corporate governance

  • 17 Jun 2013 at 4:13 PM

Let’s Hack Google’s Share Split

How much would you pay for a share of Google Class C stock? Those are the zero-vote shares that will soon be distributed, on a one-for-one basis, to holders of Google’s low-vote Class A shares, assuming that the settlement Google announced today goes through. We previously discussed the split when it was announced last year: Google’s founders don’t want to ever lose voting control of the company, so they’re proposing that any new shares issued for acquisitions, etc., be non-voting C shares; shareholder lawsuits have held this up until now but with the settlement it should go forward.

The traditional answer is that a share without voting rights is worth less than a share with voting rights because, y’know, sometimes you want to vote, and so various studies find something like a 2 to 10% discount for non-voting shares. But with Google that’s a little silly since no one really votes anyway: the high-vote Class B shares, which are mostly owned by co-founders Larry Page and Sergey Brin, give them about 56% of the vote, so whatever you do with your piddly Class A shares doesn’t matter. So the As and the Cs are basically the same except the As come with the hassle of having to mail back your pointless proxy card.1

So if you could get a C cheaper than an A, that seems like an arbitrage and you should buy it because the prices should eventually converge. But markets can remain irrational etc. etc. etc., so absent any obvious catalyst for convergence why would you do that? So Google, and some clever plaintiffs’ lawyers, provided a catalyst: Read more »

  • 06 Jun 2013 at 11:54 AM

Aubrey McClendon Not Done Delighting Us

Aubrey McClendon, Chesapeake Energy’s delightfully shady former CEO who was forced out by shareholders who found him more shady than delightful, is the sort of person about whom I might say “never change, Aubrey,” if that seemed necessary. It does not:

Aubrey McClendon, the controversial former chief executive of Chesapeake Energy, is attempting to stage a comeback by trying to raise $1bn in capital from private equity firms and sovereign wealth funds for his new company. … He has set up the new company’s offices near the Chesapeake campus he built during his 24 years at the company and AEP billboards advertising for staff are visible from the site.

That’s how you get around a noncompete! Or would be except that his noncompete seems to have been negotiated by a ravenous pack of lawyers who were warned to be extra careful around Aubrey McClendon, and as I read it he can’t hire anyone who comes to him from Chesapeake via the billboard.1 But, really: is that the point? Read more »

Is Jamie Dimon too powerful at JPMorgan? I have a wonderful, simple test in mind, though it may be impracticable; anyway here it is:

  • if a majority of shareholders vote in favor of the nonbinding proposal to strip him of his role as chairman of the board, and
  • he remains chairman of the board, then
  • he’s probably too powerful!

Let’s find out!

Honestly, who cares who cares who cares who cares if JPMorgan’s board has an independent Chairman or just an independent Presiding Director? The board’s job is to keep an eye on Jamie; if it failed to do that then giving it a fancy new title doesn’t seem likely to improve performance. Is it your impression that Jamie Dimon, who apparently rides roughshod over pissant Presiding Directors,1 will nonetheless be meek and subservient when faced with a Chairman?

Discussion about this proposal is confused because some people think that having an independent chairman is a good thing in all circumstances, or at least say they do; CalPERs’s governance czar, for instance, believes that “There’s a fundamental conflict in combining the roles of chairman and C.E.O.” and so CalPERS will vote to split the roles at JPMorgan just as they did last year. Others think that, y’know, it depends on the people. The people here would presumably remain the same though there’s some rumbling that Dimon would take his toys and go home if he couldn’t be chairman too.

Outside of CalPERS, though, the universal-good-governance theory doesn’t seem to move anyone much. Here, if you’re interested, are JPMorgan’s top 20 shareholders: Read more »

I’m generally fond of companies that find creative ways to access the public equity markets while not giving away all the “rights” that traditionally go to “owners” of “companies.” I mean, you want money, you ask people for money, you give them the terms that you need to give them to get the money: what is so sacred about shareholder voting rights?

At the same time though I’m a little skeptical of some of the reasons that private companies give for not wanting to go public. These seem to me to be basically two:

  • High-frequency-trading computers robots algorithms crash scary scary.
  • “If we go public our shareholders will force us to focus on quarterly earnings rather than the long-term good of the company.”

The first one, as you might notice from its grammar, seems ill-defined, though the fact that like every high-profile IPO this year has suffered from a computer glitch makes me think that it’s on to something. Something vague though. The second one: I mean, just don’t do that. What’s gonna happen to you if you manage for the long-term good of the company? Your stock will go down this quarter? Who cares? I thought you were in this for the long haul?

But they’ve got a point. Today in “shareholders are assholes,” here’s a delightful recent paper by three business professors about how stronger shareholder rights make companies more likely to manage earnings.1 As they point out, you could have two models of how strong public-shareholder rights (i.e. things like robust shareholder voting rights, weak anti-takeover provisions, etc.) affect corporate behavior:

  • Shareholders are good and will make companies do good things if they’re empowered,2 or
  • Shareholders are self-interested jerks and will make companies do bad things if it makes them more money.

There’s no particular reason to believe the first one but, y’know, it’s a hypothesis; it is also wrong: Read more »

  • 24 Oct 2012 at 7:33 PM

Good Corporate Governance Apparently Does Some Good

We talked a while back about how “corporate governance” is a thing that exists more or less orthogonal to the thing that is “running your corporation as though you were a group of competent humans,” as evidenced by the fact that Citi’s mangled and perhaps legally problematic semi-firing of Vikram Pandit has been celebrated as a paragon of good governance. I don’t really know what “corporate governance” is, if not that, but much of its semantic space is covered by:

  • do your directors and CEO like each other? – [ ] Yes [ ] No
  • do you have strong takeover defenses? – [ ] Yes [ ] No

Two “No” answers = good governance; two “Yes” answers = sketchy.1

You might if you wanted to attempt to quantify those things – which is more important, and how if at all does the good governance that they reflect translate into things like shareholders making money? I enjoyed this Lucian Bebchuk DealBook post on a paper he wrote about golden parachutes in part because it gets at that a bit. Golden parachutes are a weird takeover-y topic: CEO employment contracts that provide for big payouts upon acquisition look formally like takeover defenses, insofar as they cost an acquirer money, but they’re actually sort of an anti-takeover-defense. They encourage takeovers since they’re a sign to acquirers that the CEO is not going to make things difficult if he gets a bid.

Anyway Bebchuk and his coauthors look at some data and find: Read more »

  • 07 Mar 2012 at 7:19 PM
  • M&A

One More Thing For Governance Day

Felix Salmon put up a great note from a reader about investment banking conflicts; it’s fantastic so go read it. But this is a tiny bit unfair:

You and many other commentators seem to have some misconceptions about what exactly large, sophisticated clients such as El Paso’s board hire investment bankers to do.

Its always funny how, in the minds of pundits everywhere, those conniving and all-powerful one-percenters who sit on corporate boards become impotent and completely incapable of independent decision-making once an investment banker walks into the room.

The basic argument is that repeat-player investment bankers provide value not by telling brainless executives whether to accept or reject a merger, but by providing intelligent decisionmakers with access and relationships, and relationships come with conflicts. As he says: Read more »

  • 07 Mar 2012 at 3:53 PM

Nuns, Whores, DCFs

For some reason it is corporate governance day at Dealbreaker, so here is a grab-bag of inchoate nonsense (for a change!). First of all look at this:

The third-largest U.S. proxy adviser recommended that El Paso Corp shareholders vote against a proposed $23 billion sale of the company to Kinder Morgan Inc, switching its position after comments made by a Delaware judge.

Egan-Jones Proxy Services said in a report that it was withdrawing its endorsement of the deal because of “the conflicts of interest cited by (Delaware Chancery Court judge Leo Strine) and the attendant doubts cast on the deal.”

How should you take this? Well, one way to take it would be: if you paid me to tell you how to vote on things, you’d probably want me to look into those things and decide if they’re good things for you, and if they are tell you to vote for them and if not etc. So Egan-Jones* went and looked at this merger and decided it was a good merger and that its clients should vote for it. Then they learned about the conflicts of interest cited by the Delaware court, most of which were publicly available long before the opinion came out,** and changed their minds. Suggesting that they didn’t really do a bang-up job of examining the merger to begin with.

But that’s a stupid way of looking at Egan-Jones’s role because, really, you’re an EP shareholder and you’re like “oh Egan-Jones ran a DCF and this price looks good to them”? You can go read the DCFs of actual investment banks if that’s the sort of thing that gets you going. Nobody’s actually paying proxy advisors (do people pay them? I don’t know) for actual advice on how they should actually vote their shares. Instead they’re paying (maybe?) for some vague patina of good “corporate governance,” which means something like “good processes and independent boards and no conflicts of interest” and gets lots of chin-stroking academic articles written about it. Read more »