Posts Tagged ‘Corporate Governance’

Corporate Governance and the Sharing Economy

In a world of robots interacting with humans and learning out of the process, while connected with all other robots in a network; in a world of artificial intelligence, disruptive technologies and new business models arising from them; in this world regulation starts to change: why do we need CFA`s in a world where financial advise is produced with algorithms? In this world firms also start to reject IPOs fearing their innovation capacities would fade away, (Uber, Airbnb, …), or introduce dual-class share systems to keep control on it and the long-term perspective.

Mark Fenwick and Erik P.M. Vermeulen in a paper called “How the Sharing Economy is Transforming “Corporate Governance”, (1) refer to the new changes Corporate Governance faces and needs if boards are to gather survival and success for their companies.

For them what is relevant is whether these new big companies are able to develop a system that is inclusive of all stakeholders, (shareholders interests, oversight, and other currently accepted needs fall apart).

Screenshot - 14_05_2017 , 21_05_35

(Source (1)) Read more…

The US Corporate Governance Framework

Literature on Corporate Governance (Corpgov) often comes from the US; many Corpgov institutions have been born in the US; the big controversies regarding board effectiveness, executive pay, and any other Corpgov matter are often raised in the US…..but what is the Corpgov framework in the US? I have ofter read about the US Corpgov without having a systemic knowledge about the framework that defines it. I will try to learn and offer a view of that in the present post. (1)


The era after SOX (Sarbanes Oxley Act in 2002) unveils differences between the USA Corpgov system, (regulatory or hard law and “one size fits all” regime) and the UK one, (based on soft law or codes, and the “Comply or Explain” principle). Differences also affect gatekeepers, (subject to regulation by Agencies such as the SEC) and the market for corporate control.


  1. Peter V. Letsou describes the shared regulatory responsibility in the USA by the States and the Federal Government.

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The Business Judgement Rule

January 29, 2017 4 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…

What to do with the “Comply or Explain” principle? (II)

In November 2015 I published a comment on an article by Hadjikyprianou, George C. (1) who considered the principle needed some practical reform, because both the quality of the explanations and its oversight by shareholders and supervisory bodies was defective. In order not to steal the shareholders ‘role and to reduce private monitoring costs he suggested that a public institution could create a rating system for the CG practice by public firms.

In 2014 the same concern had also led the EU to publish a recommendation on how to use the “comply or explain” principle, so apparently institutions started offering guidelines for better explanations instead of creating the rating system, (2).


The EU suggested that firms explain what CG guideline they did not abide by, how, why, the decision-making process they followed to decide not to comply (temporarily or not), and what action they were taking so as to follow best CG practices for their “size”.

In July 2016, and partly with the aim to give the EU guideline some additional public exposure, the Spanish SEC equivalent, CNVM, has published a Guide for best practices when applying the “comply or explain” principle, (3). Read more…

Work and Pensions and Business, Innovation and Skills Committees: The BHS Report

The inquiry (1 and 2) has tried to shed light into the reasons why some 11.000 BHS workers may be considered direct losers, up to 20.000 when pensioneers are included, many more if we consider eventual job losses in BHS providers, and up to 11 million when current and future pensioneers in other firms, (all of them contributors to the Pension Protection Fund that will afford part of the damage) are counted.

The big numbers also point to some winners: the company was bought in 2000 for £200 million; in the period 2002-04 some £423 million were given in dividends, (more than the £208m in Net Profit), £307m paid to the Green family. Goodwill and some real estate transactions allowed to pay these amounts, but also reduced the firm capacity to fulfill its pension obligations, invest or later afford the loss-making period until 2009, so that in 2014 the company had negative equity and was largely financed  by debt, (part of it granted by Green`s other companies). Operations didn`t really go well, as sales remained flat and profits might have increased mainly as a result of cost cuts. Read more…

Why do institutional investors “exit” instead of raising their voice?

July 18, 2016 1 comment

A certain time ago, I published a post about Pescanova, (1) a rather small public firm. At the time its problems were unveiled by an investor who didn`t believe the accounts and management´s explanations about the CF trends, no “voice” had been raised against its managers, or its performance, the corporate governance structure, its strategy, capital allocation….What`s more, I remember a chorus of financial analysts that had been broadcasting their recommendations to buy the stock one or two years before. The story (if true as it has been told) is well-known: results had been introduced for some time from outside of the perimeter, while the “third party firms” were in fact firms controlled by the company or its managers, (and were full of debt that finally “exploded”).

Exit or Voice 2

 But I won`t talk about this today. Instead, I will try to guess why no voice had been produced about its corporate governance (CG) practices, that were apparently very defective, (as the Spanish regulator said –after everything was unveiled- ),(2). The distinction between “exit and voice”, or “active versus passive monitoring” was introduced by Hirschman (3) and is described by Tirole, (4). Read more…

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)).

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