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Archive for March, 2016

The Volkswagen case and its corporate governance roots.

March 6, 2016 1 comment

Charles M. Elson, Craig K. Ferrere and Nicholas J. Goossen recently published a short article (1) in which they analize the corporate governance flaws that might have led to the recent Volkswagen scandal related to fraud in the polluting emissions metrics disclosed for their diesel vehicles.

 Board and even Ceo said they were unaware of the fraud, which used a complex and widespread procedure, which unveils a sever lack of oversight.

 Elson, Ferrere and Goossen wonder why this fraud appeared in a company with a strong controlling shareholder, (the two Piech and Porsche families jointly own 31.5% of shares, but Quatar Holding also owns 15.4%), that has also the government as a shareholder (12.4%) and employees sat at the board table. It was not the kind of firm with dispersed ownership where the Corporate Governance theory would have predicted a lack of oversight over the managers activities and interests.

 The causes.

 The scandal reveals bad management but also a lack of an adequate corporate culture, which allowed a complex fraudulent system to be developed and covered by several management layers. The board didn`t impose a correct oversight and corporate culture, for different reasons: Read more…

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Networks, personal agendas and Boards´ effectiveness

Mathilde Ravanel wonders in his 2013 paper “Networks on boards: a survey of the literature” (1) whether directors own interests may affect their effort in favor of the shareholders´interests. Do boards really exert an effective oversight over managers`actions?

 She revises the literature on the matter, and explains her views on the main topics tackled by the main authors. Jensen and Meckling (1976) Fama (1980) Fama and Jensen (1983) (2) deal with the Agency Theory problem, arguing that proper incentive designs could help directors to exert the necessary oversight over managers. And in particular, taking the nomination power out of the hands of the Ceo (introducing independence) appears to be a necessary condition.

Screenshot - 05_03_2016 , 19_12_00 Read more…