Espen Eckbo, a professor at the Tuck School of Business at Dartmouth, designed the Forum sessions focused on corporate governance based on which issues are currently “hot” in the field, including the role of institutional investors, women on boards, and leadership of family-owned companies.
In preparation for the Council on Business & Society, fellow Tuck student Kate Bante and I prepared a study of the role of gender on corporate boards, specifically focused on whether the recent gender-based quotas enacted in Europe should be replicated in the United States. Professor Eckbo was our faculty supervisor for this project. After spending the fall thinking about board leadership with a focus on gender, I was interested to learn more about trends in corporate board leadership from a new angle, but still with a cross-country focus.
Professor Eckbo kicked off the session by discussing minority shareholder rights. Corporate Boards have a fiduciary responsibility to protect the interests of the firms and its owners, including minority shareholders. Even though minority shareholders are rationally passive as individuals, their collective stake in the company means that it would be advantageous for them to be more active as a group. “Say-to-pay” movements are recent efforts by minority shareholders to express their dissatisfaction with compensation policies and encourage boards to reevaluate compensation structures.
John C. Wilcox, CEO of Sodali, continued the discussion by comparing the U.S. “rules based” corporate governance system with the European “principles-based” system. Sodali is a consultancy that helps companies achieve their goals aligning interests among expectations of investors. According to Wilcox, there has been a pattern in the U.S. over the last 25 years of shareholders demanding more rights, corporations digging in their heels and not bending to these demands, and the government then stepping in and enacting legislation to mandate shareholder rights. The problem with this pattern, which Wilcox dubbed “passive aggressive”, is that more often than not, this legislation is too rigid to satisfy either party. In Wilcox’s opinion, corporations should take a more active role in managing their relations with shareholders in a positive manner to improve outcomes and reduce the prevalence of “rules-based” corporate governance legislation in the U.S.
Other thoughts shared during the plenary session that will be explored in more detail during breakout sessions:
- In China, corporations have a very concentrated ownership structure. These investors are typically mutual funds, not pension funds, because in China it is not legally permissible for pension funds to invest in this way.
- Several studies show that firm performance is positively linked to the percentage of females on boards, but it is very difficult to prove the direction of causation.
- A study in Australia showed that the stock market reacts 2% more positively when a company appoints a female director, as opposed to a male director.
- In the UK, private club golf membership is a 4 times better predictor of board membership than a top-university education.
To close out the session, Paul Danos, the Dean of the Tuck School of Business and also a board member at General Mills, shared his opinion that diversity of all kinds, not just gender diversity, is important for bringing new outlooks to the board room.