Archive for the ‘Board Performance’ Category

Dissenting Directors, by ECGI

November 13, 2016 Leave a comment

In october 2016 Piergaetano Marchetti, Gianfranco Siciliano both from Bocconi University, and Marco Ventoruzzo from Bocconi University, Pennsylvania State University and ECGI, published an article (1) where they tried to provide some empirical evidence about the role of a director that either votes against a resolution of the board or resigns. They use data from the Italian market regarding both independent and non-independent directors.

According to the authors, the Italian legal framework is very appropriate for the survey for several reasons:

  • List voting favors diverse boards, thus higher levels of debate within the boardroom; list voting allows minorities to nominate directors on their own;
  • As the case of controlling shareholders is common, the number of dissenting directors should be scant;
  • Information is otherwise abundant.


In Italy there are three types of directors, executives, non-executives and independents. Even if directors are elected by minorities, they all owe fiduciary duties to the corporations and all shareholders. Dissenting (not resigning) may reduce legal liabilities for the director, with several formal requirements, (the minutes should record the dissent and so on).


The authors try to obtain answers to certain questions: Read more…


Is Bad Governance Chronic?

Once again Larcker and Tayan (Stanford Graduate School of Business and Stanford Closer Look Series, Corporate Governance Research Initiative (CGRI), April 14, 2016) offer us their insightful views on Corporate Governance, and we will briefly draft their contribution in this post.

In their brief article “Governance Aches and Pains: is bad governance chronic?”(1) they present us their view on Bad Governance as a common species, and particularly their perception that Bad Governance is often discovered only once bad decisions (damaging the interest of the corporation and its shareholders) have been adopted. They argue that governance quality is not easy to assess for shareholders and advisors.

In brief they advocate for a bigger awareness by shareholders of the relevance of corporate governance and the need for better discerning tools by them in order to use corporate governance more as an indicator for future bad performance than as a proof that there was a something that had to be tackled before the damage happened.

Larcker and Tayan describe some cases that help them expose their views: Read more…

Deloitte on the ingredients boards need for success (in 2016)

February 13, 2016 Leave a comment

In a recently published report, Deloitte highlights some concerns boards should have in order to maximize their performance, given the economic and investment environment, and also the current trends relevant shareholders are focusing on these days.

 You can download the report here, (1), but I will in this post refer to one of the topics they deal with, “Innovation”.

 Marc Van Caeneghem and Takeshi Fujii refer to changes in the environment coming from the technological side, (not always but eventually in the shape of disruptive new business models), and from the new relationship among employees and between them and the firm.

 They state that boards need to prepare their organizations to identify and seize opportunities to increase their market share and brand power. And there are two ways boards need to tackle the challenge: (i) they need to assure the firm is aware of how technology helps them do more, (new markets, or more share), and (ii) they should also consider the risk of the no-innovation option.

 In order to do this, Van Caeneghem and Fujii list a number of tasks: Read more…

PRIVATE EQUITY: how do they behave after the money arrives? (I)

If an entrepreneur gets a loan, nobody appears at the next board meeting. Private equity firms (PE) do, as their aim is creating value through deal management and governance.

  • As for “Deal Management”, authors refer to all formal and informal processes through which PE generate value. It distinguishes PE investing from other types of investment, not so active in nature.
  • As for “Governance”: we refer to the systems to ensure execution, accountability and ownership mentality.

a) Creating value takes many forms:

• Assisting management for better implementation of an existing strategy, for instance adding talent.
• Changing the strategy: sometimes for a more focused growth, that allows to free capital then used for paying down debt or other purposes.

b) Governance leading to value creation stems from the board; in PE, boards are made of investors, management and outsiders. Corporate governance details are negotiated with the deal; investos use to control the board through sheer numbers or special voting rights. And the board has fiduciary duties to shareholders, all of them represented, (unlike public company boards, where shareholders are dispersed, passive and not represented). Private equity boards are active, ty between shareholders, board and management, so that governance is strong.

Read more…

Visionary Board leadership. Stewardship for the Long term.

December 11, 2013 Leave a comment

What are the areas where boards need to focus on to help the company increase its long-term value?

In this post we will comment the article by the CFA Institute “Visionary Board leadership. Stewardship for the Long term”, by Matthew Orsagh, CFA, CIPM. (1)

They try to describe Visionary Directors: directors that are “committed to working with management to make a company successful in the long-term”. In other words, a Visionary Director does not allow for “corner-cutting strategies to meet fleeting short-term expectations”. Directors, (if properly embedded in visionary boards) strengthen leadership and foresight to fight against the short-termism reigning in the boardroom.

There are some areas in which a director can make a difference; (i) for instance, if he/she develops and appropriate role in strategic planning and oversight; (ii) if they correctly define the risk appetite of the firm, if they ensure an Enterprise Risk Management system is in place and they oversee its execution; (iii) if they establish Compensation systems that push employees and managers to long-term value creation; (iv) or if they define the correct long-term culture of the firm. Read more…

Independence`s third dimension: innovation and value creation

November 23, 2013 Leave a comment

In the last decade, scholars have focused on agency relationship between board and managers, so that recommendations mostly addressed the composition or structure of the board, differently said, its independence, in order to enhance the oversight and monitoring role.


More recently, scholars or practitioners also argue that independence is key for a board to defend minority shareholder`s rights when there is a controlling shareholder; a board is also deemed to preserve a view on the shareholders`s long-term interests, so independence is necessary in order to fence-off short-termism`s attacks.


McCahery and Vermeulen tough focus on a third aspect of independence: its connection with innovation and value creation. In other words, formalities derived from both previously cited concerns, (agency costs and short-termism), somehow limit the understanding of boards. Thus, the third aspect: what characteristics of independence are more connected to skills and capacities that will take the firm to lead its market?


  Read more…

What do boards need to do to effectively monitor managers?

November 7, 2013 Leave a comment

Nicola F. Sharpe recently published an article (1) in which he leads readers towards a more behavioral approach to the boards`decision-making processes and their monitoring activities.

According to him, law gives boards the power to manage the corporation, they then delegate the vast majority of functions to managers, and legislation reinforces from time to time the board`s control function. Nevertheless, the number of once solid firms filing for bankruptcy as a result of managers-only decisions is still large. But there is a widespread theoretical and legislative model where boards command the corporation, as previously said.

Both shareholder and board-centric theories advocate for authority being allocated to the Board, so that it performs a monitoring function. Still, managers control decision-making processes and relevant information. A reason may lie in the fact that authority has been granted in the form of board structure rules, not in the form of effective control of those processes.


 The author argues:


–         The managerial theory is a realistic description, and the dominance of independent directors leads boards to a much less effective monitoring function.

–         The access to information is the main channel boards may use to exercise their control function.

–         Without an effective decision-making process, (from now on D-M P) and an adequate organizational structure, boards lack the authority for the control and oversight function they are legally granted.

  Read more…