Corporate Governance Meets Data and Technology

W HEN investors purchase shares of common stock, they typically acquire the right to vote in the election of the firm's board of directors and on other major issues facing the corporation. In most corporations board members are elected through "straight voting." In straight voting each shareholder is entitled to cast votes equal to the number of shares held for each director position. If a group controls 51 percent of the vote, it can elect the entire board of directors by casting all of its votes for the candidate that it favors for each position. Some firms do not use straight voting but elect their board members through "cumulative voting" instead. In cumulative voting each share entitles the shareholder to as many votes as there are directors to be elected. A shareholder may cast all votes for a single candidate or distribute them among more than one nominee. With cumulative voting it may be possible for minority shareholders to elect some board members even if the majority of shareholders oppose their election. To elect these directors, the minority shareholders would cumu-

Over the last thirty years there has been a remarkable functional convergence in the way companies are run. Behind directors, asset managers and banks usually participate the most in setting the ultimate direction of corporations, as they have assumed the role of stewardship over shareholder voting rights. At the same time, an increasing number of people’s livelihoods and old age now depend on the stock market, but these ultimate contributors to equity have barely any voice. Why has there been such a separation of contribution and participation? Two positive theses explain this convergence in corporate governance, one political, one economic. The first positive thesis is that laws which guarantee participation rights in investment chains (either for shareholders against directors, or for the ultimate contributors against institutional shareholders) were driven by a progressive democratic movement, but very incompletely compared to its social ideals. The second positive thesis is that when there have been no specific rights in law, the relative bargaining power of different groups determined the patterns of participation, whether the outcomes were reasonable or entirely arbitrary. In practice, the separation has grown between those who contribute to equity capital and those who participate in governance. These theses are preferable to existing narratives in political literature, and law and economics, which entail predictions of different forms of rational interest-driven institutional evolution. On the contrary, participation in corporate governance is largely unprincipled. The evidence is found in the historical development of participation rights in the UK, Germany and the US. Does the separation of contribution and participation matter? One normative thesis is derived from the historical evidence. It proposes that the separation of contribution and participation is a pressing concern, precisely because participation in corporate governance, as it stands, manifests no coherent principles. Asset managers and banks have gathered shareholder voting rights through no better reason than their peculiar market position as investment intermediaries. They have significant conflicts of interest when they exercise voting rights with other people’s money. They are able to use votes like any other selfperpetuating interest group would, because they are not effectively accountable to their natural beneficiaries: the ultimate investors. To ensure that the successes of modern corporate law are not unravelled, corporate governance should protect the principle of a symmetry between contribution and participation. This will mean that in the future, corporate governance becomes more economically efficient, sustainable, and just.

In Japan in recent years, fiduciary investment institutions such as the Pension Fund Association and public pensions as well as investment advisors have created guidelines for exercising shareholder voting rights, and have been actively endeavoring in exercising these rights. Participation in corporate governance by American institutional investors is exerting great influence in movements such as these. Foreign stock investment by American institutional investors was centered in Europe in the 1990s. In recent years, with the increase in index investing and an eye toward the effects of risk diversification, there has been an increased amount of investment in Asian and other countries. With investment in foreign stocks increasing, American institutional investors have also come to exert influence on overseas corporate governance. When obstacles arise in taking actions such as these, appeals are made to respective national governments through international organizations such as the OECD, and actions are taken to demand systemic revision. In this way, positions taken toward American institutional investors’ corporate governance come to have strong influence around the world. Actions like these have such huge international impact that French and German researchers have concerns about a “new imperialism.” What does this mean for a stock-held corporation system in which “separation of ownership and management” has been ever increasing? Do institutional investors who have fiduciary responsibility bear a responsibility that differs from that of simply a large shareholder? In this chapter, based on this premise of the issues, I will describe the current circumstances surrounding exercising shareholder voting rights by institutional investors in Japan, and examine the significance of this in the stock-held corporation system.

Do Voting Rights Matter?: Evidence from the Adoption of Equity-based Compensation Plans

Shareholder Voting Rights* Shareholder Voting Rights and Practices in Europe and the United States, The Hague; Boston: Kluwer Law International (Thomas Baums & Eddy Wymeersch eds., 1999), price: US$165.00. I. INTRODUCTION Shareholder Voting Rights and Practices in Europe and the United States1 is essential reading for the practitioner, scholar, and interested reader. The completed work is the result of a conference organized by the editors, Professors Theodor Baums of the University of Osnabruck and Eddy Wymeersch of the University of Ghent. The aim of the conference was to compare the rights and privileges of shareholders among different European legal regimes with the rights and privileges of shareholders in the United States. The work is divided into two parts: (1) a series of individual country studies and (2) a general report that summarizes the findings. The book labors to identify areas of European law that govern shareholders' rights and obligations where existing legislation diverges. At the same time, the book provides detailed analysis of the various regimes. The multitude of authors contributing to the work conclude that overall, European laws provide for some form of shareholder voting rights and participation. Their differences, however, lie in the details of the individual state regulations. These differences in the regulatory regimes result in barriers to effective participation by shareholders, particularly by institutional investors. The authors also consider translation and language barriers an impediment to effective participation. Namely, investors must quickly and accurately process information and notices that are presented to them, often on short notice, in a foreign language. The book is intended to be both informational concerning the individual legal regimes of the countries that make up the European Union (EU) and polemic in its advocacy of more uniform laws for shareholders' voting rights and participation. The subject itself has been more than a passing interest to the EU. In 1995, the EU commissioned a study of shareholders' rights and representation at general meetings of companies of member states.2 Model uniform legislation has been proposed. However, at the present time, neither prong of the Fifth Directive of the EU-the limited company and the draft of the societas europaea statute-has been promulgated, nor is much expected to come from them. Shareholder Voting Rights and Practices in Europe and the United States responds to the increasing frequency with which institutional investors are investing in European companies and to these investors' increased presence at general meetings. The countries whose legal regimes are reviewed in the book are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States. An understanding of the legal status and rights of the shareholder in each system is essential to provide for the fullest amount of participation by the investor in the company's decision-making process. The practitioner will find this book useful for its detailed descriptions of local laws and practices. The individual reader, especially the scholar, will find the book's advocacy for legal uniformity to be insightful. II. THE GENERAL REPORT The book identifies a variety of concerns about shareholder voting rights and effective participation in the different European legal regimes. It specifically addresses the preparation for the general meeting, information provided to shareholders, and the overall conduct of the general meeting. In most European states, the authority to convene a general meeting of the company lies with the board of directors. Some countries with statesponsored supervisory bodies or the firm's highest corporate body, not the board, will possess this authority. An example of such an institution is the Vorstand in Germany. …

The integration of tokenization into corporate governance marks a transformative shift in managing corporate ownership and transparency through blockchain technology. This research agenda explores the practical and managerial implications of tokenization, focusing on enhancing shareholder communication and decision-making. By addressing inefficiencies and opacity in traditional corporate governance, tokenization democratizes shareholder participation, streamlines processes, and improves transparency and accountability. Anchored in a comprehensive literature review, the study synthesizes existing research and identifies gaps in understanding tokenization’s impact on corporate governance. Key themes include the role of institutions and governance mechanisms, blockchain’s potential to enhance transparency, reduce intermediaries, lower costs, and boost shareholder engagement. The study also examines evolving legal frameworks and regulatory challenges, emphasizing the need for regulatory clarity to facilitate adoption. A comparative analysis of blockchain platforms versus traditional financial markets highlights unique advantages and challenges related to liquidity, regulatory frameworks, accessibility, transparency, efficiency, stability, trust, and security. This agenda provides a structured framework for investigating the multifaceted impact of tokenization on corporate governance. The findings underscore the importance of innovative regulatory approaches and robust security measures to ensure blockchain platform stability. Future efforts should focus on developing comprehensive regulatory frameworks and ongoing education initiatives to support the democratization of financial markets through blockchain technology, ultimately contributing to a more efficient and equitable corporate landscape.

Protecting Shareholders from Themselves: The SEC and Restrictions on Shareholder Voting Rights

Despite general interest in the economic rise of Asia and in the role of law in the development of the region, the literature on comparative corporate governance in Asia is surprisingly undeveloped with respect to in-depth comparisons among Asian countries. In particular, it should be both valuable and feasible to compare and contrast corporate governance systems and practices among countries in East Asia, in light of Japan’s historical influence and more recent divergences from that influence. At a recent conference sponsored by Waseda University, a distinguished group of corporate law scholars from Japan, Korea, Taiwan, and China engaged in a broad-ranging panel discussion centering on the question of the operation and reform of traditional stakeholder-oriented corporate governance systems featuring concentrated ownership and a board of directors involved in day-to- day management against the need to account for greater monitoring of management on behalf of shareholders. For example, the panelists agreed that the traditional internal corporate auditors (or kansayaku in Japanese) have not appeared to operate effectively in monitoring management, and to some extent they should be supplemented or replaced by outside directors. However, the scope and pace of such change varies considerably among countries in East Asia, and skepticism remains about the effectiveness of outside directors. The panel discussion highlighted both the challenges and significant potential rewards for greater scholarly collaboration in making cross-Asian comparisons in the field of corporate governance.

The Case for Limited Shareholder Voting Rights

The presence of majority shareholders who also hold positions as public company executives leads to a conflict of interest due to their dual status. During the general meeting of shareholders, these shareholders have the power to endorse the work plans of the directors and commissioners. As per the limited liability corporation law, shareholders are responsible for appointing and dismissing directors and commissioners. This study aims to investigate the conflict of interest that arises when a majority shareholder serves as a director or commissioner, utilizing normative legal theory. The research focuses on a sample of companies in the financial industry. The findings of this study recommend regulatory reforms to govern the voting rights of majority shareholders at the annual general meeting of shareholders (AGMS). It suggests that the AGMS should exclude the voting rights of shareholders with conflicts of interest. Additionally, any transaction involving a conflict of interest should require the approval of other shareholders, which can be deliberated during a general meeting of shareholders.

This study explores the association between family influence in firms and stock market returns in Germany, a country with a less investor-friendly corporate governance system where shareholders cannot directly influence top managers. The study forms portfolios of firms with and without the influence of families as shareholders or members of the firm’s legal bodies. The models estimate portfolio returns from 2003-2013 using a four-factor model. Results suggest that corporate governance is highly correlated with stock returns in Germany. Specifically, they document a significant relationship between family influence and firm valuation. Firms with stronger family influence via voting rights and board-participation are found to have a higher firm value (annualized excess return: 0.48%-6.00%). The study interprets this to mean that families may improve a firm’s internal corporate governance, as their strong motivation and ability to become actively engaged in a firm’s daily operations or to assume a monitoring role distinguishes them from other corporate blockholders. The results add to those of an increasing number of publications finding a positive association between strong family governance and performance. They contribute to a year-long scholarly exploration of performance differences among family and non-family businesses, mainly by defining the former by mere ownership. The study combines a large set of governance provisions into a novel, transparent, and replicable index of family involvement and then estimates the empirical relation with market performance. The index captures influence via shareholder voting rights, considers direct influence of owners on day-to-day operations, and controls for indirect influence via supervisory board. AcknowledgmentThe authors acknowledge support by the Open Access Publication Funds of the HTWK Leipzig.

The Value Information of Financing Decisions and Corporate Governance during and after the Japanese Deregulation

The social responsibility of corporation and its impact on the reformation of corporate governance structure: a discussion from the perspective of law

Corporate governance is a complex and multifaceted subject. Furthermore, governance data are hard to collect and measure on a large scale. The classic approach to examine governance issues relies generally on the existence of allegedly good governance programs. In contrast to this approach, the authors use granular quantitative measures to assess the difficult-to-interpret aggregated governance framework with the aim to explore the relationship between corporate governance and equity performance. By digging into this dataset, they were able to establish a profile of effective and good corporate governance quantitatively, with a range of board characteristics, chief executive officer compensation, and shareholder voting rights from the point of view of investors.

Two features can be considered to describe the modern world–globalization and the free market. It is widely accepted – almost unquestioningly – that free markets will lead to greater economic growth and that we will all benefit from this economic growth. Guler Aras and David Crowther ‘Convergence: A Prognosis’ in Guler Aras and David Crowther (eds), Global Perspectives on Corporate Governance and CSR , Farnham, Gower Publishing Ltd (2009) 314–15 Introduction In this chapter we give a brief overview of corporate governance in the USA, the UK and Canada, while we deal with the OECD principles of corporate governance and corporate governance in Germany, China and Japan in Chapter 13. In the first edition of this book we dealt with the OECD principles of corporate governance and corporate governance in the USA, the UK and Germany in one chapter (Chapter 12). As we decided to add China and Japan as two new and important jurisdictions, the chapter became too long. The reason for the split is that corporate governance in the USA, the UK and Canada is classified as Anglo-American models. The OECD principles include traditional Anglo-American corporate governance principles, but it also goes wider – spanning across principles applying to a traditional unitary board structure and principles applying to a typical two-tier board structure. Germany has always been seen as the prime example of a jurisdiction that adopted a true two-tier board structure for public corporations and larger proprietary companies, while Japan has been influenced by this. China has a unique corporate governance model because of the political model adopted in that country.