BOARDS AND SHAREHOLDERS IN EUROPEAN LISTED COMPANIES With contributions by distinguished scholars from legal and financial backgrounds, this collection of essays analyses four main topics in the corporate governance of European listed firms: (i) board structure, composition and functioning and their interaction with ownership structure; (ii) board remuneration; (iii) shareholder activism; and (iv) corporate governance disclosure based on the ‘comply or explain’ approach The authors provide new comparative evidence and analyse its implications for the policy debate They challenge the conventional wisdom that corporate governance in European firms was systematically dysfunctional While proposals aimed at increasing disclosure and accountability are usually well grounded, caution is suggested when bringing forward regulatory changes with respect to proposals targeting specific governance arrangements, especially in the fields of board composition and shareholder activism They argue that the ‘comply or explain’ principle should be retained and that further efforts should be exercised to enhance disclosure massimo belcredi is Professor of Corporate Finance at the Università Cattolica of Milan He has written numerous books and articles in the fields of corporate finance, corporate governance, ownership and board structure, law and economics guido ferrarini is Professor of Business Law and Capital Markets Law at the University of Genoa, and Director of the Genoa Centre for Law and Finance Among other important roles, he was an adviser to the Corporate Governance Committee of the Italian Stock Exchange He has published widely on the topics of corporate governance, financial law, corporate law and business law international corporate law and financial market regulation Corporate law and financial market regulation matter The global financial crisis has challenged many of the fundamental concepts underlying corporate law and financial regulation; but crisis and reform has long been a feature of these fields A burgeoning and sophisticated scholarship now challenges and contextualises the contested relationship between law, markets and companies, domestically and internationally This Series informs and leads the scholarly and policy debate by publishing cutting-edge, timely and critical examinations of the most pressing and important questions in the field Series Editors Professor Eilìs Ferran, University of Cambridge Professor Niamh Moloney, London School of Economics and Political Science Professor Howell Jackson, Harvard Law School Editorial Board Professor Marco Becht, Professor of Finance and Economics at Universite´ Libre de Bruxelles and Executive Director of the European Corporate Governance Institute (ECGI) Professor Brian Cheffins, S.J Berwin Professor of Corporate Law at the Faculty of Law, University of Cambridge Professor Paul Davies, Allen & Overy Professor of Corporate Law and Professorial Fellow of Jesus College, University of Oxford Professor Luca Enriques, Visiting Professor, Harvard Law School Professor Guido Ferrarini, Professor of Business Law at the University of Genoa and Fellow of the European Corporate Governance Institute (ECGI) Professor Jennifer Hill, Professor of Corporate Law at Sydney Law School Professor Klaus J Hopt, Emeritus Scientific Member, Max Planck Institute of Comparative and International Private Law, Hamburg Professor Hideki Kanda, Professor of Law at the University of Tokyo Professor Colin Mayer, Peter Moores Professor of Management Studies at the Saïd Business School and Director of the Oxford Financial Research Centre James Palmer, Partner of Herbert Smith, London Professor Michel Tison, Professor at the Financial Law Institute of the University of Ghent Andrew Whittaker, General Counsel to the Board at the UK Financial Services Authority Professor Eddy Wymeersch, former Chairman of the Committee of European Securities Regulators (CESR); former Chairman of the IOSCO European Regional Committee, and Professor of Commercial Law, University of Ghent BOARDS AND SHAREHOLDERS IN EUROPEAN LISTED COMPANIES Facts, context and post-crisis reforms A research project promoted by Emittenti Titoli S.p.A Edited by MASSIMO BELCREDI and GUIDO FERRARINI EMITTENTI TITOLI S.p.A Emittenti Titoli is a company promoted by Assonime and created in 1998 Its shareholders are some of the main non-financial Italian listed firms and their controlling holding companies Emittenti Titoli promotes the development of the securities market in the interest of Italian issuers After having acquired a 6.5% participation in Borsa Italiana, Emittenti Titoli contributed to define both the governance of the Italian Stock Exchange and its listing rules, trying to counterbalance the influence of intermediaries Following the acquisition of Borsa Italiana by the London Stock Exchange Group, Emittenti Titoli is currently the first Italian shareholder of LSE, holding 1.6% of share capital Emittenti Titoli publishes, jointly with Assonime, an annual analysis on the corporate governance of Italian listed companies and on the state of implementation of the Italian Governance Code Emittenti Titoli is led by a Board of Directors composed of 15 members, chaired (since 2012) by Luigi Abete University Printing House, Cambridge CB2 8BS, United Kingdom Published in the United States of America by Cambridge University Press, New York Cambridge University Press is part of the University of Cambridge It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning, and research at the highest international levels of excellence www.cambridge.org Information on this title: www.cambridge.org/9781107040564 © Emittenti Titoli S.p.A This publication is in copyright Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published 2013 Printed in the United Kingdom by Clays, St Ives plc A catalogue record for this publication is available from the British Library ISBN 978-1-107-04056-4 Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate FOREWORD The papers collected in this volume, written by a group of leading European scholars, are the result of a research project promoted by Emittenti Titoli In recent years, the academic debate focused on the relationship between corporate governance and the financial crisis It is still unclear whether, and to what extent, dysfunctional corporate governance has contributed to the recent financial crisis Nonetheless, a number of policy proposals have been put forward to redress the most obvious failures In particular, the European Commission published two Green Papers, in 2010 and 2011, respectively, targeting corporate governance in financial institutions and remuneration policies and the EU corporate governance framework In December 2012, on the basis of its reflection and of the results of previous consultations, the European Commission published an Action Plan outlining future initiatives in the areas of European company law and corporate governance This volume analyses four main topics in the corporate governance of European listed firms: (i) board structure and composition and their interaction with ownership structure; (ii) board remuneration; (iii) shareholder activism; and (iv) corporate governance disclosure based on the ‘comply or explain’ approach For each of them, the authors provide new evidence and analyse its implications for the policy debate In the main, they challenge the conventional wisdom that corporate governance in European firms was systematically dysfunctional and, therefore, they suggest caution in bringing forward regulatory changes Basically, while proposals aimed at increasing disclosure and accountability are usually well-grounded, caution is needed with respect to proposals targeting specific governance arrangements (especially in the fields of board composition and shareholder activism) Similarly, they argue that the ‘comply or explain’ principle should be retained, but that further efforts should be exercised to enhance disclosure v vi foreword Emittenti Titoli, a company promoted by Assonime, and whose capital is held by the most important Italian non-financial companies, is happy to offer the results of this research project to the international financial community in order to further stimulate the debate on corporate governance Luigi Abete Chairman, Emittenti Titoli CONTENTS Foreword page v Figures ix Tables x Contributors xiii Corporate boards, incentive pay and shareholder activism in Europe: main issues and policy perspectives m a s s im o be l cr e d i a n d g uid o f er r a r i n i European corporate governance codes and their effectiveness 67 eddy wymeersch Restructuring in family firms: a tale of two crises 143 c h r i s t i a n a n d r e s , l o r en zo ca p r i o a n d ettore croci Corporate boards in Europe: size, independence and gender diversity 191 d a n i e l f e r r e i r a a n d to m k i r ch m a i e r Board on Task: developing a comprehensive understanding of the performance of boards 225 jaap winter and erik van de loo Directors’ remuneration before and after the crisis: measuring the impact of reforms in Europe 251 r o b e r t o ba r o n t i n i, s t e f a n o b o z z i , g u i d o ferrarini and maria-cristina ungureanu vii viii contents Shareholder engagement at European general meetings 315 luc renneboog and peter szilagyi Board elections and shareholder activism: the Italian experiment 365 massimo belcredi, stefano bozzi and car m in e d i n oia Index 423 424 index banks (cont.) response to crises 145, 151, 183–4 risk management 19–20 risk-taking tendencies 11, 49, 51, 254–5 state aid 283–4 Barclays 259 Barontini, Roberto 254 Bartz, Jenny 118 Barucci, Emilio 367 bearer shares 343–4 Bebchuk, Lucian A 229, 254, 318 Becht, Marco 9, 320 Begeman case 100 Belgian corporate governance codes 76–9, 122 ambiguities in national law 77–9 case law 79 explanations for non-implementation 117 measures to improve compliance 78–9 monitoring 77–8, 134 national legislation 76–7 Belgium directors’ remuneration 256–7, 281 see also Belgian corporate governance codes Berle-Means corporate model 2, 154, 253 Bertrand, Marianne 143–4, 303–4 Bianchi, Marcello 91 Bizjak, John 253 Black, Fischer 291 blockholder ownership see concentrated ownership Board GPS 226, 236–7 Abilities 237 Essences 237 Group lens 236 Person lens 236 System lens 236 Traps 237 Board on Task 226, 235–7, 247 defined 235–6 facilitation of review process 245–6 fields of interaction 238–40, 241–2, 244–5 minimal involvement levels 241–2 types of involvement 240–5 see also Matrix of Board Interaction board size 192, 193, 195–9, 206–9, 215–17 defined 194 EU–US comparison 197–9 and firm characteristics 206–9, 216, 220 impact of global crisis 209 impact on voting outcomes 387 national variations 199, 200, 206–9, 217–20 reductions in 195–6, 220 relationship with firm size 206–9 board structures 50–1 alternative specifications 215–17 diversity 230 (see also gender diversity) EU recommendations 51 and leverage 217 national variations 50, 204, 205 policy initiatives 221–2 post-crisis changes 204 regulation 50–1, 56–7, 247–8 variations 27–9, 203–15 see also board size; independence BoardEx (database) 194–5 boards 2, 23–9, 191–222 accountability 248 collective responsibility 5–6 collegial nature 24–5 composition 5, 25–7, 247–8 criteria in governance codes 26–7 differences of opinion with investors 95–6 division of powers with shareholders 42–4 economic analyses 228–30 as focus of EU reform 6, 7–8 impact of crises 225 importance of role 191 inability to prevent malpractice 225 individual interactions within 226, 231–2, 235, 236, 238–9 labour representation 204 index legal disputes with shareholders 98–101 legal requirements 227–8 limits of quantitative approach 29 methodology of study 203–4 misunderstandings of role 226, 234–5, 238–9 modernisation 5–6 national variations 27–8, 193, 203 organisational theories 237–8 performance, evaluation of 226–7, 246–7 policy recommendations 247–8 in practice 25–7; departures from theory 25 professional requirements 25 reform proposals 192 regulation in line with stakeholder interests 10 remit 24 reporting procedures 72 reviews of own performance 245, 248 role in implementation of codes 114–16, 127 sample data 194–5 setting of pay levels 31 shareholder powers vis-à-vis 42–4 studies 191–2, 193, 227, 230–4, 246, 393 in theory 24–5 understandings of own role 245–6 variations by firm characteristics 193, 203 variations by firm performance 193 variations over time 28, 192–3 weak 43 see also board size; board structures; directors; elections; gender diversity; non-executive (supervisory) directors; voting Bognanno, Michael L 254 Bolkestein, Frits BoSA (Board of Statutory Auditors), elections to 378, 412 Bozzi, Stefano 254 Bruno, Valentina 112 Buchanan, Bonnie 319 business judgment rule 16, 17 425 Cadbury Report/Code 9, 120 Cai, Jie 366 Cairn Energy 259–60 Caprio, Lorenzo 151, 152, 154–5 Cardia, Lamberto 381 CEOs compensation 38, 291–303, 308–9; factors affecting 300, 303–6; relationship with firm performance 306 in family firms 153, 165, 170, 171–3 hiring/firing 24, 132 Cheffins, Brian R 39 Chen, Carl R 255 Chizema, Amon 252, 253 Clacher, Iain 125 CMVM (Portuguese securities regulator) 101–4 CNMV (Spanish securities regulator) 104–7 annual reports 105–6 Coffee, John C., Jr 254 compensation 15, 254, 291–306 alignment with risk measurement 35–6 composition of packages 266, 296–302 data 266–9 excessive 51–2 factors affecting 300–1, 303–6, 307–9 in financial vs non-financial firms 296, 298–9, 302–3, 304–6 individual 288 international standards 35–6 national variations 291–6 performance-based packages 302 relationship with firm performance 303–5 relationship with firm size 303–5 shareholder dissent 335 statistical summary 291–303 total, evolution of 296 competition impact on agency costs 14–15 compliance, as shareholder policy 131, 133 426 index ‘comply or explain’ principle 17–19, 20, 55–6, 58, 116–17, 136, 137 ambiguities 18, 116–17 criticisms 87 in EU legislation 70 and executive pay 32–3 flexibility 55 in national codes 76–7, 79, 83, 89–90, 93, 97, 101, 103, 104–5, 106, 111 problems of implementation 55–6 see also explanation(s) concentrated ownership 20–2 and adherence to codes 115, 124–5, 130–1, 132 agency costs 20–1 and board elections 377 and compensation packages 305 remuneration practices 31–2, 289, 307–8 and suboptimal diversification 21–2 see blockholder ownership Consob (Italian regulator) 379, 381–2, 390–1, 402 Conyon, Martin J 254 Cools, Sofie 372–3 corporate governance and banks 10–12, 49 commissions 73 defined flaws 3, 58 ‘law matters’ theory 21–2 links with firm value 145–6 monitoring bodies 18–19 policy 49–58 problems of harmonisation 19, 55–6 regulation soft law instruments 82 varieties 8–12, 49–50 see also corporate governance codes; implementation of corporate governance codes; reform (of corporate law) corporate governance codes 17–18, 248 adherence to 115 aims 85–6 companies’ choice of non-home state 70 company departures from 69–70, 89 comparative studies 135 double-layered system 114–16 drafting 119–20, 121 Dutch 92–8 extent of adoption 71, 118, 120–2, 318–19 German 85–8 governmental monitoring see corporate governance commissions improvements to effectiveness 133–6 incentives to adopt 94 interpretation 69, 94 Italian 89–91 mandatory adoption 69–71, 101, 107–8, 116 Member State 70, 74–113; similarities between 120 Portuguese 101–4 (proposed) common principles 137 public/private character 114 questionnaires 76 recommendations for future 137–8 relationship with hard law 68–70, 119 remuneration provisions 279–80 scholarship 125 scope 73–4 variations in companies’ approach to 121–2 voluntary aspects 116–17 see also ‘comply or explain’ principle; implementation of corporate governance codes corporate governance commissions (national bodies) 121–2, 133–6, 138 engagement with stakeholders 135 interaction with companies 135–6, 138 interaction with each other 136–7, 138 private law status 134–5 right of public comment/naming 136, 138 corporate governance statements 69–70 index correspondence with company practice 71–2 national bodies dealing with see corporate governance commissions national requirements 75–6, 90 corporate law 15–17 approach to boards 227–8 effectiveness 118 impact on corporate governance 13–14 limitations 16–17 protection of investors 16 relationship with codes 68–9, 119 credit crisis (2008–12) see global financial crisis crises impact on employment levels 179–83 impact on family firms 158–81 impact on firm performance 166–83 see also Asian crisis; dotcom crisis; global financial crisis Croci, Ettore 254 Cziraki, Peter 319–20 De Jong, Abe 320, 366 de Larosière, Jacques/de Larosière Report Denmark, corporate governance codes 80, 123 adherence to 115 diffuse ownership 20–2, 269 and adherence to codes 115–16, 124, 126–7, 130–2 agency costs 20–2 remuneration practices 30, 289, 307–8 and shareholder activism 1, 43, 321 directing, as role of non-executives 241, 242 directors margin of discretion 227–8 opportunities for malpractice 228, 235, 242 personal characteristics 236 personal liability 227 removal 43, 371–2 427 term of office 371–2 see also boards; independence; non-executive (supervisory) directors; remuneration disclosure 17–19 board structure policy 56–7 compliance levels 280–2 EU reforms 4–5, 6, 58 governance function 17 individual 282 legislative function 17–18 mandatory vs soft-law 34, 52–3 requirements in national laws/codes 77, 112, 123–4, 280–2 verification 135 see also remuneration; transparency Djankov, Simeon 317, 340, 344 Dodd-Frank Act (US 2010) 375, 376 dotcom crisis (2001–3) see governance crisis Drobetz, Wolfgang 125 Dutch Corporate Governance Code 92–4, 231, 232 adherence to 115 drafting 121 explanations for non-implementation 117 monitoring 123–4 Eastern Europe, former communist countries 203, 212 adoption of codetermination principles 204 ECGI (European Corporate Governance Institute) 120 Eckbo, B Espen 367 economics, and board performance/ regulation 228–30 Economiesuisse 108–9 elections 43, 54, 365–416 centrality to corporate governance 372, 413 contested 369 empirical analysis 383–412; robustness checks 412 multiple-winner systems 48–9, 371, 379, 383, 413, 414, 415–16 open vs closed lists 371, 379–80 428 index elections (cont.) and ownership structures 373, 388 policy debate 373–8 processes 368–73 quota system 369 removal rights 371–2 single-winner systems 371, 373–4 uncontested 370, 373–4, 375–6 see also nomination employees, board representation 43, 204, 321 enforcement, instruments of 102–3 engaging, as role of non-executives 240–1, 242 Ertimur, Yonca 319, 339 Eumedion 94–6, 123 European Commission policy on shareholder engagement/ rights 58–9, 315–16 reports on general meetings 323, 340 Action Plan on EU Company Law (2012) 56–8 Communication on Modernising Company Law (2003) 4–6 Green Paper on Corporate Governance in financial institutions (2010) 6–7, 20, 45, 256, 365–6, 376–7 Green Paper on the EU Corporate Governance framework (2011) 6–8, 9, 20, 27, 34, 43–5, 48, 56, 150–1, 183–4, 185, 186, 256, 315, 365–6, 377 Recommendation on directors’ pay at non-financial companies (2009) 33–4, 256 Recommendation on the remuneration of directors (2004) 32–3, 255–6, 264 Recommendation on the role of non-executive or supervisory directors (2005) 26–7, 32–3, 231, 255–6, 376–7 European Union corporate law 13–14 corporate reforms 3–8 legal basis of governance codes 134 remuneration reforms 255–64 shareholder rights legislation 41–2, 46 expertise, directorial 232–3 impact on firm performance 232–3 testing 233 explanation(s) ambiguity of requirements 116–17 failure to provide 72, 94 ‘proper,’ defined 117, 121 Fahlenbrach, Rüdiger 255 Falini, Jury 367 family firms 22–3, 143–86 access to outside capital 145 age 156–7, 165 behavioural differences from other firm types 143–50, 165–86 cash holdings 157, 174 CF/K variable 174 ‘dark side’ 150–1 defined 151–3 downsizing 145, 155, 175–7, 179, 183, 185 employees 165, 179–83, 185; share ownership 185 exacerbation of crisis 184–5 family members in top positions 153, 170, 171–3 fears of expropriation 144, 147–8, 185–6 governance codes 87–8 implicit contracts 149, 185 investment-cash flow sensitivity (I/K ratio) 148, 155, 159, 170 investment levels during crises 174–9, 183 investment policies 170–9, 184–5 investment regressions 157 in Italy 156–7 ‘market-to-book’ variable 157, 170 maximisation of utility 144, 147 methodology of study 157–9 national variations 150, 154 outperformance of non-family firms 145, 170, 186 outside CEOs 165, 170, 171–3 ownership criteria 151–2 index ‘patient capital’ 143–4, 146 performance regressions 158 policy issues 150–1 positive/stabilising role 150–1 private benefits of control 147, 150–1, 156 relationship of firm performance and ownership characteristics 166–9 reliance on bank debt 151, 183–5 response to short-term price movements 146, 184 responses to crises 143–6, 158–9, 163–81, 183–6 role of founding family 152 sales 157, 165 sample 154–5 shareholder engagement 184 shareholders’ propping behaviour 148–9 studies 143–9, 151–5, 170 tendency to conservatism 143–4, 147–8 total assets 165, 179 univariate analysis 159–65 variables 155–7; performancerelated 156 wages 149, 155–6, 165, 179–83, 185 Ferreira, Daniel 203, 233–4 financial institutions see banks Finland board characteristics/regulation 199–201, 220 shareholder proposals 336 Forbes, Daniel P 234 Fortis 79 France 80–5 AGM voting trends 84 board structures 204 corporate governance codes 82–3, 114, 116, 122, 123 directors’ remuneration 258, 259, 276–9, 307 disclosure requirements 126, 281 family firms 149 market supervision 81–2 monitoring system 134 provisions in national law 81–2 429 role of shareholders 83–5 shareholder activism 320, 328, 331–4 soft-law instruments 82 fraud, incidences of FRC (Financial Reporting Council, UK) 111–13, 114, 121 Fried, Jesse 229 FSB (Financial Stability Board), Principles and Standards on compensation practices 35–7, 260–1 as acceptable compromise 36 implementation 36–7 main areas covered 35–6 FSMA (Belgian regulator) 77–9 FTSE (Financial Times Stock Exchange) group 264–5 G20 group 35, 260–1 gender diversity (on boards) 25–6, 27, 28–9, 50, 56, 213–15, 217, 220–2, 230 EU–US comparison 198–202 and firm characteristics 213, 214, 219 governmental policy initiatives 200–2, 213, 220 increase in 192–3, 197, 215 ‘juridification’ 119, 134 measurement 194–5 national variations 202, 213 proposals for improvement 192 relationship with firm performance 217–20, 233–4 general meetings 42, 94, 316–58 addressing of governance concerns 317 attendance rates 320–1, 328, 357 cross-border participation 323 databases 329, 339–40 in French law 82, 84–5 legal disputes relating to 98–101 multivariate analysis 339–57, 360 national variations 320–1, 331 negative votes 84 notice periods 343 powers 42–3 430 index general meetings (cont.) proposals submitted to 328–39; data sources 329–31 (see also management proposals; shareholder proposals) regulatory conditions 316, 324–5 relationship with firm characteristics 340–4 role in implementation of codes 128, 131–2 role of activism 326–8 setting aside of decisions 88–9 setting of remuneration policy 96 shareholder dissent 316–17 studies 366 Georgeson (consultancy) 323, 340 German Corporate Governance Code 70, 85–8, 120, 123 central provisions 86 criticisms 86–7 drafting 121 effectiveness 118 remuneration provisions 279 Germany 85–9 board elections 368 board sizes 199 board structures 204 business judgement rule 17 case law 88–9 codetermination system directors’ liability 127 directors’ remuneration 258, 276–9, 291–6, 307 disclosure requirements 281 investor associations 87 legal scholarship 125 removal of directors 372 role of AGM 128 shareholder activism 328 see also German Corporate Governance Code Gillan, Stuart L 39 Girard, Carine 320 global financial crisis (2008–12) 6–8, 144–5, 153–4 impact on banks 11–12 impact on board structures/ regulation 209, 212, 225, 229–30 impact on family firms 150–1, 183, 185 impact on market capitalisation 276 impact on remuneration 34–5, 38, 53, 264–89, 296, 308–9 impact on shareholder rights/ activism 315, 318–19, 357, 358 impact on stock returns 276 start/end 154 Gordon, Jeffrey N 374 governance crisis (2001–3) 144–5, 153–4 impact on boards 225, 229 impact on family firms 166–9, 183, 185 start/end 154–9 Greece, directors’ remuneration 265 Grinstein, Yaniv 252 Hamdani, Assaf 366 harmonisation 136–7 Harris, Milton 318 Hartzell, Jay C 304 Hau, Harald 232 Hayes, Rachel M 252–3 hedge funds 126–7, 319 Heifetz, Ronald A 246 hygiene, as board function 237, 239 ORA applied to 244 Iceland board characteristics/regulation 200–1 board elections 371 implementation of corporate governance codes 67–138 ambiguities in national systems 77 case law 71, 72, 79, 88–9, 98–101 drivers 72–3 ex ante 68 extra-company factors 73 failures of 67–8, 94, 103 measurement of effectiveness 71–2, 118 measures to improve compliance 78–9 methods 70–1 monitoring 77–8, 81–2, 91 index national variations 71, 74–113, 133 preliminary findings 113–37 role of shareholders 124–7 self-regulation 68, 136; problems of 119 see also explanation(s) independence, directorial 192–3, 209–12, 217, 231–2 EU–US comparison 197–9, 220 improvements in 196, 220 increased stress on (post-2008) 230 national variations 201, 209–12, 279 (problems of) definition 194, 231–2 relationship with firm characteristics 209–12, 218 relationship with firm size 212 insider trading 137 institutional investors 94–6 behaviour specific to 379 differences of opinion with boards 95–6 obligation to vote/report on votes 129 participation at general meetings 328 pressure-sensitive, shareholdings 343 proposals submitted by 337 publication of voting policies/ records 377 recommendations concerning 130, 137 role in implementation of codes 129–30 insurance contracts, implicit 149 intervention, as shareholder policy 131, 132 investment funds 131, 337 Ireland, directors’ remuneration 265 Italy board appointments 186 board elections 367, 378–412 Consolidated Law on Finance (1998) 380–1 corporate governance codes 89–91; amendment 90–1 Corporate Governance Committee 390 431 directors’ remuneration 256–7, 259, 262–4, 276–9, 307 disclosure requirements 281 firm characteristics 384 market regulation 90 privatisation law 380 Protection of Savings Law 381–2, 393 reporting procedure 90 shareholder activism 328 shareholder voting system 47–9, 54, 331 stock market 383, 390 Japan, board elections 371 Jensen, Michael 228, 229, 253 Keynes, J.M 247 Kim, Jeong-Bon 255 Kirchmaier, Tom 221 La Porta, Rafael 269 labour market 15 Lang, Mark H 252 LaSalle Bank 99 Lehman Brothers 153 Li Xiao 125 Linsky, Marty 246 Lipton, Martin 318 Loewenstein, Mark J 30 Lundholm, Russell J 252 Luxembourg corporate governance codes 92, 123 directors’ remuneration 262 MacNeil, Iain 125 Malaysia, corporate governance code 67 Malberti, Corrado 367 management proposals 330 objectives 335, 345–7 proposal characteristics 344–8 voting outcomes 331–5, 344–8; relationship with firm performance 348; role of national regulation 348 Masouros, Pavlos 228, 318, 327 432 index Matrix of Board Interaction 241–5, 247 dynamic nature 242 facilitation of review process 245–6 ORA applied to 243–5 McCahery, Joseph A 328 McKinsey Quarterly 233 Means, Gardiner see Berle-Means corporate model Meckling, William H 228, 253 Milliken, Frances J 234 minority shareholders access to boardroom 50, 327 board appointments reserved to 186, 371, 377–8, 380, 395, 403, 415 communications between 357 costs of participation 321–3 in family firms 144, 147–8, 150–1, 185–6 fears of controllers/management 22 in Italian system 380–2, 383 links with controlling shareholder 382 protection of interests 3, 20, 43–4, 186, 344, 352, 377–8 ‘rational apathy’ 316–17, 321, 357, 374–5, 414 submission of board candidates 48, 367, 389–412 variables 393 monitoring absence 135 commissions, nature/role 133–5 external 133–6, 138 internal 127–33, 137 tools 135 monitoring hypothesis 389, 394 lack of support for 402, 411, 414, 415–16 support for 402–4 moral hazard 10–11 Mullainathan, Sendhil 303–4 Murphy, Kevin J 229, 255 Muslu, Volkan 252 mutual funds 48, 413–14 hypothesis specific to 392 in Italy 380, 390–3, 404–12 leverage 404–11 pension fund-style strategy 392–3 risks 390–1; management 391–2 shareholder activism 404–12 Netherlands 92–101 Banking Code 233 board elections 368 board sizes 199 case law 98–101, 132, 238 corporate governance recommendations 95–8 corporate law 79, 227, 230 directors’ remuneration 258 disclosure requirements 126 Enterprise Chamber (Ondernemingskamer) 98–101, 136 institutional investors 94–6 Monitoring Commission 93 public investors 96–7 shareholder activism 328 see also Dutch Corporate Governance Code Nigeria, corporate governance code 319 nomination committees 368–9 processes of 368–70, 376–8 restrictions 391 separated from slate submissions 391–2 non-executive (supervisory) directors composition 26 in Dutch law 227 enhancement of monitoring role (post-2008) 225–6, 230, 237–8, 248 impact on firm performance 230–4, 247–8 interaction with executives 29, 236, 238–46; research into 246–7 legal liability 127 number/balance 26 personal relationships 231 professional profile 26–7 removal 44 remuneration 288 index role in management 26 self-evaluation 26 shift in expectations of 242 strategic role 238, 244–5 taking control of investigations 242 types of involvement 240–5 understandings of own role 245–6 see also independence non-financial firms 50 compensation levels 296, 298, 302–3, 304–5 consequences of excessive risktaking 51–2 directors’ remuneration 32–4, 274–5, 308–9 shareholder activism/submissions 402–3 Norway board characteristics/regulation 200–1, 220 directors’ remuneration 258 Nowak, Margaret 125 NVB (Dutch Bankers’ Association) 97 OECD (Organisation for Economic Co-operation and Development) 11, 254, 368–9 Organisational Role Analysis (ORA) 236, 237–8, 242–5, 246 defined 242–3 ownership structures 20–3 and election process 373, 388 and general meetings 321, 341, 343, 354–5 impact on remuneration 253, 269, 290–, 303, 304 in Italian firms 385 national variations 21, 23 optimal, difficulty of establishing 22 relationship with shareholder activism 394–402, 403, 404, 413 see also concentrated ownership; diffuse ownership; family firms Padgett, Carol 125 Parmalat 186, 381 Partnoy, Frank 233 pension funds 319, 392–3 433 people, role of board in relation to 239–40 performance, as board function 239 Philippines, corporate governance code 319 portfolio composition hypothesis 392– 3, 394–5 linked to mutual funds 392–3 support for 402, 411–12, 414, 415 Portugal directors’ remuneration 256–7, 265 shareholder proposals 336 see also Portuguese corporate governance codes Portugal Telecom 103 Portuguese corporate governance codes 101–4, 114, 122 monitoring system 102–3, 118, 123, 133–4 specific features of regime 103–4 verification process 102 Prigge, Stefan 125 probing, as role of non-executives 240, 241–2 ORA applied to 243–4 proportionality principle 262–4 protection (of investors) 16 mandatory rules 16 public investors 96–7 Q Ratio 155, 166, 170 impact of crisis periods 159, 163–8 quorum (of shareholders) 387–9 ownership thresholds 382 proposals despite absence of 379 size, impact on voting/submissions 395, 402, 403, 411–12, 413–14 ratifying, as role of non-executives 240 ORA applied to 243–4 Raviv, Artur 318 RCS Media Group 387 reform (of corporate law) 3–8 coordination of national efforts ‘pillars’ 4–6 regulation hypothesis 389, 394–5 lack of support for 402 434 index remuneration (of directors) 251–310 as agency cost 30–1 and blockholder ownership 31–2 committees 33, 253, 257, 266, 279, 287, 307; composition requirements 287; variations 289 competing views 30–2 compliance with EU standards 261–4, 279, 284–9, 309–10; lack of progress 285; national variations 287 dataset/methodology of study 251, 264–9, 284–5 disclosure 5, 32–4, 36, 52–3, 252–3, 267–8, 276–9, 277–, 280–2, 283, 288, 307; flaws in system 33; improvements in 285, 287–9; mandatory 34; national variations 33–4 empirical analysis 37–8 EU policy 51–3 evolution across jurisdictions 270–8, 287–90 in financial institutions 34–7, 51–2, 260–4, 272–3, 282–4 fundamental considerations 53 governance 267–8, 276–80, 277–91 harmonisation, plans/need for 309–10 impact of 2008 crisis 34–5, 38, 264–89, 308–9 implementation of code provisions 68–9, 71, 96, 124 implementation of EU recommendations 37, 52, 255–64, 288–9, 307–10 incentive schemes 1, 16, 30–8, 302 information lacking on 266, 280 influence of shareholders 258–60, 282 investors’ rejection of plans 124–5 ‘juridification’ 119 mandatory regulation 256–8 monitoring 57–8, 103 national variations 33–4, 37, 38, 251, 261, 276–82, 284, 309–10 in non-financial firms 32–4, 274–5 performance-based 36, 229; contracts 30 policy statements 287–8 reforms 288, 309 regulatory recommendations 229 relationship with firm size 269, 289 relationship with firms’ financial characteristics 263, 277–91, 289, 304–285, 308–9 remedying of agency costs 30–2 reporting process 264 statistical summary 269–76 studies 251–5 see also compensation; termination payments Rio Tinto 112 ROA (accounting performance variable) 155, 166, 170 impact of crises 159, 167–8 Roe, Mark J 41 Rosen, Sherwin 303 Sarbanes-Oxley Act (US 2002) 3, 231 Schaefer, Scott 252–3 Schoar, Antoinette 143–4 Scholes, Myron 291 Schwalbach, Joachim 254 shareholder activism 3, 39–49 and adherence to codes 115–16, 128–9 in board elections 54 changes 39 circumstances favourable to 1–2, 44, 48–9, 375 costs of 40–1, 57, 327, 377–8 cross-border 323 in family firms 184 at general meetings 326–8 impact of regulation 41, 54, 316, 317, 348, 352, 356 impact of voting rules 414 and implementation of codes 73 in Italy 47–9, 404–12 national variations 42–4, 46–7, 334–5, 349 nature of impact 40 (need for) harmonisation 46, 47 obstacles to 321, 322–5 index reform proposals 44–7, 53–5, 57, 357, 358 relationship with firm characteristics 393, 395–404, 413–16 relationship with firm size 402, 413 relationship with voting rules 400–1, 413 studies 315–16, 318–20, 357, 366–7 targets 53–4, 348–52 types 39–41 see also shareholder proposals; takeovers, resistance to shareholder proposals frequency of submission 330, 331, 338, 349–52 government-submitted 336 (lack of) obligation to implement 339 national variations 330, 335–9, 340–4 objectives 336, 353 proposal characteristics 352–6 relationship with firm characteristics 340–4, 350–5 relationship with governance environment 342, 350–5, 356–7 sponsors 336, 339, 353 success 337; relationship with firm performance 349, 356; relationship with firm size 349, 356 support base 328, 349 voting outcomes 331–9, 352–7 Shareholder Rights Directive (2007) 315–17, 318–19, 323–6, 343, 348, 376 criticisms 326 key provisions 323–6 limits 327, 357–8 transposition into national law 382–3 shareholders and agency theory 228 agreements 392 anti-self-dealing measures 344 approach based on 1, 8–10 dissent from management proposals 259–60, 316–17, 328–35, 336 435 as focus of EU reform 6, 7–8, 44–6 influence on directors’ remuneration 258–60, 282 lack of involvement 128 legal disputes with boards 98–101 monitoring tools 127–33 in national laws 80, 83–5 nomination of board candidates 369, 374–5 powers 42–4 relationship with companies 130–3, 137 right to remove directors 372 rights, role in corporate governance 228, 342 role in implementation of codes 72– 3, 114–16, 124–7 ‘short-termism’ 44–5 States as 87–8, 336 strengthening of rights 5, 41–2, 53, 57–8, 87, 315, 323–6 ‘three-layered’ form of involvement 131–3 see also blockholder ownership; diffuse ownership; general meetings; minority shareholders; shareholder activism; voting Shaukat, Amama 125 Sironi, Emiliano 367 Slovenia, board characteristics/ regulation 200–1 small firms elections/shareholder activism 384 public bond market 183–4 Spain board characteristics/regulation 201–2 board elections 371 directors’ remuneration 259, 265, 276 shareholder activism 328 see also Spanish corporate governance codes Spanish corporate governance codes 104–7 double nature 105 implementation 105–7, 114 improvements in reporting 105–6 436 index Spanish corporate governance codes (cont.) independence criteria 106 monitoring system 118, 133–4 Unified Code, drafting/adoption 104–5, 122 Sraer, David 157 stakeholder approach 1, 8–9 followed by EU legislators 9–10 in national laws 80 stakeholders, boards’ interaction with 240 Starks, Laura T 39, 304 stewardship as shareholders’ position 131–3 theory 238 stock grants 291, 302 Storck case 126 Stout, Lynn A 318 strategy, as board function 238, 239 ORA applied to 244–5 ‘streetlight effect’ 246 Stulz, Rene M 255 Sun, Jerry 253 Sweden Annual Accounts Act 107 annual reports 108 corporate governance codes 107–8, 123 directors’ remuneration 258 self-regulation 107 Switzerland, corporate governance codes 108–10, 123 compliance 110, 122, 281 directors’ remuneration 307 drafting 109 Listing Rules 109–10 role of stock exchange 108–10 Tabaksblat Code (Netherlands) 92–3, 99, 100 takeovers 376 governance role 14–15 impact on voting practice 374 resistance to 335, 337–9 Tanzi, Calisto 381 termination payments 281–2 compliance levels 281 Thesmar, David 157 Thum, Marcel 232 total assets, changes in level 179 transaction costs hypothesis 389, 393, 394, 395 support for 402, 403, 412, 414, 415–16 transparency failures of 45 moves to enhance 47, 54–5, 106–7 optimal degree 52–3 Trinity Mirror 259–60 UK Corporate Governance Code 111–12, 114, 117, 121, 231 (absence of) case law 113 implementation 111–12, 115–16 United Arab Emirates, corporate governance code 319 United Kingdom 17 board elections 372 board regulatory policy 220, 221 board sizes 199, 206–9, 217–20 board structures 204 directors’ remuneration 257–8, 259, 262, 279, 280, 291–6, 307; reform proposals 258 disclosure requirements 126, 281 family firms 154 Listing Authority 111 shareholder activism 320, 321, 327–8 shareholder proposals 337–9 Stewardship Code 45, 54–5, 111, 112–13, 126, 127 voting procedures 344 see also UK Corporate Governance Code United States board elections 365–6, 370, 371, 372–6, 413 board structure/composition 28, 192–3, 194, 197–9, 204 corporate law 3, 16–17 directors’ remuneration 38, 229, 258, 260, 308 disclosure requirements 126 index pension funds 319 removal of directors 372 shareholder activism 46–7, 53, 318, 321, 326–7, 331, 338, 349 Troubled Asset Relief Program 12 van der Elst, Christoph 125, 366 van Zijl, Niels 232 VEB (Vereniging van Effektenbezitters, Association of Securities Investors) 71, 96–7, 123 Versattel case 99 VIP (Vereinigung Institutionelle Privatanleger, Association of Institutional Shareholders) 87 voting 370–1 agents 129–30 broker 375–6 cross-border 5, 41 cumulative 371, 374 dissemination of results 329 national variations 370 plurality vs majority 370, 379 processes 344, 370 proportional 371 proxy 369–70, 374–5 regulation 365–6 437 remote 369–70 rules, relationship with shareholder activism 377–8, 400–1, 409–10, 413, 414–15 shareholder rights 41 ‘slate’ system (Italy) 379–82, 389 variables 395, 411–12, 416–17 see also elections; general meetings; management proposals; shareholder proposals ‘Wedge’ variable 156 Werder, Axel von 86–7, 118 William Hill Ltd 259–60 Williamson, Oliver 24 Winter, Jaap 4, 131 women, labour force participation 221 see also gender diversity workers, participation in governance 10 World Bank 159, 317, 340 Yafeh, Yishay 366 Zetsche, Dieter 321 Zhou, Y.M 145 Zimmermann, Jochen 125 ... of the IOSCO European Regional Committee, and Professor of Commercial Law, University of Ghent BOARDS AND SHAREHOLDERS IN EUROPEAN LISTED COMPANIES Facts, context and post- crisis reforms A research... markets and companies, domestically and internationally This Series informs and leads the scholarly and policy debate by publishing cutting-edge, timely and critical examinations of the most pressing... ownership and crisis (777 companies) page 160 Performance, family ownership and crisis (regressions) 167 Performance, family CEOs and crisis 171 Investments, downsizing and increase in size 175