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Posts Tagged ‘Controlling shareholder’

Corporate Governance Challenges in Controlled companies. USA versus EU

Corporate Governance Challenges in Controlled companies. USA versus EU

María Gutiérrez and Maribel Saéz have recently published an enlightening article on this aspect of Corporate Governance, traditionally much more connected with the European reality than with the US case. (1)

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Their analysis covers the three mechanisms with which shareholders may react to underperforming companies, (exit, voice and loyalty or liability (2)), with an innovative approach; they understand their respective effectiveness depends on the type of controlling insider and on the nature of the outsider.  Controlling shareholders have been more common on Europe and other areas than in the US, although in recent times both the reduction of public firms and certain governance practices (dual-class shares…) have made them also more frequent in the US. Even if reality appears to converge, nevertheless governance practices differ as for the treatment that controlling shareholders receive, so that tunneling, self dealing and other rent-extraction methods by them against the minority shareholders or investors is still much more limited in the US than in Europe, (perhaps one of the reasons for the much more limited role of capital markets there). Read more…

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…