2022 Global Corporate Governance Colloquium (GCGC)

2022 Global Corporate Governance Colloquium (GCGC)

  • 03 - 04 June 2022
  • Oxford

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GLOBAL  CORPORATE GOVERNANCE COLLOQUIUM (GCGC)

 

University of Oxford | Saïd Business School | Eni Lecture Room

Friday, 3 June 2022 | Saturday, 4 June 2022

08:45 - 18:00 BST (9:45 - 19:00 CEST)

This is a hybrid event. In-person attendance is limited to speakers and invited guests.

 

PAPERS:

The Effects of Hedge Fund Activism

(Andrew C. Baker)

The Market for CEOs

(Peter Cziraki, Dirk Jenter) 

The gender pay gap: Pay for performance and sorting across employers

(Michelle Lowry)

Workplace Inequality in the U.S. and Managerial Rent Extraction: Evidence from Pay Growth Gaps
(Jie (Jack) He, Lei Li, Tao Shu)

Sustainability or Performance? Ratings and Fund Managers’ Incentives

(Nickolay Gantchev, Mariassunta Giannetti, Rachel Li)

The Origins and Consequences of the ESG Moniker

(Elizabeth Pollman)

Which Corporate Victims Get Justice? 

(Anat Admati, Greg Buchak) 

China's Corporate Social Credit System and the Dawn of Surveillance State Capitalism

(Lauren Yu-Hsin Lin, Curtis Milhaupt)

Strategic Leadership in Corporate Social Responsibility

(Rui Albuquerque, Luis Cabral)

Does Socially Responsible Investing Change Firm Behavior?
(Davidson Heath, Daniele Macciocchi, Roni Michaely, Matthew C. Ringgenberg)

Foundation Ownership and Sustainability International Evidence

(David Schroeder, Steen Thomsen)

Controlling Externalities: Ownership Structure and Cross-Firm Externalities 

(Dhammika Dharmapala, Vikramaditya Khanna)

 

ABOUT THE EVENT

The Global Corporate Governance Colloquia (GCGC) is a global initiative to bring together the best research in law, economics, and finance relating to corporate governance at a yearly conference held at 12 leading universities in the Americas, Asia and Europe. The 12 hosting institutions are:

Columbia University, Harvard University, Imperial College London, National University of Singapore, Peking University, Seoul National University, Stanford University, Swedish House of Finance, University of Oxford, University of Tokyo, Yale University, DFG LawFin Center, Goethe University Frankfurt, Leibniz Institute for Financial Research SAFE.

The aim of the conference series is to attract current research papers of the highest scholarly quality in the field of corporate governance. The conferences are primarily 'academic to academic' events with some participants from industry and the public sector including the practitioner partners of GCGC and other invited panelists. Japan Exchange Group (JPX) is a Practitioner Partner.

The eighth annual GCGC Conference was hosted by University of Oxford on 3 - 4 June 2022.

ORGANISATION

The conference took place over two days. In addition to the research presentations, there were two panel discussions involving participants from industry and the public sector. The conference dinner was held on the evening of 3 June 2022. The organisers contributed towards the cost of travel and provide up to three nights of hotel accommodation for the presenters.

www.gcgc.global

Questions may be directed to: admin@ecgi.org

This event is organised by the European Corporate Governance Institute (ECGI)

Print Programme

 

Information

Address:
Saïd Business School, University of Oxford, Park End St, Oxford OX1 1HP
Contact:
Elaine McPartlan
European Corporate Governance Institute (ECGI)

Friday, 3 June 2022 | 08:45 BST (09:45 CEST)

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The Effects of Hedge Fund Activism

Time:
09:00h

Author: Andrew Baker

In this paper I explore the relationship between the rise of hedge fund activism and firm outcomes, using a study design that explicitly takes into account how activists pick their targets. Contrary to much prior work, I find no evidence that activism is associated with increased firm operating performance or significant long-term returns once comparing to firms based on their similarity to the targets. However, activism does increase firm payouts to shareholders and decreases investment, consistent with the argument of many critics of activism. I also find that firm-level employment declines significantly following a targeting event, and that the subset of firms that experience an increase in operating performance also engage in higher levels of tax avoidance. The deregulation of proxy access rules, wholesale de-staggering of corporate boards, and the rise in importance of proxy advisory firms who frequently recommend voting for activist proposals have made firms more susceptible to aggressive activism over the past three decades. The results in this paper, coupled with the rhetorical shift in focus from short-term profits to sustainable growth by large institutional investors, suggest a re-framing of the public debate over the benefits of shareholder activism.

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The Market for CEOs

Time:
10:00h

Paper Authors: Peter Cziraki, Dirk Jenter

We study the market for CEOs of large publicly traded US firms, analyze new CEOs’ prior connections to the hiring firm, and explore how hiring choices are determined. Firms are hiring from a surprisingly small pool of candidates. More than 80% of new CEOs are insiders, defined as current or former employees or board members. Boards are already familiar with more than 90% of new CEOs, as they are either insiders or executives who directors have previously worked with. There are few reallocations of CEOs across firms – firms raid CEOs of other firms in only 3% of cases. Pay differences appear too small to explain these hiring choices. The evidence suggests that firm-specific human capital, asymmetric information, and other frictions have firstorder effects on the assignment of CEOs to firms.

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11:00

Coffee Break

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The gender pay gap: Pay for performance and sorting across employers

Time:
11:30h

Author: Michelle Lowry

We document a gender pay gap among business professors at Florida public universities. Part of this gap is driven by the fact that females are disproportionately likely to work at schools with low pay, controlling for faculty productivity. However, this sorting effect does not completely explain our findings: Using strict fixed effects to control for discipline, employer, rank, productivity, and experience, we find that women are paid approximately 3.5% less than men. Women’s pay is less sensitive to their publication performance, and the pay gap is economically largest among full professors.

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12:30

Workplace Inequality in the U.S. and Managerial Rent Extraction: Evidence from Pay Growth Gaps

Speakers:
Discussant:
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Workplace Inequality in the U.S. and Managerial Rent Extraction: Evidence from Pay Growth Gaps

Time:
12:30h

Paper Authors: Jie (Jack) He, Lei Li, Tao Shu

Using granular, individual-level compensation data, we study the escalating US workplace inequality by examining the within-firm difference in pay growth between executives and nonexecutive employees (i.e., “pay growth gap”). We document a large pay growth gap that increases in not only a firm’s idiosyncratic stock return, but also its systematic stock return. Importantly, there is a strong asymmetry in pay growth gaps: Executives, relative to employees, are rewarded for good idiosyncratic stock performance but not penalized as much for bad performance. This asymmetry becomes more pronounced when corporate governance is weaker, and further analyses support managerial rent extraction as a likely explanation rather than others. Unlike existing literature that mostly rationalizes the dramatic workplace pay inequality in an optimal contracting framework, our findings indicate that managerial rent extraction also plays an important role in the tremendous surge in such inequality.

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13:30

Lunch Break

Session 3

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Beneficial Owner Voting Choices

Time:
14:30h

Moderator

Fellow Research Member Institutional Member Board Member

Panelists

15:30

Coffee Break

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Sustainability or Performance? Ratings and Fund Managers’ Incentives

Time:
16:00h

Paper authors: Nickolay Gantchev, Mariassunta Giannetti, Rachel Li

We explore how mutual funds react when the tradeoff between sustainability and performance becomes salient. Following the introduction of Morningstar’s sustainability ratings (the “globe” ratings), mutual funds increased their holdings of sustainable stocks in order to improve their globe ratings. This trading behavior created buying pressure, decreasing the returns of stocks with high sustainability ratings. Consequently, a tradeoff between sustainability and performance emerged. Since performance appears to be more important in attracting flows than sustainability, in the new equilibrium, funds do not trade to improve their globe ratings and the globe ratings do not affect investor flows.

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The Origins and Consequences of the ESG Moniker

Time:
17:00h

Paper author: Elizabeth Pollman

ESG is one of the most notable trends in corporate governance, management, and investment of the past two decades. Yet few observers know where the term comes from, who coined it, and what it was originally aimed to mean and achieve. As trillions of dollars have flowed into ESG-labeled investment products, and companies and regulators have grappled with ESG policies, a variety of usages of the term have developed that range from seemingly neutral concepts of integrating “environmental, social, and governance” issues into investment analysis to value-laden notions of corporate social responsibility or preferences for what some have characterized as “woke capitalism.”

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18:00

Closing Comments

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Closing Comments

Time:
18:00h
19:00

Reception and Dinner

Saturday, 4 June 2022 | 08:45 BST (09:45 CEST)

Session 5 | Chaired by

Speakers:
Erik Lidman
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Which Corporate Victims Get Justice?

Time:
09:00h

Paper Authors: Amnat Admati, Greg Buchak

Corporate law and governance scholarship focuses almost exclusively on agency conflicts between shareholders and managers. Conflicts between managers and other stakeholders—employees, customers, the government, and the public at large—are largely assumed to be addressed by other areas of the law, whereas shareholders are seen as requiring special protections. This paper challenges these assumptions. Using a novel dataset on harms caused by corporations, we show that even among the most newsworthy harms, the US legal system offers redress at significantly higher rate when shareholders are victims as compared to other stakeholder victims. Outcomes are more severe when shareholders are victims, with individual managers being targeted by legal action and sent to prison at a higher rate in those cases relative to when other stakeholders are harmed. Cases where the government itself is the victim also trigger more criminal prosecutions. Our results call into question key assumptions underlying the notion that maximizing shareholder value maximizes social welfare and shed light also on calls for corporations to voluntarily take into account the preferences of non-shareholder stakeholders.

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China's Corporate Social Credit System and the Dawn of Surveillance State Capitalism

Time:
10:00h

Paper Authors: Lauren Yu-Hsin Lin, Curtis Milhaupt

Chinese state capitalism is transitioning toward a panoptic, technology-assisted variant we call “surveillance state capitalism.” The mechanism driving this variant is China’s corporate social credit system (CSCS) – a data-driven project to evaluate the “trustworthiness” of all business entities in the country. We provide the first empirical analysis of CSCS scores in Zhejiang Province, to date the only local government to publish them. We find that while the CSCS is ostensibly a means of measuring legal compliance, politically connected firms receive higher scores. This result is driven by a “social responsibility” category in the scoring system that valorizes awards from the government and contributions to Chinese Communist Party sanctioned causes. Our analysis underscores the potential of the CSCS to nudge corporate fealty to party-state policy and provides an early window into the far-reaching implications of the CSCS for the country as a whole.

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11:00

Coffee Break

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Strategic Leadership in Corporate Social Responsibility

Time:
11:30h

Paper Authors: Rui Albuquerque, Luis Cabral

We propose a strategic theory of Corporate Social Responsibility (CSR). Shareholder maximizers commit to a mission statement that extends beyond firm value maximization. This commitment leads firms (either product market competitors or complementors along the value chain) to change their actions in ways that ultimately favor shareholders. We thus provide a formal analysis of the “doing well by doing good” adage. We also provide conditions such that the mission statement game has the nature of a pure coordination game. Our framework thus provides a natural theory of firm leadership in a CSR context: by selecting a CSR mission statement, a first mover effectively leads the industry to a Pareto optimal equilibrium.

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Does Socially Responsible Investing Change Firm Behavior?

Time:
12:30h

Paper authors: Davidson Heath, Daniele Macciocchi, Roni Michaely, Matthew C. Ringgenberg

Using novel micro-level data, we examine the impact of socially responsible investment (SRI) funds on corporate behavior. SRI funds select firms that pollute less, have greater board diversity, higher employee satisfaction, and higher workplace safety. Yet, both in the broad cross-section and using an exogenous shock to SRI capital, we find no evidence that SRI funds improve firm behavior. The results suggest SRI funds operate through a selection effect, not a treatment effect: SRI funds invest in a portfolio consistent with the fund’s objective, but they do not significantly improve corporate conduct.

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13:30

Lunch Break

Session 7

15:30

Coffee Break

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Foundation Ownership and Sustainability International Evidence

Time:
16:00h

Paper Authors: David Schroeder, Steen Thomsen

The increasing focus on corporate social responsibility and sustainability has inspired a search for institutional arrangements that promote responsible business behavior. In this study, we focus on foundation ownership, which is observed in large companies like Bosch and Bertelsmann (Germany), Maersk and Novo Nordisk (Denmark), Hershey (US), the Wallenberg companies (Sweden) and the Tata Group (India). Foundation ownership seems to be an institution suited to foster responsible business behavior because of muted profit incentives and long-term commitment to philanthropy and promotion of the company. Based on environmental, social, and governance (ESG) data from Asset4, Bloomberg and S&P Global and a unique dataset of publicly listed firms from 28 countries over the period 2003-2020, we investigate empirically, whether foundation-owned firms (FOFs) are more socially responsible and environmentally sustainable than firms with more conventional ownership structures. We find that FOFs exhibit higher ESG performance than matched family firms, and they do no worse than matched investor-owned firms. For identification we , use the 2008 financial crisis as a cut-off point in a difference-in-difference test. We show that foundation-owned companies’ sustainability engagements is better able to withstand this negative shock.

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Controlling Externalities: Ownership Structure and Cross-Firm Externalities

Time:
17:00h

Paper Authors: Dhammika Dharmapala, Vikramaditya Khanna

In recent years, debates over the social purpose of corporations have taken center stage amidst rising concern about externalities (such as those associated with climate change and harmful speech) generated by firms. A key motivation is the claim that government regulation and liability regimes appear not to be functioning sufficiently well to force firms to internalize these externalities. There is thus rising interest in exploring alternative mechanisms. In particular, a rapidly growing body of scholarship argues that index funds increasingly approximate diversified “universal owners” with incentives to maximize portfolio value (and thus to internalize cross-firm externalities). However, much of this analysis has focused on diffusely held US firms, while most firms in the world (including many important firms in the US), and many firms thought to be large contributors to these externalities, are controlled firms. Could index funds influence such firms to internalize externalities; if not, what other options might we consider? This paper examines these related questions within a more general conceptual framework for understanding how firms’ ownership structure and corporate law affect the internalization of cross-firm externalities. First, we provide novel empirical evidence suggesting that index funds are not well positioned to force controlled firms to internalize their cross-firm externalities (in particular, that index funds’ environmental engagements are concentrated among firms in countries with dispersed ownership structures). Second, we document that controlling shareholders are common among the largest firms in the energy, automobile, and technology sectors. Third, we explore the incentives of controllers by introducing the concept of “controller wealth concentration” (CWC): the fraction of a controller’s aggregate personal wealth that consists of stock in the firm that she controls. The lower the CWC the more scope there is for the controller to hold investments in other firms affected by the externalities created by the controlled firm. A low CWC is a necessary (though not sufficient) condition for controllers to have a pecuniary incentive to take cross-firm externalities into account (indeed, controllers with low CWC may be more effective than index funds in getting controlled firms to internalize their externalities because of their status as controllers). Fourth, we construct measures of CWC for the controlling shareholders of a global sample of large technology-focused firms. For this sample, CWC is very high relative to that of a diversified portfolio, typically varying from about 50% to close to 100%, despite the existence of controlling minority ownership structures (CMS) – such as dual class stock – that permit controlling shareholders to exert control while holding modest cash flow rights. Thus, we conclude that undiversified controlling shareholders constitute a significant obstacle to the internalization of cross-firm externalities, limiting the ability of universal owners to encourage their investee firms to internalize such externalities. Are there then steps that can be taken to encourage controllers to diversify more? Our framework suggests that, in principle, dual class structures (and other CMS) have the hitherto ignored advantage of allowing controllers to diversify their personal wealth (thereby potentially mitigating cross-firm externalities). Yet, we find that controllers do not typically diversify and lower their CWC even when they maintain control through dual class structures or other CMS. We discuss possible reasons - including founders’ over-optimism about their firms, the need to incentivize founders’ ongoing effort, and founders’ incentives to defer capital gains taxes – to explain why controllers fail to diversify. We then discuss other measures that might encourage controllers to diversify, but conclude that they are unlikely to have very large effects. Globally, a large fraction of corporations have controlled ownership structures. For these firms, the lack of controller diversification makes it difficult to identify mechanisms to internalize corporate externalities, besides increasing regulation and enhancing liability (although these solutions present their own challenges).

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Reception

Speakers

Fellow Research Member Institutional Member Board Member

Presentations

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Welcome and Introductions

Time:
08:45h

Speakers

Fellow Research Member Institutional Member Board Member
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Session 1 | Chaired by

Time:
01:07h

Speakers