Corporate Governance

How Political Connections Can Hurt, Rather Then Help, Firm Value

Corporate Finance, Corporate Governance / By

We often think of political connections as clearly favoring a company. Perhaps the most extreme example is Donald Trump owning around 500 businesses (collectively known as the Trump Organization), which may affect the decisions that he takes as President. But political connections can extend far beyond a politician owning a business himself. A politician, or …

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Do Workers on Boards Protect Jobs in a Downturn?

Corporate Governance, Responsible Business / By

A hot topic is whether companies should have workers on their boards, to ensure they act in the interest of stakeholders, not just shareholders. This debate was ongoing even before COVID-19 – for example, Theresa May initially suggested that she’d mandate worker representation when she became UK Prime Minister, but then decided against it. It’s …

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A Layman’s Guide to Separating Causation from Correlation … and Noticing When Claims of Causality are Invalid

Corporate Finance, Corporate Governance, Executive Pay, Responsible Business / By

Imagine you’re the Minister for Education, deciding how large to make a school district. Smaller school districts offer parents more school choice. For example, in Boston, there are 70 school districts within a 30-minute commute of the downtown area, so parents with a job in downton Boston have 70 districts they can live in and …

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How Proxy Advisors Influence Voting Outcomes

Corporate Governance / By

Proxy advisors are playing an increasingly influential role in corporate governance, by providing investors with guidance on how to vote in director elections or for a manager- or shareholder-sponsored proposal (e.g. on corporate social responsibility or payout policy). Their influence is growing, in part, due to the rapid rise in index funds – since they …

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CEOs Cut Investment To Sell Their Own Shares At High Prices

Corporate Finance, Corporate Governance, Executive Pay / By

One of the most fundamental concerns with corporations is that they focus on short-term profit rather than investing for the long-term. This is a particular concern in the 21st century, where innovation is particularly critical for competitive success. Moreover, allegations of short-termism have serious social repercussions. Long-term investments, such as reducing carbon emissions, developing blockbuster drugs, or …

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Is Short Termism Really A Problem?

Corporate Finance, Corporate Governance, The World Economy / By

“Myopia [short-termism] is a first-order problem faced by the modern firm. In the last century, firms were predominantly capital-intensive, but nowadays competitive success increasingly depends on intangible assets such as human capital and R&D capabilities (Zingales (2000)). Building such competencies requires significant and sustained investment. Indeed, Thurow (1993) argues that investment is an issue of …

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Conflicts of Interest Among Proxy Advisors

Corporate Governance / By

The Importance of Proxy Advisors Proxy advisors play a critical role in corporate governance. One important way in which shareholders exert governance – ensure that executives act in shareholders’ interest, rather than their own interest – is through voting. Votes can be for particular directors (who monitor executives), for or against a say-on-pay vote, or for …

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