What Do We Know About Shareholders\u27 Potential to Solve Environmental and Social Problems?

Securities regulators around the world are attempting to assist socially conscious shareholders in driving changes in the way corporate America operates. At a time when legislative solutions to some of our most pressing social and environmental problems seem far away, many market actors have come to hope that shareholders can succeed in regulating and reforming corporate practices. This paper summarizes the empirical evidence regarding the behavior of shareholders with explicit ESG mandates, the difficulties outsiders experience in evaluating ESG performance, and the outcomes generated by the limited tools available to shareholders under corporate law. It concludes there is little evidence that material improvements in environmental and social outcomes will be produced through shareholder power. The energy and resources of reformers would be better deployed somewhere other than corporate governanc

REVERSING THE DECLINE OF CANADIAN PUBLIC MARKETS

 It is the best of times for Canada’s public markets, it is the worst of times for Canada’s public markets. It is an age when markets have been rewarding public companies with the highest valuations seen in generations. It is an age of a rapid decline in Canadian companies opting to go public.  Given that Canada’s reliance on public markets is far higher than that of any other country — double that of the next-highest country — we should be alarmed that fewer and fewer companies are choosing to go public. Companies that stay private are, on average, less successful, less productive, less likely to grow into national champions, and more likely to be sold to foreign buyers. The current decline of public markets may go to the heart of what is arguably the biggest long-term policy issue in the country: our innovation gap and declining relative productivity growth.  There is no shortage of advantages for a company to go public. Public companies grow faster, grow larger, become both more productive and efficient, and have cheaper access to capital. An IPO permits early investors to exit while allowing managers to continue to build the company. What is evidently causing more and more Canadian executives to avoid going public, despite all these advantages, is a regulatory and governance ecosystem that has grown increasingly hostile to and distrustful of corporate leadership.  Executives who consider going public face an environment in which their compensation levels will be high; indeed, pay for senior executives at public companies has grown remarkably in recent years. However, because of increasingly onerous regulatory disclosure requirements, earning those rewards comes at the cost of having their pay disclosed to the public, debated by shareholders and scrutinized by the media.  Companies that go public also face a growing loss of control over their own governance due to pressure to adhere to an ever-evolving list of so-called universal best practices that can run dozens of pages long. These practices exact costs but don’t generally improve results. The result is a dominant one-size-fits-all governance model that does not in fact fit many, or even most companies.  The key factor creating this hostile environment is a massive intrusion by outside forces on the powers traditionally exercised by boards and executives. Corporate governance used to arise from the bargaining and experimentation of the private parties that coalesce around corporations. Now governance is frequently imposed ex post on public companies by third parties with their own agendas. Particularly problematic are third-party commercial proxy advisors, ostensibly representing the interests of institutional shareholders. Their short-term, faddish, complex, and value-harming governance practices diverge dangerously from the interests of long-term flesh-and-blood investors.  The innovations over the past three decades in governance rules were designed to reduce agency costs and improve corporate performance. Those that have proven failures at doing so, and there are several, should be scrapped. Rather than helping Canada’s markets become stronger, public markets have grown substantially weaker, and rather than making Canadian companies better, we now face an environment where companies would rather sell to a foreign buyer and leave the country, than go public here. The repercussions can only be adverse for Canada

Expressive Voting and Irrational Outcomes in Corporate Elections

Over the past three decades, shareholders have steadily been provided with greater voting power over corporate decisions. A great academic debate has arisen about the character and outcomes of the shareholder franchise. All parties to this debate start with the assumption that shareholders will vote rationally, and generally in their economic interests. There is a large empirical literature in political science, however, that finds that where the marginal value of a vote is low, information is processed and votes cast on the basis of strongly held prejudices, tribal loyalty, mood-affiliation, and a desire to flatter the voter’s self-image. In other words, the voter behaves irrationally from the standpoint of the real-world impact of their vote.This article reviews the empirical literature around shareholder voting to show that irrational voting characterizes the corporate franchise as well. Shareholders give their voting rights almost no value and their voting patterns do not reflect the economic performance of the company. Moreover, shareholders vote in ways that contradict their economic views (measured by looking at their trading decisions), and their voting is primarily driven by empirically questionable and deliberately ineffective corporate governance practices. Fortunately, the empirical political science literature provides some direction for reforming the corporate franchise.Depuis les trente dernières années, les actionnaires ont vu leurs droits de vote au sein des sociétés par actions se renforcer. Cet état de fait a mené à un grand débat académique quant à la nature et les conséquences de cet élargissement du suffrage des actionnaires. Tous les participants à ce débat partent du principe voulant que les actionnaires votent de manière rationnelle et généralement en fonction de leur intérêts économiques. Toutefois, un pan important de la recherche empirique conduite dans le domaine des sciences politiques constate que, lorsque la valeur marginale d’un vote est faible, les électeurs traitent les informations et votent sur la base de préjugés solidement ancrés, d’allégeances tribales, d’affiliations politiques et d’un désir de consolider une certaine image d’eux-mêmes. En d’autres termes, les électeurs se comportent de manière irrationnelle lorsque l’on considère l’impact concret de leur vote.Cet article examine le corpus d’études empiriques portant sur le suffrage des actionnaires afin de démontrer que le vote irrationnel est également une des caractéristiques du suffrage au sein des sociétés par actions. Les actionnaires ne donnent presque aucune valeur à leur droit de vote et leur manière de voter ne reflète pas les performances économiques de leur entreprise. De plus, ils votent d’une manière qui va à l’encontre de leur point de vue en matière d’économie (mesurés en observant leurs décisions d’opérations de courtage), et leur vote est motivé par des pratiques de gouvernance d’entreprise empiriquement discutables et délibérément inefficaces. Heureusement, le corpus de recherche empirique dans le domaine des sciences politiques fournit des pistes afin de réformer le suffrage des actionnaires

Bad Company! The Assumptions Behind Proxy Advisors\u27 Voting Recommendations

The corporate governance challenge for Canada is to improve the quality of its corporate performance, which has been declining relative to its international peers for decades. This is quite different from the usual assumption that corporate governance is primarily a matter of controlling managerial self-dealing. While important, board monitoring of management is only one aspect of its role in a corporation; research suggests corporate governance arrangements have a significant impact on corporate outcomes, particularly in areas such as innovation where Canada lags. Third-party proxy advisory firms, which provide advice to institutional investors in Canada on corporate governance matters, have grown in influence over the past decade. As securities regulators consider whether (and how) to treat them, an examination of the assumptions that underlie these advisors\u27 voting recommendations, and the influence these assumptions have on corporate decision-making, suggest these assumptions create perverse governance incentives and are contradicted by empirical research on what produces the best corporate outcomes

What Do We Know About Shareholders\u27 Potential to Solve Environmental and Social Problems?

Securities regulators around the world are attempting to assist socially conscious shareholders in driving changes in the way corporate America operates. At a time when legislative solutions to some of our most pressing social and environmental problems seem far away, many market actors have come to hope that shareholders can succeed in regulating and reforming corporate practices. This paper summarizes the empirical evidence regarding the behavior of shareholders with explicit ESG mandates, the difficulties outsiders experience in evaluating ESG performance, and the outcomes generated by the limited tools available to shareholders under corporate law. It concludes there is little evidence that material improvements in environmental and social outcomes will be produced through shareholder power. The energy and resources of reformers would be better deployed somewhere other than corporate governanc

Start-up and growth compainies in Canada : A Guide to legal and business practice

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