Archive for January, 2017

The Business Judgement Rule

January 29, 2017 7 comments

The last Spanish Corporate Governance reform introduced the Business Judgement Rule (BJR) concept, stemming basically from the US courts in Delaware.

We will make an effort to give a broad and modern vision on the BJR in this post, given its prevalence in modern Corporate law or practice. In this effort we will primarily follow D. Gordon Smith`s article on “The Modern Business Judgement Rule”, (1).


An initial BJR formulation by courts is recognized in 1927 Delaware court´s decision in the Bodell vs. General Gas & Electric Corporation case. A first approach would outline the BJR protects directors from liabilities stemming from “honest mistakes”either as to law or fact, somehow recognizing the human fallability, but also the fact that it reduces legal costs as directors find it difficult to please every shareholder, as S. Samuel Arsht stated in 1979 (2). Read more…


Short-termism, quarterly capitalism and capital flows evidence

January 15, 2017 Leave a comment

Media and business analysts have recently identified stock buybacks and dividend increases as an empirical evidence that companies in the USA are not doing their best efforts to maximize value in the long-term.

Academia has also been recently debating on the effects of hedge fund activism-led short-termism and its effects. (1) Empirical evidence though is difficult to seize.

A more concise effort started with William Lazonick`s research “Profits without Prosperity”, who focused on stock buybacks and dividends as a decision by firms to allocate net profits away from investment, innovation, etc. Since then asset managers, institutions and usual activism critics have taken the buyback and dividend payment as an evidence that short-termism led by activists and a certain quarterly capitalism approach was depleting firms` coffers and inhibiting firms from investing, growing and creating jobs.

On January 2017, Fried and Wang have tried to fully depict capital flows so as to verify if coffers are actually depleted or not. (2) They argue information about buybacks and dividends is partial, and does not include other funds sources that would be offsetting them, (their study analyzes S&P 500 companies and beyond). Read more…