European Corporate Governance Training Network (ECGTN)- Work Plan

European Corporate Governance Training Network (ECGTN)- Work Plan

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Work Plan

The research and the training of the network will be organised around the four key themes of Corporate Governance (Click title for further information):

Shareholders and Takeovers

The Oxford team will lead on and oversee this theme, which will involve members of the following nodes:

CEPR Stiefelsen Östekonomiska Institutet (SITE)
ECGI University of Oxford
Université Libre de Bruxelles (ULB) London Business School (LBS)
Stichtung Katholieke Universiteit Brabant Sabanci University
Universiteit van Amsterdam (UvA)    
Objectives
to provide conclusive answers to open research questions in this area;
to use industry links to access unique data;
to exploit the unique institutional features of Europe to produce unique insights that will be recognised internationally
Main projects
The Evolution of Ownership and Control. Previous research has shown that there is a great variety in ownership and control arrangements across countries. This diversity has sparked a lively debate and in order to understand the reasons for such differences, it was felt that one had to go back in time and look at the evolution of ownership and control in parallel with the evolution of economic growth, regulatory reform and politics. This research examines the evolution of ownership and control. In addition to research at four training nodes (ECARES, Oxford, LBS, SITE) in this area, the network will benefit from the expertise of Randall Morck at the Alberta node, Ailsa Röell at the Princeton node and Mark Roe at the Harvard Law School node.
Institutional shareholder activism. Institutional investors playing the role of “active owners” are widely believed to prevent and correct corporate governance failure and to improve corporate performance.However, independent scientific research has not produced conclusive evidence that institutional shareholder activism leads to change or better investment performance. On the contrary, an extensive body of research has shown that “shareholder activism” in the United States is not effective. The “negative” studies for the United States have several potential shortcomings that might drive the results. These shortcomings can be overcome in the European institutional context. The project will be undertaken by researchers from Oxford, LBS, ULB and benefit enormously from links with the Hermes industry node, one of the largest activist pension funds in Europe.
Shareholder power and remedies Legal researchers will focus, inter alia, on measures that empower shareholders and shareholder remedies. While shareholders have the right to vote on certain structural changes such as mergers, disposal of substantially all assets, dissolution, as well as on capital increases and decreases and appropriation of parts of the corporations profits (in some jurisdictions), they frequently lack the power to get these issues on the agenda for shareholder meetings. Thus, the exercise of the voting power that statutes and articles confer upon shareholders are, as a rule, dependent on a proposal being submitted by the directors. Whether this predominance of the board needs to be cut back by giving shareholders more power to set the agenda of shareholder meetings is a question that merits further examination from a legal as well as from an economic perspective. The rules on shareholder remedies against illegal corporate or shareholder actions as well as the opportunity to challenge the validity of shareholder resolutions vary significantly in continental and common law jurisdictions. A comparative legal and economic study could shed some light on the question if and to what extent shareholders should have the right to take an active part in controlling corporate affairs and how such rules should be designed in order to prevent the types of abuse we’ve encountered in Germany with respect to the right to challenge shareholder resolutions.
Boards and Executive Motivation

The Genova team will lead on and oversee this theme, which will involve members of the following nodes:

Université Libre de Bruxelles (ULB) Centro de Estudios Monetarios y Financieros (CEMFI)
Università degli Studi di Genova University of Oxford
Stichtung Katholieke Universiteit Brabant London Business School (LBS)
Universiteit van Amsterdam (UvA) Sabanci University
Objectives
to provide conclusive answers to open research questions in this area;
to use industry links to access unique data;
to exploit the unique institutional features of Europe to produce unique insights that will be recognised internationally.
Main projects
Clinical study of Telecom Italia. The Genova node's link to the Telecom Italia industry node will provide a unique research opportunity for network researchers. Through the Genova node, researchers will have direct access to the legal, economic and financial aspects of public company management. In particular, the researcher will be able to focus on issues, such as board appointment, composition and functioning, directors’ independence, organization by committees, internal controls, executive remuneration, depending on the topics chosen for research. The training will include comparative law issues considering that the company is listed both on the New York Stock Exchange and the Italian Stock Exchange and is therefore subject to Italian and US law (including the recent Sarbanes-Oxley Act regulating the governance of companies listed in the US). In addiction, the researcher will be able to attend the financial department of Telecom Italia, including its investor relation department, in order to develop a better understanding of the financial aspects of corporate governance and the relationships between management and institutional investors.
Board practices in Turkey. The Sabanci node will be working on this area by looking at current board practices in Turkey and at the transition to professional management in family firms.
Board reforms. Regulatory responses affecting boards that resulted from the recent corporate governance scandals. The scandals have triggered substantial amounts of legislation seeking to prevent an abuse of managerial discretion by implementing a variety of rules ranging from requirements of committees staffed with independent directors to whom important decisions are assigned to additional liability being imposed on directors. Some of these rules, particularly a number of procedural requirements with which corporate decision making has been burdened, have been designed rather hastily and give the impression of political reactions aimed at restoring public confidence rather than dealing reasonably with the core issues. One of these core questions certainly seems to be how to strike the right balance between the traditional concept of imposing and enforcing strict fiduciary duties (which might foster risk aversion) and the concept of aligning shareholder and management interests by tying directors’ remuneration to the success of the company (which may, as we have witnessed, foster excessive greed). This issue, particularly a closer examination of what influence the different mechanisms of controlling managerial behaviour have on executive motivation and how remuneration plans should be fashioned could be helpful in designing more effective laws while repealing unnecessary and burdensome rules.
Debtholders and Multiple Constituencies

The Frankfurt team will lead on and oversee this theme, which will involve members of the following nodes:

Center for Financial Studies (CFS) London Business School (LBS)
Stichtung Katholieke Universiteit Brabant Swiss Federal Institute of Technology, Zürich
Centro de Estudios Monetarios y Financieros (CEMFI)
Objectives
to provide conclusive answers to open research questions in this area;
to use industry links to access unique data;
to exploit the unique institutional features of Europe to produce unique insights that will be recognised internationally.
Main projects
Risk shifting and corporate governance. The Frankfurt node will investigate risk shifting and corporate governance in the new markets for asset securitization. The rapid development of securitization markets in traditional bank-dominated financial system, such as Germany, France and Italy, poses challenging questions to observers and policy makers. Three major questions will de dealt with in this project: First, what determines the contractual forms chosen in the securitization of loans and other financial assets? Second, under what conditions will there be liquid markets in these new instruments, and what are possible institutional and legal obstacles? Third, to what extent does the expansion of securitization lead to changes in the allocation of risk in the economy? All three questions will entail the combination of empirical and theoretical work. Results are expected to contribute to an understanding of the ongoing change in corporate governance in Europe, relating to the strengthening of market processes in an otherwise bank-dominated financial landscape. The project will also involve the participation of industry representatives from investment banks active in arranging CDO issues, and from rating agencies.
Corporate law and bankruptcy codes. The LBS team will study the influence of corporate law and bankruptcy codes using a sample of small to medium size distressed companies from three countries, France, Germany and the U.K. The results of the study will be used to examine how differences in the legal environment affect the outcomes of distress, for example the incidence of default and bankruptcy and recovery rates for creditors. The project will also focus on the issue of how these differences in outcomes affect the firm’s pre-distress capital structure, provisions and design of debt contracts, and interest rate margins. Using a time series of company defaults from banks in the three countries, it will examine how outcomes of distress vary across different stages of the business cycle within a country and across countries. Large differences in bankruptcy codes may result in very different bankruptcy outcomes and costs of distress.
Institutional Aspects, Regulation and Policy

The Tilburg team will lead on and oversee this theme, which will involve members of the following nodes:

ECGI Universiteit van Amsterdam (UvA)
ULB Stiefelsen Östekonomiska Institutet (SITE)
Center for Financial Studies (CFS) London Business School (LBS)
Università degli Studi di Genova Swiss Federal Institute of Technology, Zürich
Stichtung Katholieke Universiteit Brabant McGraw-Hill International (UK) Ltd (Standard & Poor’s)
Objectives
to provide conclusive answers to open research questions in this area;
to use industry links to access unique data;
to exploit the unique institutional features of Europe to produce unique insights that will be recognised internationally
Main projects
Corporate governance and EU Company law. This project will look at defaults regimes for EC Company Law. The research will focus on how corporate law decision makers should choose the legal default rules that govern corporations in Europe. A comparative project will look at US and EU Takeover Law Regulation asking to what degree the US and EU legal regimes regulating takeovers are likely to converge. The project will also look at freedom of choice in EU company law.
Political economy of corporate governance. This project focuses on the political decision that determines the degree of investor protection. It examines whether entrepreneurs and workers can strike a political agreement by which low investor protection is exchanged for high employment protection, and how this 'corporatist' agreement is feasible. The project will also examine the relationship between employment protection and M&A activity. A clear understanding of the nature of this political decision is a key factor in the effective promotion of economic growth and productivity.
Ratings and Surveys. The evaluation and rating of Corporate Governance and the associated analytical framework is a newly emerging area of research. Major index providers and exchanges are exploring the launch of indices that include companies considered to uphold high standards of corporate governance. Some countries have chosen to develop national governance rating methodologies (Greece, Germany etc) whereas international rating agencies conduct governance ratings based on international standards (Standard & Poor’s, Fitch, Deminor etc). These developments require a better understanding of the effectiveness of the existing analytical approaches as well as exploration of how governance rating methodologies can be standardized to help better inform investors. At Sabanci, researchers will work on an investor survey on Corporate Governance in Turkey making use of global surveys which explore the opinions of investors on what matters in making investment decisions. The surveys provide useful and practical insight to the market value associated with better governance.

The research and training will be based on establishing a solid foundation in empirical and theoretical analyses and collaborations between researchers based in different fields: economics, finance, management, political economy and law.

An important task of co-ordination will be to provide an appropriate balance between activities by the teams on the different themes. Regular contact between the teams and network meetings will be used as a means of achieving this. Moreover, yearly workshops are planned to discuss progress and to disseminate research results. The research work plan entails the following allocation of tasks between the teams, distributed over the four different themes specified above (with designated teams responsible for the sub-tasks of each theme).