Archive for the ‘Uncategorized’ Category

Overview of the main Corporate Governance topics

Included as a preface in their forthcoming book “Understanding the company: Corporate Governance and Theory”, Barnali Choudhury and Martin Petrin offer a brief summary (1) of academic debates on the topic, mainly regarding:

  • The nature of the firm. A debate that started at the Roman times and gained intensity in the XIXth century. Although scholars and courts have given up in their effort to define the “nature of the firm”, two opposite views dominate the debate; on the one hand, the nexus of contracts model describes the firm as a set of contracts between different constituencies which so aim to produce goods and services, and thus constitute a firm. The Director Primacy theory extends this view, defining the firm not as a nexus of contracts but having a central nexus, the board of directors. Corporate law consequently intends to reduce the cost of negotiating, settling the concepts and basis for it. The nexus of contracts theory is connected with the Shareholder Primacy theory and the idea that shareholders´ interest should precede other constituencies´ones, and that corporations have no social or moral duties. (A recent decision by Google based on moral or social reasons recently generated some criticism as for the possibility that shareholders could sue directors for having breached their fiduciary duties, (2)).

Read more…


Citi Ceo paid 27% more in 2015

February 20, 2016 Leave a comment

In an advance to proxy materials to be delivered in March, the bank has announced its decision on its Ceo`pay. Mr. Corbat, has been recognized a right to a total $ 16.5 m, only 1.5 m out of that in fixed salary.

 A total $6m will be inmediately paid as a cash bonus. And an additional 9 million will be deferred, subject to the bank`s clawback and key performance metrics observed in the deferral period. The deferral is a must today in pay decisions for financial institutions, as a measure to curb excesive risk-taking by managers, so that profits today are not rewarded inmediately when decisions are yet to produce good or bad results for a certain period. Read more…

Proxy Access and Proportional Election systems

January 16, 2016 2 comments

I will herein introduce a topic suggested by Prof. Bainbridge in its recent post “Does proxy access matter?”, (1).

 While the post refers to Proxy Access, which is currently a trendy topic in Corporate Governance discussions in the USA, we will deal with a side issue.

 Proxy access is a “mechanism that gives shareholders the right to nominate directors and have those nominees included in the company’s annual meeting proxy statement.” Read more…

Paying for Long-Term Performance (a normative view)

February 7, 2015 1 comment

Bebchuk and Fried wrote in 2009 a since then classical article on “Paying for Long-Term Performance”, in which they addressed one of the problems that if not at the roots of the 2008 economic crisis, nevertheless helped increase the damages generated by it, (particularly within the financial sector). (1) We will in this post summarize the Eight Principles they recommend to consider when designing a Long-Term Incentive Plan, and what is more, when the equilibrium between short-term pay and long-term pay is considered.

In 2009 Treasury Secretary Geithner urged corporate boards to “pay top executives in ways that are tightly aligned with the long-term value and soundness of the firm”. In fact, a belief was widely shared, that pay arrangements before the 2008/2009 crisis were flawed as they forced executives to focus in the short-term and to take excessive risk, to the expense of the long-term value of the firm, (that sometimes was a systemic risk entity).

Even if there was agreement on that, how to do it was not a common ground. Bebchuk and Fried tried to define the best way to tie equity-based compensation to long-term performance, (1). Read more…

Hidden ownership and disclosure recommendations

November 3, 2012 1 comment

We can define Hidden Ownership as the situation of an economic agent having an economic interest over a certain share, over which he hasn`t got any control or voting right, not being the owner of the share. The derivative market is the tool with which this result is usually built, (a future contract, a call option, an equity swap are valid instruments for that).

Hidden owners may also negotiate with short traders in the transaction that they will vote the shares according to the long traders`preferences. In that case the long trader is a hidden and morphable owner. Morphable ownership also appears when the economic risk holder may assume he will be able to decide the sense of the vote of the subjacent shares, whether by agreement with the short trader or because the case is clear for him that the normal solution at the settlement date will be a share acquisition from the short trader, that would buy the shares then, or would have had the shares since the beginning, (imagine the case of an illiquid market for these shares).

The huge growth of derivative markets has led to a parallel increase in the number of decoupling (of economic and control interests) incidents, both empty voting (see our post dated October 7th 2012) and hidden ownership. In the case of a hidden owner, the bank facilitating the derivative usually becomes an empty voter, (hedging his position purchasing shares in the stock market). As the bank has no economic interest with the company, but a commercial interest in the customer, it can eventually accept to vote with the customers`preferences, this one becoming also a morphable owner. As derivatives are today mostly cash-settled, there is no limit to its amount, so that hidden ownership is now easier than it was.

The concern with decoupling is about efficiency, fairness, (decoupling is used by hedge funds, industries, but not by small investors), and regulation circumvention.

Known hidden and morphable ownership cases have been unveiled in Switzerland in 2007, when several companies saw large stakes being disclosed in a takeover hidden attempt; regulation only asked to disclose voting rights and physically settled options. Hu and Black unveil a huge number of cases, and analyse regulatory proposals, (“Equity and Debt Decoupling and Empty Voting II: Imprtance and Extensions”).

Since then a clear case is made for disclosure, pursuing the efficiency result that all shareholders know who is buying or selling, so that the price mechanism works well. For disclosure, Hu and Black propose:

–         Disclosure should involve voting and economic rights, from share od coupled assets (derivatives, share borrowing…), ownership,

–         Disclosure should involve both positive and negative economic interest,

–         Disclosure should involve share lending and borrowing,

–         Consistency of disclosure asset type obligation and types counted for thresholds,

–         Disclosure of empty voting,

As for hidden ownership, disclosure could be enough, as it will not be hidden anymore, and inefficient effects on pricing will not appear. Hu and Black also recommend that voting rights are passed on to the economic owner, as generally banks in a derivative contract are empty voters. This would prevent investors from keeping hidden ownership. Moreover, they recommend that economic owners vote directly, and not through the empty voter, (bank, broker, and so on), so as to avoid complexities and mistakes in the voting process.

¡Hola a todos!

Inicio con este mensaje de bienvenida mi participación más activa en el espacio web, como uno más de que pensamos que podemos aportar algo nuevo y útil en nuestro ámbito de interés, en mi caso Gobierno Corporativo, y la vida de Consejos, Management y los entes reguladores de su actividad.


Ofreceré informaciones y comentarios que ayuden a ampliar y glosar los temas habitualmente tratados en este terreno en España.

Categories: Uncategorized