Purpose
This study aims to document the variation in director attendance rates around the world and investigate the influence of cross-country differences in law and infrastructure on director ...attendance practices.
Design/methodology/approach
Director attendance data are hand-collected from company annual reports and are related to differences in shareholder rights, director liability and transportation and telecommunications infrastructure across countries.
Findings
Using a hand-collected data set of 4,344 directorships from 33 countries, the results indicate that director attendance is significantly lower in emerging markets and is positively related to the extent of shareholder rights and the quality of telecommunications infrastructure.
Originality/value
For policymakers and shareholders, the findings of this study indicate that there is substantial variation in director attendance practices around the world. Across all markets, director attendance is higher when the telecommunications infrastructure better enables the potential for virtual attendance, thereby allowing directors to participate in meetings when they cannot be physically present. In emerging markets, director attendance is also higher where there is a stronger emphasis on shareholder rights, highlighting an avenue for improved director attendance by strengthening shareholder involvement in major corporate decisions.
Various commentators have praised the WorldCom and Enron settlements for holding outside directors personally liable, arguing that heightened director liability will induce greater board oversight. ...This paper shows that the connection between director liability and board behavior is more subtle, because directors have multiple means to respond to an increase in liability exposure: They can increase oversight to prevent accounting manipulation and/or reduce performance-based CEO pay to mitigate the CEO's ex ante incentive to engage in manipulation. These two decisions are interrelated, implying that the effects of director liability on board oversight and CEO incentive pay are ambiguous. In particular, the model predicts that, for firms in which board oversight is difficult and costly (e.g., large firms with complex business operations), a stricter legal environment for directors leads to a lower level of board oversight, lower CEO incentive pay, and lower shareholder value.
Reforms to Korean corporate and securities law carried out in the wake of the 1997-1998 East Asian financial crisis included a mandate that boards include a minimum number of outside directors and ...facilitation of shareholder lawsuits against board members for damages. The strategy of imposing liability risk on directors (both inside and outside) appeared to follow U.S. practice. In the U.S., outside directors of public companies are often sued but rarely face personal, or “out-of-pocket,” liability unless they engage in self-dealing. Instead, damages and legal fees are paid by the company, directors’ and officers’ (D&O) insurance, or both. Outside directors of public companies in Australia, Canada, Britain, France, Germany, and Japan similarly rarely face out-of-pocket liability due to shareholder lawsuits. Moreover, when events have occurred in these countries that increase the risk of out-of-pocket liability, there is a strong tendency for political or market forces to reestablish a non-zero but minimal level of risk for actions that do not involve self-dealing. Korea’s experience seems to be similar. We argue that Korea could go somewhat further to encourage litigation against outside directors of public companies, but should not open the way for “out of pocket” liability to become commonplace.
Too big to fail banks pose a threat of another meltdown that may cost the taxpayer hundreds of billions of dollars despite Dodd Frank’s orderly liquidation provisions. The FDIC has brought more than ...1000 cases against directors and officer of smaller banks but none against too big to fail institutions (TFTI). This can be attributed to the fact that state law in many states has a lower standard for negligence than Delaware where TFTI instutions are located. FIRREA trumps state law and establishes a gross negligence standard that trumps Delaware law, where gross negligence alone is insufficient as a cause of action. This raises the question of why no actions have been brought. Popular theories which placed the likelihood of financial meltdown as many deviations from the norm have meant that financial meltdown could not be predicted; however, banking practices in the mortgage backed securities market including liar loans indicated that a meltdown was predicted, and Boards of Directors and CEO’s were grossly negligent in not being informed of the quality of such mortgage backed securities either as a result of their own ineptitude or the failure of gatekeepers including lawyers and accountants who failed to bring shortcoming in this market to their attention.
This article conducts an analysis of director’s liability in listed firms using modern finance theory. The paper describes how the use of special general clauses in Danish law regulates director’s ...liability. It is shown how risk and return combinations may assist in determining whether management has violated the business judgment rule. The analysis shows that this legal doctrine is optimal from an economic perspective. The article introduces the concept of “temporal relatively of the shareholder equality principle” which can be used to determine whether the interests of minority shareholders have been set aside. It is shown that the principle of shareholder equality must be subjected to both an ex ante, as well as an ex post assessment. Moreover, courts should be reluctant to interfere in situations where there has been an unequal distribution of gain (or loss) ex post. The theoretical arguments are illustrated by analyzing a leading Danish court case that involved the squeeze out of minority shareholders in the Danish telecom company. The paper also analyzes the incentive effects of derivate suits and suits commenced by individual shareholders. It is shown that the former creates a free rider problem whereas in the latter situation, shareholders are not fully able to internalize their externalities.
Doing Business 2011 International Finance Corporation, World Bank
2010
eBook, Book
Odprti dostop
Doing Business 2011: making a difference for entrepreneurs is the eighth in a series of annual reports investigating regulations that enhance business activity and those that constrain it. Doing ...Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies, from Afghanistan to Zimbabwe, over time. A set of regulations affecting 11 areas of the life of a business's are covered: starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2011 are current as of June 1, 2010. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The paper includes the following headings: overview, starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business.
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