Bridging the Gap between Ownership and Control
Journal of Corporation Law, Vol. 34, pp. 409-446, 2009
38 Pages Posted: 1 Jul 2015
Date Written: 2009
This Article discusses the benefits of full-circle evaluations and how institutional investors could implement a formal full-circle evaluation system for companies and their management to improve corporate accountability. These evaluations would gather feedback from multiple sources, analyze the information collected, and present it to the company and individual managers. Institutional investors could compare each company's activities, performance, and compensation with other similarly situated companies and provide an independent assessment of corporate conduct. This outside assessment, by an influential investor or group of investors, would act as a powerful check on corporate management.
The Article goes on to suggest that corporations should take advantage of extensive benefits of full-circle systems and implement their own internal evaluations. These could then be used in conjunction with the evaluations by institutional investors to improve the overall results of management evaluations. Although the corporate benefits should be enough for management to act on its own, these systems could be forced on the corporate world by new requirements of self-regulatory organizations (SROs), or they may some day become mandatory of companies as a necessary requirement to satisfy the duties of care or loyalty.
Finally, the Article addresses the impact full-circle evaluations could have, possibly even preventing the recent corporate scandals. The evaluations add another tool to prevent corporate malfeasance. Whether implemented by institutional investors, companies themselves, or both, they improve corporate communication and produce benefits that lead to better performance. Although it is uncertain whether these systems could have prevented previous corporate scandals, this Article argues that these systems would have increased the chances of identifying the fraud at an earlier time. In sum, this Article discusses the benefits of full-circle evaluations and argues that implementation of these systems by institutional investors, companies themselves, or both, will provide an effective corporate governance tool.
Keywords: Corporate Accountability, Evaluations, Institutional Investors, Corporate Scandals
Suggested Citation: Suggested Citation