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Boards and Executive Motivation

The Genova team will lead on and oversee this theme, which will involve members of the following nodes:

Université Libre de Bruxelles (ULB) Centro de Estudios Monetarios y Financieros (CEMFI)
Università degli Studi di Genova University of Oxford
Stichtung Katholieke Universiteit Brabant London Business School (LBS)
Universiteit van Amsterdam (UvA) Sabanci University

Objectives
to provide conclusive answers to open research questions in this area;
to use industry links to access unique data;
to exploit the unique institutional features of Europe to produce unique insights that will be recognised internationally.

Main projects
Clinical study of Telecom Italia. The Genova node's link to the Telecom Italia industry node will provide a unique research opportunity for network researchers. Through the Genova node, researchers will have direct access to the legal, economic and financial aspects of public company management. In particular, the researcher will be able to focus on issues, such as board appointment, composition and functioning, directors’ independence, organization by committees, internal controls, executive remuneration, depending on the topics chosen for research. The training will include comparative law issues considering that the company is listed both on the New York Stock Exchange and the Italian Stock Exchange and is therefore subject to Italian and US law (including the recent Sarbanes-Oxley Act regulating the governance of companies listed in the US). In addiction, the researcher will be able to attend the financial department of Telecom Italia, including its investor relation department, in order to develop a better understanding of the financial aspects of corporate governance and the relationships between management and institutional investors.
Board practices in Turkey. The Sabanci node will be working on this area by looking at current board practices in Turkey and at the transition to professional management in family firms.
Board reforms. Regulatory responses affecting boards that resulted from the recent corporate governance scandals. The scandals have triggered substantial amounts of legislation seeking to prevent an abuse of managerial discretion by implementing a variety of rules ranging from requirements of committees staffed with independent directors to whom important decisions are assigned to additional liability being imposed on directors. Some of these rules, particularly a number of procedural requirements with which corporate decision making has been burdened, have been designed rather hastily and give the impression of political reactions aimed at restoring public confidence rather than dealing reasonably with the core issues. One of these core questions certainly seems to be how to strike the right balance between the traditional concept of imposing and enforcing strict fiduciary duties (which might foster risk aversion) and the concept of aligning shareholder and management interests by tying directors’ remuneration to the success of the company (which may, as we have witnessed, foster excessive greed). This issue, particularly a closer examination of what influence the different mechanisms of controlling managerial behaviour have on executive motivation and how remuneration plans should be fashioned could be helpful in designing more effective laws while repealing unnecessary and burdensome rules.

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