College of
Business
Administration
College of
Business
Administration
1) In How Brave is America's New World of Corporate Governance? (Directorship, June 1999, vol. XXV, no. 6), Blondeau asks
"Why, after all, is it good to have independent directors? Why should one assume that a truly independent director, who may not have a clue about a company's business, would better defend its shareholders' interests than someone affiliated with the company's customers or suppliers, who may be a highly knowledgeable person but would be considered incapable of exercising his judgment freely?"How would you respond to these questions?2) Upon what view of human nature, and psychology, is your answer above based?
3) Blondeau further questions whether one should "create value for the hedge funds that bought into a company yesterday and will be gone after the close of the quarter, or for long-term investors."
What is your answer to this question?4) In Corporate Governance in the New Millennium: Concentrated Ownership Swells Activist Influence (Directorship, February 1999, vol. XXV, no. 2), Koppes suggests that "increased concentration of ownership and more corporate monitoring by institutional investors has swelled activists' influence. The clear suggest is that property ownership begets increased power.
Is this true? What other bases of power might legitimately and effectively be used by shareholders and/or stakeholders?5) In Shareholder vs. Stakeholder Value: A View from Toronto (Directorship, September 1998, vol. XXIV, no. 8), Fleming argues that "[t]he more an entity has invested in a company, the more important it is to take an active role in the way the company is managed."
While this is presented as a 'truism,' what rationale might be offered for this claim?6) Fleming notes that "...since stakeholder value is harder to define that shareholder value, it is harder to account for it."
How might you both define as well as measure stakeholder value creation?7) Short & Keasey make reference to 'agency problems' in the first chapter of Corporate Governance: Responsibilities, Risks, and Remuneration.
What are 'agency problems'?8) Short & Keasey claim "it is clear that a problem exists in attempting to reconcile the role of institutions as shareholders with their role as investors of funds" [emphasis added].
Describe the conflict. Is this conflict avoidable? If so, how?9) In the empirical portion of their work, Short & Keasey find "no evidence that directors' shareholdings or other ownership interests have any impact on the performance of the firm." This may seem a surprising finding.
What might account for this lack of 'connection'?10) Short & Keasey do actually 'hedge' a bit on the above finding, noting that "there is evidence to suggest the board structure has a significant effect on accounting performance."
What board structure factor is said to affect firm performance, and what practical lessons might be derived from this finding?11) How might you explain the fact that accounting measures of firm performance are affected by board composition, but market measures are not? In the final analysis, aren't market measures of firm performance more significant?
In Chapter 6 of 'Power and Accountability, entitled Slumbering Giants: The Institutional Investors, the author gives a quite exhaustive (and perhaps exhausting!) overview of institutional investors. Included in the chapter is a copy of The Shareholder Bill of Rights, proposed by the Council of Institutional Investors. It is stated the Bill of Rights is reducable to one principle: "that informed shareholders should, proportional to their invested capital at risk, have the right to approve fundamental corporate actions."
What are the implications of taking this proposal seriously?12) One of the more controversial sections of this same chapter has to do with social investing. Following an overview of several examples, the following summary is offered:
Social investing is the term most often used for these activities, which cover a wide range of issues and methods. As we use it, social investing means making investment decisions and other decisions relating to the exercise of stock ownership rights, on grounds that are unrelated to or in addition to the tradictional investment concerns of minimizing risk and maximizing return. These investments are made because they are thought to provide intangible 'quality of life' benefits to the pension plan participants and the community as a whole.Should directors take such non-economic considerations into account when making investment decisions? Why or why not?Additional Reading:
- McKersie, Robert B. Union-Nominated Directors: A New Voice in Corporate Governance (Sloan School of Management, Massachusetts Institute of Technology, Task Force Working Paper #WP08)
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