By Daniel M. Gallagher, June 4th 2013, The Harvard Law School Forum on Corporate Governance and Financial Regulation
I am delighted to be able to participate in this conference, and especially proud as an Irish-American that it is being held in conjunction with Ireland’s Presidency of the Council of the European Union. This conference is particularly valuable because it provides a forum for executives, directors, investors, and policy makers to have a frank and productive dialogue on important corporate governance issues.
I would like to talk about the increasing role that governments – particularly, in the United States, the federal government – play in corporate governance as well as the increasingly prominent influence of proxy advisory firms on how companies are governed and on how shareholders vote. These changes have led to, among other things, new limitations and requirements being imposed on boards of directors and companies. And while the resulting costs to investors are easily apparent, the purported benefits are harder to discern. Although today I will for the most part discuss these issues as they apply to U.S. companies, I note that there is a related trend in Europe. As such, I hope that my comments may help inform your approach to regulating corporate governance as well.
Corporate governance involves three traditional actors: shareholders, management and boards of directors. Shareholders provide corporations with capital, management makes use of that capital, and the board of directors supervises management to ensure that it is allocating that capital appropriately. Shareholders, in turn, discipline the board’s efforts. The interests of these three actors are not always aligned. Continue reading…