Changes In Corporate Governance Research Articles

The Swedish Corporate Control Model: Convergence, Persistence or Decline?

This paper explores the effects of deregulation and globalization on the dominant mode of corporate governance in Swedish public firms. The effects are multidimensional - the direction of change in corporate governance cannot be determined by simply examining whether a convergence towards the Anglo-Saxon model is occurring. Dispersed ownership with management control has not proven to be a viable model of corporate governance for Swedish listed companies. Instead, the control models with the most rapid growth in the most recent decades are found outside the stock market, notably private equity and foreign ownership. After a major revival of the Swedish stock market its importance for the Swedish economy is again in decline. Instead of adjustments in pertinent institutions and practices to ensure effectiveness of the corporate governance of Swedish public firms under these new conditions, a great deal of endogenous adjustment of the ownership structure has taken place.

Performance Benefits of Tight Control

This study investigates the transition from being a listed company with a dispersed ownership structure to being a privately held company with a concentrated ownership structure. We consider a sample of private equity backed portfolio companies to evaluate the consequences of the corporate governance changes on operational performance. Our analysis shows significant positive abnormal growth in several performance ratios for the private period of our sample companies relative to comparable public companies. These performance differences come from the increase in ownership concentration after the leveraged buyout transaction.

Zwack, Hungary: a tradition of innovation amidst challenges

Subject area Innovation, marketing, strategic decision making. Study level/applicability Advanced undergraduate, MBA/executive education. Case overview Zwack Unicum is an enduring icon of Hungarian business and culture having survived many generations of change. The case describes historical development of Zwack Unicum focusing on the years after 1989 through EU Accession of Hungary in 2004, while the company shifted away from a family business to become a publicly traded company. Elements hint at how corporate governance changes incentivize and constrain decisions of top management. The marketing strategy called “Innovate on tradition” is examined and it demonstrates how product and marketing innovation can be led by leveraging tradition, and how companies in emerging markets faced with competition from established developed-country brands can use local culture to outmaneuver attempts at market-share capture. Threats explored include the impact of a global economic crisis on sales domestically and internationally, and the changing demographics in their primary places of commercial activity (an overall aging and decreasing population in tandem with a growing minority population). Management must find a balance between short-term and long-term strategic decisions and revisit the sustainability of a marketing strategy associated with messages that are not necessarily preferred by a growing number of their consumers. Expected learning outcomes To understand the need for wide-perspective, flexibility, and foresight in emerging markets and companies therein. Supplementary materials Teaching note.

Shareholder Voting and Corporate Governance

This article reviews recent research into corporate voting and elections. Regulatory reforms have given shareholders more voting power in the election of directors and in executive compensation issues. Shareholders use voting as a channel of communication with boards of directors, and protest voting can lead to significant changes in corporate governance and strategy. Some investors have embraced innovative empty voting strategies for decoupling voting rights from cash flow rights, enabling them to mount aggressive programs of shareholder activism. Market-based methods have been used by researchers to establish the value of voting rights and show how this value can vary in different settings.

To Be or Not to Be: Statism and Paradoxical Evolution of Corporate Governance in Russia

This article explains the dynamics of the path-breaking evolution in the corporate governance of Russia's big private businesses since Putin rose to power in 2000, based on the discursive institutionalism. For the goal, it pays attention to several political factors such as Putin's state bureaucracy and tax reform, economic recovery, and newly rising coherent elite groups, which constructed statism. Due to these factors, the Russian state could be empowered in both ideational and material dimensions, and the power relations between the state and businesses also transformed significantly. Under the hegemonic domination of Putin's statism, as a result, owner-managers began to reinterpret the problem of corporate governance and spontaneously accepted prominent foreign shareholders, though they were subject to supervision and constraint by the outside owners. These behaviors were caused more by political incentives of owner-managers than by economic interests, because the external owner would increase the costs of which the offensive state must pay in the instance of arbitrary threats to businesses. The existence of prominent external shareholders itself could protect the assets of oligarchs and legitimize their political statuses. In other words, changes in the interests and strategies of ownermanagers who collided with the empowered state, which attacked and confiscated big private businesses through nationalizing them, consequently brought about changes in corporate governance toward the Anglo-Saxon model. Keywords: Discursive Institutionalism, Statism, Nationalizing, Corporate Governance, Anglo-Saxon Model, Authoritarian Empowered State, Putin, Big Businesses, Owner-managers (Oligarchs), Multinational Investors Introduction This article aims to explain the dynamics of the path-breaking evolution that has taken place in the corporate governance of Russia's big private businesses1 since Vladimir Putin rose to power in 2000. This paper focuses on the unique political economic contexts rather than limiting its view to economic efficiency in order to examine how conversion of big businesses was brought about. Since the mid-1990s when the shift in the political economic system was in full swing along with neoliberal reforms and privatization, big Russian businesses attracted attention. A research conducted in 2002 showed that eight oligarchs controlled 85 percent of the country's top 64 businesses. According to Sakwa (2004: 190-191), the share of big businesses remained undiminished even during Putin's term. Big businesses used to concentrate on speculative action of virtual to accumulate financial assets in the 1990s but switched their main business areas to after 2000. In addition, amendments to the laws concerning corporate governance have been made in favor of the Anglo-Saxon shareholder-oriented model (Rodionov and Skaletsky, 2002; Porshakov, 2004; Roberts, 2004). Big-scale product market regulations in Russia continue to be managed politically through patrimonial connections because the state is still the major coordinator of the national economy with extensive public ownership of assets. Nonetheless, since the later part of Putin's first term, only large private businesses have shown a real shift toward the Anglo-Saxon model beyond the legal changes.2 In fact, individual majority shareholder-managers (owner-managers) have few incentives to make Initial Public Offering (IPO) or sell stakes to others or to voluntarily change corporate governance to the Anglo-Saxon model in countries like Russia where owner-managers are still thriving and the state-controlled range remains very wide. Rather, the corporate governance type in big businesses had been more closely related to the German model right after the post-Soviet reform. Then, what caused the new phenomena, a patterned conversion in the corporate governance of some big private businesses in Russia during this period? …

The relation between corporate governance and CEOs’ equity grants

We investigate whether the firm’s corporate governance affects the value of equity grants for its CEO. Consistent with the managerial power view, we find that more poorly-governed firms grant higher values of stock options and restricted stock to their CEOs after controlling for the economic determinants of these grants. We show that the negative relation between governance strength and equity grants is not likely to be attributable to omitted economic factors or substitution effects between governance strength and equity incentives. As further evidence consistent with the managerial power view, we show that firms with poorer governance in the pre-Enron era cut back more on using employee stock options (ESOs) for their CEOs in the post-Enron era, a period when the accounting and outrage costs of ESOs increased, consistent with poorly-governed firms taking more advantage of opaque ESO accounting rules than better-governed firms. We show that the association between governance strength and abnormal equity grants is less negative in the post-Enron period than it was in the pre-Enron period, consistent with firms making more efficient equity-granting decisions after the corporate governance changes mandated by the Sarbanes–Oxley Act of 2002 and the major US stock exchanges took effect.

Book Review: Corporate Governance, Competition and Political Parties: Explaining Corporate Governance Change in Europe

Book Review: Corporate Governance, Competition and Political Parties: Explaining Corporate Governance Change in Europe

Aprendizagem social, desenvolvimento de plataformas de múltiplos atuores e governançasda água no Brasil DOI:10.5007/1807-1384.2010v7n1p69

The contribution of decision-making spaces is fundamental for the strengthening of water governance. The expansion of these spaces of citizen involvement promotes qualitatively the ability of representation of interests. However, the big challenge is that these spaces become effectively public, both in their format and in their results. Inserted in the Water Governance Process, the concept of social learning opens an exciting space to develop processes of action articulation premised on the notion of "learning together for joint handling and decision-making as well as changes in corporate governance". Basically, the learning strategy is that everyone should know the context of criticality and governance conditions in order to intervene together in contexts of river basins. From the concept of social learning, one aims to meet the challenges of sustainability and integration of the interfaces in water governance, which requires the contribution of different knowledge and interdisciplinarity.

The split equity reform and corporate financial transparency in China

PurposeThe purpose of this paper is to report the impact of the Chinese capital market split equity (SE) reform in 2005 on the corporate financial transparency of Chinese listed companies.Design/methodology/approachUsing an International Financial Reporting Standards‐based checklist, the paper investigates whether the post‐reform 2005 annual reports of reformed companies improved transparency compared to pre‐reform 2004 reports. The transparency of the reformed companies was also compared to a control group of companies unreformed on December 31, 2005.FindingsResults indicate that the SE reform increased corporate disclosures. Reformed companies had higher mandatory and voluntary disclosures in their post‐reform 2005 annual reports compared to their pre‐reform 2004 annual reports. In addition, the improvement in mandatory and voluntary disclosures for reformed companies is greater than that of the unreformed control group.Research limitations/implicationsThe SE reform provides a unique natural experimental setting in which to examine the impact of the SE reform, with its associated change in ownership structure and corporate governance, on corporate disclosure.Practical implicationsThe results of this paper suggest that the SE reform has had a positive effect on corporate financial transparency in China, thereby indicating the positive response to regulation in this emerging market. Further, the results suggest that as the proportion of government ownership falls, management has increased incentive to voluntarily supply additional information to the market.Originality/valueThe SE reform is unique to China and this paper is the first to report on financial reporting disclosure implications of this reform.

Ownership, corporate governance and industrial relations in the banking and telecommunications sectors: the case of Greece

ABSTRACTThe article examines how changes in ownership and corporate governance have affected industrial relations systems by drawing on the recent experience of Greece in two sectors: banking and telecommunications. The findings show that despite the seeming institutional stability in industrial relations arrangements, substantive change has taken place in the aforementioned sectors, which has resulted in the decentralisation of bargaining procedures.

Who is Driving Change? Corporate Governance and Organizational Change in Estonia

Organizational change processes involve many stakeholders, but the roles of capital owners and managers have not received enough attention in research on organizational change. Exploratory research results in Estonia elucidate how the interplay of owners and managers influences strategic change efforts in an organization operating in a rapidly changing transition economy. In addition to linking theoretical approaches to organizational change and development to corporate governance challenges in transition economies, this article uses data from interviews with 26 prominent decision-makers in Estonia to highlight the differences between foreign and domestic owners in controlling managers in the strategic change processes.

Corporate governance and leverage: Evidence from a natural experiment

We argue that the recent corporate governance reform in the Netherlands provides a natural experiment to explore the impact of changes in corporate governance on financing policy. We find that, relative to a control sample of comparable firms outside the Netherlands, Dutch firms significantly reduced their leverage following the passage of the reform. Our findings are consistent with the view that corporate governance improvements reduce the value of debt as a disciplining device.

The financial crisis, investor activists and corporate strategy: will this mean shareholders in the boardroom?

The concept of stakeholder engagement is gaining increasing attention in the mainstream media and may feature as part of a corporation’s strategy for corporate social responsibility. Not only are boards considering how they might engage with key stakeholders, but stakeholders are also pursuing greater participation in the strategic decisions of companies in which they invest. While this is an emerging concept in companies governed by unitary boards, as in North America, the issue of stakeholder engagement in various forms is also entering debate in other countries around the world. In general, however, the idea of shareholder or stakeholder representation on the boards of most UK and Commonwealth companies is anathema. Forces now influencing the development of strategies for stakeholder engagement and the rise of active investors include changing corporate governance rules which give investors more power in the election of directors, the increasing role of pension plans and hedge fund investment groups which have produced investors who keep a close eye on company performance and value, and a sluggish or turbulent stock market as a result of the financial crisis initiated by the credit crunch in the sub-prime mortgage markets. In this paper the phenomenon of stakeholder representation is examined and results of a recent survey conducted among a large sample of New Zealand directors are presented. The findings suggest that these traditionally oriented boards are increasingly inwardly focused and are without an agenda for building and managing shareholder and stakeholder relations. Accordingly, such boards are unlikely to regard stakeholder engagement as a serious strategic issue and are thus also likely to miss significant opportunities in the changed business environment to benefit from stakeholder support.

Compensating for Executive Compensation: The Case for Gatekeeper Incentive Pay

[E]xecutive compensation abruptly shifted in the United States during the 1990s, moving from a cash-based system to an equity-based system. More importantly, this shift was not accompanied by any compensating change in corporate governance to control the predictably perverse incentives that reliance on stock options can create. 1

Corporate Governance and Leverage: Evidence from a Natural Experiment

We argue that the recent corporate governance reform in the Netherlands provides a natural experiment to explore the impact of changes in corporate governance on financing policy. We find that, relative to a control sample of comparable firms outside the Netherlands, Dutch firms significantly reduced their leverage following the passage of the reform. Our findings are consistent with the view that corporate governance improvements reduce the value of debt as a disciplining device.

If you Give Shareholders Power, do they Use it? An Empirical Analysis

Many commentators assert that enhanced shareholder power is a promising cure for corporate governance ills. This paper empirically examines the impact of differential amounts of shareholder power on governance arrangements. When U.S. states enacted statutory antitakeover protections in the 1980s, the states differed in the power granted to shareholders to opt out of the antitakeover protections without agreement by the board of directors. These differences in shareholder power are associated with little change in governance arrangements. The results suggest that simply altering shareholder power without changing other governance mechanisms is unlikely to lead to widespread changes in corporate governance.

Shareholder Voting and Corporate Governance

This article reviews recent research into corporate voting and elections. Regulatory reforms have given shareholders more voting power in the election of directors and in executive compensation issues. Shareholders use voting as a channel of communication with boards of directors, and protest voting can lead to significant changes in corporate governance and strategy. Some investors have embraced innovative “empty voting” strategies for decoupling voting rights from cash flow rights, enabling them to mount aggressive programs of shareholder activism. Market-based methods have been used by researchers to establish the value of voting rights and show how this value can vary in different settings.

The Walker Review proposes ‘The Toughest Governance Regime in the World’

We are currently in the midst of the most significant global changes in corporate governance arising from the financial crisis that will fundamentally transform governance obligations, relationships and expectations, as we know them. Governments in the United States, United Kingdom, European Commission and elsewhere are enacting legislation and voluntary codes to enhance governance oversight, facilitate shareholder impact, enshrine risk governance and strengthen board and shareholder control over executive compensation. This article focuses on developments in the United Kingdom, specifically the recommendations within the ‘Walker Report’.

From Seniority to Performance Principle: The Evolution of Pay Practices in Japanese Firms since the 1990s

After the burst of the bubble economy at the beginning of the 1990s, pay practices in Japanese companies have undergone significant changes that are characterised by a shift towards performance-based pay. The purpose of this article is to take account of these changes through an analysis of key research and survey results, to discuss the degree of success of the new systems and to examine some important interdependencies with changes in corporate governance and labour legislation. The success of the evolving systems in terms of increased efficiency and effectiveness remains contested, while many companies are still adjusting their understanding of performance and their assessment procedures so as to not negatively impact employees’ motivation and cooperative work practices. While the influence of corporate governance on pay systems remains limited, recent changes in labour legislation are likely to strengthen the reliance on performance-oriented pay in the future.

How Important are Countries to Changes in Corporate Governance in Emerging Markets? An Examination of the Impact of Changes in Country Risk on Changes in Corporate Governance in Emerging Markets

This paper investigates how important countries are to corporate governance by examining if changes in country risk are related to changes in corporate governance. This is an interesting question because we can assess if governmental policy changes can influence changes in firm-level governance. To conduct this study we use two specific sets of data. First, we utilize a unique data set from AllianceBernstein that consists of monthly firm-level corporate governance ratings for 24 emerging market countries for almost seven years. Since the AllianceBernstein ratings are time-series data, they allow us to determine the magnitude of changes in a firm’s corporate governance, and when these changes take place. Second, we use the International Country Risk Guide ratings (ICRG) provided by Political Risk Services (PRS). Like the AllianceBernstein dataset, the ICRG data are monthly time-series data, hence they allow us to determine the timing and magnitude of changes in a country’s economic, financial and political conditions. Using these data we find that changes in country risk are not related to changes in firm level governance. We also find that changes in country risk have little or no ability to predict future changes in firm-level governance. Indeed, the decision to change corporate governance seems to be somewhat idiosyncratic and not that predictable.