2021 Global Corporate Governance Colloquium (GCGC)

Hosted by Yale Law School

2021 Global Corporate Governance Colloquium (GCGC)

  • 11 - 12 June 2021
  • Online

The livestream recordings of this event ara available at:

Day 1 - Livestream

Day 2 - Livestream

2021 Global Corporate Governance Colloquium (GCGC) 

The Sixth Annual GCGC Conference will be hosted (online) by Yale Law School on 11 - 12 June 2021. 

 

Friday, 11 June 2021 | 08:45 – 18:00 EDT (14:45 – 00:00 CEST)

Saturday, 12 June 2021 | 07:50 – 17:00 EDT (13:50 – 23:00 CEST)

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ABOUT THIS EVENT

The Global Corporate Governance Colloquia (GCGC) is a global initiative to bring together the best research in law, economics, and finance relating to corporate governance at a yearly conference held at 12 leading universities in the Americas, Asia and Europe. The 12 hosting institutions are:

Columbia University, Harvard University,  Imperial College London, Leibniz Institute for Financial Research SAFE/DFG LawFin Center, Goethe University Frankfurt (Germany), National University of Singapore,  Peking University,  Seoul National University,  Stanford University, Swedish House of Finance,  University of Oxford,  University of Tokyo, and Yale University.

The aim of the conference series is to attract current research papers of the highest scholarly quality in the field of corporate governance. The conferences are primarily 'academic to academic' events with some participants from industry and the public sector including the practitioner partners of GCGC and other invited panelists. The current practitioner partners are Zurich Insurance Group and Japan Exchange Group (JPX).

 

BONUS EVENT

In anticipation of the GCGC event, the organisers will also present a virtual workshop on ‘The History of the Corporation’ on 10 June 2021. The workshop will journey through Imperial Russia, turn of the century Egypt and China, Edwardian Britain and the Gilded Age US, exploring issues of corporate governance that continue to resonate in the present day. The morning sessions will examine the relative performance of western-style corporations and their indigenous alternatives in Russia, Egypt, and China. More details on this event are available here.

 

www.gcgc.global

Questions may be directed to: admin@ecgi.org

This event is organised by the European Corporate Governance Institute (ECGI)

 

 

Friday 11 June 2021 | 08:45 EDT (14:45 CEST)

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Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting

Time:
09:00h

We study retail shareholder voting using a nearly comprehensive sample of U.S. ownership and voting records over the period 2015–2017. Analyzing turnout within a rational choice framework, we find that participation increases with ownership and expected benefits from winning and decreases with higher costs of participation. Even shareholders with negligible likelihood of affecting the outcome have non-zero turnout, consistent with consumption benefits from voting. Conditional on participation, retail shareholders punish the management of poorly performing firms and are more likely to exit the firm after voting against incumbent management. We show that retail voting decisions are impactful, altering proposal outcomes as frequently as those of the “Big Three” institutional investors. Overall, our evidence provides support for the idea that retail shareholders utilize their voting power as a means to monitor firms and communicate with incumbent boards and managements.

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10:00

Which Firms Require More Governance? Evidence from Mutual Funds' Revealed Preferences

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Which Firms Require More Governance? Evidence from Mutual Funds' Revealed Preferences

Time:
10:00h

This paper estimates mutual funds’ preferences for governance structures, using data on proxy vote records. I elicit funds’ revealed preferences by studying the differences in their votes on the same issue across their portfolio firms’ shareholder proposals, and develop funds’ preference rankings by implementing the Metropolis-Hastings Markov chain Monte Carlo algorithm. Funds prefer firms with low board independence, high insider ownership, and high abnormal compensation to adopt certain governance provisions that increase shareholder rights. Contrary to the view that the net benefits of takeover defenses are higher for young and small firms, funds are not enthusiastic about large and mature firms increasing shareholder rights. Large and mature firms are disproportionately targeted by shareholder proposals, suggesting the possibility that investors vote down worthless proposals submitted to such firms. I find a mixed relation between fund preferences and firm performance. Active and passive funds have similar preferences. Fund preferences are moderately correlated with overall vote support on relevant shareholder proposals.

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11:00

Coffee break

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The Corporate Governance Machine

Time:
11:15h

The conventional view of corporate governance is that it is a neutral set of processes and practices that govern how a company is managed. We demonstrate that this view is profoundly mistaken: in the United States, corporate governance has become a “system” composed of an array of institutional players, with a powerful shareholderist orientation. Our original account of this “corporate governance machine” generates insights about the past, present, and future of corporate governance. As for the past, we show how the concept of corporate governance developed alongside the shareholder primacy movement. This relationship is reflected in the common refrain of “good governance” that pervades contemporary discourse and the maturation of corporate governance as an industry oriented toward serving shareholders and their interests. As for the present, our analysis explains why the corporate social responsibility movement transformed into shareholder value-oriented ESG, stakeholder capitalism became relegated to a new separate form of entity known as the benefit corporation, and public company boards of directors became homogenized across industries. As for the future, our analysis suggests that absent a major paradigm shift that would force multiple institutional gatekeepers to switch their orientation, advocacy pushing corporations to consider the interests of employees, communities, and the environment will likely fail, unless such effort is framed as advancing shareholder interests

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LBO Financing

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12:15h

We analyze takeover financing in a model where bidders must overcome the free-rider problem to restore ownership incentives. Bootstrapping, “excessive” debt levels, and negative financing contributions by bidders—the controversial traits of leveraged buyouts—emerge as the Pareto efficient takeover bid design. Takeover debt is crucial to equity consolidation, Pareto sharing of the incentive gains, and efficient takeover competition, all while wealth constraints are slack. These benefits are unique to the market for corporate control, that is, absent outside of takeovers.

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13:15

Lunch break

Session 3

15:00

Coffee break

15:15

As California goes, so goes the nation? Board gender quotas and the legislation of non-economic values

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As California goes, so goes the nation? Board gender quotas and the legislation of non-economic values

Time:
15:15h

In 2018, California became the first U.S. state to introduce a mandatory board gender quota for all firms headquartered in the state. Even though the constitutionality of the law is still debated, we document large negative announcement returns to the adoption of the gender quota for California firms and large spillover effects for non-California firms. We show that these effects are not explained by frictions in the director labor market and propose a novel explanation: Shareholders’ disapproval of the government’s attempt to legislate non-economic values. Consistently, we find that non-California firms in states that followed California’s legislative lead in the past by, e.g., introducing gender quota proposals, adopting stricter environmental laws, raising minimum wages, or legalizing cannabis react more strongly to the California gender quota. We also find that California and non-California firms with higher sensitivity to policy uncertainty react more negatively to the quota’s adoption.

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Investing in influence: Investors, portfolio firms, and political giving

Time:
16:15h

Campaign finance laws aim to limit an individual’s influence over the political process. We show that corporate ownership may be an important mechanism by which institutional investors circumvent such constraints and amplify their influence. Using data on the political giving and ownership of all 13-F investors between 1980 and 2016, we show that the probability that a firm’s Political Action Committee (PAC) donates to a politician supported by an investor’s PAC nearly doubles after the investor acquires a large stake, and that it increases five-fold when the investor obtains a board seat. This increase in similarity of political giving coincides with the election cycle the acquisition takes place in, and is not driven by selection into specific politically strategic acquisitions, as convergence in political behavior is observed even for exogenously determined acquisitions caused by stock index inclusions. The relationship is stronger for private funds, and those with high partisanship, suggesting the relationship is driven by investor preferences rather than strategic concerns. Finally, we show that portfolio firms’ PAC expenditure experiences a relatively large shift at the acquisition date relative to past giving, whereas no such pattern is observed for institutional investors. We argue that these findings are best explained by investors influencing portfolio firm giving, suggesting that PAC giving may be another means by which influential shareholders impact corporate decision-making, in a manner that amplifies investors’ political voice.

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17:15

Day 1 - Closing Comments

Saturday 12 June 2021 | 07:50 EDT (13:50 CEST)

Session 5

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Tunneling Through Group Trademarks

Time:
09:00h

This study documents how trademarks can be used to benefit controlling families at the expense of outside minority shareholders. Using a sample of business groups in Korea, we find evidence in support of this. First, firms are more likely to be licensor firms if the controlling family holds higher cash flow rights. Second, firms are more likely to be licensee firms and subject to higher royalty payments if their controlling family’s cash flow rights are further below those in the licensor firms (i.e., higher cash flow rights differentials) and if their sales volumes are larger. Third, shareholder distributions (dividend payouts and stock repurchases) and market values are negatively associated with royalty payments in firms with higher cash flow rights differentials. Lastly, these results manifest more significantly in pure holding company groups, where the licensor firms have no business operation of their own and, therefore, rely more heavily on trademark revenue.

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The Sustainability Wage Gap

Time:
10:00h

Using detailed administrative employer-employee matched data and a novel measure that quantifies the environmental sustainability of different economic activities, we provide evidence that workers earn about 10% lower wages in firms that operate in more sustainable sectors. We hypothesize that this Sustainability Wage Gap arises because workers, especially those with higher skills and from younger cohorts, value environmental sustainability and accept lower wages to work in more environmentally sustainable firms and sectors. Accordingly, we find that the Sustainability Wage Gap is larger for high-skilled workers, especially for those with high non-cognitive skills, and increasing over time. In further analysis, we document that more sustainable firms are also better able to recruit and retain high-skilled workers. We argue that our results are difficult to reconcile with many alternative interpretations suggested in prior research and that the Sustainability Wage Gap carries important implications for firms’ human resource strategies and firm value.

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11:00

Coffee break

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Underperformance in Family Successions: The Role of Outside Work Experience

Time:
11:15h

The underperformance of family CEO successors relative to professional CEOs has been repeatedly documented. We show that this underperformance is entirely driven by family successors who are recruited from within the firm and find that two-thirds of such successors do not have outside work experience. Family successors with outside work experience, however, perform on par with professional CEOs. Variation in the extent of successors’ outside work experience explains a substantial part of the performance gap. A similar performance gap exist between unrelated CEOs that are recruited internally and unrelated CEOs recruited from outside.

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For Whom Corporate Leaders Bargain

Time:
12:15h

For Whom Corporate Leaders Bargain (Forthcoming, Southern California Law Review, Volume 93, 2021) Lucian A. Bebchuk, Kobi Kastiel, Roberto Tallarita.

Abstract

At the center of a fundamental and heated debate about corporate purpose, an increasingly influential “stakeholderism” view advocates giving corporate leaders the discretionary power to serve all stakeholders and not just shareholders. Supporters of stakeholderism argue that its application would address growing concerns about the impact of corporations on society and the environment. By contrast, critics of stakeholderism argue that corporate leaders should not be expected to use expanded discretion to benefit stakeholders. This Article presents novel empirical evidence that can contribute to resolving this key debate.

Stakeholderist arguments regarding the potential stakeholder effects of hostile takeovers contributed to the adoption of constituency statutes by more than thirty U.S. states. These statutes, which remain in place and continue to govern corporate transactions, authorize corporate leaders to give weight to stakeholder interests when considering a sale of their company. We study how corporate leaders in fact used their discretion in transactions governed by such statutes in the past two decades. In particular, using hand-collected data, we provide a detailed analysis of more than one hundred cases governed by such statutes in which corporate leaders negotiated a company sale to a private equity buyer.

We find that corporate leaders have used their discretion to obtain gains for shareholders, executives, and directors. However, despite the clear risks that private equity acquisitions often posed for stakeholders, corporate leaders generally did not use their discretion to negotiate for any stakeholder protections. Indeed, in the small minority of cases in which some stakeholder protections were formally included, they were generally cosmetic and practically inconsequential.

Beyond the implications of our findings for the long-standing debate on constituency statutes, these findings also provide important lessons for the ongoing debate on stakeholderism. At a minimum, stakeholderists should identify the causes for constituency statutes’ failure to deliver stakeholder benefits in the analyzed cases, and examine whether embracing stakeholderism would not similarly fail to produce such benefits. After examining alternative explanations for our findings, we conclude that the most plausible explanation lies in corporate leaders’ incentives not to protect stakeholders beyond what would serve shareholder value. Our findings thus indicate that stakeholderism cannot be relied on to produce its purported benefits for stakeholders. Stakeholderism therefore should not be supported as an effective way for protecting stakeholder interests, even by those who deeply care about stakeholders.

This paper is part of a larger research project of the Harvard Law School Corporate Governance on stakeholder capitalism and stakeholderism. Another part of this research project is The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita.

 

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13:15

Lunch break

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The Voting Premium

Time:
14:00h

This paper develops a unified theory of blockholder governance and the voting premium. It explains how and why a voting premium emerges in the absence of takeovers and controlling shareholders. The model features a minority blockholder and dispersed shareholders who trade shares in a competitive market. Those who own shares after trading vote on a proposal at a shareholder meeting. A voting premium can emerge in equilibrium from the blockholderís desire to ináuence who exercises control, rather than from exercising control himself. We show that the voting premium is unrelated to measures of voting power and that empirical measures of the voting premium generally do not reáect the economic value of voting rights. Consistent with recent empirical studies, the model can generate a negligible voting premium even when the allocation of voting rights is important. The model can also explain a negative voting premium, which has been documented in several studies. It arises because of free-riding by dispersed shareholders on the blockholderís trades. Finally, the model has novel implications for the liquidity of voting vs. non-voting shares, the relationship between the voting premium and the price of a vote, competition for control among blockholders, the block premium, and corporate ináuence more generally.

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Systematic Stewardship

Time:
15:00h

Systematic Stewardship Jeffrey Gordon (2021)

Abstract

This paper frames a normative theory of stewardship engagement by large institutional investors and asset managers in terms of their theory of investment management – “Modern Portfolio Theory” -- which describes investors as attentive to both systematic risk as well as expected returns.

Because investors want to maximize risk-adjusted returns, it will serve their interests for asset managers to support and sometimes advance shareholder initiatives that will reduce systematic risk. “Systematic Stewardship” provides an approach to “ESG” matters that serves both investor welfare and social welfare and fits the business model of large diversified funds, especially index funds. The analysis also shows why it is generally unwise for such funds to pursue stewardship that consists of firm-specific performance-focused engagement: Gains (if any) will be substantially “idiosyncratic,” precisely the kind of risks that diversification minimizes. Instead asset managers should seek to mitigate systematic risk, which most notably would include climate change risk, financial stability risk, and social stability risk. This portfolio approach follows the alreadyestablished pattern of assets managers’ pursuit of corporate governance measures that may increase returns across the portfolio if even not maximizing for particular firms. Systematic Stewardship does not raise the concerns of the “common ownership” critique, because the channel by which systematic risk reduction improves risk-adjusted portfolio returns is to avoid harm across the entire economy that would damage the interests of employees and consumers as well as shareholders.

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Fellow Research Member Institutional Member Board Member

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Welcome Address

Time:
08:45h

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Fellow Research Member Institutional Member Board Member
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Session 1: Chaired by

Time:
11:17h

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