Summary Corporate ownership and
governance
This summary contains information from the slides, notes from the lecture and the academic
articles. It excludes information from the workshops and Financial Times articles.
The information from the academic articles is used as addition to the notes so some findings
are not included. I advise you to look through the academic articles yourself to see if you
have any additional content/findings you want to include.
Additional empty pages are added to write down personal notes
Summary Corporate ownership and governance................................................................1
Content session 1: corporations and the theory of firm (boundaries)..................................5
1. A legal perspective....................................................................................................................5
2. Five characteristics of PLCs.......................................................................................................5
2.1. Legal personality......................................................................................................................................6
2.2. Limited liability (in contract) Defensive asset partitioning.....................................................................6
2.3. Fully transferable shares..........................................................................................................................7
2.4. Delegated management & board structure............................................................................................7
2.5. Investor ownership..................................................................................................................................8
3. Why do firms exist? A multi-theoretical and causal approach..................................................8
4. A case in point: alternative theories of firm boundaries...........................................................9
5. Transaction cost theory..........................................................................................................10
Current Discussions, Debates, and Developments.......................................................................................12
A causal model of TCT...................................................................................................................................15
5.2. A causal model for any particular research question............................................................................15
Takeaways..................................................................................................................................16
6. Organizational boundaries and theories of organization........................................................17
Additional notes.........................................................................................................................20
Content session 2: Ownership of the firm.........................................................................22
1. Capitalism...............................................................................................................................22
2. Ownership: a functional bundle of rights................................................................................22
2.1. Characteristics of transactions in a business corporation:....................................................................23
2.2. Is ownership a force for the good mankind?.........................................................................................24
2.3. The tragedy of the anti-commons.........................................................................................................24
2.4. Ownership changes over the firm life cycle..........................................................................................25
3. Are you still the best owner of your assets?...........................................................................26
3.1. Theory of optimal ownership allocation................................................................................................28
3.2. The costs of market contracting............................................................................................................28
4. Cost of ownership...................................................................................................................29
5.1. Applying the Calculus.............................................................................................................................29
5.2. Benefits of ownership?..........................................................................................................................32
1
, Additional notes.........................................................................................................................33
Content session 3: Corporate governance challenges and practices..................................35
1. Agency costs and agency theory.............................................................................................35
1.2. Two basic treatments............................................................................................................................37
2. Independence (literature).......................................................................................................37
3. Equity ownership (literature)..................................................................................................38
4. Corporate governance treatments in PLC...............................................................................40
4.1. Internal and external mechanisms........................................................................................................40
4.2. Four elements of effective CG...............................................................................................................40
4.3. Three internal governance mechanisms in research.............................................................................41
4.4. Legal system who owns the corporation..............................................................................................41
4.5. Market for corporate control................................................................................................................41
4.6. External auditing....................................................................................................................................42
4.7. Rating organizations..............................................................................................................................42
4.8. Stakeholder activism..............................................................................................................................42
4.9. Media.....................................................................................................................................................42
5. The board of directors............................................................................................................43
6. A causal model of agency theory............................................................................................43
7. Different functions of the board in firms.................................................................................44
Takeaways.....................................................................................................................................................44
Additional notes.........................................................................................................................45
Content module 4: The corporate governance challenges and practices of family-owned
firms................................................................................................................................47
1. Family firms: a characterization..............................................................................................47
1.2. Differences between family firms and non-family firms.......................................................................47
1.3. Prevalence and economic significance..................................................................................................48
1.4. Family firm resilience and survival........................................................................................................48
2. A life cycle perspective: three specific governance challenges................................................48
2.2. The ownership dilemma........................................................................................................................48
2.3. Minority shareholder expropriation......................................................................................................49
3. Control enhancing mechanisms..............................................................................................50
4. Family governance system......................................................................................................50
5. Six major components of family firm governance...................................................................51
5.1. Ownership structure..............................................................................................................................51
5.2. Control mechanisms..............................................................................................................................51
5.3. Board of directors..................................................................................................................................52
5.4. Executive compensation........................................................................................................................52
5.5. Dividend policy.......................................................................................................................................52
5. 6. Succession.............................................................................................................................................52
6. Agency problems in family firms.............................................................................................53
6.1. Type 1: Owner-manager agency problems...........................................................................................53
6.2. Type 2: Agency problems between controlling and minority owners..................................................53
6.3. Type 3: Agency problems between owners/managers and external creditors (voluntary and
involuntary)...................................................................................................................................................53
6.4. Type 4: multi-layered agency problems between the family (as a super principal) and family owners
and/or managers..........................................................................................................................................53
2
, 7. Governance mechanisms in family firms.................................................................................54
7.1. Ownership concentration......................................................................................................................54
7.2. Boards of directors................................................................................................................................54
7.3. Executive compensation........................................................................................................................54
7.4. Debt........................................................................................................................................................54
7.5. The market for corporate control..........................................................................................................54
7.6. Dual-class unifications...........................................................................................................................54
7.7. Legal investor protection.......................................................................................................................55
8. Family firms: some alternative theories..................................................................................56
Takeaways.....................................................................................................................................................56
Additional notes.........................................................................................................................57
Content module 5: stakeholders in corporate governance................................................59
1. Background information.........................................................................................................59
1.1. Past: divergence and reconvergence.....................................................................................................59
1.2. Present: stakeholder turn in strategy....................................................................................................59
1.3. The future..............................................................................................................................................60
2. Stakeholder model of the firm................................................................................................61
2.1. Beneficiaries in audit contracts (third party agency problem)..............................................................61
3. Owners vs stakeholders..........................................................................................................62
3.1. Types of stakeholders............................................................................................................................62
3.2.Different types of challenges..................................................................................................................63
4. Strategic dependence.............................................................................................................63
5. Resource dependence theory.................................................................................................64
5.1. M&A.......................................................................................................................................................64
5.2. Joint ventures........................................................................................................................................64
5.3. BoDs.......................................................................................................................................................65
5.4. Political action........................................................................................................................................65
5.5. How to manage strategic dependence?................................................................................................66
Takeaways.....................................................................................................................................................67
Additional notes.........................................................................................................................68
Content module 6: Securing the firm’s societal license to operate....................................70
1. The societal license to operate (SLTO)....................................................................................70
2. SLTO components...................................................................................................................70
2.1. The legal license.....................................................................................................................................70
2.2. The social license...................................................................................................................................70
3. Strategic CSR...........................................................................................................................72
4. Integrated strategy, market and nonmarket components......................................................73
4.1. The market environment.......................................................................................................................73
4.2. The nonmarket environment.................................................................................................................73
4.3. A market strategy..................................................................................................................................73
4.4. A nonmarket strategy............................................................................................................................73
4.5. Nonmarket assets..................................................................................................................................73
5. A treatment against misconduct.............................................................................................74
5.1. Research: Do markets punish misconduct?..........................................................................................74
5.2. Corporate governance and misconduct................................................................................................75
6. Hans’ view on ownership and governance strategies.............................................................75
3
, Additional notes.........................................................................................................................77
Causal model....................................................................................................................79
4
governance
This summary contains information from the slides, notes from the lecture and the academic
articles. It excludes information from the workshops and Financial Times articles.
The information from the academic articles is used as addition to the notes so some findings
are not included. I advise you to look through the academic articles yourself to see if you
have any additional content/findings you want to include.
Additional empty pages are added to write down personal notes
Summary Corporate ownership and governance................................................................1
Content session 1: corporations and the theory of firm (boundaries)..................................5
1. A legal perspective....................................................................................................................5
2. Five characteristics of PLCs.......................................................................................................5
2.1. Legal personality......................................................................................................................................6
2.2. Limited liability (in contract) Defensive asset partitioning.....................................................................6
2.3. Fully transferable shares..........................................................................................................................7
2.4. Delegated management & board structure............................................................................................7
2.5. Investor ownership..................................................................................................................................8
3. Why do firms exist? A multi-theoretical and causal approach..................................................8
4. A case in point: alternative theories of firm boundaries...........................................................9
5. Transaction cost theory..........................................................................................................10
Current Discussions, Debates, and Developments.......................................................................................12
A causal model of TCT...................................................................................................................................15
5.2. A causal model for any particular research question............................................................................15
Takeaways..................................................................................................................................16
6. Organizational boundaries and theories of organization........................................................17
Additional notes.........................................................................................................................20
Content session 2: Ownership of the firm.........................................................................22
1. Capitalism...............................................................................................................................22
2. Ownership: a functional bundle of rights................................................................................22
2.1. Characteristics of transactions in a business corporation:....................................................................23
2.2. Is ownership a force for the good mankind?.........................................................................................24
2.3. The tragedy of the anti-commons.........................................................................................................24
2.4. Ownership changes over the firm life cycle..........................................................................................25
3. Are you still the best owner of your assets?...........................................................................26
3.1. Theory of optimal ownership allocation................................................................................................28
3.2. The costs of market contracting............................................................................................................28
4. Cost of ownership...................................................................................................................29
5.1. Applying the Calculus.............................................................................................................................29
5.2. Benefits of ownership?..........................................................................................................................32
1
, Additional notes.........................................................................................................................33
Content session 3: Corporate governance challenges and practices..................................35
1. Agency costs and agency theory.............................................................................................35
1.2. Two basic treatments............................................................................................................................37
2. Independence (literature).......................................................................................................37
3. Equity ownership (literature)..................................................................................................38
4. Corporate governance treatments in PLC...............................................................................40
4.1. Internal and external mechanisms........................................................................................................40
4.2. Four elements of effective CG...............................................................................................................40
4.3. Three internal governance mechanisms in research.............................................................................41
4.4. Legal system who owns the corporation..............................................................................................41
4.5. Market for corporate control................................................................................................................41
4.6. External auditing....................................................................................................................................42
4.7. Rating organizations..............................................................................................................................42
4.8. Stakeholder activism..............................................................................................................................42
4.9. Media.....................................................................................................................................................42
5. The board of directors............................................................................................................43
6. A causal model of agency theory............................................................................................43
7. Different functions of the board in firms.................................................................................44
Takeaways.....................................................................................................................................................44
Additional notes.........................................................................................................................45
Content module 4: The corporate governance challenges and practices of family-owned
firms................................................................................................................................47
1. Family firms: a characterization..............................................................................................47
1.2. Differences between family firms and non-family firms.......................................................................47
1.3. Prevalence and economic significance..................................................................................................48
1.4. Family firm resilience and survival........................................................................................................48
2. A life cycle perspective: three specific governance challenges................................................48
2.2. The ownership dilemma........................................................................................................................48
2.3. Minority shareholder expropriation......................................................................................................49
3. Control enhancing mechanisms..............................................................................................50
4. Family governance system......................................................................................................50
5. Six major components of family firm governance...................................................................51
5.1. Ownership structure..............................................................................................................................51
5.2. Control mechanisms..............................................................................................................................51
5.3. Board of directors..................................................................................................................................52
5.4. Executive compensation........................................................................................................................52
5.5. Dividend policy.......................................................................................................................................52
5. 6. Succession.............................................................................................................................................52
6. Agency problems in family firms.............................................................................................53
6.1. Type 1: Owner-manager agency problems...........................................................................................53
6.2. Type 2: Agency problems between controlling and minority owners..................................................53
6.3. Type 3: Agency problems between owners/managers and external creditors (voluntary and
involuntary)...................................................................................................................................................53
6.4. Type 4: multi-layered agency problems between the family (as a super principal) and family owners
and/or managers..........................................................................................................................................53
2
, 7. Governance mechanisms in family firms.................................................................................54
7.1. Ownership concentration......................................................................................................................54
7.2. Boards of directors................................................................................................................................54
7.3. Executive compensation........................................................................................................................54
7.4. Debt........................................................................................................................................................54
7.5. The market for corporate control..........................................................................................................54
7.6. Dual-class unifications...........................................................................................................................54
7.7. Legal investor protection.......................................................................................................................55
8. Family firms: some alternative theories..................................................................................56
Takeaways.....................................................................................................................................................56
Additional notes.........................................................................................................................57
Content module 5: stakeholders in corporate governance................................................59
1. Background information.........................................................................................................59
1.1. Past: divergence and reconvergence.....................................................................................................59
1.2. Present: stakeholder turn in strategy....................................................................................................59
1.3. The future..............................................................................................................................................60
2. Stakeholder model of the firm................................................................................................61
2.1. Beneficiaries in audit contracts (third party agency problem)..............................................................61
3. Owners vs stakeholders..........................................................................................................62
3.1. Types of stakeholders............................................................................................................................62
3.2.Different types of challenges..................................................................................................................63
4. Strategic dependence.............................................................................................................63
5. Resource dependence theory.................................................................................................64
5.1. M&A.......................................................................................................................................................64
5.2. Joint ventures........................................................................................................................................64
5.3. BoDs.......................................................................................................................................................65
5.4. Political action........................................................................................................................................65
5.5. How to manage strategic dependence?................................................................................................66
Takeaways.....................................................................................................................................................67
Additional notes.........................................................................................................................68
Content module 6: Securing the firm’s societal license to operate....................................70
1. The societal license to operate (SLTO)....................................................................................70
2. SLTO components...................................................................................................................70
2.1. The legal license.....................................................................................................................................70
2.2. The social license...................................................................................................................................70
3. Strategic CSR...........................................................................................................................72
4. Integrated strategy, market and nonmarket components......................................................73
4.1. The market environment.......................................................................................................................73
4.2. The nonmarket environment.................................................................................................................73
4.3. A market strategy..................................................................................................................................73
4.4. A nonmarket strategy............................................................................................................................73
4.5. Nonmarket assets..................................................................................................................................73
5. A treatment against misconduct.............................................................................................74
5.1. Research: Do markets punish misconduct?..........................................................................................74
5.2. Corporate governance and misconduct................................................................................................75
6. Hans’ view on ownership and governance strategies.............................................................75
3
, Additional notes.........................................................................................................................77
Causal model....................................................................................................................79
4
