Mba1034 cg law ethics week 7 government regulations & markets 2013

GOVERNMENT REGULATIONSAND

MARKETS

Stephen Ong, BSc(Hons) Econs (LSE), MBA International Business(Bradford)

Visiting Fellow, Birmingham City UniversityVisiting Professor, Shenzhen University

MBA1034 GOVERNANCE, LAW & ETHICS

• Discussion: Family Groups and agency problems

1

• Regulators & Gatekeepers• Anti-trust & Regulation2

• Case Discussion: The Microsoft Anti-trust Case 3

Today’s Overview

1. Open Discussion

• Morck, Randall and Yeung, Bernard (2003) Agency problems in large Family Business Groups, Entrepreneurship: Theory and Practice, Summer 2003. Vol. 27, No. 4: pp. 367 – 382

2.1REGULATORS

ANDGATEKEEPERS

Learning Outcomes• By the end of this lecture, you should be able to:

1. Evaluate the role of gatekeepers in ensuring that companies are run in the interest of their shareholders and other stakeholders

2. Critically assess the independence of gatekeepers – such as auditors and credit-rating agencies – vis-à-vis their client firms

3. Gauge the effectiveness of gatekeepers in preventing corporate fraud

4. Evaluate the danger of capture of gatekeepers by the economic actors they are supposed to supervise

5. Evaluate the relationship between stakeholders and regulators.6. Judge the existing empirical evidence as to whether regulation

acts a substitute or a complement for corporate governance.

The role of Regulators & Gatekeepers

• While regulators are gradually reinforcing the importance of gatekeepers such as auditors and credit rating agencies to ensure that companies are well governed, the Enron scandal and the recent bank failures suggest that gatekeepers often lack the necessary degree of independence, judgment, competence and power to prevent corporate fraud and failure.

• What is the role of gatekeepers in corporate governance? Such gatekeepers include among others stock-market listing authorities, auditors, credit-rating agencies and bank regulators.

• The role of corporate governance in regulated industries, including the financial sector.

Introduction

• Gatekeepers play an important role in corporate governance as they provide monitoring and certification services.

• However, the various tend to suffer from a lack of incentives or conflicts of interests.

• Hence, it is unlikely that investors will be able to rely on a single type of gatekeeper.

• We will also look at industry regulation and whether it acts as substitute or complement for corporate governance.

The Role and Duties of Gatekeepers

• John Coffee defines the role of gatekeepers as “assess[ing] and vouch[ing] for the corporate client’s own statements about itself or a specific transaction”.

• Gatekeepers may be particularly important in corporate governance systems where there is a lack of shareholder monitoring.

• They may also play a role ion corporate governance systems with large shareholders as there may be a need to monitor related-party transactions.

The Role and Duties of Gatekeepers (Continued)

• Gatekeepers include– auditors,– investment banks,– lawyers,– financial analysts,– credit rating agencies,– corporate governance rating agencies,– commercial banks and other creditors,– insurers of directors’ and officers’ liability (D&O

insurers)– stock markets, and – securities exchange regulators.

• Reinier Kraakman argues that gatekeepers should only be made liable if the primary sources of liability prove to be insufficient.

• Third-party liability is justified if the gatekeeper is connected in such a way with the firm that this connection creates some responsibility in case the firm fails.

• However, gatekeeper liability also raises three issues.


1. It may be very difficult for the gatekeeper to discharge the legal duties.

2. The gatekeeper may have insufficient incentives to fulfil its legal duties and may even be tempted to collude with the firm.

3. Enforcement of gatekeeper liability may be difficult as it depends– not only on the type of gatekeeper and nature of its legal

duties, but– also on the degree of culpability.


• Hence, gatekeeper liability may be complex and difficult to enforce.

• The question arises as to whether there is a need to regulate gatekeepers given that they put their reputational capital at stake when dealing with clients.

• The spectacular failures of Enron and Worldcom in the USA have renewed in gatekeeper liability and in particular auditor liability.


• The risk of losing the gatekeepers’ losing their reputational capital has done little to prevent corporate failures and conflicts of interests.

• One of the main features of the Enron case was that its auditor, Arthur Andersen, ignored irregularities in the firm’s accounting practices to avoid the loss of lucrative consulting income.


• John Coffee blames the failure of Enron on– the commodification of auditing services,– the auditor’s capture by its client, and– the lack of competition among auditors.

• Capture refers to the influence the client may have over its gatekeeper and may push the latter to serve the interests of the client rather than preventing malpractice.


• The lack of competition may reduce the risk of reputational damage caused by client failure, calling for regulation.

• Another type of gatekeeper that failed to police Enron were financial analysts that kept on issuing buy recommendations, fuelling stock price increases.

• Other countries such as the Netherlands and Italy have had their own Enron-style corporate failures.


• The Parmalat debacle in Italy can be blamed on its auditor and financial analysts, but also its creditors.

• The recent subprime mortgage crisis can be blamed on the failure of another gatekeeper, i.e. credit rating agencies.

• Regulators have responded by reinforcing the role and duties of gatekeepers.


The Ideal Attributes of a Gatekeeper

• A gatekeeper should have the following seven attributes1. It should be independent of the firms it is to

supervise2. It should have access to the information required

to carry out its duties3. It should not be subject to major conflicts of

interests4. It should have the necessary skills, in particular

the necessary judgment and competence, to perform its duties

5. It should also have the right incentives.

The Ideal Attributes of a Gatekeeper (Continued)

6. It should have enough power to force its supervisees to disclose any information it requires to fulfil its duties and to force them to put a stop to malpractice and wrong-doing. It should also have the power and authority to penalise supervisees that fail to meet its requests.

7. It should provide meaningful and reliable third-party certification to investors and other users.

Types of Gatekeepers and Limitationsto their Role

• Recent corporate governance reforms have put a lot of emphasis on auditors as gatekeepers.

• However, the efficiency of auditors may be severely limited for at least two reasons1. Auditors rely on the information they are

provided with by the company2. Auditors may suffer from conflicts of interests.

• However, auditors are likely to have the necessary power via e.g. the issue of qualified audit reports.

Types of Gatekeepers and Limitationsto their Role (Continued)

• Investment bankers are also likely gatekeepers given– the close relationships they have with

companies, and– the information they collect via the provision of

services such as underwriting and consultancy.• Both the theoretical and empirical literature

suggest that they are third-party certifiers.

However, the subprime mortgage crisis suggest at least two reasons why investment bankers may not be credible gatekeepers.1. Investment banks may be subject to

conflicts of interests because of client capture or because of internal conflicts of interests.

2. Investment banks are strong lobbying groups that have been successful in keeping regulation of their activities at bay.

Types of Gatekeepers and Limitations

to their Role (Continued)

• Lawyers come in two versions– in-house legal counsels, and– outside lawyers dealing with particular or one-off

transactions of the firm.• In-house counsels are likely to be well informed

about the firm’s processes and dealings.• However, they may be too close to the firm and

suffer from capture and behavioural biases.• In contrast, outside lawyers may not have

enough information on the firm to detect wrong-doing.



• Financial analysts study the firm’s fundamentals and the forecast these for the near future.

• They issue buy, sell or hold recommendations based on these forecasts.

• However, financial analysts may suffer from conflicts of interests as they may be part of the same investment that is also underwriting the firm’s new equity issue.

• They may also be suffer from behavioural biases.



• Credit rating agencies rate the credit worthiness of debt securities such as government and corporate bonds.

• However, credit rating agencies are paid by the issuers themselves and issuers may be shopping around for the highest possible rating.

• Credit rating agencies have also been accused of failing to predict the– Asian crisis of 1997, and– to be at least partly responsible for the subprime

mortgage crisis.



• Similar to the auditing industry, the credit rating industry is highly concentrated and some dispute as to whether there is any danger of reputational loss.

• Corporate governance ratings agencies are still a fairly recent phenomenon, but developing fast.

• Corporate governance ratings agencies include– Deminor,– Standard & Poor’s, and– Governance Metrics International (GMI).



• These ratings have some use for interest parties, but they also have their limitations.

• Typically, the indices are in the form of counters which are incremented by a value of one if a particular corporate governance device is present.

• Hence, there is no detailed assessment about the conflicts of interests that are likely to prevail in a given firm.



• Commercial banks and other creditors may also act as gatekeepers.

• Similar to (large) shareholders, it is in the interests of banks and other debtholders to monitor corporate managers.

• However, large debtholders, via their close relationship with the firm and the information they collect, may acquire a monopoly position.



• Information about the directors’ and officers’ liability (D&O) insurance taken out by the firm may act as a powerful signal.• The insured amount as well as the

reputation of the insurer may provide valuable information to the market as to the risk investors face.



• Stock markets are another important gatekeeper.

• They impose entry requirements on firms seeking a stock-market listing as well as ongoing obligations on already listed firms.

• For example, the London Stock Exchange (LSE) imposes the UK Corporate Governance Code on the firms that are listed on it.

• Stock markets are frequently organised into segments that enable investors to distinguish between safer, mature firms and riskier firms.



• Securities exchange regulators, such as the SEC in the USA, are likely to play an important role given the lack of independence and incentives as well as the conflicts of interests other gatekeepers may suffer from.

• James Fanto argues that the SEC should be the ultimate gatekeeper and perform much closer monitoring of corporations similar to the regulator in the banking industry.



• However, this would then require the securities exchange regulator to monitor all sorts of areas of corporate governance for which other gatekeepers may have greater competence.

• Another limitation to its role as ultimate gatekeeper is that typically the law provides judicial immunity to the regulator.



• Hence given all of the above lacks of desirable attributes, investors and other stakeholders may have to rely on a range of corporate gatekeepers rather than a single gatekeeper.



Is Industry Regulation a Substitute for Corporate Governance?

• David Becher and Melissa Frye argue that industry regulation as to the very least an indirect impact on corporate governance.

• However, a priori it is not clear whether regulation is a substitute or complement for corporate governance.

• On one hand, regulation may be a substitute given that the regulator monitors the firms.

• On the other hand, industry regulators frequently push for improvements in corporate governance.

Is Industry Regulation a Substitute for Corporate Governance? (Continued)

• The existing empirical evidence is also inconclusive• Studies on the effects of the 1980s and 1990s.

deregulation in the US banking industry suggest that – there was an increase in CEO stock ownership,– there was an increase in the importance of variable

pay,– but the overall effect on executive compensation was

relatively small.• A likely reason for these changes was the increase

in competition caused by the deregulation.

• Paul Joskow et al. find that US CEOs earn significantly less in regulated industries.

• Pay is lowest in those industries where there is price regulation.

• Joskow et al. propose two reasons for this1. As a result of political pressure, regulation may

keep salaries low to prevent public outrage2. Regulation may have an indirect effect on

executive pay by reducing managerial discretion and the returns from good management.

Is Industry Regulation a Substitute for

Corporate Governance? (Continued)

• Joskow et al. also find that pay is lowest in those industries with a single state regulator rather than multiple regulators.

• They conclude that this is evidence that the first, direct effect of regulation on pay dominates.

• All of the above studies suggest that regulation is a substitute for corporate governance.

• Other studies suggest that regulation is a complement.


• For example, Charles Hadlock et al. find that CEO turnover in regulated industries is at least as sensitive to performance as in unregulated industries.

• Joel Houston and Christopher James argue that the reason why CEO stock holdings and option-based pay are lower in banks is the fewer investment opportunities rather than regulation.

• There is also consistent evidence that firms from regulated industries have higher proportions of independent directors.


Conclusions• The role of gatekeepers in corporate

governance.• Corporate governance and industry

regulation.

Stakeholders and Regulators• What is the relationship between

stakeholders and regulators in corporate governance?

EXERCISE : So who are the stakeholders of Cadbury and Kraft?

AnalysisCadburyInternalDirectorsManagementStaff

ExternalGovernment – National, Regional, LocalInvestorsBankersCustomers (chocolate)SuppliersLocal CommunityCharities – local (Bourneville/Chain)UnionsPressure groups

KraftInternalDirectorsManagementStaff

ExternalInvestorsBankersCustomers (cheese plus)SuppliersLocal CommunityCharities

ElsewhereGovernment sector

GovernmentGrant fundersRegulatorsBankersCustomersSuppliersDirectorsStaffLocal CommunityMedia

CharitiesRecipients of aidDonorsGrant providersRegulator – Charity Commission

TrusteesManagers and staffVolunteersSuppliersBankersLocal Community

What are stakeholders looking for?• Profits/Surpluses• Goods/Services – quality, price,

availability• Responsiveness and understanding• Ethical values• Reliability• Sustainability – long term reliability• Acceptance of social responsibility• Green agenda

Therefore assurances and this leads to confidence/ reputation

UK External regulatorsEU?Government?Bank of England?Financial Services Authority (FSA)?Financial Reporting Council?Charities CommissionGovernment Departments?Government Agencies – OFCOM, OFSTEDInformation CommissionerInstitutional Groups – insurance and pensions?Professional bodies?

Meaning and impact of regulation• Expectations and standards (must do’s) - Compliance - Guidance• Manner - Inspection - Light touch - Self regulation but report for desk top review• Impact - Success/failure - intervention? - Forced closure/merger - Pressure on whole organisation

- responsibility to ease

Relationship between stakeholders and regulators• Fundamental source of assurance• Does it work? - banking crisis - corporate failures - government sector issues – IT contracts, – Mid Staffs Trust– Rural Payments Agency

Conclusion variable and depends upon approach.

Relationships Stakeholders, Regulators and Internal Audit• Again should be fundamental• But - knowledge and understanding of role - confidence in ability - issues on scope of work and fit to regulator need - IA responsibility to organisation – or is it IPPF

2440,2600?• Effective alignment should be through Governance

Statement if appropriate evidence exists to demonstrate reliability.

Solution and Summary• Good corporate governance - Board role - 3 lines of defence• Effective risk management - Appetite transferred into policy and procedures - Embedded throughout the organisation• Underpinned by Controls Assurance Framework• Aligned with effective internal audit in

compliance with professional standards

2.2ANTI-TRUST LAWS

ANDREGULATIONS

Overview

• Introduction• Antitrust law• Enforcement of the antitrust laws• Antitrust thought• Examples of the differences in antitrust thought• Compliance• The politics of antitrust

Introduction

• Antitrust policy is an amalgam of social policy, economics, law, and administrative practice

USA : Principal Federal Statutes

• The Sherman Act• The Clayton Act• The Federal Trade Commission Act

Excerpts from the Antitrust Statutes

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9-54


Antitrust in Europe• At first glance, the antitrust laws of the European Union are quite

similar to those of the United States. Article 101 of the Treaty of the European Community concerns restraints of trade, much like Section 1 of the Sherman Act.

• Article 102, which focuses on abuses of market power by dominant firms, is similar in many ways to Section 2 of the Sherman Act.

• Finally, with respect to mergers, the European Merger Control Act is similar in spirit to Section 7 of the Clayton Act.

• Nevertheless, there remain a number of procedural and substantive differences between antitrust laws in Europe and the United States. Merger evaluations typically are conducted more quickly in Europe.

• Antitrust enforcement has grown rapidly through the world in the past decade, including China.

Practices Subject to Antitrust Scrutiny• Horizontal practice - Involves

activities in the same industry–For example, a merger is horizontal if

the two firms operate in the same industry

• Vertical practice - Involve firms in a supply arrangement or a channel of distribution

Exemptions to Antitrust Laws

• Economic activities of labour unions• Agricultural cooperatives• Certain activities of industries• Joint export trading activities• Partial exemptions for: –Joint research and development

ventures–Baseball

Government Enforcement of the Antitrust Laws • Department of Justice (DOJ) and

Federal Trade Commission (FTC) have the authority to enforce Sherman and Clayton Acts• Only the FTC can enforce the

Federal Trade Commission Act

Private Enforcement of the Antitrust Laws• Most antitrust cases are the

result of private lawsuits–Filed by competitors and

dealers• Treble damages are provided by

the Clayton Act

Per Se Violations and the Rule of Reason• The courts have held that:– There are some sufficiently egregious acts

that on the face of it violate the antitrust laws• These acts are said to be per se illegal• The only defense allowed is that the defendant

did not commit the act

• In contrast, other cases are considered by the courts under a rule of reason–A restraint of trade is illegal if it is

unreasonable

Antitrust Thought

• The structural approach (structure-conduct-performance)• The Chicago school• The new IO approach

The Structural Approach

• Performance of markets as determined by the conduct of market participants–Largely determined by the

structure of the market, such as: •Number of competitors •Barriers to entry

The Chicago School• Views the objective of antitrust policy as

economic efficiency– May be understood in its simplest form as: • The maximization of producers’ plus consumers’ surplus

• Skeptical about the nature and scope of barriers to entry

• Views collusion among firms as unsustainable– Sustainable when there is government protection

• Views competition as the best means of achieving efficiency

The New IO Approach• Rejects the static equilibrium approach

taken by the Chicago school – Focuses on the opportunities for strategic

behaviour not initially considered by the Chicago School

• Concerned with: –Potential for anticompetitive behaviour in

markets characterized by network externalities –Where compatibility and standardization are

required

Examples of the Differences in Antitrust ThoughtVertical arrangements

Predatory pricing and entry deterrence

Collusion and price fixing

Mergers and merger guidelines

Compliance

• Compliance with the antitrust laws involves: – Procedures – Policy

The Politics of Antitrust• Antitrust policy has important distributive as

well as efficiency consequences for firms and consumers

• Most proposed changes in the antitrust laws fail because of: – The intensity of the ensuing politics– The complexity of the issues

• Manifests itself in legislative action seeking exemptions or providing for affirmative defenses in antitrust lawsuits

Cases - Price Fixing in the Airways• Crude oil prices increased rapidly in

the 2004–2006 period, and the increase in fuel costs placed a burden on airlines

• Airlines began to add “fuel surcharges” to air fares, adding a new instrument of price competition

• Competition Act of 1998 - provides immunity to firms that reveal illegal competitive activities

• The objective of the leniency policy was to provide an incentive to disclose wrongdoing

CASE DISCUSSION : THE MICROSOFT ANTITRUST CASE

Cases - The Microsoft Antitrust Case

• The U.S. Department of Justice (DOJ) together with 19 state attorneys general filed an antitrust action against Microsoft Corporation under Sections 1 and 2 of the Sherman Act (the Act)

Cases - The Microsoft Antitrust Case• The DOJ specifically alleged four

violations of the Act:1. Microsoft engaged in “unlawful exclusive

dealing and other exclusionary agreements”

2. Microsoft engaged in “unlawful tying”3. Microsoft illegally maintained its

monopoly of the PC operating systems market

4. Microsoft attempted to monopolize the Internet

REGULATION : Overview

• Introduction• Periods of regulatory change• The constitutional basis for regulation• Regulatory commissions and agencies• Delegation, rule making, due process, and discretion• The nonmarket environment of regulatory agencies• Explanations for regulation• Market imperfections• The political economy of regulation• A nonmarket theory of regulation• Cost-of-service regulation• Deregulation

Introduction• Regulation takes place through a

public process that is relatively open and allows participation by interested parties• Regulatory decisions and rule-

making proceedings are extremely important to many firms, industries, and interest groups

Set of Interventions1. Controlling prices2. Setting floor prices3. Ensuring equal opportunity4. Regularizing employment

practices5. Specifying qualifications6. Providing for solvency7. Controlling the number of

market participants8. Limiting ownership9. Requiring premarketing

approval10. Ensuring product safety11. Mandating product

characteristics and technology

12. Establishing service territories13. Establishing performance

standards14. Controlling toxic emissions and

other pollutants15. Specifying industry boundaries16. Allocating public resources17. Establishing technical standards18. Controlling unfair international

trade practices19. Providing information20. Rationing common pool

resources21. Protecting consumers 22. Controlling risks

Periods of Regulatory Change• Four major periods of regulatory

change–Populist era (late 1800s)–Progressive era and the New Deal –Social regulation (began in the

1960s)–Economic deregulation (began in

the 1970s)

The Constitutional Basis for Regulation

• The U.S. Constitution not only provides the authority for regulation –It also limits its application

• Many legal principles of regulation in the United States have come from court decisions that draw on the common law• The Fifth and Fourteenth Amendments

place limits on regulation

USA : Principal Federal Regulatory Agencies and Commissions

Delegation, Rule Making, Due Process, and Discretion• Article I, Section 1 of the Constitution grants

Congress the sole power to enact laws– Does not authorize Congress to delegate

policymaking to agencies• Congress enacted the Administrative

Procedure Act (APA) of 1946 to: – Provide for public notice and comment prior to

agency action• Agencies adopt their own rule-making procedures in

a manner consistent with the APA

Delegation, Rule Making, Due Process, and Discretion• The APA grants parties right to sue for judicial

review of an agency action– A basis for that review is failure to follow the

procedures required for an action• Under the framework of procedural due process

• The APA requires:– Agency actions not be “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law”

• The courts review regulatory actions for whether they are arbitrary or capricious

Influences on Regulatory Agencies

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Explanations For Regulation

• Two theories to explain where regulation is and is not imposed:–Theory of market

imperfections–Political theory

Market Imperfections

• Natural monopoly• Externalities• Public goods• Asymmetric information• Moral hazard• Government imperfections

Natural Monopoly• A monopoly is natural if one firm

can produce a given set of goods at lower cost than can any larger number of firms• Results when costs are

decreasing in the scale of output or in the scope of the set of goods a firm produces

Monopoly and Deadweight Loss

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Types of Externalities • Pecuniary externality–Present when the actions of one economic

agent affect other economic agents through changes in the prices of goods and services

• Nonpecuniary externality–Occurs when an action of one economic

agent directly affects the preferences or production opportunities of another economic agent

Public Good• One whose consumption

by one person does not reduce its availability for others

Asymmetric Information

• If people have different (private) information at the time they act, markets may not perform efficiently, even when there are advantageous trades that could be made• Adverse selection - Occurs when

sellers have incomplete information about customers

Moral Hazard

• Refers to inefficient actions induced by policy instruments that cause people not to bear the full consequences of their actions

Government Imperfections

•Market imperfections warrant government regulation–Only a necessary condition for

regulation to improve economic efficiency

Capture Theory

• Predicts that regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry

Rent-Seeking Theory

• Regulation not established to address market imperfections–Instead, it is

established to benefit politically effective interests

Fairness• Regulation used to

accomplish fairness goals• Can involve policies such

as:–Lifeline rates for

telephone service for low-income people –The provision of aid

such as food stamps

Other Public Purposes: Media Ownership Rules• Regulation also used for other

public purposes

Preemption

• A major regulation issue is whether a decision by a federal regulatory agency preempts lawsuits in state courts

Political Economy Theory

• Views regulation as shaped by market imperfections, institutions and their officeholders, and the nonmarket action of private interests

Cost-of-Service Regulation

• Regulation in a number of industries has centered on cost-of-service pricing

Deregulation

• Electric power• Auctions

Cases - Enron Power Marketing, Inc., and the California Market

• Enron Power Marketing (EPM) deployed an array of electricity trading strategies to take advantage of imperfections in the design of the market for power in California

• The Enron board of directors waived attorney–client privileges and confidentiality rights and turned the memos over to the Federal Energy Regulatory Commission (FERC)

Core Readings• Solomon, Jill (2010) Corporate Governance and

Accountability 3rd Edition, Wiley, UK. Ch.4-5• Goergen, Marc (2012) International Corporate

Governance, Pearson. Ch.5, 9-10• Larker & Tayan (2011) Ch.3-5,12• Monks & Minow (2011) Ch.2 & 3• Johnson, Scholes & Whittington(2008) Ch.4• CIMA - Performance Strategy: Study Text (2011) BPP

Learning Media Ltd. Part B : 5-6• Baron, David P.(2013) Business and its environment, 7th

Edition, Pearson

Additional Readings (1)• Byrd, J. W. and Hickman, K. A. (1992) ‘Do outside directors monitor

managers?’, Journal of Financial Economics, 32, 195–221.• Donaldson, L. and Davies, J. H. (1994) ‘Boards and company

performance—Research challenges the conventional wisdom’, Corporate Governance: An International Review, 2(3), July, 151–160.

• Peel, M. and O’Donnell, E. (1995) ‘Board structure, corporate performance and auditor independence’, Corporate Governance: An International Review, 3(4), October, 207–217.

• Milliken, F. J. and L. L. Martins (1996) "Searching for Common Threads: Understanding the Multiple Effects of Diversity in Organisational Groups", Academy of Management Review, 21, pp.402-433.

• Core, J. E., Holthausen, R. W. and Larcker, D. F. (1999) ‘Corporate governance, chief executive officer compensation, and firm performance’, Journal of Financial Economics, 51, 371–406.

• Thompson, S. (2005) "The Impact of Corporate Governance Reforms on the Remuneration of Executives in the UK", Corporate Governance: An International Review, Vol.13, No.1, January, pp.19-25.

Additional Readings (2)• Berle, A. and Means, G. (1932) The Modern Corporation and Private Property, New York.• Monks, R. A. G. (1994) ‘Tomorrow’s corporation’, Corporate Governance: An International Review, 2(3), July, 125–

130.• Nesbitt, S. L. (1994) ‘Long-term rewards from shareholder activism: A study of the “CalPERS effect”’, Journal of

Applied Corporate Finance, 6, 75–80.• Stapledon, G. P. (1995) ‘Exercise of voting rights by institutional shareholders in the UK’, Corporate Governance: An

International Review, 3(3), 144–155.• Stapledon, G. P. (1996) Institutional Shareholders and Corporate Governance, Clarendon Press, Oxford.• Smith, M. P. (1996) ‘Shareholder activism by institutional investors: Evidence from CalPERS’, Journal of Finance,

51(1), March, 227–252.• Agrawal, A. and Knoeber, C. R. (1996) ‘Firm performance and mechanisms to control agency problems between

managers and shareholders’, Journal of Financial and Quantitative Analysis, 31(3), September, 377–397.• Mallin, C. A. (1996) ‘The Voting Framework: A Comparative Study of Voting Behaviour of Institutional Investors in

the US and the UK’, Corporate Governance: An International Review, 4(2), April, 107–122.• Solomon, A. and Solomon, J. F. (1999) ‘Empirical evidence of long-termism and shareholder activism in UK unit

trusts’, Corporate Governance: An International Review, 7(3), July, 288–300.• Faccio, M. and Lasfer, M. A. (2000) ‘Do occupational pension funds monitor companies in which they hold large

stakes?’, Journal of Corporate Finance, 6, 71–110.• Solomon, J. F., Solomon, A., Joseph, N. L. and Norton, S. D. (2000) ‘Institutional investors’ views on corporate

governance reform: Policy recommendations for the 21st century’, Corporate Governance: An International Review, 8(3), July, 217–226.

• Mallin, C. A. (2001) ‘Institutional investors and voting practices: An international comparison’, Corporate Governance: An International Review, 9(2), April, 118–126.

• Myners (2001) Institutional Investment in the United Kingdom: A Review (The Myners Report), London.• MacKenzie, C. (2004) "Don't Stop Rattling Those Boardroom Chains: Corporate Activists Are Key to Maintaining

Shareholder Returns", Financial Times, 10th May, p.6.• National Association of Pension Funds (NAPF) (2005) Pension Scheme Governance - Fit for the 21st Century, NAPF

Discussion Paper, July.

Next Week’s Ideas for Discussion

• Foo Nin Ho, Wang Hui-Ming Deanna and Vitell, Scott J.(2012) A Global Analysis of Corporate Social Performance:

• The Effects of Cultural and Geographic Environments, Journal of Business Ethics, 2012:107: pp.423–433

QUESTIONS?