance Systems Topic and Purpose Conclusion A contested issue
Descriptive, qualitative and categorical: Overview of Two Articles "Comparative and International Corporate Governance" (2010) by Ruth V. Aguilera & Gregory Jackson "Comparative and International Corporate Governance" analyzes developments in the study of corporate governance methods across different countries. Different conceptions of the firm prevail in different countries.
Different institutional environment matter.
Dynamic nature of corporate governance involves various active roles of agents on governance mechanism
Strong corporate governance involves ethical norms, independent board of directors, compensation & audit committee. Corporate Governance System It focuses on two questions
How to explain the differences and similarities between the corporate governance systems evident in different countries?
How these differences and similarities among countries affect firm level outcomes? “Stakeholder Rights and Corporate Governance: A Cross-National Study of Hostile Takeovers” (2004) by William D. Schneper and Mauro F. Guillén Topic and Purpose “Stakeholder Rights and Corporate Governance: A Cross-National Study of Hostile Takeovers” analyze three types of stakeholders to advance their interests, resulting in uneven adoption of hostile takeovers. It focuses on two main objectives
power-related, Normative and concepts of firms
Shareholders, Workers & Banks Hostile Takeover , more shareholder rights but less workers’ & bank’s rights are protected
Firms as financial assets more Hostile Takeovers
National institutions can be conceptualized & Measures Thesis Statement (1) “Reflection of the methodological requirements for comprehensive comparative corporate governance research and a reexamination of the salient shareholder-oriented model” Sub-Claims Single “perspective” did not properly explain “cross-national diversity”
Complex and conflicting relationships and imperfect implementation Due to:
excessive incentives for managers, too little responsibility by investors, and too little genuine scrutiny by independent boards Concerns Movement to stakeholder-oriented model Hard to diminish influence of investors
If investors influence diminished, still need to address improper and imperfect implementation safety mechanisms
No solution mentioned in creating greater scrutiny via independent boards Thesis Statement (2) "The frequency of hostile takeovers is related to the power of the different stakeholder groups in a country" Defining Hostile Takeover A comparative analysis of three types of stakeholders Sub-claims Macroeconomic Uncertainty
Individual Freedoms Agency Theory Agency Theory Cont. From Aguilera & Jackson (article 1) Recall from previous When shareholder rights are protected Case Study: German Corporate Governance German Corporate Governance Cont. German Corporate Governance Cont. German Corporate Governance Cont. Objectives Linkage between corporate governance with firm performance design of a contract that optimizes alignment between principal and agent Two extreme situation base on solution agency problems may be solved through blockholder control, where one or few blockholders retain tight control over the firm through concentrated ownership and are thus able to exert their influence over management The greater degree of worker’s and bank’s rights protected hostile takeovers hostile takeovers Insider-controlled system
Stakeholder-oriented system A result of the distribution of power in large German corporations Almost all large German corporations have one or a few big shareholders A clear stakeholder orientation
Inside-control System based on international information
No active public takeovers acts
Long-term lending relationships
Fewer stakeholder conflicts Banks fulfilled a very important role since 1990s Improvements in investor protection More transparency and protection for these investors Stakeholder orientation system has been replaced Agenda Overview of the two articles
Analysis of thesis statement of each article
Interpretation and/or evaluation
Case study of German bank
Short conclusion Do we agree with the thesis?
Other major claims?
What is good/wrong? Background information
Statement of topic and purpose Discussion of the work's organization and style
Discussion of the topic's treatment/is there another perspective
Discussion of appeal to a particular audience Praised by some; bedeviled by others: An effective way to discipline managers, and improve efficiency.
Worst manifestation of footloose capitalism: “corporate raiders,” “corporate predators,” etc. (Hirsch 1986). Not clear they deliver better corporate governance outcomes or greater allocative efficiency (Jarrell et al. 1988; Gedaljlovic & Shapiro 1998) . Cross-national differences 478 hostile takeover attempts in the United States.
273 in Britain.
19 in France, 18 in Norway, 7 in Germany, 3 each in Japan & Malaysia, 2 in Thailand, and just 1 in Chile. Stakeholders, Power, Hostile Takeovers Uncertainty undermines stability and effectiveness of markets. Predictable rules of the game, safeguards against government intervention, and ability to exercise contractual freedom. Defining Hostile Takeover 478 hostile takeover attempts in the United States.
273 in Britain.
19 in France, 18 in Norway, 7 in Germany, 3 each in Japan & Malaysia, 2 in Thailand, and just 1 in Chile. "The study also takes other contextual factors into account when it come to explaining real-world phenomena" Shareholders: Workers: Banks: Hostile takeovers offer shareholders the opportunity to sell to the highest bidder. Labor values job security & solidarity over efficiency & profitability.
Hostile takeovers seen as a breach of contract between management and labor.
When labor has channels to assert its interests, these threats are diminished. Hostile takeovers are a threat.
Interested in participating in control of important commercial customers.
Reputation costs could outweigh tangible financial gains. Shareholder versus stakeholder models.
Internal versus external constraints. Principal–agent problem Solutions to Agency Problem shareholders managers Difficulties in motivating one party to act in the best interests of another rather than in his or her own interests - Executive remuneration