Kaal claims by topic: corporate-governance

284 atomic, individually citable claims from the published work of Wulf A. Kaal tagged corporate-governance.

Defects in a civil law jurisdiction's corporate statute, such as inadequate minority shareholder protection, are more easily fixed than defects in a judiciary that fails to apply the statute predictably and uniformly. 2004
The principal-agent problem in complex financial products is exacerbated by hierarchies in financial institutions, which create multiple layers of agency relationships between the traders using the products and the principals bearing the real economic risk. 2009
The issuer-buyer relationship and the incentives inside it are unlikely to be able to adequately control the principal-agent relationship between issuer and rating agency so as to ensure accurate ratings. 2009
Overlapping regulation and inconsistent legal rules create uncertainty, so that individual board members of European companies and their attorneys will not know which legal rules apply or what effects those rules may have. 2010
Legal uncertainty generates transaction costs, and European company boards will inevitably incur costs minimizing the information asymmetries created by different legal regimes that may or may not apply to their company. 2010
European boards of directors and company lawyers should follow the Morrison decision and the section 7216 legislative process closely, prepare for the resulting changes, and ask Congress to reconsider section 7216. 2010
Although the business judgment rule is articulated differently in the two countries and German law leaves somewhat more room to challenge risky decisions, in both the United States and Germany the rule is highly protective of corporate managers. 2010
The U.S. governance structure, built on periodic disclosure of performance data and stock price maximization, encourages risk taking because managers feel compelled to meet shareholder expectations at every reporting interval. 2010
German corporate law's historical focus on conflicts between controlling and minority shareholders leaves it poorly equipped to address managerial abuse of power, including excessive risk taking by managers. 2010
Codetermination makes the German supervisory board's decision making more cumbersome, so a co determined Aufsichtsrat may not respond quickly enough to fast moving events such as an escalation of portfolio risk or a liquidity crisis. 2010
Because the Aufsichtsrat owes its duty of loyalty to the firm rather than to shareholders alone, and because non shareholder constituencies such as employees and creditors are more risk averse than diversified shareholders, German supervisory boards may take a more conservative attitude toward risk than U.S. shareholder oriented boards. 2010
Director independence does not produce effective risk monitoring: as the failure of independent director oversight at Lehman Brothers and other large U.S. financial firms shows, independent directors cannot monitor risk when managers, accountants and lawyers keep them in the dark. 2010
Because U.S. law frames the inquiry around corporate waste, and most risk taking does not meet the waste standard, showing that a decision was hazardous or excessively risky is not enough to rebut the business judgment rule in the United States. 2010
Under the German business judgment rule's benefit of the corporation element, management cannot be acting for the corporation's benefit when its actions threaten the corporation's existence and economic survival. 2010
The U.S. requirement that directors act on an informed basis is watered down because many states permit charter provisions exculpating directors from liability for breach of the duty of care, including the duty to act on an informed basis. 2010
Routine engagement in highly complex transactions lets public companies conceal risky transactions from investors and even from their own directors, which is a structural weakness in the supposedly rigorous U.S. disclosure regime. 2010
In the United States the duty to disclose risk indirectly generates risk monitoring, because directors who know they are responsible for disclosing risk have reason to monitor it even though corporate law imposes no explicit duty to monitor. 2010
Germany's 2005 introduction of the derivative suit tightened the standard of care only partially, because section 148(1) of the AktG conditions shareholder standing on holding shares worth roughly 100,000 euros, a threshold with no U.S. counterpart. 2010
The German legislature enacted the VorstAG on the premise that managers who emphasize short term parameters lose sight of the corporation's long term benefit and are thereby incentivized to take irresponsible risks, and it accordingly required compensation reduction in a corporate crisis, a D&O deductible, and deferred payout of performance based pay. 2010
Dodd-Frank's mandatory risk committee is a significant change because most boards then delegated risk oversight to the audit committee, and it may generate new litigation if committee composition or alleged committee failure becomes a basis for shareholder suits. 2010
Delaware courts have not explicitly imposed a duty to monitor risk, but that omission may be moot: because failing to disclose risk violates federal securities law, unmonitored risk is likely to become undisclosed risk and therefore actionable. 2010
Contingent capital offers only limited protection against information asymmetries, principal and agent conflicts, and collective action problems, so it cannot by itself prevent economic failure. 2011
Existing proposals for implementing contingent capital do not explain how they would address the information asymmetries and principal and agent problems that may lie at the core of the credit crisis. 2011
The incentive effects of corporate governance controls may not operate in systemically important financial institutions, because managers and owners who anticipate a bailout commitment adjust their risk preferences upward. 2011
The threat of loss on conversion and the implicit dilution of existing stock holdings reduce shareholders' incentive to press management for higher risk in pursuit of higher returns. 2011
Banks' role in monitoring hedge funds is not easily comparable to the principal agent problem between securities buyers and credit rating agencies, because banks have more influence over hedge funds than securities buyers have over rating agencies and their ratings. 2011
Expanded SEC enforcement under the Dodd-Frank provision runs a serious risk of being perceived as an encroachment on the corporate governance of foreign companies. 2011
The German provision allowing appropriate compensation of shareholders whose rights are impaired can defeat the statute's own purpose, because time is of the essence in bank reorganization and the appointment of a court-appointed expert to value shareholder claims may significantly slow the procedure. 2012
Contingent capital supports general risk control and reduces moral hazard by holding shareholders responsible and internalizing the costs of bank failure rather than externalizing them onto taxpayers. 2012
Because conversion carries a threat of loss and implicit dilution of stock holdings, contingent capital reduces shareholders' incentive to push management toward higher risk in pursuit of higher returns. 2012
Early European initiatives to put contingent convertible bonds into executive pay lack governance-improving designs; contingent convertible bonds with an early conversion trigger should be used in executive compensation instead. 2012
The methodological assumptions of incomplete contract theory improve the analysis of executive compensation arrangements relative to the classical and spot contract models normally used. 2012
Contingent convertible bonds placed in executive compensation serve a different purpose than those sold to investors: the point is not capital infusion during a crisis but governance-improving design that optimizes management incentives. 2012
The conversion feature of contingent convertible bonds affects corporate governance in a SIFI only if issuance volumes are sufficient and design features are adequate, because the governance effect runs through the threat of dilution of existing equity positions. 2012
Market solutions and private ordering alone are unlikely to produce contingent capital designs that improve corporate governance in SIFIs, because privately negotiated sales so far have not produced governance-sensitive designs. 2012
Analyzing executive compensation as a single contract between an executive agent and a corporate principal fails, because it ignores the informal relational element of the principal agent relationship that often overshadows the legal terms of the agreement. 2012
Control rights in executive compensation contracts cannot sufficiently constrain ex post opportunism by executives, because of incomplete information, information asymmetry, bounded rationality, limited foresight, and transaction costs. 2012
Adding contingent convertible bonds with an early trigger to executive compensation packages creates a corporate governance mechanism that addresses the inability of contractual control rights to constrain executive opportunism. 2012
Barclays's Contingent Capital Plan uses synthetic CoCos that simply lapse when the Group Core Tier 1 capital ratio falls below seven percent, rather than converting into equity. 2012
Because the Barclays award falls away rather than converting, it does not create a fixed claim giving managers a stake in the firm's liquidation value, and therefore it does not lower agency cost. 2012
A contingent capital award to executives without a conversion feature yields only limited governance improvement and only limited incentive to lower risk-taking; in its current form it operates as a mere compensation supplement. 2012
The impending threat of dilution from a possible conversion of investor-held contingent convertible bonds can motivate existing shareholders to become actively involved in the governance of the entity. 2012
Path dependencies in United States executive compensation culture could make it difficult to lower overall executive pay or to add new design elements such as contingent convertible bonds. 2012
Executives paid in contingent convertible bonds have an opportunistic reason to manipulate the triggering event, because conversion at a depressed price before or during a crisis hands them cheap stock. 2012
Where rules and regulatory guidance are absent, fiduciary duties are the only constraint on executives, and existing fiduciary duties could prove insufficient to limit opportunism and abuse when the payoff is substantial. 2012
A mandatory holding period covering all equity securities executives hold in the entity they manage, applied after their contingent convertible bonds convert, would limit abuse of the trigger. 2012
The governance benefits of traditional inside debt, incentive optimization and reduced agency costs, all depend on the entity remaining solvent, and inside debt supplies no mechanism of its own to ensure that solvency. 2012
Trigger designs that work well in institutions with the traditional mix of debt-holders and shareholders may be suboptimal once executives themselves hold contingent convertible bonds. 2012
An early trigger design for contingent convertible bonds in executive compensation enables earlier signaling of default risk, increases incentives for creditors and shareholders to monitor, and increases executives' incentives to lower risk-taking. 2012
Because both European regulatory initiatives and the United States academic debate concentrate on the technical design features of contingent capital securities, the possible corporate governance applications of those securities are mostly ignored. 2012
Combined with other corporate governance mechanisms, contingent capital securities function as an internal, institution specific mechanism that could fill the void left by regulators' apparent inability to supervise financial institutions effectively. 2012
The threat of dilution of stock holdings, combined with the threat of loss on conversion, reduces the pressure shareholders place on the management of systemically important financial institutions to take higher risks. 2012
Contingent capital by itself, without additional measures and supplemental corporate governance improvements, may not prevent firm failure; its real potential unfolds only when it supplements other corporate governance improvements. 2012
If a market evolves in which contingent capital designs appear to provide sufficient protection against systemic risk and contagion, decision makers may come to rely on the design of those securities and neglect their own role as monitors. 2012
Regular corporate governance controls may not work in systemically important financial institutions, because those institutions are considered too big to fail and their leaders, anticipating a bailout commitment, are incentivized to shift their risk preferences upwards. 2012
Where institutions hold each other's contingent capital and share similar risk profiles, they will be hesitant after conversion to vote for necessary organizational changes at a competitor or otherwise exercise their voting rights, because they are similarly exposed and may face reciprocal voting power. 2012
Absent cross holdings, the opposite conflict arises: institutions holding a competitor's converted contingent capital could be tempted to exercise their voting rights against the interests of that competitor. 2012
The combination of demonstrated investor interest and an underdeveloped regulatory structure in the United States presents a unique opportunity to experiment with contingent capital designs and with their application to the corporate governance of systemically important financial institutions. 2012
A contingent capital design that increases voting rights on conversion allows systemically important institutions to lower risk taking implicitly and to achieve an indirect, institution specific form of corporate governance reform through increased checks and balances. 2012
Management incentives for risk control are heightened upon conversion, especially where management knows that holders of converted contingent capital would command a majority vote, with or without institutional shareholders. 2012
The nearly insurmountable standard for liability in oversight cases in the United States undermines the signalling of the expected standard of conduct, and this could have long-term implications for American corporate law. 2013
Stable rules may not suffice to make directors' oversight role more robust, so contractual and quasi law forms of dynamic governance are a promising supplement for improving the duty of oversight. 2013
Without a workable duty of oversight, corporate directors who seek to comply with the oversight duty lack meaningful guidance about the conduct expected of them. 2013
Because directors serve part-time as outsiders, it is unreasonable to expect them to have the knowledge, capacity, and expertise needed to monitor effectively the business affairs of large and increasingly complex corporations. 2013
Under Delaware law as applied in In re Citigroup, directors' incorrect evaluation of business risk and their inability to predict the future do not violate the duty of oversight, so the Caremark duty to monitor is not extended to business risk. 2013
Losses alone are not sufficient to hold directors personally liable for taking risks that lead to those losses, because risk is inherent in maximizing shareholder value. 2013
Oversight liability in Delaware can be established only on a showing that the directors knew they were not discharging their fiduciary duties or consciously disregarded their responsibilities. 2013
Delaware's signalling of expected conduct is undermined when the state simultaneously imposes a near insurmountable standard for liability in cases involving breaches of the duty of oversight. 2013
Courts often provide very specific language about the standard of conduct expected of directors, but lawyers do not sufficiently communicate that expected conduct to directors. 2013
Directors who are inadequately informed about the expected standard of conduct will underestimate their personal liability exposure and engage in riskier behavior than is desirable for the company itself. 2013
Germany has taken a much stricter approach than the United States to cases involving a breach of the duty of oversight, even though the German business judgment rule formally requires a showing of the same elements as the American one. 2013
Under German law, directors' business decisions lose the protection of the business judgment rule where the business risk taken was inappropriately excessive, a standard German courts announced in ARAG/Garmenbeck. 2013
German commentators, whose expertise German courts rely on heavily, concluded after the financial crisis that managers do not act reasonably under the German business judgment rule if the risks they take on behalf of the corporation result in the demise of the corporation. 2013
The German ARAG/Garmenbeck holding is diametrically opposed to In re Citigroup, where the Delaware Chancery Court declared that directors' incorrect evaluation of business risk did not violate the duty of oversight. 2013
The German Federal Court of Justice held in Mannesmann that directors breached their fiduciary duty by awarding a bonus of roughly seventeen million dollars to a chief executive whose tenure had substantially increased shareholder value, whereas Delaware courts imposed no liability for the far larger Ovitz payout in Disney. 2013
Despite the limits of the comparison, had In re Citigroup and Disney been decided in Germany the allocation of liability would have been different, because German courts are generally more willing than Delaware courts to second-guess directors' decisions. 2013
Delaware's signalling of expected conduct could be dramatically improved by adopting a moderate rather than near insurmountable standard for liability in cases involving breaches of the duty of oversight. 2013
If the liability standard were lowered, directors and officers would take their increased personal liability exposure into account and could be incentivized to engage in less risky behavior. 2013
Increasing oversight liability would give courts an opportunity to clarify the oversight doctrine, so that it could evolve into a mature and coherent doctrine rather than remaining immature and incoherent. 2013
Increased liability is no panacea and cannot alone adequately address the central shortcomings of the duty of oversight and of corporate governance in the United States, because heightened liability does not give part-time outside directors the capacity to monitor complex corporations. 2013
Cost increases and path dependencies may make it nearly impossible to relax the close to insurmountable standard for liability in oversight cases. 2013
The author endorses the conclusion that attempts to enhance oversight in the United States may fail and that emphasizing improved oversight as a means of enhancing corporate governance could be ill-advised. 2013
The common denominator between the Sarbanes-Oxley Act, the Dodd-Frank Act, and other reform proposals is a top down regulatory approach of direct regulatory intervention with stable and supposedly optimal rules. 2013
Governance adjustments are often enacted merely to address the problem perceived in the given market environment and the then existing economic conditions, without regard to possible future developments. 2013
The economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, so rules fixed at one moment lose their fit over time. 2013
Using court decisions and stable rules to make the oversight role more robust could be insufficient, whereas contractual and quasi law forms of dynamic governance could help improve the duty of oversight. 2013
Corporate Integrity Agreements are one form of dynamic governance that may be able to temporarily increase fiduciary duties as a form of quasi law. 2013
More research is needed to understand how dynamic forms of governance could help improve fiduciary duties and corporate governance. 2013
Since 2002 United States corporate governance has been substantially upgraded twice in response to crises, following more than seventy years of comparative regulatory inactivity, a concentration of regulatory activity in a short timespan that is itself striking. 2013
Managers are incentivized to manage their institutions so as to avoid contingent capital triggers, and that incentive itself can optimize the governance of financial institutions. 2013
Prosecutors negotiating deferred prosecution agreements may lack the expertise needed to negotiate high level corporate governance changes such as personnel changes and internal corporate and compliance procedures. 2013
Corporate integrity agreements improve corporate governance because the ease of reopened prosecution, increased government scrutiny, and the potential for crippling penalties improve boards' and managements' knowledge of pertinent issues in the institution and its monitoring. 2013
The passive electronic bulletin board exemption holds only so long as the provider gives no advice on the merits of any particular trade and stays out of securities purchases and sale negotiations. 2013
Because investment advisers owe a duty to obtain best execution for customer orders, they ought to evaluate the executions carried out on their clients' behalf on a periodic basis. 2013
The traditional fiduciary duty doctrine is one of the most amorphous concepts in the law, and its indeterminacy produces confusion, inconsistency, and cases with problematic outcomes. 2013
The liability standard for breach of fiduciary duty is set so high that courts rarely find directors in violation, because only a board's sustained or systematic failure to exercise oversight can produce liability. 2013
The decades long academic debate over improving fiduciary duty doctrine has overlooked Corporate Integrity Agreements entirely, even though the debate is otherwise framed as a choice between expanding and curtailing the doctrine. 2013
Because directors contractually agree to increase compliance through an open door policy for the government, CIAs substantially raise the liability risk for companies whose directors did not act in accordance with their fiduciary responsibilities. 2013
Although CIAs sit outside the formal legal framework that defines fiduciary duties, they belong to the penumbra of extra legal forces that clarifies what is expected of directors. 2013
The contractual obligations contained in CIAs can enhance directors' default fiduciary duties, expanding the duty of care for directors of health care corporations beyond the legal standard set by Caremark and Stone v. Ritter. 2013
Sarbanes-Oxley and the Dodd-Frank Act have influenced and shaped fiduciary duties, but they have not necessarily improved or clarified them. 2013
Because state fiduciary duty law is permissive rather than regulatory, fiduciary standards can legitimately develop from non-legislative sources, which makes extra legal forces a proper source for shaping fiduciary duties. 2013
Once a CIA has been executed it is much easier for the government to reopen a case than to pursue a new one, and this ease of further prosecution, combined with increased OIG scrutiny and the threat of crippling penalties, substantially affects board knowledge, monitoring, and management. 2013
By prescribing the number of board meetings devoted to compliance review and requiring specific board resolutions, CIA provisions let the government contractually determine how and when a board will interact. 2013
Certification requirements push directors to demand more detailed reports from corporate officers and to take a greater role in overseeing compliance with both the CIA and federal regulations. 2013
Although CIAs are not laws, they go beyond aspirational governance standards because they set forth concrete governance rules that more clearly define the duties to be informed, to exercise oversight, and to maintain effective reporting systems, thereby requiring a higher standard of care. 2013
Because CIAs combine contractual and public enforcement, with the OIG enforcing them and private rights of action also available, they are more than contractual arrangements, and a breach of a CIA may be treated like a breach of law for purposes of the duty of care. 2013
Boards are consistently held not liable for their companies' illegal marketing efforts even though federal law prohibits off-label marketing, but a board that certifies compliance with a CIA is certifying that the company properly monitors its sales teams' promotional activities, so CIAs contractually expand the applicable legal standard. 2013
Because CIAs mandate a chief compliance officer and dictate how that officer interacts with the board, they increase the board's knowledge and monitoring of compliance, and a board possessing such knowledge should play a bigger role in ensuring that the company meets federal and state standards. 2013
CIA provisions create economic incentives that affect directors' diligence, because stipulated daily noncompliance penalties stacked on top of monetary penalties under federal health laws expose companies that executed CIAs to significant financial ramifications. 2013
Courts treat companies that executed a CIA differently from other companies, and are increasingly recognizing the role of CIAs and their implications for directors' fiduciary duties. 2013
In re Pfizer stipulates that for a company that executed a CIA the court will allow an assumption that the directors were fully informed and therefore willing participants in the corporate malfeasance, so that the CIAs themselves became the court's proof that the directors could have breached their fiduciary duties. 2013
Courts assume that the boards of companies that executed a CIA have more knowledge and can exercise more control, and therefore hold those directors to a heightened fiduciary duty, rejecting directors' claims of ignorance because executing a CIA or a CIA like agreement means directors do know or should know about the noncompliance. 2013
It is unclear whether corporations with CIAs will be uniformly affected, and future courts are likely to expand the basic legal duty of care only where the facts suggest that the CIA actually provided directors with more knowledge about compliance activities. 2013
Governance of health care providers is distinctively complicated because directors must balance patients, physicians, taxpayers, the government, and shareholders, and substantial government involvement and liability through Medicare and Medicaid make the taxpaying public a stakeholder. 2013
As a unique hybrid category, CIAs transcend both the law of fiduciary duties and aspirational corporate governance, and courts may come to interpret CIAs and other hybrid forms such as deferred prosecution agreements as expanding the basic legal duty of care. 2013
More research and empirical work is needed to determine how CIAs and other hybrid forms may change or expand directors' obligations. 2013
Contrary to the dominant view of corporate governance as a forward looking endeavor, dynamic governance structures are properly categorized as backward looking ex ante forms of corporate governance. 2014
Traditional forward looking corporate governance systems adopt backward looking perspectives only after stable and optimal rules have emerged as suboptimal and require replacement or amendment. 2014
Targeted use of governmental contracts allows the government to successfully reform corporate governance not only in individual public corporations but across entire industries. 2014
Over 97 percent of the non and deferred prosecution agreements executed in the United States between 1993 and 2013 contained governance changes, including required business changes in 30 percent and board and senior management changes in 38 percent. 2014
The governance improvements documented in governmental contracts counteract or at least discount the standard criticisms of them, including unequal bargaining power, the government's lack of governance expertise, and the potential for prosecutorial abuse. 2014
If governmental contracts increasingly mandate replacement of boards and senior management, boards will have stronger incentives to make preemptive remedial measures effective. 2014
The increasing use of non prosecution and deferred prosecution agreements has allowed federal prosecutors to expand their traditional role incrementally, marking a shift in prosecutorial culture away from an ex post focus on punishment toward an ex ante emphasis on compliance. 2014
Prior scholarship on the corporate governance effects of non and deferred prosecution agreements rests largely on anecdotal evidence and individual case studies rather than on systematic evidence, which is why its conclusions about those effects are unreliable. 2014
Because the population of executed non and deferred prosecution agreements is now large, their real trends and real governance impact are quantifiable and measurable, so policy makers can be given evidence based guidance rather than conjecture. 2014
Coding of all publicly available non and deferred prosecution agreements executed between 1993 and 2013 shows that 97.41 percent of them, or 264 of 271 agreements, contained relevant corporate governance changes. 2014
In 63.47 percent of the coded non and deferred prosecution agreements the agreement itself referenced preemptive remedial measures the corporation had instituted before the agreement was executed. 2014
The less prevalent categories of governance change mandated by non and deferred prosecution agreements are increased monitoring at 46 percent of the sample, board changes at 38 percent, business changes at 30 percent, and senior management changes at 30 percent. 2014
Business change provisions in non and deferred prosecution agreements can go as far as requiring the entity to fundamentally change its business model or to shut down entire business units. 2014
Although 45 percent of sampled agreements required improved communication and training, only 11 percent required the entity to create the position of chief compliance officer, so the most structural compliance remedy is the rarest. 2014
The increasing execution of non and deferred prosecution agreements since 2002 has raised the overall regulatory burden borne by the corporate entities subject to them. 2014
If leading corporations in an industry are bound by substantially similar agreements, the government's privileged access to information and its continuing oversight beyond the agreement term can make business and governance practices in that industry change lastingly. 2014
Because the board changes mandated by non and deferred prosecution agreements consist largely of additional reporting obligations and committee reform rather than removal of officers or directors, those reforms alone may not create sufficient incentives for boards and management to improve governance and avoid execution of an agreement. 2014
The threat of bad press, reputational harm, legal costs, stock price declines, and the cost of implementing mandated governance changes can partly substitute for the weak direct incentives, pushing boards and management to optimize governance and keep the entity out of an agreement. 2014
Because 63.47 percent of the sampled agreements were executed even after the corporation had already instituted preemptive remedial measures, the current quantity, quality, comprehensiveness, and effectiveness of those preemptive measures may be insufficient to prevent an agreement. 2014
High quality and effective preemptive remedial measures are themselves part of good corporate governance and can help a corporation avoid investigation, prosecution, and the execution of a non or deferred prosecution agreement. 2014
Corporate wrongdoers are unlikely to prefer regulation by prosecution over regulation by legislation because prosecution and execution of an agreement carry large reputational implications. 2014
Because non and deferred prosecution agreements typically run for a limited term, it remains unclear whether the governance reforms they impose survive in the long term. 2014
The underlying corporate governance problems in United States corporations may be more severe than non and deferred prosecution agreements are capable of adequately addressing. 2014
The cooperation requirements documented in this study are likely to produce an increasing need for corporations and their counsel to anticipate prosecutorial actions in advance. 2014
The evidence assembled in this study supports the conclusion that non and deferred prosecution agreements can play a legitimate role in addressing corporate governance shortcomings, contrary to the broad legitimacy critique in the literature. 2014
Corporate governance provisions in non and deferred prosecution agreements increased significantly over the decade to 2013, raising prosecutors' influence over corporate governance to unprecedented levels. 2014
Stock prices respond significantly and predictably in a positive direction to the DOJ press release announcing execution of a non- or deferred prosecution agreement and to the start of the N/DPA term. 2015
The combination of a positive market reaction at the start of the N/DPA term and a negative reaction at its end is evidence that the governance changes N/DPAs mandate actually matter to firm value. 2015
Because N/DPAs are contractual arrangements between corporations and the Department of Justice that remedy identified governance shortcomings, it is the DOJ, rather than Congress or the courts, that is changing U.S. corporate governance practice. 2015
Despite wide-ranging criticism of N/DPAs on authority, fairness, and expertise grounds, scholars agree that N/DPAs do influence corporate governance. 2015
The observed growth in N/DPA execution, especially since 2002, indicates that N/DPAs will continue to shape major U.S. corporations across a range of industries. 2015
Prior coding of all publicly available N/DPAs from 1993 to 2013 across more than 230 governance categories shows that N/DPAs have a substantial effect on corporate governance. 2015
The traditional mutual fund governance model, in which one board serves multiple discrete funds within a sponsor's group, is subject to significant oversight challenges. 2016
In a multimanager series trust the board is largely independent of any adviser in the fund group, because the structure is centered on an unaffiliated administrator rather than on the sponsoring investment adviser. 2016
Despite open issues and possible shortcomings, the multimanager series trust structure appears to offer lasting substantive governance improvements for mutual funds. 2016
The inherent conflict of interest facing an adviser who simultaneously runs a mutual fund and a hedge fund is an important limiting factor on the continued rise of side-by-side management. 2016
In the hand selected sample of cases, the ranking of causes of action differs from the full search results: fiduciary duty leads, followed by negligent misrepresentation and breach of contract. 2016
While some courts found that a complete lack of investor due diligence can amount to securities fraud or breach of contract, and that lacking due diligence can breach fiduciary duties, the majority of courts evaluate private fund due diligence issues in the context of misrepresentation. 2016
Defendants owe a duty to use reasonable care in conducting financial due diligence consistent with the standards of care in the profession. 2016
Failure to supervise and direct investment of assets in accordance with an investment plan's policy, together with offering memoranda or quarterly letters that misrepresent due diligence processes, can show a failure to exercise reasonable care sufficient to plead breach of fiduciary duty. 2016
A corporation that lacks diversity and allows group thinking will struggle to identify issues because it needs a fresh perspective, which harms the corporation long term by reducing its ability to identify its own strengths and weaknesses. 2017
By some estimates the lack of inclusion of minorities in corporate America costs the U.S. economy one trillion dollars per year once the pay gap between whites and minorities is taken into account. 2017
Allowing minorities onto the board increases creativity through the different perspectives they represent, which acts as a defense against groupthink. 2017
Because directors must act in good faith and in the best interests of the corporation, and a diverse board helps protect against group thinking, fiduciary obligations supply a business reason for board diversity. 2017
Minority board members are expected to bring in minority clientele, so where the corporation's product is not used by minorities the minority director is perceived as a failure, which stigmatizes minority board members and damages their careers. 2017
Because a small group of minorities serves on a large number of boards, corporations in fact lose the diversity of viewpoints they were seeking when appointing a minority board member. 2017
The conversion feature of contingent capital securities has the potential to change the control dynamic, the distribution of power, and the dependencies within systemically important financial institutions. 2017
The threat of dilution of stock holdings, combined with the threat of loss upon conversion, could help reduce the pressure shareholders place on management of systemically important financial institutions to take increasing risks. 2017
Where conversion has a negative effect on stock price, management is further incentivized to maintain and manage risk in order to avoid reputational loss and the income reduction caused by losses in stock options. 2017
Token holders, unlike shareholders in the traditional corporate infrastructure, cannot vote for or against directors or nominate directors, so ordinary ICO investors have no governance channel and simply must trust the promoters and their business intent. 2017
Because a series of smart contracts granted DAO token holders voting rights, the blockchain based smart contracts performed the function of articles of association or corporate bylaws, in an organization that had no directors, managers, or employees. 2017
The 1991 passage of Section 7.32 of the Model Business Corporation Act triggered a wave of state authorization of shareholder control agreements, adopted specifically to secure the validity of such agreements rather than leaving validity to uncertain judicial development. 2017
Although shareholder agreements are authorized and shaped by corporation code provisions, their construction is governed by ordinary contract interpretation rules, so statutory authorization does not displace contract doctrine. 2017
Shareholder agreement terms that limit board authority are vulnerable to invalidation, and the dominant judicial rationale is that such agreements tie the hands of directors and make it impossible for them to exercise discretion over the matters the agreement settles. 2017
Because public and close corporation shareholders differ materially in bargaining power, close corporation shareholders should be granted greater flexibility to order their affairs by agreement. 2017
Shareholder agreements matter more in closely held corporations because minority holders have sunk substantial time or capital into the enterprise yet cannot exit through sale, since their shares lack a ready market. 2017
Courts are split on whether a corporation is bound by a shareholder agreement it did not sign: some hold the corporation bound where all shareholders are parties to a valid agreement, while others refuse to bind it. 2017
Corporate claims frequently go unpursued because the decision to sue rests with directors who are often the wrongdoers themselves, which is why shareholders resort to derivative actions. 2017
A shareholder suing derivatively sues on the corporation's behalf and cannot convert the action into a personal one, even where the corporate injury has impaired the value of that shareholder's own stock. 2017
To escape the procedural hurdles of derivative litigation and recover directly, a shareholder must persuade the court that those abusing control of the corporation harmed the shareholder directly rather than the entity. 2017
Veto rights are the price minority shareholders extract for capital: minority holders may withhold capital contributions unless they receive veto powers over major corporate decisions. 2017
Courts have recognized an enhanced fiduciary duty among participants in closely held corporations, holding that majority shareholders owe fiduciary duties not only to the corporation but to minority shareholders as a class. 2017
Fiduciary responsibility follows actual control rather than formal office: a shareholder exercising absolute de facto control over a corporation owes fiduciary duties regardless of whether that shareholder holds de jure title. 2017
Contractual consent to a cash out does not extinguish fiduciary claims: a minority shareholder who agreed to receive cash for shares may still challenge the merger as a breach of fiduciary duty. 2017
States lacking specific authorization for shareholder control agreements generally still permit departure from the default rule of director control if the departure is set forth in the corporation's charter or bylaws. 2017
The extent to which a company uses data and algorithms will separate the winning companies of the future from the rest, because algorithmically driven firms gather consumer behavior data and instantaneously feed it back into an improved consumer experience. 2017
A focus on quarterly earnings and short-term stock price performance distracts an organization from identifying the strategies that would keep the firm relevant, which is why financially successful companies can still lose their market. 2017
Reforms that increase executive accountability to shareholders and increase shareholder control over executives do not solve the problem of corporate short-term focus. 2017
Increasing shareholder control over executives can be actively counterproductive: it further incentivizes the damaging emphasis on quarterly financial reporting that reform was meant to cure. 2017
Top-down corporate governance reform measures rarely, if ever, produce genuine change in the governance or culture of firms, and are commonly met with indifference, skepticism, or hostility from management. 2017
Much corporate governance reform consists of repackaging old content under new or revised labels rather than introducing new governance. 2017
Corporate governance intermediaries such as lawyers, accountants, auditors and consultants respond to governance requirements with minimum compliance, applying minimal effort for maximum compliance. 2017
Corporate governance initiatives designed to encourage long-term thinking rarely work as policymakers expect them to. 2017
Mobilizing investors as stewards leads managers to ask the wrong questions about sustainable success: rather than pushing firms toward innovation and relevancy, such measures simply reinforce the centralized shareholder primacy view they were meant to soften. 2017
Code guidance assigning the board responsibility for long-term value creation, as in the 2016 Dutch Corporate Governance Code, is difficult to implement because neither long-term value nor the intended beneficiary of that value is defined. 2017
Society is moving from a centralized infrastructure to a decentralized, unmediated, and interconnected one, and from vertical hierarchies to horizontal, open, and autonomous networks; this transition, not the short-term versus long-term debate, is the relevant frame for corporate governance. 2017
Despite the obvious benefits of technology applications in corporate governance, the technological revolution has not yet produced wide acceptance of unmediated or decentralized corporate governance structures and practices. 2017
Even after recent reforms, the corporate governance framework remains framed in terms of hierarchy, which is why it fits poorly with looser and unmediated stakeholder relationships. 2017
The monitoring and advising roles of the board are no longer sufficient, and a board confined to those roles is a missed opportunity to obtain unmediated and relevant market feedback on company initiatives. 2017
The authors stipulate a category of director, the feedback provider, defined as a director appointed to supply management with unmediated and relevant input from the market, which is what a firm needs in order to plan for continued relevancy. 2017
Forty-five percent of directors at the thirteen S&P 500 companies with above-average revenue growth over the last five years are feedback providers who make board decisions more data-driven. 2017
It is feasible that in the not too distant future an artificial intelligence will hold an independent board seat with voting authority and be trusted to make smarter, data-driven choices than human directors. 2017
Critics who dismiss artificial intelligence on boards as science fiction not worth engaging are wrong: AI on boards is a real prospect, and technologies such as blockchain-based smart contracts will both disrupt corporate governance and supply solutions to it. 2017