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• Working Paper | HBS Working Paper Series | 2020

  The European Commission’s Sustainable Corporate Governance Report: A Critique

  Mark Roe, Holger Spamann, Jesse Fried and Charles Wang

  In July 2020, the European Commission published the “Study on directors’ duties and sustainable corporate governance” by EY. The Report purports to find evidence of debilitating short-termism in EU corporate governance and recommends many changes to support sustainable corporate governance. In this paper, we point out deep flaws in the Report’s evidence and analysis. We recently submitted the content of this paper in response to the European Commission’s call for feedback.
  First, the Report defines the corporate governance problem as one of pernicious short-termism that damages the environment, the climate, and stakeholders. But the Report mistakenly conflates time-horizon problems with externalities and distributional concerns. Cures for one are not cures for the others and a cure for one may well exacerbate the others. Second, the Report’s main ostensible evidence for an increase in corporate short-termism is rising gross payouts to shareholders (dividends and stock repurchases). However, the more relevant payout measure to assess corporations’ ability to fund long-term investment is net payouts (gross payouts minus equity issuances), which is much lower and has left plenty of funds available for long-term and short-term investment. Third, when the Report turns to other evidence for short-termism, it selectively picks academic studies that support its views on short-termism, while failing to engage substantial contrary literature. Significant studies fail to detect short-termism and some substantial studies show excessive long-termism. Conceptually, some short-termism is an unfortunate but an inevitable side effect of effective corporate governance and may not be a first-order problem warranting wholesale reform. Finally, the Report touts cures whose effectiveness has little evidentiary support and, for some, there is real evidence that the cures could be counterproductive and costly.

  Citation:

  Roe, Mark, Holger Spamann, Jesse Fried, and Charles Wang. "The European Commission’s Sustainable Corporate Governance Report: A Critique." Harvard Business School Working Paper, No. 21-056, October 2020.  View Details

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• Working Paper | HBS Working Paper Series | 2020

  Short-Termism, Shareholder Payouts, and Investment in the EU

  Jesse M. Fried and Charles C.Y. Wang

  Investor-driven “short-termism” is said to harm EU public firms' ability to invest for the long term, prompting calls for the EU to better insulate managers from shareholder pressure. But the evidence offered–in the form of rising levels of repurchases and dividends–is incomplete and misleading, as it ignores large offsetting equity issuances that move capital from investors to EU firms. We show that net shareholder payouts have been moderate, that both investment levels and investment intensity have been rising, and that cash balances have increased. In sum, the data provide little basis for the view that short-termism in the EU warrants corporate governance reforms.

  Keywords: Short-termism; quarterly capitalism; corporate governance; EU; dividends; equity issuances; equity compensastion; acquisition; capital flows; capital distribution; R＆D; investment; innovation;

  Citation:

  Fried, Jesse M., and Charles C.Y. Wang. "Short-Termism, Shareholder Payouts, and Investment in the EU." Harvard Business School Working Paper, No. 21-054, October 2020.  View Details

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• Case | HBS Case Collection | March 2020 (Revised October 2020)

  Board Director Dilemmas—Digging into Detail

  David G. Fubini, Suraj Srinivasan and Amram Migdal

  This case explores a new board director who asks a detailed question about a footnote in the lengthy board packet distributed to directors by management. The case allows for discussion about the amount of information and level of detail provided by management, the level of preparation directors engage in prior to board meetings, and the appropriate strategic focus of the board. This case is part of a series of vignettes that capture different dilemmas faced by directors as they join boards of companies and understand the dynamics of the new boards that they join.

  Keywords: board of directors; Corporate Governance; Governing and Advisory Boards;

  Citation:

  Fubini, David G., Suraj Srinivasan, and Amram Migdal. "Board Director Dilemmas—Digging into Detail." Harvard Business School Case 120-100, March 2020. (Revised October 2020.)  View Details

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