Manifest-I presents a summary of recently released academic papers on international corporate governance
and corporate social responsibility issues.
Corporate Governance Reform and CEO Compensation: Intended and Unintended
Consequences, by Ella Mae Matsumura and Jae Yong Shin, University of
Wisconsin – Madison – Department of Accounting and Information Systems. Journal
of Business Ethics.
This paper outlines the structure of executive compensation
and details some criticisms of it, along with raising other relevant ethical
issues. The authors then discuss what previous research suggests are likely
intended and unintended consequences of some widely proposed executive
compensation reforms. This includes recommendations requiring: the greater
independence of compensation committees; executives to hold equity in the
corporation; the greater disclosure of executive compensation; increased
institutional investor involvement in corporate governance; and for firms to
expense stock options on their income statements. The paper outlines ethical
issues related to the reform of executive compensation and proposes possible
areas for future research.
Voluntary vs. Mandatory Corporate Governance: Towards an Optimal Regulatory
Framework, by Anita I Anand, Queen’s University (Canada) – Faculty of
Law. Delaware Journal of Corporate Law, Vol. 31, No. 1.
This paper compares mandatory to voluntary corporate
governance regimes. The paper takes the view that firms have incentives to
voluntarily adopt enhanced corporate governance and disclosure practices,
although at the same time recognises that there are advantages to a mandatory
The author concludes that the preferred regime is a hybrid
one, in which the adoption of best practice governance is voluntary but
disclosure of corporate governance practices is mandatory. Such a regime, argues
the paper, would balance the costs to all stakeholders, particularly issuers and
investors. A cost analysis of different regimes should weigh the level of
expected compliance with the total costs of the regime adopted by regulators,
the paper argues. A partially mandatory structure, it is suggested, is likely to
produce a high level of compliance with a defined set of practices at lower cost
than an entirely compulsory regime. Although it is possible a wholly mandatory
structure could produce slightly better compliance, the paper argues, its costs
are likely to be much higher.
Executive Compensation, Corporate Governance, and the
Partner-Manager, by Richard A Booth, University of Maryland School of Law.
University of Illinois Law Review.
This paper takes issue with the assumption that the chief
executive of a publicly traded company is ultimately an employee of the
shareholders. The paper suggests that if one views the company as a partnership
between management and stockholders, the fact that a substantial proportion of
gains is paid to management does not seem problematic.
The article gives a brief overview of corporate theory and
practice over the last 40 years and then attempts to explain why executive
compensation has come to rely so heavily on stock options. Chief executives have
come to bear increasing levels of risk because much of their wealth must be tied
to the fortunes of a single company, while stockholders’ investments have become
increasingly diversified and so increasingly immune to company-specific risk,
the paper argues. Chief executives therefore demand the prospect of greater
returns, argues the paper, and have come to insist on returns more consistent
with those of a partner than an employee.
In addition to this, the paper suggests that in aggregate
chief executive compensation has been remarkably stable over the last 20 years,
and that unlike other forms of compensation stock options are self-regulating
and so inherently less likely to cause concern than other fixed levels of
Shareholders’ Remedies: The Choices of Objectives and
the Social Meaning of Derivative Actions, by Arad Reisberg, University of
Oxford, Pembroke College; University College London – Faculty of Laws. European
Business Organization Review, Vol. 6, 2005.
Shareholder litigation is neither the initial nor primary
protection against managerial misconduct, and this paper considers what role
should be assigned to shareholder litigation that may, in turn, enhance the
capabilities of other corporate governance mechanisms of accountability.
The paper begins by analysing the merits and disadvantages
of shareholder litigation, and considers whether its primary purpose is to deter
misconduct or simply compensate shareholders for wrongdoing. The public image of
shareholder litigation is then examined from the stance of determining whether
the perception enhances or detracts from such actions being understood as a
positive social force. The paper also considers what actions can be taken to
address the negative effects of shareholder litigation, so that the action is
more likely to be viewed as an instrument that affirms good corporate governance
Corporate Governance & Investor Concerns, by Dr
Najah Attig, assistant professor of economics at the Sobey School of Business,
Saint Mary’s University.
This paper is the recipient of the fifth annual Barclays
Global Investors (BGI) Canada research award. Rajiv Silgardo, president and
chief executive of BGI Canada, said the corporate scandals of the past few years
have meant that it is vital for investors to understand the governance
structures of equity issuers. The paper fosters a better understanding of the
impact of different control structures in the Canadian equity market, said
The research paper argues that public firms in Canada are
vulnerable to inter-shareholders agency problems. The author documents the use
of control pyramids, multiple class shares, family management, excess control
over commensurate investment, and the number of tiers and firms in the ownership
chain that might be used to benefit ultimate owners and expropriate small
investors. The paper argues that the use of these features has a negative impact
on corporate value, stock liquidity and the communication of earnings.
Comply or Explain: Market Discipline and Non-Compliance
with the Combined Code, by Iain MacNeil and Xiao Li, Univeristy of
Glasgow School of Law.
In this paper the authors examine the nature of the
explanations given by companies with an established record of non-compliance
under the “comply or explain” principle of the UK’s Combined Code on Corporate
Governance. Also considered is the role of the market in permitting deviations
from the Code. Particular attention is given to share price performance as a
factor in non-compliance, and the extent to which investors appear to rely on
this indicator rather than engage in the more difficult task of judging the
relative merits of the Code against alternatives.
The authors approach is based on the premise that financial
performance may be a determinant of corporate governance structure, rather than
vice versa. The paper argues that there is a strong link between share price
performance and investors’ tolerance of non-compliance with the Code.