Are corporations, in general, amenable to good governance? Are there inherent incompatibilities
between good governance and the corporate format of organizations? How can these be addressed
satisfactorily without over-regulation that might impair entrepreneurial potential? These are some of
the nagging issues this paper explores and offers some radical suggestions for consideration.

Full Article: Corporate Governance (PDF, 660K, 26 Pages)

Source: Social Science Research Network

Risk Management Research Report (RMRR) surveys and screens the flow of academic articles on risk management and presents extended scholarly summaries of today’s most important scholarly work in a convenient format on a timely basis. Each issue features approximately 15 of the most important scholarly articles in risk management published within the preceding quarter. For each of these articles, RMRR presents an extended summary of about 500-800 words, which contrasts with the brief (approximately 150-word) abstracts that typically accompany publication. The purpose of each summary is to provide a substantive understanding of the content of the article.

Full Article: Risk Management (PDF, 1331KB)

Source: Social Science Research Network

This paper reviews the theoretical and empirical literature on the nature and consequences of the corporate governance problem, providing some guidance on the major points of consensus and dissent among researchers on this issue. Also analysed is the effectiveness of a set of external and internal disciplining mechanisms in providing a solution for the corporate governance problem. Apart from this, particular emphases are given to the special conflicts arising from the relationship between managers and shareholders in companies with large ownership diffusion, the issue of managerial entrenchment and the link between firm value and corporate governance.

Full Article: Corporate Governance (PDF, 279K)

Source: Social Science Research Network

When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists' support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others' agenda.

Full Article: Managerial Entrenchment (PDF, 323KB)

Source: Social Science Research Network

Reflecting on the question of who is the principal subject of social responsibility in the business sphere, Greenfield sets out a number of common assumptions among fractitioners in the field and tries to dismantle them through a critical review of recent literature. Some of his reflections need to be nuanced from an ethical basis and elaborated upon from a practical point of view. Taking as our starting point Greenfield's conclusion “there is no such thing as business ethics, only ethics of individual business men and women†, this article aims to look in more depth at the consequences of regulating personal ethics and referring it to an institution. What will happen if we continue with the current approach to CSR? Is there an alternative way of implementing CSR?.

Full Article: Corporate Social Responsibility (PDF, 157KB)

Source: Socail Science Research Network

Global governance has been a rallying call for policy makers worldwide ever since the World Commission on Global Governance issued its report “Our Global Neighbourhood” in 1995.

The rising wave of suicide attacks, deteriorating Iraq situation, increasing financial instability and corporate chicanery, melting of the ice caps, sharpening inequalities, worsening poverty, the progression of AIDS and fear of pandemics show that the world is descending deeper into despair and national governments are ill equipped to handle the threats and challenges facing us in 21st Century.

Full Article: Global Governance

Source: WCFCG

This article is the first chapter of the second edition of The Anatomy of Corporate Law: A Comparative and Functional Approach, by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda and Edward Rock (Oxford University Press, 2009). The book as a whole provides a functional analysis of corporate (or company) law in Europe, the U.S., and Japan. Its organization reflects the structure of corporate law across all jurisdictions, while individual chapters explore the diversity of jurisdictional approaches to the common problems of corporate law. In its second edition, the book has been significantly revised and expanded.

As the book's introductory chapter, this article describes the functions and boundaries of corporate law. We first detail the economic importance of the corporate form's hallmark features: legal personality, limited liability, transferable shares, delegated management, and investor ownership. We then identify the major agency problems that attend the corporate form, and that, therefore, corporate law must address: conflicts between managers and shareholders, between controlling and minority shareholders, and between shareholders as a class and non-shareholder constituencies of the firm such as creditors and employees. In our view, corporate law serves in part to accommodate contract and property law to the corporate form and, in substantial part, to address the agency problems that are associated with this form. We next consider the role of law in structuring corporate affairs so as to achieve these goals: whether, and to what extent standard forms - as opposed, on the one hand, to private contract, and on the other, to mandatory rules - are needed, and the role of regulatory competition. Whilst the ‘core’ features of corporate law are present in all - or almost all - legal systems, different systems have made different choices regarding the form and content of many other aspects of their corporate laws. To assist in explaining these, we review a range of forces that shape the development of corporate law, including domestic share ownership patterns. These forces operate differently across countries, implying that in some cases, complementary differences in corporate laws are functional. However, other such differences may be better explained as a response to purely distributional concerns.

Full Article: Essential Elements (PDF, 301K)

Source: Social Science Research Network

We study the relationship between corporate governance and company performance. We consider five measures of corporate governance during the period 1998-2007. Given the passage of Sarbanes-Oxley Act (SOX) during 2002, we separate the sample into pre-2002 and post-2002 periods to study how governance-performance relationships might have been impacted by this regulation.

We find a negative and significant relationship between board independence and operating performance during the pre-2002 period, but a positive and significant relationship during the post-2002 period. The stock ownership of directors is consistently positively and significantly related to performance through each of the subperiods. Other measures, such as the governance indices introduced by Gompers, Ishii and Metrick (2003) and Bebchuk, Cohen and Ferrell (2009) provide inconsistent results. We conclude that corporate governance studies should consider director stock ownership as the most reliable measure of governance.

We further investigate the relationship between SOX, governance and performance by examining how CEOs are disciplined following poor performance. We find that board independence and director stock ownership appear to be effective governance mechanisms for replacing the CEO following poor performance.

Full Article: Governance and Performance (PDF, 229K)

Source: Social Science Research Network

This paper analyzes the importance of agency conflicts arising from managers' exposure to their firms' risk. In particular, we study how a typical firm responds to an exogenous increase in liability risk arising from its workers' exposure to newly identified carcinogens. We find that such firms, particularly those with weak balance sheets, tend to undertake aggressive growth through acquisitions. The acquired firms tend to be large, unrelated businesses with relatively high operating cash flows, recent growth, and total payouts. These deals are associated with high takeover premiums and negative abnormal returns. These findings appear to result from a managerial agency conflict: the extent of the growth is related to firms' external governance, managerial stockholdings, and institutional ownership. Overall, the evidence suggests that managerial risk aversion can have a substantial impact on corporate financing and investment decisions, and that corporate governance can be particularly important when firms encounter a negative shock.

Full Article: Corporate Governance (PDF, 692K)

Source: Social Science Research Network

Restructuring is a necessary but not sufficient condition for corporate success. The greatest challenge facing large corporations today is ensuring continuous renewal - that is, finding new growth opportunities based on core competencies while still seeking efficiencies in mature businesses. To accomplish this, corporate America must seek to balance its single-minded commitment to shareholders with a greater concern for other corporate stakeholders such as employees and suppliers (especially those supplying access to key technology). All companies compete in at least four distinct markets: capital markets (investors), product markets (consumers), labor markets (specialized talent), and technology markets (suppliers). Creating wealth for investors depends on management's ability to balance the disciplines of these various markets. Success in any one of these markets is not enough to meet the competitive demands placed on firms.

Full Article: Corporate Governance  (PDF, 11 Pages))

Source: Social Science Research Network