Sunday, March 15, 2015, 9:00 AM to 4:00 PM
@Clayton Hall, University of Delaware :
The focus of the 2015 Corporate Governance Symposium will be “Governance Issues of Critical Importance to Boards and Institutional Investors in 2015.” The Symposium began with a panel of institutional investors comprised of large institutional investors, proxy advisory firms, proxy solicitors, as well as representatives from the corporate and investor community, and The Honorable Karen Valihura, Justice from the Supreme Court of Delaware, who provided her views. During the panel each panelist shared what matters most to them. The Panel included:
- Glenn Booraem, Principal and Fund Controller, Vanguard
- Donna Dabney, Executive Director, Governance Center, The Conference Board
- Jon Lukomnik, Executive Director, IRRC Institute
- Robert M. McCormick, Chief Policy Officer, Glass Lewis
- Patrick S. McGurn, Special Counsel, Institutional Shareholder Services
- Allie Rutherford, Principal, CamberView Partners, LLC
- Linda E. Scott, Senior Vice President and Associate Corporate Secretary, JPMorgan Chase & Co.
- William Ultan, Senior Managing Director, Morrow & Co., LLC
- The Honorable Karen L. Valihura, Justice, Delaware Supreme Court
Moderator: Charles M. Elson, Edgar S. Woolard, Jr., Chair of Corporate Governance, Director of the Weinberg Center and Professor of Finance
The Symposium continued with the presentation of four academic papers on topics that are of critical importance to boards and institutional investors today. The Symposium provided attendees with cutting edge governance discussion and debate.
A short description of each of the papers presented and their respective authors and the paper discussants follows:
- “A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value” Co-Winner of the Best Paper Award Jillian Popadak, Fuqua School of Business, Duke University (Presenter)
The paper examines how shareholder governance influences firm culture and value. The author develops new measures of firm culture through textual analyses of employee reviews and find stronger governance significantly changes four aspects of culture: it increases results-orientation but decreases customer-focus, integrity, and collaboration. Shareholders initially realize financial gains from the governance-induced changes in culture: increases in sales, profitability, and payout occur. However, over time, the author finds intangible assets associated with customer satisfaction and employee integrity deteriorate, partly reversing the initial gains. The author’s findings are consistent with a multitasking hypothesis where stronger governance incentivizes managers to concentrate on easy-to-observe benchmarks at the expense of the harder-to-measure intangibles, even though such actions can reduce long-term value.
Discussant: Jon Lukomnik, IRRC Institute
To read the paper, click Here
Supplemental materials provided by Jon Lukomnik:
- “The Alignment Gap Between Say on Pay Voting and Creating Value”
- “The Alignment Gap Between Creating Value, Performance Measurement and Long Term Incentive Design” – Webinar Slides
- “The Alignment Gap Between Creating Value, Performance Measurement, and Lon-Term Incentive Design” – The report
- “Board Groupthink” Jeffrey L. Coles, David Eccles School of Business, University of Utah; Naveen D. Daniel, LeBow College of Business, Drexel University; Lalitha Naveen, Fox School of Business, Temple University (Presenter)
Corporate boards are comprised of individual directors but make decisions as a group. The quality of their decisions affects firm value. In this study, the authors focus on one particular aspect of group dynamics, groupthink. Groupthink is described as a mode of thinking by highly cohesive groups where the desire for consensus and agreement by the group members overrides critical thinking and correct judgment. While board groupthink has been criticized by both academic and practitioners, the authors’ is the first study to undertake a systematic investigation of the effect of groupthink on firm value. They develop four proxies for groupthink, based on the idea that greater interaction among group members leads to greater group cohesiveness which in turn leads to greater groupthink. The authors hypothesize that (i) groupthink negatively affects firm value, and (ii) groupthink will have a more negative effect on firm value for firms in dynamic industries (industries that are rapidly growing, are highly innovative, are experiencing increase in competitive environment, or have high merger activity). While they do not find support for the first prediction, they do find results consistent with their second prediction. The results have Implications for the appropriate design of corporate boards.
Discussant: James A. Fanto, Brooklyn Law School
To read a copy of the paper, click Here
- “Understanding Director Elections: Determinants and Consequences” Co-Winner of the Best Paper Award Yonca Ertimer, University of Colorado at Boulder; Fabrizio Ferri, Columbia University (Presenter); David Oesch, University of Zurich
This paper examines determinants and consequences of the voting outcomes at uncontested director elections. As in prior studies, proxy advisors’ recommendations strongly predict shareholder votes. Based on novel hand-collected data from proxy advisors’ reports, the authors document the reasons behind negative recommendations and their association with shareholder votes. For example, board-level and committee-level issues trigger more negative votes than individual-level concerns. While high votes withheld rarely result in director turnover, firms often respond to shareholder dissatisfaction by addressing the underlying concern, with the rate of responsiveness increasing in voting dissent. Responsive and unresponsive firms do not differ in subsequent performance.
Discussant: Jill E. Fisch, University of Pennsylvania Law School
To read the paper, click Here
Supplemental material provided by Jill Fisch, click Here
- “Growth through Rigidity: An Explanation for the Rise in CEO Pay” Kelly Shue, Booth School of Business, University of Chicago (Presenter); Richard Townsend, Tuck School of Business, Dartmouth College
The authors explore a rigidity-based explanation of the dramatic and off-trend growth in US executive compensation during the 1990s and early 2000s. They show that executive option and stock grants are rigid in the number of shares granted. In addition, salary and bonus exhibit downward nominal rigidity. Rigidity implies that the value of executive pay will grow with firm equity returns, which averaged 30% annually during the Tech Boom. Rigidity can also explain the increased dispersion in pay, the difference in growth rates between the US and other countries, and the increased correlation between pay and firm-specific equity returns. Regulatory changes requiring the disclosure of the value of option grants help explain the moderation in executive pay in the late 2000s. Finally, the authors find suggestive evidence that number-rigidity in executive pay is generated by contracting frictions, money illusion, and rule-of-thumb decision-making.
Discussant: Robert J. Jackson, Jr., Columbia Law School
To read the paper, click Here
Copy of the Symposium Agenda