11/4/2023 0 Comments Ter activism![]() Executive compensation structure in EuropeĪ second notable difference of European corporate governance is the structure of executive compensation. For example, a family controlling shareholder may prioritize its short-term liquidity needs over the long-term investments needed by the corporation. ![]() However, private benefits of control may also incentivize controlling shareholders to act in a short-termist manner. Because some private benefits of control are not easily transferred, controlling shareholders may be “locked in” and forced to think of the long-term future of the corporation. On the other hand, controlling shareholders may also enjoy private benefits of control. On the one hand, controlling shareholders have stronger incentives to think in the long term than other shareholders, due to the size and illiquidity of their participation, which exposes them to a larger extent to the long-term cash flows of the corporation. Whether controlling shareholders have a positive or negative impact on a corporation’s long-term orientation will depend on the circumstances, and particularly on the type of controlling shareholders. In addition, if short-termist managers are causing corporate short-termism, controlling shareholders have the incentives and the power to monitor these short-termist managers, and cause them to be more long-term oriented. ![]() If corporate short-termism is caused by short-termist institutional investors pressuring managers for short-term results, controlling shareholders will block the transmission of this short-termism. This is relevant, because controlling can have an important impact on short-termism, as I argue in a recent working paper. For example, according to one paper, the percentage of shares held by the largest shareholder in the corporation is much higher in France (46.4%), Germany (45.3%), Belgium (38.6%) and the Netherlands (34.6%), than in the US (21.4%) and the UK (19.5%). Controlling shareholders in EuropeĪ first important difference is that corporations in continental European countries more often have a controlling shareholder than corporations in the US and the UK. We believe that it is important to study short-termism in (continental) Europe, because corporate governance in continental Europe differs in important respects from corporate governance in the US and the UK, with potentially profound implications for the short-termism debate. This study is generally regarded as heavily flawed, however.įor this reason, the University of Antwerp, Harvard Law School and the European Corporate Governance Institute (ECGI) have decided to organize a conference on “short-termism in European corporate governance” on 30 May in Antwerp. A notable exception is the 2020 EY study for the European Commission on “directors’ duties and sustainable corporate governance. Short-termism in European corporate governance has received much less attention. However, the debate on short-termism has so far largely focused on possible short-termism in the US and the UK). For example, Joe Biden wrote in a 2016 op-ed for the Wall Street Journal: “ Short-termism is one of the greatest threats to America’s enduring prosperity”. Short-termist behavior by corporations is often seen as a large societal problem. ![]() Conference organized by University of Antwerp, Harvard Law School and ECGI on 30 May
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