The Present and Future of Corporate Governance: Re-Examining the Role of the Board of Directors and Investor Relations in Listed Companies

ECGI - Law Working Paper No. 211

Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-3

50 Pages Posted: 22 Apr 2013 Last revised: 28 Jun 2013

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Signify (formerly known as Philips Lighting) - Legal Department; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI); Kyushu University - Graduate School of Law

Masato Hisatake

Research Institute of Economy, Trade and Industry

Date Written: May 21, 2013

Abstract

In this paper, we first shed light on the factors that underlie the differences between the ‘shareholder wealth maximization’ and the ‘long-term commitment’ models of corporate governance. By introducing a third type of governance model, we show that a three-dimensional approach provides a better understanding of the dynamics of corporate governance practices. The examination of the three-dimensional model’s focus on growth and value creation provides a powerful catalyst for companies implementing a well-functioning governance structure. Our analysis is supported by case studies of, for instance, Facebook and LinkedIn that illustrate how shareholder value and long-term commitment are very much affected by a firm’s growth and innovation prospects. The second part of the paper provides important insights into practices and strategies that could promote growth and value-creation in listed companies. We show that it is a daunting task to define best practices. However, we use two hand-collected data sets that consist of (1) seventy venture capital backed companies that were involved in IPOs on US stock markets between 2011 and the first half of 2012, and (2) the top-forty of the world’s largest companies in the Financial Times Global 500 2012 List to show how board dynamics can give companies a clear competitive advantage. To gauge the importance of an innovative investor relations’ strategy as an important condition for firm performance, we examine the impact of establishing frequent and timely interactions with investors.

Keywords: board of directors, corporate governance, diversity, economic growth, entrepreneurship, Facebook, FT Global 500, initial public offerings, investor conferences, investor relations, long-termism, principal agency theory, short-termism, value creation, venture capital

JEL Classification: G34, K20, K22, L21, L25, L26, O16

Suggested Citation

McCahery, Joseph A. and Vermeulen, Erik P.M. and Hisatake, Masato, The Present and Future of Corporate Governance: Re-Examining the Role of the Board of Directors and Investor Relations in Listed Companies (May 21, 2013). ECGI - Law Working Paper No. 211; Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-3. Available at SSRN: https://ssrn.com/abstract=2254520 or http://dx.doi.org/10.2139/ssrn.2254520

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Erik P.M. Vermeulen (Contact Author)

Tilburg University - Department of Business Law ( email )

Signify (formerly known as Philips Lighting) - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

Masato Hisatake

Research Institute of Economy, Trade and Industry ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
United States

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