Corporate Law And The Longterm Shareholder Model Of Corporate Governance
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Corporate Law And The Longterm Shareholder Model Of Corporate Governance
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Author : John H. Matheson
language : en
Publisher:
Release Date : 2011
Corporate Law And The Longterm Shareholder Model Of Corporate Governance written by John H. Matheson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
The key to effective corporate accountability today appears to be the existence of a class of "permanent" owners, holding approximately one-quarter of the outstanding equity, who have an incentive to monitor the operations of the corporation. This is essentially the system in Germany, Britain, and Japan. . . . In the United States, encouraging a pattern of domestic institutional ownership will be a way of ensuring the continuance of effective governance. The challenge, then, for the United States is to identify its "permanent" shareholder institutions and to ensure that they have the incentive and ability to perform the monitoring function. As recently as a few years ago, the ability and desire of corporate shareholders to mount a challenge over corporate governance seemed suspect. After all, shareholders were considered to be passive, impotent, and unconcerned. A shareholder revolution, however, is occurring, highlighted by the ascendancy of the institutional investor. This development, combined with the current anti-shareholder corporate governance trend, renders obsolete much of contemporary corporate law doctrine and practice. As a result, corporate law is in flux and turmoil. "[A]n extraordinary ferment of activity in the field of corporate governance" has resulted, including the proliferation of state-adopted and corporation-imposed antitakeover mechanisms such as the poison pill,increased involvement by the Securities and Exchange Commission (SEC), and intense criticism by institutional investors of current corporate governance structures and mechanisms. Such intense controversy surrounding corporate governance issues appears inevitable given the far-reaching economic and social impact of the modern corporation The stakes are enormous. The current corporate governance framework does not adequately address the evolution of the nature and role of modern institutional investors. Accompanying institutional investors' growth and concentration of share ownership is their desire and ability to participate meaningfully in governance issues Moreover, at no time has the need for shareholder activism been more acute; the marked downturn in takeovers this decade eliminates the potential disciplinary force that the threat of takeovers can have upon management. Although commentators have struggled to keep pace with institutional shareholder activism amid this changing corporate landscape, none have proffered a model procedural governance framework as proposed in this Article. Corporate law has developed dialectically in four stages. In the current "insulated managerialism" stage of corporate law, institutional shareholders lack an incentive to invest in a corporation for the long term. They currently lack the opportunity to offer meaningful guidance on fundamental corporate affairs and major longterm financial strategies. Piecemeal reform efforts cannot address the core weakness in the current framework of corporate governance - that modern institutional shareholders lack both the incentives and legal base to invest in a corporation for the long term. This Article proposes to harness fundamental principles of corporate governance to develop an innovative governance framework responsive to the evolving nature of modern institutional shareholders and boards of directors. The focus of this model framework is the process by which corporate governance powers are allocated. Rather than setting out substantive rules fixing the respective duties and powers of shareholders and nonshareholders, the proposed model establishes a process by which governance issues are resolved. Such a "process approach" offers many advantages. First, a procedural framework can remain viable amid a dynamic corporate law landscape. Second, although most institutional investors cannot monitor the hundreds of companies within their portfolio, they can monitor particularly important events and issues in those companies. Indeed, focusing upon significant issues common to all corporations obviates the need for longterm shareholders to engage in firm-specific monitoring. The increased economies of scale afforded by this procedural focus will fuel longterm shareholders' incentives to improve underlying corporate performance and profitability. The proposed procedural governance framework ensures that the directors will seek input from longterm shareholders whenever fundamental changes in the corporation's governance regime are proposed. Third, a procedural corporate law regime may be the inevitable result of the forces currently shaping corporate law. In particular, such a structure is the logical result of the "nexus of contracts" perspective of corporate law. Process-oriented reform should squarely address the circumstances under which shareholders should or must be allowed to guide directors' or managers' business judgment. Longterm shareholders must be allowed to do so when either or both of two factors exist: when conflicts of interest between shareholders and nonshareholders substantially blur a board's ability to determine an appropriate course of action objectively and efficiently, or when the decision facing a director will have such an impact upon the shareholders' financial investment that shareholders possess significant incentives to determine the course that will maximize longterm shareholder/corporate value. Shareholders' procedural involvement may appear through several mechanisms, including shareholder voting and shareholder advisory committees. Fully implemented, this proposal would enable the board to perform the function it is best suited to perform: to be an effective central mediator between longterm shareholders and longterm stakeholders. Under the proposal, the board would also seek the advice of major longterm shareholders on significant financial matters, in addition to seeking the counsel already provided by management and longterm stakeholders. The longterm economic efficiency that this model generates should be self-propagating. Sophisticated shareholders will invest only in those corporations with responsive management. This fosters cooperation. Corporate management will be forced to consider the desires of major longterm shareholders. Corporations that acknowledge major longterm shareholders' governance desires will have share prices that reflect greater shareholder satisfaction, and ultimately will be able to attract the patient capital essential for longterm success. This Article suggests a process by which longterm shareholders may meaningfully influence corporate governance. Part I describes the development of the current governance regime as framed by practices, legislation, and case law. Corporate law has evolved in four stages, from shareholder primacy to managerial capitalism, and then from management monitoring to the current situation, flourishing insulated managerialism. Consequently, the current governance framework is inconsistent with the ascendancy of the institutional investor. Part II describes the potency of the escalating conflict between shareholders and nonshareholders and examines current reform proposals. This Part argues that institutional investors lack an effective means of involvement in governance issues and thereby lack the incentive to view their holdings as longterm investments. Accordingly, Part III of this Article sets out a model framework of corporate governance based on the assimilation of the institutional investor as the quintessential longterm shareholder. This part proposes recognizing the role and right of the "longterm shareholder" as a means toward reducing this shareholder/nonshareholder tension. The purpose is to promote cooperation, thereby easing the conflicts between shareholders and nonshareholders that have escalated with the rise of the institutional investor, and to provide a process by which shareholder interests are represented effectively. Moreover, since meaningful reform must ultimately be ground in specific statutory language, this Article proposes model statutory provisions that are consistent with the role of the longterm shareholder in corporate governance. Part IV of the Article explores the nature and destiny of the "longterm shareholder" governance regime.
The Corporate Objective
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Author : Andrew R. Keay
language : en
Publisher: Edward Elgar Publishing
Release Date : 2011-01-01
The Corporate Objective written by Andrew R. Keay and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-01-01 with Business & Economics categories.
'This is legal scholarship of the finest kind, concerned with an issue of supreme political, economic and social importance. Professor Keay takes the debate on the object of the modern public corporation by the scruff of its neck and skilfully navigates between the Scylla and Charybdis of the shareholder/stakeholder debate. This book, characterised by admirable analytical clarity and a huge amount of research, faithfully summarises the debate hitherto, and propels us to the next stage with a powerful argument, which challenges, effectively, both the stakeholder and shareholder theories.' – Harry Rajak, University of Sussex School of Law, UK The Corporate Objective addresses a question that has been subject to much debate: what should be the objective of public corporations? It examines the two dominant theories that address this issue, the shareholder primacy and stakeholder theories, and finds that both have serious shortcomings. The book goes on to develop a new theory, called the Entity Maximisation and Sustainability Model. Under this model, directors are to endeavour to increase the overall long-run market value of the corporation as an entity. At the same time as maximising wealth, directors have to ensure that the corporation survives and is able to stay afloat and pursue the development of the corporation's position. Andrew Keay seeks to explain and justify the model and discusses how the model is enforced, how investors fit into the model, how directors are to act and how profits are to be allocated. Analysing in depth the existing theories which seek to explain the corporate objective, this book will appeal to academics in corporate law and corporate governance as well as law, finance, business ethics, organisational behaviour, management, economics, accounting and sociology. Postgraduate students in corporate law and corporate governance, directors, and government regulators will also find much to interest them in this study.
Shareholder Primacy And Global Business
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Author : Lela Mélon
language : en
Publisher: Routledge
Release Date : 2019-03-13
Shareholder Primacy And Global Business written by Lela Mélon and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-03-13 with Law categories.
In the context of growing public interest in sustainability, Corporate Social Responsibility (CSR) has not brought about the expected improvement in terms of sustainable business. Self-regulation has been unable to provide appropriate answers for unsustainable business frameworks, despite empirical proof that sustainable behaviour is entirely in corporate enlightened self-interest. The lack of success of the soft law approach suggests that hard law regulation may be needed after all. This book discusses these options, alongside the issue of shareholder primacy and its externalities in corporate, social, and natural environment. To escape the "prisoner’s dilemma" European corporations and their global counterparts have found themselves in, help is needed in the form of EU hard law to advocate sustainability through mandatory rules. This book argues that the necessity of these laws is based on the first-mover’s advantage of such corporate law approach towards sustainable development. In the current EU law environment, where codification of corporate law is sought for, forming and defining a general EU policy could not only help corporations embrace this self-enlightened behaviour but could also build the necessary "EU corporate citizenship" atmosphere. Considering the developments in the field of CSR as attempts to mitigate negative externalities resulting from inappropriate shareholder primacy use, the book is centred around a discussion of the shareholder primacy paradigm, its legal position and its (un)suitability for modern global business. Going beyond solely legal analysis, juxtaposing legal principles and argumentation with economic theoretic approaches and, more importantly, real-life examples, this book is accessible to both professionals and academics working within the fields of business, economics, corporate governance and corporate law.
Comparative Corporate Governance
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Author : Véronique Magnier
language : en
Publisher: Edward Elgar Publishing
Release Date : 2017-08-25
Comparative Corporate Governance written by Véronique Magnier and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-08-25 with Business & Economics categories.
Comparative Corporate Governance considers the effects of globalization on corporate governance issues and highlights how, despite these widespread consequences, predictions of legal convergence have not come true. By adopting a comparative legal approach, this book explores the disparity between convergence attempts and the persistence of local models of governance in the US, Europe and Asia.
Shareholder Primacy And Corporate Governance
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Author : Shuangge Wen
language : en
Publisher: Routledge
Release Date : 2013-10-08
Shareholder Primacy And Corporate Governance written by Shuangge Wen and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-10-08 with Law categories.
Rising defaults in the financial market in 2007, the current widespread economic recession and debt crisis have added impetus to existing doubts about companies’ governance, and cast new light on future trends in shareholder-oriented corporate practice. Taking account of these developments in the field and realising the current need for changes in governance, this book offers a thorough exploration of the origins, recent changes and future development of the corporate objective—shareholder primacy. Legal and theoretical aspects are examined so as to provide a comprehensive and critical account of the practices reflecting shareholder primacy in the UK. In the wake of the financial crisis, this book investigates the direction of future policy, with particular attention to changes in governing rules and regulations and their implications for preserving the objective of shareholder primacy. It examines current UK and EU reform proposals calling for long-term and socially-responsible corporate performance, and the potential friction between proposed legal changes and commercial practices. This book will be useful to researchers and students of company law, and business and management studies.
Beyond Shareholder Wealth Maximisation
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Author : Min Yan
language : en
Publisher: Routledge
Release Date : 2017-09-08
Beyond Shareholder Wealth Maximisation written by Min Yan and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-09-08 with Business & Economics categories.
The corporate objective, namely, in whose interests a company should be run, is the most important theoretical and practical issue confronting us today, as this core objective animates or should animate every decision a company makes. Despite decades of debate, however, there is no consensus regarding what the corporate objective is or ought to be, but clarity on this issue is necessary in order to explain and guide corporate behaviour, as different objectives could lead to different analyses and solutions to the same corporate governance problem. In addition to the study on the corporate objective in Anglo-American jurisdictions, the discussion of this topic in the context of China is also very important on the grounds that China has become the second largest economy in the world and is playing an increasingly significant role in global affairs. Though a socialist state, China has also been relying heavily on the corporate vehicle as the most important business organisational form to ensure its rapid economic development since its market reforms in 1978. Adolf Berle and Gardiner Means’s observation made over eight decades ago that large public companies dominate the world remains true today, not only in the West but also in China. The regulation and governance of such companies will have a material impact on the further development of the Chinese economy, which could in turn directly affect the world economy. Company law and corporate governance therefore receive much attention and have become a vital issue in China. Although the current focus is primarily on corporate performance, the fundamental question at the heart of corporate governance, namely the corporate objective, is still unresolved. Contrary to the widely held belief that the corporate objective should be maximising shareholder wealth, this book seeks to demonstrate that the shareholder wealth maximisation approach is both descriptively inaccurate and normatively unsuitable. As an antithesis to it, stakeholder theory generally develops to be a more suitable substitute. Justifications and responses to its main criticisms are offered from descriptive, normative and instrumental aspects, whilst new techniques of balancing competing interests and more workable guidance for directors’ behaviour are brought forward as essential modifications. Along with the unique characteristics of socialist states, the stakeholder model is expected to find solid ground in China and guide the future development of corporate governance. This book will be important and useful to researchers and students of corporate law, corporate governance, business and management studies.
The Enlightened Shareholder Value Principle And Corporate Governance
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Author : Andrew Keay
language : en
Publisher: Routledge
Release Date : 2013
The Enlightened Shareholder Value Principle And Corporate Governance written by Andrew Keay and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Business & Economics categories.
The book explains and assesses the nature of enlightened shareholder value principle (ESV) and its contribution to corporate governance. Andrew Keay traces the development of the principle of ESV and examines it in the context of existing principles which have influenced corporate governance. The book analyses the UK legislation that delivers the principle in corporate law and ESV is compared to the constituency statutes that apply in the US in order to determine can whether anything can be learned from the American experience with these statutes. Finally the book considers whether ESV will mean a less short-termist approach by financial institutions and non-financial institutions after the global financial crisis.
The Shareholder Value Myth
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Author : Lynn Stout
language : en
Publisher: Berrett-Koehler Publishers
Release Date : 2012-05-07
The Shareholder Value Myth written by Lynn Stout and has been published by Berrett-Koehler Publishers this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-05-07 with Business & Economics categories.
An in-depth look at the trouble with shareholder value thinking and at better options for models of corporate purpose. Executives, investors, and the business press routinely chant the mantra that corporations are required to “maximize shareholder value.” In this pathbreaking book, renowned corporate expert Lynn Stout debunks the myth that corporate law mandates shareholder primacy. Stout shows how shareholder value thinking endangers not only investors but the rest of us as well, leading managers to focus myopically on short-term earnings; discouraging investment and innovation; harming employees, customers, and communities; and causing companies to indulge in reckless, sociopathic, and irresponsible behaviors. And she looks at new models of corporate purpose that better serve the needs of investors, corporations, and society. “A must-read for managers, directors, and policymakers interested in getting America back in the business of creating real value for the long term.” —Constance E. Bagley, professor, Yale School of Management; president, Academy of Legal Studies in Business; and author of Managers and the Legal Environment and Winning Legally “A compelling call for radically changing the way business is done... The Shareholder Value Myth powerfully demonstrates both the dangers of the shareholder value rule and the falseness of its alleged legal necessity.” —Joel Bakan, professor, The University of British Columbia, and author of the book and film The Corporation “Lynn Stout has a keen mind, a sharp pen, and an unbending sense of fearlessness. Her book is a must-read for anyone interested in understanding the root causes of the current financial calamity.” —Jack Willoughby, senior editor, Barron’s “Lynn Stout offers a new vision of good corporate governance that serves investors, firms, and the American economy.” —Judy Samuelson, executive director, Business and Society Program, The Aspen Institute
Shareholder Activism And The Law
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Author : Ekrem Solak
language : en
Publisher: Routledge
Release Date : 2020-05-04
Shareholder Activism And The Law written by Ekrem Solak and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-05-04 with Law categories.
This book provides a complete framework for contemporary shareholder activism and its implications for US corporate governance, which is based on director primacy theory. Under director primacy theory, shareholders do not wish to be involved in the management of the company; in the rare event that they wish to be involved, it is considered a transfer of power from the board of directors to shareholders, which in turn reduces the efficiency of centralised decision-making in public companies. However, this book demonstrates that shareholders do not use their power to transfer corporate control from the board to themselves, and that some form of shareholder activism is even collaborative, which is a new paradigm for US corporate governance. This book shows that while monitoring remains a key contribution of shareholders, they also bring new informational inputs to corporate decision-making that could not be obtained under the traditional board model. Accordingly, contemporary shareholder activism enhances the board’s decision-making and monitoring capacity, without undermining the economic value of the board's authority. Therefore, this book argues that the complete approach of contemporary shareholder activism should be accommodated into US corporate governance. In doing so, this book considers not only legal and regulatory developments in the wake of the 2007–2008 financial crisis, but also the governance developments through by-law amendments. Furthermore, the author makes several recommendations to soften the current director primacy model: establishing a level playing field for private ordering, adopting the proxy access default regime, the majority voting rule, the universal proxy rules, and enhancing the disclosure requirements of shareholders. The book will be of interest to academics and students of corporate governance, both in the US and internationally.
Corporate Law And Economic Stagnation
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Author : Pavlos E. Masouros
language : en
Publisher:
Release Date : 2013
Corporate Law And Economic Stagnation written by Pavlos E. Masouros and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Corporate governance categories.
The shift in the institutional logics of corporate governance towards shareholder value ('Great Reversal in Corporate Governance') coupled with shareholdership's increasing short-termism ('Great Reversal in Shareholdership') have cumulatively contributed to the low GDP growth rates that are observed in five major Western economies (France, Germany, the Netherlands, the UK, and the US) since the breakdown of the Bretton Woods system in the early 1970s. This book presents - through empirical data and with the help of the post-Keynesian theory of the firm - a historical causality chain: the two Great Reversals led to higher equity payout ratios and lower retention ratios in public corporations that in turn caused lower growth rates of (business) capital accumulation that in turn caused lower GDP growth rates. Corporate law has been an accomplice for the reorientation of corporate governance towards shareholder value, i.e. for the 'Great Reversal in Corporate Governance, ' and thus it indirectly shares the blame for the low rates of capital accumulation that have thrown the five major Western economies in a stagnation mode over the past four decades. The book introduces the post-Bretton Woods shareholder value index: a numerical legal index that shows the progress that the corporate laws of the five major Western economies covered have made at the shareholder value level during the post-Bretton Woods era. Corporate law rules have escalated the divestment of structurally long-termist institutional investors from equity positions and have preserved the trend towards shareholder short-termism that other legal and extra-legal institutions have directly caused. Corporate law has thus sustained the 'Great Reversal in Shareholdership' and hence it has contributed to the maintenance of the second factor that brought about the observed low growth rates in the five major Western economics over the past four decades. The book presents developments in the field of corporate law in the five major Western economies generating bias in favor of short-termism. 'Long Governance' emerges as the only way by which corporate law can fight stagnation. It is a management theory that calls management to set as a benchmark for its actions the long-run interests of all the shareholders who hold, have held, or will hold stock in the firm and also a legal concept requiring directors' duties to be discharged towards the maximization of long-term corporate welfare. Long Governance encourages also the provision of incentives, so that a class of long-termist shareholders, which can subsequently be empowered, can be created