Jobs in which workers are physically distant from their employers are increasingly prevalent, due to both a surge in the gig economy and the widespread increase in remote work, which was on the rise even before the pandemic. This development has created unique employee-governance challenges.
Our forthcoming article, “Mitigating Gig and Remote Worker Misconduct: Evidence from a Real Effort Experiment” posits that employee misconduct will likely be prevalent in gig and remote work settings because the physical separation between employers and workers exacerbates the “principal-agent” problem in two important ways. First, gig and remote workers are likely to feel less … Read more
Nearly a year ago, we analyzed the outperformance of ESG strategies during the initial stage of the COVID-19 Pandemic. As of May 2020, we found that ESG indexes based on ISS ESG data had outperformed by 1.3% to 2.8%, with lower volatility than their benchmark over the first five months of 2020. In this article we revisit those findings to examine whether the ESG outperformance has held up as global stock markets have strongly recovered.
We focus here on the Solactive ISS ESG Screened Series, an index family which integrates ISS ESG’s most frequently requested ESG filters including:
… Read more
Activist investors once limited their targets to mostly smaller, less known firms. Now, though, they increasingly target large, household names like Procter & Gamble, DuPont, and Berkshire Hathaway, aiming to influence company actions, replace management, or even purchase the company.
This increase in activism has been facilitated by changes that increase activist shareholders’ ability to exert influence and shape the views of other shareholders. The resulting struggle between managers and activists to influence shareholder opinion about the firm has led to calls for more engagement between managers and investors. For example, in a letter to CEOs, BlackRock CEO … Read more
Global efforts to limit the spread of Covid-19 have prompted the widespread adoption of restrictions on people’s ability to go out and about and, as result, have thrust public mental health issues into the spotlight. Mandatory work-from-home arrangements, for example, have created emotional distress for many homebound employees working alone. The U.S. Census Bureau’s December 2020 Household Pulse Survey found that 42 percent of respondents reported symptoms of anxiety or depression, an 11 percent increase over the previous year’s results. The American Psychological Association found that nearly eight in 10 adults claimed that the pandemic is a significant source of … Read more
Just over 10 years ago, benefit corporations emerged as legal entities intended to permit for-profit social enterprises to pursue public-interest missions. While increasingly popular among states and businesses, these new entities have received unending criticism from commentators on all sides. To some, benefit corporations are unnecessary, because traditional corporations already can and do pursue social missions. To others, they are insufficient, because benefit corporation directors must merely consider those missions but need not prioritize them.
In the latter camp, many legal scholars have proposed legislation to improve benefit corporations or to create new types of entities to better accommodate social … Read more
In recent years, institutional investors have publicly voiced their support for firms’ corporate social responsibility (CSR) activities. Most notably, Larry Fink, the CEO of BlackRock— the largest institutional investor in the world, with over $7 trillion in assets under management—sent a letter to the CEOs of investee firms and encouraged them to act in a more socially responsible manner and report such activities. Acts like these raise questions about the role of institutional investors in shaping the socially responsible behavior of corporations in which they hold equity positions. Of course, not all institutions have the same (financial or social) … Read more
The GameStop and meme-stock trading frenzy are evidence of a potential revolution in corporate governance and signal the rise of Generation Y (“Millennials”) and Generation Z (“GenZ”) as retail investors. In a new article, we discuss how these investors, who we call wireless investors, could set in motion a social movement able to change the way shares are held and voted and, ultimately, redefine the purpose of public corporations. The social movement will start with wireless investors exercising their right to vote their shares and, by doing so, promoting their environmental, social, and governance (“ESG”) values. This will cause … Read more
Global greenhouse gas (GHG) emissions decreased by 6.4% in 2020, largely due to the COVID-19 pandemic. While encouraging at first glance, many climate change experts have pointed out that this result will have hardly any long-term effect on curbing climate change.
The link between economic activity and emissions is hard to ignore. As was noted recently in Nature, China is a good example of this. Its emissions reduced significantly early in the year but then bounced back quickly when the COVID pandemic was brought under control. The same can be expected for global emissions in 2021. The International Energy … Read more
Individually or collectively, corporate leaders are promising stakeholders to improve corporate practices on a range of issues. In a new article, I argue that they can demonstrate their commitment to stakeholders by designing contracts differently.
We are already attentive to the ways that stakeholders are harmed by the contracts they enter into directly with corporations. This awareness has raised concerns over contracting practices and bargaining power, information asymmetries, and informed consent. In my article, I focus on contracts to which stakeholders are not parties, and how those contracts can nonetheless harm stakeholders as third parties. For example, contracts … Read more
The Big 3 mutual-fund managers (BlackRock, State Street, and Vanguard) have amassed incredibly large public-company holdings through the array of mutual funds they oversee. As a result, they now play a pivotal role in corporate governance in many of the world’s largest and most important companies.
A key concern is whether the Big 3 use their powerful voice in corporate affairs to good effect. Professors Lucien Bebchuk and Scott Hirst argue that they neglect their oversight obligations because of agency costs; Professors Jill Fisch, Asaf Hammadi, and Steven Davidoff Solomon (“FHDS”) counter that the Big 3 have sufficient competitive … Read more
Together with other European Corporate Governance Institute (ECGI) research members, we have recently issued a Call for Reflection on Sustainable Corporate Governance to express our concerns over the risk that new legislation on EU companies’ governance is adopted without properly considering the concerns raised by many academics and interested parties during the consultations that have taken place so far. These concerns, as detailed below, focus on the three misconceptions in the approach of the European Commission and the Study on directors’ duties and sustainable corporate governance it has commissioned: (1) the conflation of two separate issues, namely corporations’ horizons and … Read more
The contractarian theory of the corporation holds that a business corporation is a creature of contract and, more specifically, a nexus of incomplete contracts between directors, shareholders, employees, suppliers, customers, and other parties (see here). This draws attention to the express or implied consent of all the participants and suggests that the role of corporate law and the courts is to enable and support private ordering: Corporate law supplies the transaction-cost reducing standard-form terms the parties would have agreed to had they addressed them explicitly, and courts settle disagreements by filling the contractual gaps using the same hypothetical bargain … Read more
In December 2020, Nasdaq asked the Securities and Exchange Commission (SEC) to approve a new boardroom diversity rule. The aim is for most Nasdaq-listed companies to have at least one director self-identifying as a woman and another self-identifying as an underrepresented minority or LGBTQ+. The rule is not a requirement that listed firms have such (minimally) diverse boards, but instead is a requirement that firms either comply with this expectation or explain in their securities disclosure filings why they have not complied. Foreign companies and smaller companies will be given flexibility in satisfying this requirement with two women directors.… Read more
Corporate boards that monitor their companies intensely engage in more effective oversight: Turnover of their CEOs is more closely linked to annual firm performance; CEO compensation is less often excessive; and earnings management is rarer. However, such boards are also associated with being lax in advising management and, as a result, the net impact of their intense monitoring on firm value is negative (e.g., Faleye, Hoitash, and Hoitash, 2011). More broadly, intense board monitoring destroys trust and hampers communication between the chief executive officer (CEO) and the independent directors and reduces the amount of strategic information that the directors receive … Read more
A recent report by KPMG  on the behavior of chief executive officers (CEOs) suggests that 67 percent of UK CEOs trust their intuition over data. The impact of intuition may become problematic if it is driven by biased perception. One of the most common biases among CEOs is overconfidence, a tendency to believe that they are better than they objectively are, particularly in their judgment, ability, and knowledge.
In a recent paper, we investigate whether CEO overconfidence can help explain the probability of corporate failure. Despite extensive research exploring the consequences of managerial overconfidence for corporate policies and outcomes, … Read more
Public securities markets have undergone dramatic changes in recent years. Not only has the number of publicly traded firms been declining, but the nature of the firms that choose to go public has also changed. While publicly traded firms in the classic sense are thought of as widely-held with dispersed shareholders, many of the firms that have recently elected to go public are tightly controlled by their founders or other entities via a dual-class stock structure. Almost 30 percent of IPOs in 2017-2019 had dual-class structures, including Snap, Twitter, and Dropbox. Because dual-class structures shield managers from the discipline of … Read more
The huge rise in popularity of Bitcoin — and the growing interest by mainstream financial institutions in virtual assets as an investable and tradable asset class — has shone a light on the cryptocurrency industry’s environmental, social, and governance (ESG) performance.
The vast majority of the world’s financial institutions manage climate risk and other ESG risks in their own portfolios. As a result, many financial institutions perform related diligence on corporates they look to service, whether by traditional lending, capital markets underwriting, or direct investment. While the focus has primarily been on the ESG performance of cryptocurrency miners (given their … Read more
In recent weeks, the Securities and Exchange Commission (SEC) has devoted considerable attention to environmental, social and governance, or ESG, matters. It has requested public comment on climate disclosure proposals, appointed a senior policy advisor for climate and ESG, and announced that its 2021 examination priorities will include climate-related risks. Taken together, these developments indicate the SEC may be poised to mandate ESG-related disclosures. A recent post on this blog discussed the SEC’s interest in climate disclosures.
In a new article, “The New Separation of Ownership and Control: Institutional Investors and ESG,” forthcoming in the Columbia Business Law … Read more
Recently, workers at Amazon dealt what has been called a “decisive” and “crushing” blow to organized labor, with their proposed union receiving less than 30 percent of the votes cast, according to the federal vote counters overseeing the election. While union officials complain that Amazon cheated by campaigning too hard against the organizing effort, a close look at the election indicates that the better argument is that Amazon workers acted rationally.
The most likely explanation for the union’s drubbing was that Amazon workers had an informed and healthy concern that becoming unionized would make them worse off. This … Read more
Over the last few years, the #MeToo and #BlackLivesMatter movements have facilitated a deeper understanding of racial and gender inequality and have, generally speaking, begun to create tangible changes within American life. At the same time, corporations have begun to reflect on what role they play within the larger community. Academic conversations over the past year have dedicated time and thought to the role of the corporation as it relates to race and gender. One question deserving more time and attention, however, is the historical context in which the foundational debates on the appropriate role and purpose of the corporation, … Read more