Managerial influence and CEO performance incentives

We study whether CEO influence is evident in CEO incentive arrangements by examining how the imposition of state anti-takeover laws (ATLs) in the 1980s affected CEO compensation and retention. On balance, we find that CEOs have higher compensation and more job security, and their compensation and retention are less sensitive to stock-based performance after the enactment of ATLs. We also find that CEO compensation and retention are more sensitive to accounting-based performance after ATLs, but the increased sensitivity is attributable to the accruals component of accounting-based performance. Based on prior evidence that CEOs often exercise discretion in measuring accounting-based performance, we interpret our results as evidence that CEOs have strong negotiation power vis-à-vis their corporate boards.     

CEO qualities and codes of ethics

Ethical issues have received growing attention recently, after corporate scandals and during the current economic crisis. Several initiatives have been adopted to restore confidence and trust in businesses, such as ethics codes. In addition, as a result of those scandals and financial frauds, several rules have focused on the role played by Boards of Directors in the planning and monitoring of codes of ethics. However, the empirical evidence is still scarce and needs some degree of extension. The purpose of this study is to determine the influence of several corporate governance features—particularly, the Chief Executive Officer (CEO)—on the decision of developing an ethics code, among Spanish companies. Our main findings point out the lack of influence of the CEO’s characteristics (except for CEO reputation) on the likelihood of having a corporate code, indicating that this decision has to do with a choice made by the company overall, perhaps because of regulatory reasons or stakeholders’ expectations. Also, we have checked how other variables, such as the extent of a firm’s participation in defence or other government contracts or multiple listings of the company in different financial markets, can influence the decision of developing an ethics code.     

Hiring Teams,Firms, and Lawyers: Evidence of the Evolving Relationships in the Corporate Legal Market

How are relationships between corporate clients and law firms evolving? Drawing on interview and survey data from 166 chief legal officers of S&P 500 companies from 2006–2007, we find that—contrary to standard depictions of corporate client‐provider relationships—(1) large companies have relationships with ten to twenty preferred providers; (2) these relationships continue to be enduring; and (3) clients focus not only on law firm platforms and lead partners, but also on teams and departments within preferred providers, allocating work to these subunits at rival firms over time and following “star” lawyers, especially if they move as part of a team. The combination of long‐term relationships and subunit rivalry provides law firms with steady work flows and allows companies to keep cost pressure on firms while preserving relationship‐specific capital, quality assurance, and soft forms of legal capacity insurance. Our findings have implications for law firms, corporate departments, and law schools.     

Judges and CEOs: French Aspects of Corporate Governance

The debate about corporate governance has brought to the front stage the notion of social interest or interest of the company itself as distinct of its stakeholders. French Law, judges, and CEOs use this notion with different meanings and intentions. The judges refer to it mainly to guarantee the continuity of the firm, especially when the latter faces economic difficulties; the CEOs refer to it to keep a free hand in managing the company. Shareholders see the notion as ambiguous and mostly used against their own interest. Shareholders and company interest do not merge. They differ on the industrial relations policy they induce and in the management freedom bestowed on CEOs. A reform of French Company Law currently under discussion seeks conciliation while trying to comply with the principles of corporate governance best practices.     

Firm Risk Management in the Face of Product Liability Rules*

This paper addresses the issue of corporate risk management strategies in dealing with products liability law. It views risk management as the dependent variable. How do attributes of the firm and of the law of products liability influence the risk management practices of the corporation? Drawing on the work of Oliver Williamson and others, the paper views the firm as a boundedly rational organization that must devote significant resources in monitoring and controlling its agents. This is especially costly in an environment where the measure of adequate performance (i.e. the design, manufacturing and marketing of a non-defective product) is uncertain and where the criteria used by legal actors (judges and juries) to judge product defectiveness, may vary substantially from the criteria used by the firm's engineers and scientists. Both the costs of control and the level of legal uncertainty are variables. Together they combine to shape a firm's risk management strategy.     

Regulatory Disclosure of Offending Companies in the Dutch Financial Market: Consumer Protection or Enforcement Publicity?

Regulatory disclosure of names of offending companies is increasingly popular as an alternative to traditional command and control regulation. The goals and intended effects of disclosure are not always clear, however. Do regulators wish to increase their transparency, or do they intend to name and shame? This article aims to contribute to a better understanding of the underlying working mechanism of regulatory disclosure of offenders' names through a case study of the Dutch Authority for Financial Markets' disclosure policy. It distinguishes two types of disclosure strategies: consumer oriented and firm oriented. The case study shows that although informing consumers was the primary purpose of disclosure as intended by the Dutch legislature, the purpose in practice has shifted to informing companies about the regulators' enforcement policy. The nature of the disclosed information makes it unlikely that disclosure adequately prevents financial risk taking by consumers. Instead of empowering consumers, disclosure has been incorporated in a traditional deterrence logic, turning out not to be an example of new governance but instead a modern version of command and control enforcement publicity.     

How to Win Hearts and Minds: Corporate Compliance Policies for Sexual Harassment

Australian law provides incentives and encouragement for companies to develop their own sexual harassment policies. This paper reports on interviews with equal opportunity officers in Australia's financial services industry responsible for best practice sexual harassment policies. Their experiences evoke three scholarly critiques of corporate compliance as a regulatory strategy: (1) that corporate compliance programs are a means by which employees' lives are regimented and controlled by corporate governmentality, (2) or, even worse, that private management priorities subvert the principles of public‐regarding law while appearing to implement them, and (3) that even where law has some effect, regulatory strategies aimed at producing self‐regulatory compliance will provide insufficient deterrence to effect real change. The data however also show that the best of these best practice officers have themselves created complex strategies to resolve tensions between law and management, corporate goals, and normative pressures. In doing so, they have had to combine their personal, professional, and corporate commitments to "win hearts and minds" to antiharassment values by co‐opting management resources to compliance goals through strategic appeals to both "business case" arguments and the specter of public sanctions. This project of cooption depends on their own position and "clout" within the corporation.     

New Governance,Chief Privacy Officers,and the Corporate Management of Information Privacy in the United States: An Initial Inquiry

While the turn from traditional regulation to more collaborative, experimentalist, and flexible forms of governance has garnered significant academic focus, far less attention has been paid to the effects of such “new governance” approaches on regulated firms' understanding of the laws' demands, and on the structures employed within business organizations to meet them. This article targets this analytic gap by examining internal corporate practices regarding consumer privacy, an arena in which the Federal Trade Commission and the states have adopted new governance models. Using data from qualitative interviews with leading corporate Chief Privacy Officers, as well as internal corporate documentation, it examines the way privacy practices have been catalyzed in the shadow of new privacy governance approaches and the combination of regulatory, market, and stakeholder forces they seek to harness. Specifically, it suggests the convergence of a set of practices adopted by privacy officers identified as “leaders,” regarding both high‐level corporate privacy management and the integration of privacy into entity‐wide risk management goals through technology, decision‐making processes, and the empowerment of distributed expertise networks throughout the firm.     

Corporatisation and Corporate Governance in China's Economic Transition

China has sought to improve enterprise performance not through privatisation as in other transition economies, but through corporatisation as means of improving corporate governance. Actual governance practices of corporatised Chinese firms are however seriously defective, characterized by excessive power of CEOs, insider control and collusion, lack of safeguards for minority shareholders and weak transparency. These shortcomings are attributable to factors such as cultural and political traditions, uncompetitiveness of markets, poor legal enforcement, weak debt and equity markets, but above all to continued state dominance in ownership and control of the corporate sector and listed companies. Corporatisation, nevertheless, has created a regime conducive to implementing measures for improving corporate governance.     

Exorbitant CEO compensation: just reward or grand theft?

The failure of society to criminalize policies and practices of powerful organizations and individuals that are demonstrably harmful has been a central theme of the white collar crime literature since Sutherland. In recent years much commentary and criticism has been directed at vastly exorbitant compensation packages awarded to CEOs of major corporations and other major institutions. Although some criminal prosecutions have been pursued on the basis of allegations of fraud in relation to CEO compensation (e.g., the Dennis Kozlowski/Tyco case and the Conrad Black/Hollinger case), and some civil lawsuits demanding repayment of unjustifiably large CEO compensation have been initiated (e.g., the Richard Grasso/New York Stock Exchange case), most typically exorbitant CEO compensation packages result in neither criminal indictments nor civil lawsuits. This article explores the status of exorbitant CEO compensation as a criminological phenomenon, beginning with a typology of different views on such compensation. The contemporary scope of disproportionate compensation is reviewed, with the exponential increase in the gaps between the compensation of CEOs and those below them documented. Some of the different mechanisms along a continuum of legal to illegal for providing exorbitant CEO compensation are identified. Why is the awarding of exorbitant CEO compensation typically legal? What specific forms of harm arise from awarding exorbitant CEO compensation? Why do Corporate Board Compensation Committees award exorbitant CEO compensation? Indeed, what are the specifically criminogenic dimensions of Corporate Board decision-making that contribute to this process? What arguments can be advanced in favor of criminalizing exorbitant CEO compensation and against doing so? What specific practical constraints would have to be overcome to criminalize the awarding of exorbitant CEO compensation? If exorbitant CEO compensation has not been addressed traditionally as a form of white collar crime, what arguments can be advanced in favor and against doing so now? This article promotes attention to the exorbitant CEO compensation issue by white collar crime scholars, with a provisional addressing of the questions raised above.     

The Responsibility Gap in Corporate Crime

In many cases of criminality within large corporations, senior management does not commit the operative offense—or conspire or assist in it—but nonetheless bears serious responsibility for the crime. That responsibility can derive from, among other things, management’s role in cultivating corporate culture, in failing to police effectively within the firm, and in accepting lavish compensation for taking the firm’s reins. Criminal law does not include any doctrinal means for transposing that form of responsibility into punishment. Arguments for expanding doctrine—including broadening of the presently narrow “responsible corporate officer” doctrine—so as to authorize such punishment do not fare well under the justificatory demands of criminal law theory. The principal obstacle to such arguments is the large industrial corporation itself, which necessarily entails kinds and degrees of delegation and risk-taking that do not fit well with settled concepts about mens rea and omission liability. Even the most egregious and harmful management failures must be addressed through design and regulation of the corporation rather than imposition of individual criminal liability.     

The Bonding Effects of Directors' Statutory Wage Liability: An Interactive Corporate Governance Explanation

Canadian corporate directors are personally liable to the corporation's employees for unpaid wages. The dominant rationale is the protection of vulnerable employees. A proposal under consideration to exonerate directors from this liability responds to claims that directors of financially troubled corporations resign prematurely, lessening the realized value potential of the firm. Scholars have also argued that a "liability chill" causes directors to make inefficient, risk‐averse investment decisions while the corporation is solvent. Paradoxically, exoneration may actually decrease the value of the firm because directors' liability for employees' wages increases efficiency in corporate governance by reducing agency costs. It serves as a bond by directors to corporate stakeholders that they will diligently restrain harmful managerial behavior.     

DETERRING CORPORATE CRIME*

Using event history analysis, we examine the recidivism patterns of a sample of 38 corporations charged with one or more serious antitrust violations between 1928 and 1981 to see whether sanction experience decreases the likelihood of a firm's reoffending. Specifically, we analyze the effects of procedure type (e.g., civil, criminal, and administrative redress) and proxy measures of corporate deterrence while controlling for changes in antitrust law and the economic conditions of the firm, industry, and general economy. Though not robust, there is some evidence that past guilty verdicts and changes in penalties for lawbreaking from misdemeanors to felonies inhibit recidivism. We note, however, that industry characteristics are stronger by far in their effects on future illegality than formal sanction risk or consequence. The implications of these findings for organizational deterrence and corporate crime control are discussed.     

THE CONTEXT OF MARRIAGE AND CRIME: GENDER,THE PROPENSITY TO MARRY,AND OFFENDING IN EARLY ADULTHOOD*

Marriage is central to theoretical debates over stability and change in criminal offending over the life course. Yet, unlike other social ties such as employment, marriage is distinct in that it cannot be randomly assigned in survey research to more definitively assess causal effects of marriage on offending. As a result, key questions remain as to whether different individual propensities toward marriage shape its salience as a deterrent institution. Building on these issues, the current research has three objectives. First, we use a propensity score matching approach to estimate causal effects of marriage on crime in early adulthood. Second, we assess sex differences in the effects of marriage on offending. Although both marriage and offending are highly gendered phenomena, prior work typically focuses on males. Third, we examine whether one's propensity to marry conditions the deterrent capacity of marriage. Results show that marriage suppresses offending for males, even when accounting for their likelihood to marry. Furthermore, males who are least likely to marry seem to benefit most from this institution. The influence of marriage on crime is less robust for females, where marriage reduces crime only for those with moderate propensities to marry. We discuss these findings in the context of recent debates concerning gender, criminal offending, and the life course.     

The juvenile sex offender: The effect of employment on offending

PurposeIn many countries, sex offenders are treated as a special group of offenders, requiring special criminal justice responses and treatment modalities, presuming they are at high risk of re-offending. These special measures limit them in entering adult roles, especially employment. At the same time, such adult roles have been found to reduce offending risk in general offenders. We aim to investigate whether employment reduces offending rates in juvenile sex offenders' (JSO).MethodUsing longitudinal data on a Dutch sample of 498 JSO, we investigate employment and offending careers in JSO. A hybrid random effects model is used to investigate within-individual changes of employment quality and employment stability on offending. We also investigated whether the effects differ for child abusers, peer abusers and group offenders, who have different background profiles and for whom employment effects could be less.ResultsWe first show that JSO enter the labor market at relatively young ages, with stagnating participation rates from age 25 on, and numerous and short-lived employment contracts. In spite of these fractured careers, employment is associated with a decrease in offending. We found no difference for offender types in the effect of employment on offending.ConclusionsWe conclude that for JSO, employment decreases offending. Policies aimed at guidance towards employment, or the inclusion into conventional society, may be effective for JSO.     

Romantic partners and young adult offending: Considering the role of partner's socioeconomic characteristics

In this study, we examined whether and to what extent the effects on offending of marriage and different types of cohabitating partnerships depend on the romantic partner's socioeconomic status (SES). Such research addresses a key gap in knowledge regarding potential heterogeneity of effects on behavior of romantic partnerships. Drawing on the National Longitudinal Survey of Youth 1997, we examined the within‐individual effects of three romantic partner's socioeconomic characteristics–education, employment, and income–on offending from ages 18 to 34. Results revealed that marriage was related to reductions in arrest only for those whose spouse was employed (full or part time) and had income. In contrast to marriage, partner SES was not related to arrest among those who cohabited with a partner they never married. Additionally, partner SES was often associated with reductions in arrest among those who cohabited with a partner they later married, but the reductions were statistically indistinguishable across levels of partner SES. Lastly, these effects were experienced similarly for low‐ and high‐SES individuals alike, and no gender differences were detected in these effects. Our findings suggest that important life events such as marriage and cohabitation can be behavior‐altering transitions, but the effects of these events are variable.     

Criminal career progression among serious youthful offenders in Australia

An important question from research on criminal careers is whether the processes that generate participation in criminal activity are similar to those that drive offending frequency among those who have initiated. This article considers basic demographic correlates asking whether those factors are associated with both initial and sustained early adulthood criminality in Australia. Three findings emerged from the study: (1) the offenders exhibited high levels of criminal activity during early adulthood; (2) males were more likely than females to offend and offend at higher rates as adults; and (3) Indigenous youth were more likely than non-Indigenous youth to offend and offend at higher rates as adults. Overall, the study results showed that basic correlates of crime were linked to both participation and frequency of offending in early adulthood—even within a sample of serious offenders. The article addresses the theoretical implications of the findings and directions for future research.     

Company Liability and Competition Law: Exposure of Company to Risk of Undesirable Behaviour of Directors

In order to protect the objectives of competition policy, companies as undertakings are primarily targeted for the competition law infringements based on the mixed approach of compliance and deterrence theories relying on the view that company directors are incentivised to comply with the rules of competition law by the internal compliance programmes and corporate fines are the consequences of incompliance. This enforcement strategy gives rise to a tension between corporate governance, company law and competition law, as the former two focus on the behaviour of individuals within the corporate structure, while the latter concerns the impact of the company’s behaviour in the market. The question that arises in this tension is whether or to what extent competition law actually considers the way in which the company is run internally while it seeks to promote these primary objectives. This article analyses the deterrent effectiveness of primary enforcement strategy employed in the UK competition law regime and argues that competition law does not tend to localise the source of conduct or particular decisions and does not aim to correct the right wrongdoer. Despite that lack of effectiveness of public enforcement strategy to deter further anti-competitive behaviour has led individual sanctions to be introduced by the Enterprise Act 2002 and the Enterprise and Regulatory Reform Act 2013 in the UK, companies are still primarily targeted by corporate fines even though directors have intentionally breached the rules of competition law and this strategy is unlikely to deter directors from engaging with undesirable behaviour which exposes the company to risk of liability and loss.

     

WORK,INCOME SUPPORT,AND CRIME IN THE DUTCH WELFARE STATE: A LONGITUDINAL STUDY FOLLOWING VULNERABLE YOUTH INTO ADULTHOOD

Life‐course criminological research has consistently suggested that employment can reduce criminal behavior. However, it is unclear whether the financial aspects of employment or the social control that inheres in employment best explains the relationship between employment and reduced offending. By using longitudinal information on a sample of men and women (N = 540) who were institutionalized in a Dutch juvenile justice institution in the 1990s, this study examines the effects of employment as well as the different types of income support on crime. Random‐ and fixed‐effects models show that for men, both work and income support are associated with a reduction in the rate of offending. For women, however, although employment is correlated with a lower offending rate, receiving income support, and in particular disability benefits, is correlated with a higher offending rate. The findings support both theories that stress the financial motivation for crime as well as theories that emphasize the importance of informal social control for reducing offending.     

THE OBJECTIVE OF THE COMPANY

The important role that corporate governance has played in a wide range of public companies is self-evident. Recent major corporate failures are more or less related to bad corporate governance and the increasing corporate scandals call for good corporate governance not only in China but all around the world. Corporate governance is principally about how companies are structured and directed, which is indeed a quite broad field. It is a good direction to discuss how to improve the overall corporate governance level in China through the perspective of perfecting shareholder protection. However, while running companies for shareholder interests is getting increasingly more criticisms, the so-called stakeholder model and entity model are raised as alternative approaches. Accordingly, it is the purpose of this paper to find the most appropriate corporate objective which could be applied as the starting point for future corporate governance discussion by providing a right direction for assessing and evaluating corporate performance and accountability of management. Through the comparative studies of the three models, this paper concludes that shareholder primacy is a more effective and efficient approach with regard to advancing social welfare and controlling director’s accountability among others; the other two models cannot justify substituting the shareholder model as the corporate objective.