Corporate Governance Systems Team 4 Candice Woods Jennifer Zhang May 27, 2013

What is Corporate Governance?  The system of rules and practices that governs a firms decision making processes

Assigned Article Stakeholder rights and corporate governance: A cross-national study of hostile takeovers William D. Schneper Mauro F. Guillén

What is a Hostile Takeover?  A corporate acquisition implemented either by a shareholder or stakeholder that is in contest to a firms incumbent managers

Conception Normative Traditional Viewpoints Power Hostile Takeover

Hostile Takeover Occurrences CountryFinancial SystemGovernance SystemHT Attempts ( ) GermanyBank-BasedStakeholder Model 7 Japan 3 United StatesMarket-BasedShareholder Model 478 United Kingdom 273

Governance Systems Stakeholder Model  Corporate control depends on Support  Ongoing Power Struggle  Risk-averse; utilize capital  Share Price measure of Performance  Hostile Takeovers are rare Shareholder Model

Findings  Hostile Takeover increase when there are strong SH rights and when financial institutions and workers rights are not strongly protected  Inversely correlated

Article 1  Underperformance does not motivate a hostile takeover  Narrowly defined a hostile takeover  Occurs when the managers or BOD have been replaced during hostile takeover  Other wise a Synergistic Takeover “The role of Hostile Takeovers in Corporate Governance” Rajeeva Sinha

Creative Destruction  Schumpeterian process of ‘creative destruction’ likely the cause of hostile takeovers Hostile takeovers in Europe  Hostile takeovers occur in waves; correlated to technological advances and political/economical changes  Mechanism to adapt to external environmental changes

Currently used Defense Strategies United States  Charter amendments  Litigation  Poison Pill  “flip in”  “flip over”  Greenmail United Kingdom

Article 2 3 Main Stakeholders Shareholders Banks Workers “Stakeholder Theory: Reviewing a Theory That Moves Us” André O.Laplume, Karan Sonpar &Reginald A.Litz “To be an effective strategist, you must deal with those groups that can affect you, while to be responsive, you must deal with those group that you can affect.” -Freeman “To be an effective strategist, you must deal with those groups that can affect you, while to be responsive, you must deal with those group that you can affect.” -Freeman

Who else can be the Stakeholders Internal Stakeholders  Owners  Customers  Employees  Suppliers External Stakeholders

How do Stakeholders Influence Firms  With direct & indirect withholding and conditional usage strategies  Influence depends on relationship structure, contractual forms, and institutional supports  Influence is determined by the power and legitimacy of a stakeholder  By forming coalitions and collaboration.

How Suppliers Influence A Firm’s Decision Making Porter’s Five Forces Model The Strength of Bargaining Power of Suppliers

How do firms gain stakeholder support?  By building stakeholder trust and avoiding opportunistic relationships  Maintain a good reputation  Become involved in non-profit work  Increase work involvement by offering an employee stock option

Article 3 The second assigned article “Comparative and International Corporate Governance” Ruth V. Aguilera a & Gregory Jackson cross-country diversity in corporate governance

Correlations in Conclusion Recall from the previous slide

Need more studies on cultural aspects that encourages HT

SH vs. SK Governance System + Cultural analysis (Hofstede) IndividualismCollectivism MasculinityFemininity High Uncertainty AvoidanceLow Uncertainty Avoidance High Power DistanceLow Power Distance High LTOLow LTO

References  Aguilera, R. V., & Jackson, G Comparative and international corporate governance. Academy of Management Annals, 4(1): doi:  Laplume, A., Sonpar, K., & Lits, R. (2008). Stakeholder Theory: Reviewing a Theory That Moves Us. Journal of Management, 34:1152. Doi: /  Porter, E., M. (2008). The five competitive forces that shape strategy. Harvard Business Review. January, 2008,  Schneper, W. D., & Guillen, M. F Stakeholder rights and corporate governance: cross-national study of hostile takeovers. Administrative science quarterly, 49(2): Retrieved from 994d-e9cd09965b01%40sessionmgr115&vid=52&hid= d-e9cd09965b01%40sessionmgr115&vid=52&hid=117  Sinha, R. (2004). The role of hostile takeovers in corporate governance. Applied Financial Economics, 14(18), doi: /

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