lecture 5&6

Question 1

Manager-shareholder agency costs

One of these costs is the cost of monitoring and structuring the relationship between the principal and agent

Corporate law addresses this problem by providing

Answer 1

Board structures

Question 2

One tier board structure

Answer 2

Shareholders –>
Board of directors (executive and non-executive directors) –>
Managers

Question 3

Two tier board structure

Answer 3

shareholders & employees –>
supervisory board –>
Managing board –>
Managers

Question 4

Full structured regime (special structure in the netherlands)

Answer 4

used for all types as long as the following criteria met (for 3 consecutive years)

Capital and earnings amount to 16m EUR

Legal obligation to appoint a works council

At least 100 employees in the netherlands

The full structured regime is intended to provide more check and balance for shareholders on the powers of board

Question 5

Weakened structured regime (special structure in the netherlands)

Answer 5

Apply to companies which at least half of the issued capital is held by a legal entity whose majority of employees work outside the netherlands

Question 6

Types of directors (one tier board)

Answer 6

Executive directors

non-executive directors (if not clear sometimes called “grey” directors: representatives of major shareholders or employes, former executives, etc.

non-executive independent directors: no relationship with the company other than board membership

Question 7

Types of directors
Two tier board

Answer 7

Independent supervisory board members

Question 8

Trusteeship strategy (independent directors)

Answer 8

Originated in the United States
Seeks to remove conflicts of interest ex ante
Do not profit from opportunistic behavior
Not tied by financial incentives but motivated by ethical and reputational concerns

Requirements (scandal or economic crisis driven)

BUT a panacea to mitigate almost every problem of company law (including the second agency problem)

Criticism includes: arbitrary criteria, non conclusive evidence on effect of firm performance, Their role during the financial crisis has been criticized (lack of expertise)
what about their incentive structure

Question 9

Co-determination in germany

Answer 9

in germany mitbestimmung

More than 2000 employees, half of supervisory board = employee representatives
+ chairman (usually shareholder representative)

500-2000 employees (one third supervisory board = employee representatives.

Question 10

The board of directors: gender diversity (germany)

Answer 10

§96 (2) aktiengesetz

In case of listed companies which are subject to the Co-determination Act, (…) the supervisory board shall be composed of at least 30 percent of women and at least 30 percent of men. The minimum percentage shall be complied with by the supervisory board in its entirety

Question 11

Board of directors gender diversity (france)

Answer 11

Art. 225-18-1 Code de commerce

The proportion of directors of each gender may not be less than 40% in stock exchange listed companies (…)

Question 12

Arguments for 1 tier or 2 tier board

Answer 12

The one tier board structure results in a closer relation and better information flow between the supervisory and managerial directors

The two tier board structure encompasses a clearer, formal separation between the supervisory body and those being supervised

BUT: no conclusive empirical studies

Question 13

Board structures (convergence)

Answer 13

One-tie boards make use of delegation to the management and monitoring the exercise of delegated powers become its main task

both board structures depend on management information

The use of independency requirements;

Tasks (and board committees, including also a nomination committee)

Question 14

Should companies be required to split the roles of chairman and CEO in a one tier board?

Answer 14

Pro: agency theory arguments (board independence)
Stewardship theory advocates separating the roles of chairman and CEO to enhance accountability, transparency, and effective oversight on the board of directors

Con: stewardship theory arguments (effective management)

The contrary perspective might argue for combining the roles of chairman and CEO to promote unified leadership, streamlined decision-making, and clearer strategic direction within the organization.

no conclusive results

Question 15

Board of directors committees

Answer 15

nominating committee

Compensation committee

Audit committee

Question 16

The board of directors other committees

Answer 16

CSR and sustainability committee

Audit committee

nomination and compensation committee

Corporate management committee
(divisionalSBU management committees)(Corporate functions)

Securityholders relationship committee

Independent directors committee