Corporate governance - Vigil

Deloitte’s 2016 Third Party Governance & Risk Management survey polled 170 UK senior managers, including CFOs, chief risk officers, heads of internal audit and those leading compliance and IT risk functions, across a variety of industries.

The disclosure of the “Panama Papers” [1] focused public interest on how elaborate corporate structures and offshore tax havens can be used by politicians, celebrities and other elites to obscure their assets, including concealing their beneficial ownership of companies.

In our article, The Role of Financial Reporting and Transparency in Corporate Governance (Economic Policy Review, 2016), we review the recent corporate governance literature that examines the role of financial reporting in resolving agency conflicts among a firm’s managers, directors, and capital providers. We view governance as the set of contracts that help align managers’ interests with those of shareholders, and we focus on the central role of information asymmetry in agency conflicts between these parties. The general conclusion in this literature is that financial reporting is valuable because contracts can be more efficient when the parties commit themselves to a more transparent information environment.

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With the Corporate Governance Awards just over three weeks away, we are happy to announce this year’s short list of nominees. The list includes well-known brands such as Bank of America, the Hershey Company, Marriott International and Salesforce.com.

TOKYO (September 30th, 2016) QUICK, a leading Japanese provider of value-added, global financial and economic information, has started delivering Glass Lewis’ Proxy Paper research service to Nomura Asset Management, a leading institutional investor in Japan.

Proxy Paper research reports from Glass Lewis, the leading independent provider

Despite the protestations of some, the direction of travel in UK Government thinking seems to be towards the negotiation of a “hard” Brexit, meaning limited market access for services and goods to the EU single market. Attitudes also appear to be hardening in other EU member states: the Italian Prime Minister warned during the past week that it would be impossible for the UK to get special treatment post Brexit as compared with other non-EU states. Some of this may be seen as positioning in advance of the substantive negotiations likely to begin next year, but the hardening of public positions does little to reassure the financial services industry and market participants that a sensible bespoke solution for the UK can be found quickly.

Do better governed firms perform better than their peers? In the academic literature, numerous studies have tackled this question with mixed success. On the one hand, there appears to be a robust statistical association between governance indices based on anti-takeover provisions and future operating performance, see e.g. Bebchuk, Cohen, and Wang (2013). On the other hand, these indices are characterized by limited time variation for a given firm, and their effects are harder to identify when focusing on finer industry definitions (Johnson, Moorman, and Sorescu (2009)). Altogether, it appears that the evidence that better governance is indeed a driving force behind a firm’s success is still far from conclusive.

Executives, fund managers and even politicians have criticised publicly traded companies’ undue focus on generating profits in the next quarter instead of making investments with good five-year prospects.

As the Delaware Supreme Court narrows the avenues for post-closing challenges to mergers (see our discussions of the implications of the Corwin and Cornerstone decisions here, here, here, and here), we expect that plaintiffs’ lawyers will increasingly seek to base their merger suits on specific allegations of conflicts that may have tainted the oversight of processes to sell companies in hopes of supporting claims for breaches of the duty of loyalty and the applicability of the enhanced scrutiny of the entire fairness doctrine. Given that virtually every merger includes some special merger benefits for directors that may be susceptible to an attempt at such a claim, it is timely that the Delaware Court of Chancery issued a decision over the summer of 2016 that provides useful guidance on how to evaluate the most common of special merger benefits to insiders: protection against exposure to pre-merger claims.