Corporate Governance Systems

   

Team 4 Candice Woods

Jennifer Zhang May 27, 2013

What is Corporate Governance?

The system of rules and practices that governs a firms decision making processes

Assigned Article Stakeholder rights and corporate governance:

A cross-national study of hostile takeovers

William D. Schneper

Mauro F. Guillén

What is a Hostile Takeover?

A corporate acquisition implemented either by a shareholder or stakeholder that is in contest to a firms incumbent managers

Conception

Normative

Traditional ViewpointsPower

Hostile Takeover

Hostile Takeover Occurrences

Country Financial System

Governance System

HT Attempts (1988-2003)

Germany Bank-Based Stakeholder Model

7

Japan 3United States Market-Based Shareholder

Model478

United Kingdom

273

Governance SystemsStakeholder Model

Corporate control depends on Support

Ongoing Power Struggle

Risk-averse; utilize capital

Share Price measure of Performance

Hostile Takeovers are rare

Shareholder Model Firms purpose is to

make SH’s Richer Ongoing Power

Struggle Managers vs. SH’s

Profit maximizing; high-risk

Hostile takeover is correlated with economy health and company performance

Findings Hostile Takeover increase when there are

strong SH rights and when financial institutions and workers rights are not strongly protected

Inversely correlated

Article 1

Underperformance does not motivate a hostile takeover

Narrowly defined a hostile takeover Occurs when the managers or BOD have been

replaced during hostile takeover Other wise a Synergistic Takeover

“The role of Hostile Takeovers in Corporate Governance”Rajeeva Sinha

Creative Destruction Schumpeterian process of ‘creative

destruction’ likely the cause of hostile takeovers

Hostile takeovers in Europe

Hostile takeovers occur in waves; correlated to technological advances and political/economical changes

Mechanism to adapt to external environmental changes

1990-1998 199995 127

Currently used Defense Strategies

United States Charter

amendments Litigation Poison Pill

“flip in” “flip over”

Greenmail

United Kingdom

Employed dividendsAnnounced Profits

Article 2

3 Main Stakeholders• Shareholders

• Banks

• Workers

“Stakeholder Theory: Reviewing a Theory That Moves Us” André O.Laplume, Karan Sonpar &Reginald A.Litz

“To be an effective strategist, you must deal

with those groups that

can affect you, while to

be responsive, you must

deal with those group

that you can affect.”

-Freeman

Who else can be the Stakeholders

Internal Stakeholders Owners Customers Employees Suppliers

External Stakeholders

Governments Competitors Consumer

advocates Environmentalists Special interest

groups media

How do Stakeholders Influence Firms

With direct & indirect withholding and conditional usage strategies

Influence depends on relationship structure, contractual forms, and institutional supports

Influence is determined by the power and legitimacy of a stakeholder

By forming coalitions and collaboration.

How Suppliers Influence A Firm’s Decision Making

Porter’s Five Forces Model

The Strength of Bargaining Power of Suppliers

How do firms gain stakeholder support?

By building stakeholder trust and avoiding opportunistic relationships

Maintain a good reputation Become involved in non-profit work Increase work involvement by offering an

employee stock option

Article 3 The second assigned article

“Comparative and International Corporate Governance” Ruth V. Aguilera a & Gregory Jackson

cross-country diversity in corporate governance

Correlations in Conclusion

Recall from the previous slide

Need more studies on

cultural aspects that encourages

HT

SH vs. SKGovernance System + Cultural analysis (Hofstede)

Individualism Collectivism

Masculinity Femininity

High Uncertainty Avoidance Low Uncertainty Avoidance

High Power Distance Low Power Distance

High LTO Low LTO

References Aguilera, R. V., & Jackson, G. 2010. Comparative and

international corporate governance. Academy of Management Annals, 4(1): 485-556. doi: http://dx.doi.org/10.1080/19416520.2010.495525

Laplume, A., Sonpar, K., & Lits, R. (2008). Stakeholder Theory: Reviewing a Theory That Moves Us. Journal of Management, 34:1152. Doi: 10.1177/0149206308324322

Porter, E., M. (2008). The five competitive forces that shape strategy. Harvard Business Review. January, 2008, 79-92.

Schneper, W. D., & Guillen, M. F. 2004. Stakeholder rights and corporate governance: cross-national study of hostile takeovers. Administrative science quarterly, 49(2): 263-295. Retrieved from http://web.ebscohost.com/bsi/pdfviewer/pdfviewer?sid=a2f62067-c872-42d0-994d-e9cd09965b01%40sessionmgr115&vid=52&hid=117

Sinha, R. (2004). The role of hostile takeovers in corporate governance. Applied Financial Economics, 14(18), 1291-1305. doi:10.1080/0960310042000280492

Thank you all for listening and participating!