Corporate Governance What does it deal with and

Corporate Governance What does it deal with and why has it been put on the agenda recently?

Corporate scandals: Responses to corporate scandals and questionable bonus systems and option programmes: • The US: the Sarbanes-Oxley Act (July 2002) • Europe: the EU Commission launches Framework for a Modernised Company Law and Corporate Governance in Europe

Other reasons for intense interest in Corporate Governance: • Changes in the structure of ownership – ”equity culture” and growing importance of institutional investors • Equity Funds: buy majority stakes in companies and close involvement of investors with the companies they finance (high leverage and provision of valuable support and governance) • The globalisation of Corporate Governance: • • Convergence towards the Anglo-Saxon system? Emerging market economies (former planned economies and developing countries)

What does CG deal with in theory: • The corporate control problem • The standard view of CG deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investments • Alternatives to the ”Shareholder value model” • Cadbury report: Corporate governance is the system by which companies are directed and controlled • The managerial competition model • Discipline within the classic theory of finance: A debt contract is an alternative to shareholder capital as a tool for reducing the agency costs.

Europe: • Polarization between the Anglo-Saxon UK system (similar to the US system) and the Continental French and German systems. • The continental system has some characteristic features of the “stakeholder model”: interests of non-investing parties considered • France: managements and directors aim at “social interests” • Germany: a “governing coalition” (blockholder, employee representatives and banks) in large firms, which depend on banks as lenders

Pressure on the EU Commission to copy the American system? • A Framework for a New Company Law in Europe • EU subsidarity principle applied: guidelines for the national governments • EU Lisbon Strategy for the promotion of sustainable growth: “well managed companies, with strong corporate governance records … outperform their competitors. Europe needs more of them to generate employment and higher long term sustainable growth” • Disciplinary role to the suppliers of finance but also the need to achieve efficient protection of “third parties”

Course Outline: Course web-side: http: //www. econ. ku. dk/okojang/Corp. Gov. htm Section 1: The standard view in corporate governance 36. 1 -36. 2 The Shareholder Value model of Corporate Governance. Lazonick, O’Sullivan, Tirole sections 1 – 2. 1. . 38. The legal approach to corporate governance. La Porta et. al + Student groups I. . Section 2: Corporate Governance in and outside the EU Section 3: A general framework for analyzing corporate control Section 4: Alternative views of corporate governance