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

In our new paper, The Present and Future of Corporate Governance: Re-Examining the Role of the Board of Directors and Investor Relations in Listed Companies, forthcoming in the European Company and Financial Law Review, we contribute a new perspective on corporate governance by examining the ‘ignored’ third dimension of the corporate governance debate: the prospect of business growth and value creation. A three-dimensional approach provides a better understanding of the dynamics of the corporate governance practices that we currently observe in listed corporations. Our analysis is supported by empirical evidence, derived from 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 (including corporations from the United States, Europe and Asia) to show that corporate governance tools can give corporations a clear competitive advantage.  We also present case studies of Apple, Google Facebook, and LinkedIn to illustrate how shareholder value and long-term commitment are very much affected by a firm’s growth and innovation prospects.

It is vital for corporations to embrace transparency and information sharing with respect to their growth expectations. We show that implementing innovative investor relations’ strategies and establishing more frequent and timely interactions with investors should make it easier for firms to disclose vital information to investors. Attending investor conferences organized by investment banks is likely to stimulate more widespread interest in a firm. Investor conferences are generally paramount for corporations that recently floated their shares to generate trading volume, but also to disseminate information about a company’s growth prospects, which, if communicated well, are considered to be a competitive advantage for corporations. This explains why publicly traded corporations that are already world-leaders in their respective markets also attend investor conferences.

Furthermore, it is not just the presentations/interactions at investor conferences, but the interactive discussion about the introduction of new products, product innovations and/or entering new markets that prove to be significant for investors. We see two benefits for corporations. First, the most important aspect of investor conferences may be connecting both presenting and participating corporations (that are interested in improving their stock price performance by marketing their shares) with leading institutional investors across the globe. Second, a similar focus is on the opportunities offered to participants to not only get a better sense of their peers and competitors that often attend the same events, but also to attract attention from media, retail investors and customers.

While regulators recently have tended to focus on shareholder engagement, we conclude by arguing that investor relations may also be an equally fruitful strategy to stimulate long term commitment.

The full paper is available here.