On December 8, 2022, presenter Margarethe Wiersema gave the lecture “Corporate Governance in Turbulent Times”
The Q&A from Margarethe’s lecture is below.
[1] How do we understand the seemingly divergent trends of more prevalent passive investing and active hedge funds and the associated activism at the same time?
There is a debate in the finance literature as to whether the growth in index funds will fuel activism or retard it. Historically, passive investors have not played much of a role in supporting activism (either financial or social). Given the growth of passive funds and in particular the Big Three Index Funds, I believe that passive investors will play a greater role than in the past.
[2] Can you clarify how the corporate governance in the platform based firms differ to the traditional firms please? I thought all listed firms should comply corporate governance code
All publicly traded firms need to comply with the same corporate governance codes. However, platform-based firms face greater difficulty in assessing the quality of their product/services and also the nature of the interactions that occur between the customer and the provider. For example, Amazon’s e-commerce does not verify the products sold on its website nor their authenticity. AirBnB cannot control whether guests are treated equally in being approved for bookings. These are just two examples, but illustrate that platform-based companies lack oversight/control over their inputs and outputs which can lead to compromising situations that conflict with the company’s mission, values, and strategy. This become a governance issue for the company and its board.
[3] The recent massive layoffs in dominant tech companies bears huge emotional & social cost. Yet, these companies are high on governance ratings. What is your perspective on such short corrections in profit at the cost of employees’ welfare and how do they get accounted for in governance ratings?
ESG ratings are grossly inadequate when it comes to measuring E, S and G. They don’t take into account many aspects that are critical in evaluating what constitutes good performance. Current ESG measure do not capture the societal impact of layoffs or the environmental impact of supply chains in countries with loose or no environmental codes. This is why better ESG measures that are industry specific when it comes to the environment are desperately needed to better account for the performance of companies on ESG.
[4] Dawn Zaiter, University of Aberdeen. I would like to hear your opinion about limiting voting rights of institutional investors especially hedge funds?
I am not in favor of constricting shareholder voting rights. Shareholders have very little influence through voting since so few matters are actually brought to a shareholder vote. Say on pay, for example, has only recently become a shareholder voting issue for US firms, Yet, this issue has been a major concern for institutional investors for over two decades. Boards too readily overcompensate executives while the costs are borne by the firm’s shareholders.
[5] How can we incorporate the current ‘political polarisation’ into this corporate governance challenges?
I do not believe this is a feasible objective in corporate governance.
[6] How are the nuances of activism different between the United States and Asia? Amongst others say HSBC?
Ping An, the activist investor that targeted HSBC, is no different from other activists. As a major shareholder of HSBC, they communicated their concerns over shareholder value and have pressured management and the board of the company to unlock value. While they claim they are not an activist investor, they behave as one. Activist investors vary in their approach to the companies they target. While some activists are well known for being aggressive and using hostile tactics, others such as Cevian Capital (based in Europe) are known for working with management and the board to enhance a company’s value. Thus, activist investors can differ in their approach and tactics. The variance in their approach and tactics is not necessarily cultural, but may be due to the nature of the hedge fund’s strategic approach and/or the company targeted.
[7] My second question is that i have noticed that big asset management funds such as the Norwegian fund or the largest Japanese pension fund, they issue broad notes or principles on what types of companies they will invest and where they will not )they might divest) based on x and z practices such as no women on boards, and this is a very effective practice to affect the entire market, large and small firms
Yes, I concur that this approach to investing can have a significant impact on companies give the size of their funds.
[8] Given that companies have different purposes, the materiality has to be different. Hence, in the current sustainability ecosystem is difficult to compare across industries, geographies and jurisdictions. What is your suggestion to a more comparable framework applicable across so?
To be able to examine and evaluate companies based on sustainability, it is imperative that you take into account the industry in which the firm is operating in. The nature of the industry will determine to a large extent the impact a company is likely to have on the environment and local community. There are no general measure that can evaluate companies operating across a diverse set of industries ranging from mining and heavy manufacturing to retail and media entertainment.
Margarethe F. Wiersema holds the Dean’s Professorship in Strategic Management at The Paul Merage School of Business, University of California, Irvine. She has an MBA and Ph.D. from the University of Michigan. The recipient of numerous awards for excellence in research and teaching, Professor Wiersema was awarded an honorary doctorate by the Copenhagen Business School and received the Distinguished PhD Alumni Award from the University of Michigan. She is a Strategic Management Society Fellow. In 2022, she was awarded the Academy of Management Irwin Outstanding Educator Award and the Strategic Management Society’s Service Award.
Professor Wiersema is internationally recognized for her research on corporate strategy and corporate governance with more than 60 publications and 13,000 citations. She serves on the board of the International Corporate Governance Society and has served as Dean of the Fellows of the Strategic Management Society, Associate Editor of Strategic Management Journal and the Academy of Management Perspectives as well as on the Board of Directors of the Strategic Management Society, and Past President of the Corporate Strategy and Governance Group of the Strategic Management Society.
For further information on the webinar please contact Professor Jun Yang, Director of the Institute for Corporate Governance at icg@indiana.edu.
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