Session 2 - Companies Flashcards
what is the main risk of delegated management
misalignment between investors and managers objectives
absent and discountinous shallow monitoring on management conduct
imploding model for raising capital
(or family/bank oriented) Italy/Germany/France/Japan
STRONG PROPERTY AND WEAK DIRECTORS
- concentrated ownership, mostly in the hands of a small number of investors
- pyramidal groups
- marginal role of capital markets
- ownership is mostly allocated in the hands of the two ideally different groups of shareholders («shareholder-investors» vs «shareholder- businessman»)
IMPLODING MODEL: shareholders investors and shareholder- businessman
the first group (investors) is mainly adverse to being involved in the running of the business and company
what are the CONs of IMPLODING MODEL
- constraints on access to financial and capital markets
- opportunistic behaviors
- risk of dissociation of property and control
Exploding model for raising capital (or market oriented) USA
«Market Oriented» model
- high access to capital markets for raising investments
- managers have strong targets
capital ownership is mostly spread and dispersed and changing investors
CONs of exploding model
short-sight managing, short term vision, get back money as soon as possible
hostile takeovers and control contestability, consequent high pressure to managing politics aimed to “short-term shareholder value maximization”
what is corporate governance
Set of rules, best practices and procedures produced internationally to provide business enterprises with a legal framework to set forth rules and standards to manage business & govern the problems/conflicts
corporate governance is made of
- MARKET RULES (made by outside rules and regulations)
- CORPORATE RULES (integrated)
fiduciary duties of managers and directors
- duty of care
- duty of loyalty
duty of care
Directors to perform their functions in good faith, in a manner they reasonably believe to be in the best interests of the company and with the requisite care, skill, and diligence that an ordinarily prudent person would exercise in a like position under similar circumstances
duty of loyalty
to perform their functions with undivided loyalty, unbiased judgment and the absence of fraud, self-dealing and conflict of interest
putting always best interests of the company and its shareholders must prevail over the individual interests of the directors and management.
what are SHAs?
Shareholders’ agreements (“SHAs”) are CONTRACTS among some (or sometimes all) shareholders regulating their relationships or the exercise of their rights in some cases the corporation itself is also a party to the agreement.
2 most common types of shareholders agreement
- limitations to the free transferability of the shares
- voting agreements = how to exercise the voting rights, agreeing on how to express votes in the meeting
are SHAs separated from other documents?
SHAs constitute a separate contract, distinct to the corporate documents (article of incorporation/bylaws.
It is separated from the Article of Association, it is not required.
do SHAs have legal effect?
yes. in case one of the shareholders breach the agreement, the others can ask for compensation and the decision taken in disagreement can be challenged in order to re-establish what has been agreed
general advantages of SHAs
- bound only with some other shareholders (they might want to keep the agreement confidential):
- they want to include a pre-emptive right in case of sale of shares in a separate contract rather then in the bylaws
- the law may prohibit including certain provisions in the charter or bylaws
- tax reasons
