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Showing posts from 2014
The private equity deals that fail to justify 'fast buck' strategiesBy Marc Goergen, Cardiff University; Geoffrey Wood, University of Warwick, and Noel O'Sullivan, Loughborough UniversityThere is an ongoing and very heated debate between the unconditional supporters of private equity and their opponents. It’s not hard to see why. On the surface, these investors can often buy fragile companies, load on debt to fund strategic change and sack workers in a bid for efficiency. It can look ruthless, but the industry claims it simply works.The British Private Equity & Venture Capital Association (BVCA), preach what they deem to be the undeniable benefits of private equity. For example, the trade lobby group wrote in 2010 that:Private equity investment has been demonstrated to contribute significantly to companies’ growth. Private equity backed companies outperform leading UK businesses.In contrast, Ed Miliband in his speech at the 2011 annual Labour Party conference accused p…

Ooh Danone – More than just yogurt

My previous blog was on the US corporation Google Inc. This time I'll be covering the French public limited company (Société Anonyme or S.A. in French) Danone S.A., a global food company. This is a pretty complex case study and I do not intend to do it full justice here. What follows is a summary of what I believe are key characteristics of Danone S.A.'s control and ownership structure. As it was the case for my previous blog, this case is built on the concepts discussed in Chapters 1-3 of "International Corporate Governance".
Danone S.A.'s most recent company report (or 'registration document') is available from here. You might need to click on '2013' to obtain the most recent available company report at the time of writing this blog. 
This might be obvious, but it is always a good idea to start by having a look at the table of contents. This should give you a fairly good idea where to find important information on control and ownership. Below I…

How Larry Page and Sergey Brin manage to control 56% of the votes in Google Inc. with a 14% ownership stake.

The aim of this brief exercise is to enable you to identify potential differences between control rights and ownership rights in listed corporations from all over the world. This exercise is based on the concepts discussed in Chapters 1-3 of "International Corporate Governance". Further, briefer examples are contained in Chapter 3 of the book.
Before we can proceed just a reminder what we mean by control and ownership. Ownership is defined as ownership of cash flow rights. Cash flow rights give their holder a pro rata claim to the firm's earnings and a pro rata claim to the firm's assets if the firm is to be liquidated. Control is defined as ownership of voting rights. Voting rights give their holder the right to vote for or against a number of agenda points at the annual general shareholders' meeting (AGM), including the appointment and the dismissal of the members of the board of directors.
Unfortunately, a lot of the corporate governance literature, including…
Wall Street tries to weed out the wolves while London stays sheepishBy Marc Goergen, Cardiff UniversityWhen Mathew Martoma, the former portfolio manager of SAC Capital, was sentenced to nine years in prison for insider trading last week, much of the comment was about how harsh the punishment looked. It must have seemed particularly so to traders in the dealing rooms of light-touch London.In truth, Martoma should take some of the blame. Federal court judge Paul Gardephe justified the length of the sentence by the exceptionally high gains that he had made from this deal, his lack of repentance and his refusal to co-operate with the authorities.Martoma had been dealing on non-public information he had received from a doctor about clinical trials of a new Alzheimer’s drug. He received the private information on a Sunday in July 2008. The next day, SAC Capital sold its $700m stake in US-based Wyeth Pharmaceuticals and Irish Élan Corporation, the two joint developers of the drug, before the…

International Corporate Governance - Chinese Version

The highly acclaimed textbook International Corporate Governance has now been published in a Chinese translation by China Machine Press. The book is available from Amazon China. The original English version was published by Pearson Education and is available in print as well as via Kindle and CourseSmart.

Endorsements on the back cover:

'An excellent textbook which truly stands out. It is better than any book on corporate governance that I have seen', Luc Renneboog, Tilburg University
'Marc Goergen's book on corporate governance is by far the best textbook that has been published on the topic. He has done a wonderful job of covering the topics from a global perspective and I strongly recommend it to all scholars and students with an interest in corporate governance', Franklin Allen, Wharton School, University of Pennsylvania
'An excellent and very comprehensive book. It should become a standard reference on corporate governance', Colin Mayer, Saïd Business Scho…


Please click on the following diagrams to see them in their full size.

The full study was published in the Journal of Corporate Finance and can be found here. A pre-publication version of the same study is available from the SSRN website. See also my blog on the Cadbury Code which refers to above study. Chapter 14 of International Corporate Governance reviews corporate governance issues pertaining to initial public offerings.

Legal disclaimer: This blog reflects my personal opinion and not necessarily that of my employer. Any links to external websites are provided for information only and I am neither responsible nor do I endorse any of the information provided by these websites.


There is a well established literature in economics (see e.g. the study by Stephen Knack and Philip Keefer) which shows that country level trust increases economic performance, as measured by GDP growth. These studies measure country trust by the percentage of respondents from the World Values Survey who agree that "most people can be trusted"; the alternative being that one "need[s] to be very careful when dealing with people". 
When it comes to what drives country trust, the literature is somewhat less consistent. Broadly speaking however, country trust is negatively affected by income inequality, ethno-linguistic diversity and the importance of hierarchical religions. Contradicting the "trickle-down" wealth effect, this literature finds that income inequality is bad for economic wealth, via the decrease in country trust which in turn hurts economic growth. Ethno-linguistic diversity is normally measured by the probability that two randomly selected pe…


Sometimes following so called best practice in corporate governance is just not good enough. Or what is currently best practice at the national level could not even be deemed to be good. This might be the case for firms based in emerging markets where corporate governance regulation is weak and the regulation that exists is not necessarily enforced. However, even some firms from developed economies, with relatively stringent regulation and good law enforcement, may feel that their national corporate governance standards are not good enough. 
In 2007, while holding a chair in finance at Sheffield University, I organised a conference on contractual corporate governance with the help of Prof. Luc Renneboog from Tilburg University. We defined contractual corporate governance as The ways and means by which individual companies can deviate from their national corporate governance standards by increasing (or reducing) the level of protection they offer to their shareholders and other stakeh…

Rethinking the Way Corporate Governance is Taught in Business Schools

In February, I wrote a blog about the UK approach to corporate governance, which started with the Cadbury code. I argued that we need to review the UK approach as it is not enough evidence based. A few years ago, I organised a conference on corporate governance at Cardiff Business School. One of the participants, one of the authors of an important review of UK corporate governance which was commissioned by the UK government, expressed utter surprise at the fact that there was indeed research being conducted on corporate governance. It seems weird that policy makers and executives have so little awareness and knowledge of corporate governance research, which by its very nature is highly practice oriented and often also has important policy implications.

Why would this be the case? Imagine that your general practitioner (GP) refuses to keep up with recent developments in medical research. What would be your reaction? You would very likely lose confidence in your GP and try to find a do…


Improving diversity on corporate boards is definitely on the agenda, and increasingly so. Typically, diversity is limited to gender diversity. Unfortunately, we still seem to be light years away from a broader approach to diversity, including diversity in terms of age, race, culture, religion and other personal attributes.
So is increased board diversity good or bad? There are many commentators on social media who unequivocally advocate greater diversity and equate increases in diversity to shareholder value creation. Here is just one recent example from Twitter: Yes, #diverseboards create value MT“@TheWomanEffect: Gender #diverseboards – a financially significant issue?
— Tommaso Arenare (@tommaso_arenare) March 9, 2012 The author of this Tweet is obviously convinced that greater diversity is always good and that there is no doubt whatsoever about this. So what does the academic literature tell us? First of all, and this comes as no surprise, women are…


It is now more than 20 years since the Cadbury Committee's Code of Best Practice, commonly known as theCadbury Code, has been published. While at first its focus was on financial fraud as a reaction to corporate scandals such as Coloroll and Poly Peck, its remit was extended after the Robert Maxwell and BCCI scandals. A common feature of most of these scandals was a domineering chief executive officer (CEO) combined with a weak board of directors.

This kind of problem is commonly referred to in the academic literature as the principal-agent problem. This problem arises in widely held firms that are owned by many small shareholders who tend to be passive and who tend not to get involved in the running of the firms they have invested in. This problem is effectively caused by conflicts of interests between the managers (the agents) and the shareholders (the principals). While the managers are expected to run the firm in the interest of the shareholders, they may prefer to pursue th…