国际金融：Lecture 14Corporate Governance Around the World

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1、14 Corporate Governance Around the World McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-1OutlinelGovernance and the Public Corporation: Key IssueslThe Agency ProblemlRemedies for the Agency ProblemlLaw and Corporate GovernancelConsequences of LawlCorporate

2、 Governance ReformlThe Dodd-Frank ActMcGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-2Governance and the Public Corporation:Key IssueslThe public corporation, which is jointly owned by a multitude of shareholders protected with limited liability, is a major

3、 organizational innovation of vast economic consequences.lIt is an efficient risk sharing mechanism that allows corporations to raise large amounts of capital.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-3lA key weakness is the conflict of interest betwe

4、en managers and shareholders.lIn principle, shareholders elect a board of directors, who in turn hire and fire the managers who actually run the company.lIn reality, management-friendly insiders often dominate the board of directors, with relatively few outside directors who can independently monito

5、r the management.Governance and the Public Corporation:Key IssuesMcGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-4lIn the case of Enron and other dysfunctional corporations, the boards of directors grossly failed to safeguard shareholder interests.lFurtherm

6、ore, with diffused ownership, most shareholders have strong enough incentive to incur the costs of monitoring management themselves.nIts easier to just sell your shares, a.k.a. “The Wall Street Walk.”Governance and the Public Corporation:Key IssuesMcGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill

7、Companies, Inc. All rights reserved. 4-5The Agency ProblemlShareholders allocate decision-making authority to the managers.lThats why the managers are hired in the first place.lMany shareholders are not qualified to make complex business decisions.lA shareholder with a diversified portfolio would no

8、t have the time to devote to making the numerous decisions at each of his many companies anyway.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-6The Agency ProblemlHaving short-term control of the firms assets, managers might be tempted to act in the manage

9、rs short-term best interest instead of the shareholders long-term best interest.nConsumption of lavish benefits is one example.nOutright stealing is another example.uSome Russian oil companies are known to sell oil to manager-owned trading companies at below-market prices.uEven at that, they dont al

10、ways bother to collect the bills!McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-7The Agency Problem at EnronlEnron had about 3,500 subsidiaries and affiliates. Many of these were run and partly owned by Enron executives.lIn retrospect, conflict of interest

11、 should have been an obvious concern. nThe partnerships performed hundreds of millions of dollars of transactions with Enron itself, in some cases buying assets from the company or selling assets to it. lThe problem is this: Where did the executives loyalties lie? Are they trying to negotiate the be

12、st deal for the company that employs them and the shareholders who own the company, or the best deal for the partnership where they had an ownership stake?McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-8The Agency Problem at EnronlThe board of directors cl

13、aimed that these partnerships with executive ownership allowed the firm to speed up contracting.lTo protect itself in dealings with these partnerships, the company supposedly set up safeguards that required top company officers and the board to review and approve deals between Enron and the partners

14、hips.lClearly these safeguards were insufficient.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-9Remedies for the Agency ProblemlIn the U.S., shareholders have the right to elect the board of directors.lIf the board remains independent of management, it ca

15、n serve as an effective mechanism for curbing the agency problem.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-10Corporate BoardslThe structure and legal charge of corporate boards vary greatly across counties.nIn Germany the board is not legally charged

16、with representing the interests of shareholders, but is instead charged with representing the interests of stakeholders (e.g. workers, creditors, etc.).McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-11Corporate BoardslThe structure and legal charge of corp

17、orate boards vary greatly across counties.nIn England, the majority of public companies voluntarily abide by the Code of Best Practice on corporate governance. It recommends that there should be at least three outside directors and that the board chairman and the CEO should be different individuals.

18、McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-12Corporate BoardslThe structure and legal charge of corporate boards vary greatly across counties.nIn Japan, most corporate boards are insider-dominated and primarily concerned with the welfare of the keirets

19、u to which the company belongs.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-13Incentive ContractslIt is difficult to design a compensation scheme that gives executives an incentive to work hard at increasing shareholder wealth.lAccounting-based schemes a

20、re subject to manipulation.nArthur Andersens involvement with the Enron debacle is an egregious example.lExecutive stock options are an increasingly popular form of incentive compatible compensation.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-14Manageme

21、nt OwnershipMcGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-15Concentrated OwnershiplAnother way to alleviate the agency problem is to concentrate shareholdings.lIn the United States and the United Kingdom, concentrated ownership is relatively rare.lElsewhe

22、re in the world, however, concentrated ownership is the norm.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-16DebtlIf managers fail to pay interest and principal to creditors, the company can be forced into bankruptcy and managers may lose their jobs.lBorr

23、owing can have a major disciplinary effect on managers, motivating them to curb private benefits and wasteful investments and trim bloated organizations.lHowever, excessive debt creates its own agency problems.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4

24、-17Overseas Stock ListinglCompanies domiciled in countries with weak investor protection can bond themselves credibly to better investor protection by listing their stocks in countries with strong investor protection.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights rese

25、rved. 4-18The Market for Corporate ControllIf a management team is really out-of-control, over time the share price will decline.lAt some point, a corporate raider will buy up enough shares to gain control of the board.lThen the raider either fires the incompetent managers and turns the firm around

26、or he sells everything in sight for the break-up value.lEither way, the old managers are out of a job.lThe threat of this unemployment may keep them in line.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-19Law and Corporate GovernancelCommercial legal syst

27、ems of most countries derive from a relatively few legal origins.nEnglish common lawnFrench civil lawnGerman civil lawnScandinavian civil lawlThus the content of law protecting investors rights varies a great deal across countries.lIt should also be noted that the quality of law enforcement varies a

28、 great deal across countries.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-20Consequences of LawlProtection of investors rights has major economic consequences.lThese consequences include: nThe pattern of corporate ownership and valuation.nDevelopment of

29、capital markets.nEconomic growth.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-21Consequences of Law: Italy vs. the United KingdomlItaly has a French civil law tradition with weak shareholder protection, whereas the United Kingdom, with its English common

30、 law tradition, provides strong investor protection. lIn Italy the three largest shareholders own 58 percent of the company, on average. In the U.K. the three largest shareholders own 19 percent of the company, on average.nCompany ownership is thus highly concentrated in Italy and more diffuse in th

31、e United Kingdom. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-22lIn addition, as of 1999 only 247 companies are listed on the stock exchange in Italy, whereas 2,292 companies are listed in the United Kingdom. lIn the same year, the stock market capitali

32、zation as a proportion of the annual GDP was 71 percent in Italy but 248 percent in the United Kingdom. lThe stark contrast between the two countries suggests that protection of investors has significant economic consequences.Consequences of Law: Italy vs. the United KingdomMcGraw-Hill/Irwin Copyrig

33、ht 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-23Ownership and ControllCompanies domiciled in countries with weak investor protection many need to have concentrated ownership as a substitute for legal protection.lThis is not without costs. In companies with concentrated ownership,

34、 large shareholders can abuse smaller shareholders.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-24Pyramidal Ownership StructurelExhibit 4.6 illustrates the pyramidal ownership structure for Daimler-Benz, a German company, at the beginning of the 1990s. l

35、The company has three major block holders: Deutsche Bank (28.3 percent), Mercedes-Automobil Holding AG (25.23 percent), and the Kuwait government (14 percent). The remaining 32.37 percent of shares are widely held. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserv

36、ed. 4-25Pyramidal Ownership StructurelThe pyramidal ownership structure illustrated in Exhibit 4.6 makes it possible for large investors to acquire significant control rights with relatively small investments. nFor example, Robert Bosch GmbH controls 25 percent of Stella Automobil, which in turn own

37、s 25 percent of Mercedes-Automobil Holding, which controls 25 percent of Daimler-Benz. nAG. Robert Bosch can possibly control up to 25 percent of the voting rights of Daimler-Benz AG with only 1.56 percent cash flow rights in the company.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies,

38、 Inc. All rights reserved. 4-26Daimler-Benz AGDeutsche BankKuwait GovernmentMercedes-Automobil Holding AGWidely HeldWidely HeldStella Automobil Beteiligungsges mbHStern Automobil Beteiligungsges mbHBayerischeLandesbankRobert BoschGmbHKornet Automobil Beteiligungsges mbHDresdner Bank25%25%25%25%25% 2

39、5%50%28.3%25.23%32.37% 14%Exhibit 4.6Widely HeldMcGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-27Pyramidal Ownership StructurelAG. Robert Bosch can control up to 25 percent of the voting rights of Daimler-Benz AG with only securing the cooperation of three

40、 other firms.nAt least two of these three: Bayerische Landesbank, Kornet Automobil Beteiligungsges mbH, or Dresdner Bank.nAnd Stern Automobil Beteiligungsges mbH.lNot bad for only directly controlling 1.56% of the company.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights

41、 reserved. 4-28Capital Markets and ValuationlInvestor protection promotes the development of external capital markets.lWhen investors are assured of receiving fair returns on their funds, they will be willing to pay more for securities.lThus, strong investor protection will be conducive to large cap

42、ital markets.lWeak investor protection can be a factor in sharp market declines during a financial crisis.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-29Economic GrowthlThe existence of well-developed financial markets, promoted by strong investor protec

43、tion, may stimulate economic growth by making funds readily available for investment at low cost.lSeveral studies document this link.lFinancial development can contribute to economic growth in three ways:nIt enhances savings.nIt channels savings toward real investments in productive capacities.nIt e

44、nhances the efficiency of investment allocation.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-30Corporate Governance ReformlScandal-weary investors around the world are demanding corporate governance reform.lIts not just the companies internal governance

45、mechanisms that failed; auditors, regulators, banks, and institutional investors also failed in their respective roles.lFailure to reform corporate governance will damage investor confidence, stunt the development of capital markets, raise the cost of capital, distort capital allocation, and even sh

46、ake confidence in the capitalist system itself.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-31The Sarbanes-Oxley ActlMajor components of the Sarbanes-Oxley Act include:nAccounting regulation.nAudit committee.nInternal control assessment.nExecutive respon

47、sibility.lMany companies find compliance burdensome, costing millions of dollars.lSome foreign firms have chosen to list their shares on the London Stock Exchange instead of U.S. exchanges to avoid costly compliance.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reser

48、ved. 4-32CFA Institute Ethical and Professional Standards of Corporate GovernancelThe Board: Is it largely independent? Are the directors qualified? Do they have access to outside resources? How are they elected? Do any directors have cross-company relationships?lManagement: Do they have a code of e

49、thics? Are there lots of perquisites? How is their compensation structured?McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-33The Cadbury Code of Best PracticelThe Cadbury Code of Best Practice is an ethical standard, without the force of law. However, the L

50、ondon Stock Exchange requires listed firms to either comply or explain why they cannot.nAbout 90 percent of LSE-listed firms comply with the code.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-34The Cadbury Code of Best PracticelRequires the board of direc

51、tors of firms to: nMeet regularly.nRetain full and effective control over the company.nMonitor executive management.lThe code says that there should be a clearly accepted division of responsibilities at the head of a company, such that no one person has unfettered power.lThe board should include non

52、-executive directors in sufficient number for their views to carry weight.McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-35The Dodd-Frank ActlThe Dodd-Frank Wall Street Reform and Consumer Protection Act passed in reaction to the financial crisis of 2007-2

53、009.nVolker Rule: Deposit-taking banks will be banned from proprietary trading and from owning more than a small fraction of hedge funds and private equity firms.nResolution Authority: The government can seize and dismantle a large bank if the bank faces impending failure.McGraw-Hill/Irwin Copyright

54、 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-36The Dodd-Frank ActnDerivatives: OTC derivatives trading will move to electronic exchanges, with contracts settled through a clearinghouse.nSystematic Risk Regulation: Systematically important firms will be identified and their financial condition will be monitored.nConsumer Protection: A new, independent Consumer Financial Protection Bureau will be set up to monitor mortgages and other loan products.