Developing Corporate Governance: Cross-Border Race to Influence (Developing Corporate Governance 2016)

Abstract:

A key theme in this project is to study two sources of international power with growing impact on the Nordic business community; the EU legislature and foreign investors with activism agendas. International influence on the Nordic business society currently attracts considerable interest, for example reflected in policy-related initiatives such as the report on The Nordic Corporate Governance Model (Lekvall et al, 2014), and Danish contributions to the debate concerning how EU legislation pressures Nordic corporate governance (e.g. Birkmose, 2014; Hansen, 2014). The extent and nature of this cross-border influence, however, has never been investigated empirically. Indeed, the European Commission has demonstrated increasingly far-stretched ambitions to harmonize the regulatory framework that directs and controls investors, managers, and other constituents of listed corporations (all addressed in the “short-termism” project). Parallell a growing number of American activists –traditional institutions, hedge funds, and so called “corporate raiders”, are looking towards Europe (see FTI Consulting Report, 2014; Wall Street Journal, 2014). Foreign investor activism from non-traditional players has attracted very little attention in scientific research despite increasing importance (see Citigroup Report, 2013). Hedge funds attract significant attention in the United States (see Kahan and Rock, 2007; Bebchuk et al., 2014; Becht et al. 2010; Krishnan et al., 2015), although few papers consider their international engagements. But activism campaigns by these investors, and their relative success, is exciting because it indicates that old assumptions such as that sizeable market cap offer firms with protection, no longer applies. The proposed project addresses two sources of international power that affects Nordic corporate governance:1. External influences on the European legislature and, thus, on the production of corporate law, by measuring to what extent adopted legislative initiatives correspond to the preferences of foreign market participants. The legislative process in the EU is transparent and offers good prerequisites for collecting a unique primary dataset on how investors lobby through public consultations and what pieces of legislation they approve versus disapprove. This data can be collected down to the individual level, which allows us to test if certain types of investors, or investors with legal belonging in certain jurisdictions, are more influential than others. For example the recent amendments of the Shareholder Rights Directive appears to be highly American oriented. This project aims to determine how much power the Nordic countries have, relative to other parties, to affect EU proposals that alters the corporate governance prerequisites.2. A survey study of American investors with activist agendas in the Nordics (traditional institutions, hedge funds, and raiders). Given the scarcity of research on particularly “new” activists, combined with the fact that much activism occurs behind the scenes and, thus, is “off the radar” for quantitative data collection, a survey offers the best opportunity to examine the objectives and considerations that drive the actions of these market participants. This part of the project aims to open the blackbox of foreign investor activism in the Nordics, a severely understudied area.