Fiche de révision : Principes et enjeux de la gouvernance d'entreprise

📋 Plan du Cours

1. The Agency Problem
2. Financing Without Governance
3. Legal Protection for Investors
4. Role of Large Investors
5. Role of Large Creditors
6. Costs of Large Investors
7. Specific Governance Arrangements
8. Debt Versus Equity Choice
9. Leveraged Buyouts (LBOs
10. Cooperatives and State Ownership
11. Comparing Governance Systems
12. Conclusion on Corporate Governance Research

📖 1. The Agency Problem

🔑 Notions clés & Définitions

• Separation of ownership and control : Fama, Eugene, and Michael Jensen, 1983a, Separation of ownership and control, Journal of Law and

📝 Points essentiels

• The core contractual issue is how a contract can specify what the manager does with the funds and how the returns are divided between him and the financiers.
• Governance 741 get anything but a worthless piece of paper back from the manager? The agency problem in this context refers to the difficulties financiers have in assuring that their funds are not expropriated or wasted on unattractive projects. In most general terms, the financiers and the manager sign a contract that specifies what the manager does with the funds, and how the returns are divided between him and the financiers. Ideally, they would sign a complete contract, that specifies exactly what the manager does in all states of the world, and how the profits are allocated. The trouble is, most future contin- gencies are hard to describe and foresee, and as a result, complete contracts are technologically infeasible. This problem would not be avoided even if the manager is motivated to raise as much funds as he can, and so tries hard to accommodate the financiers by developing a complete contract. Because of these problems in designing their contract, the manager and the financier have to allocate residual control rights-i.e., the rights to make decisions in circum- stances not fully foreseen by the contract (Grossman and Hart (1986), Hart and Moore (1990)). The theory of ownership addresses the question of how these residual control rights are allocated efficiently. In principle, one could imagine a contract in which the financiers give funds to the manager on the

💡 À retenir

Corporate governance deals with the agency problem created by the separation of management and finance. The central issue is how to assure financiers that they get a return on their financial investment when managers control the funds.

📖 2. Financing Without Governance

🔑 Notions clés & Définitions

• Worthless piece of paper : A claim that financiers may be left with if they part with their money and receive nothing of value back from the manager.
• Unattractive projects : Projects that waste company funds rather than using them productively, so they reduce the value returned to financiers.
• Financing Without Governance : Previous section raised the main tougher when it is not concen- trated.

📝 Points essentiels

• The central danger is that managers may steal the capital they supply or invest it in bad projects.
• The financing problem is that, after investors part with their money, managers may abscond with it instead of returning value.

💡 À retenir

Without governance, financiers cannot be sure of receiving a return on the money they supply. The risk is that managers will divert capital to themselves or into bad projects instead of returning value.

📖 3. Legal Protection for Investors

🔑 Notions clés & Définitions

• Shareholder voting rights : Supplemented by an affir- mative duty of loyalty of the managers to shareholders.
• Legal obligations : Much of the difference in corporate governance systems around the world stems from the differences in the nature of legal obligations that managers have to the financiers, as well as in the differences in how courts interpret and enforce these obligations.
• Legal protection : The first approach is to give investors power through legal protection from expro- priation by managers.
• Large investors : We discuss how large investors reduce agency costs.

📝 Points essentiels

• If managers violate the contract, financiers can appeal to courts to enforce their rights.
• Differences in corporate governance across countries stem largely from differences in the legal obligations managers owe financiers and in how courts interpret and enforce those obligations.
• In many countries, shareholders must appear in person to vote, which effectively suppresses voting by small investors.
• Even in developed countries, managers may interfere with voting by pressuring shareholders, hiding information, or manipulating the process.
• The most important legal right shareholders have is the right to vote on important corporate matters, such as mergers and liquidations, as well as in elections of boards of directors, which in turn have certain rights vis a vis the management (Manne (1965), Easterbrook and Fischel (1983)).
• In developed countries, courts can be relied on to ensure that voting takes place, but even there managers often interfere in the voting process, and try to jawbone shareholders into supporting them, conceal information from their opponents, and so on (Pound (1988), Grundfest (1990)).

💡 À retenir

La protection des investisseurs dépend à la fois de droits juridiques formels et de la possibilité réelle de les faire respecter. Les droits de vote et la protection légale existent, mais leur efficacité varie selon les coûts d’exercice et l’intervention des managers.

📖 4. Role of Large Investors

🔑 Notions clés & Définitions

• Clear : They have both the interest in getting their money back and the power to demand it.
• Control rights : Concentrated in the hands of a small number of investors with a collectively large cash flow stake, concerted action by investors is much easier than when control rights, such as votes, are split among many of them.
• Large investors : Using this general framework, we discuss several potential costs of having large investors: straightforward expropriation of other inves- tors, managers, and employees;

📝 Points essentiels

• Large investors can help solve governance problems by concentrating ownership and making control more effective.
• Governance 739 power. Specifically, we consider reputation-building in the capital market and excessive investor optimism, and conclude that these are unlikely to be the only reasons why investors entrust capital to firms. Sections III and IV then turn to the two most common approaches to corporate governance, both of which rely on giving investors some power. The first approach is to give investors power through legal protection from expro- priation by managers. Protection of minority rights and legal prohibitions against managerial self-dealing are examples of such mechanisms. The second major approach is ownership by large investors (concentrated ownership): matching significant control rights with significant cash flow rights. Most corporate governance mechanisms used in the world-including large share holdings, relationship banking, and even takeovers- can be viewed as exam- ples of large investors exercising their power. We discuss how large investors reduce agency costs. While large investors still rely on the legal system, they do not need as many rights as the small investors do to protect their interests. For this reason, corporate governance is typically exercised by large investors. Despite its common use, concentrated ownership has its costs as well, which can be best described as potential expropriation by large investors of other investors and stakeholders in the

💡 À retenir

Cette section présente la propriété concentrée comme un mécanisme central de gouvernance. Elle renforce le pouvoir des investisseurs pour discipliner les managers, alors que des investisseurs dispersés ont généralement trop peu de contrôle pour agir efficacement.

📖 5. Role of Large Creditors

🔑 Notions clés & Définitions

• Large creditors : Significant creditors that are also large and potentially active investors, because they have large investments in the firm and can potentially pressure managers through their financial position.

📝 Points essentiels

• Banks may have substantial lending power and may also control equity votes, but the source says this does not mean they are nearly as active in corporate governance as might be expected.
• Large creditors, especially banks, may have substantial lending power and may also hold equity votes.

💡 À retenir

Banks may have substantial lending power and may also control equity votes, but the source says this does not mean they are nearly as active in corporate governance as might be expected.

📖 6. Costs of Large Investors

🔑 Notions clés & Définitions

• clear : situation où les investisseurs de grande taille peuvent être trop faibles, biaisés ou intéressés par leurs propres avantages, au lieu de discipliner efficacement les dirigeants.
• Private benefits of control : avantages privés tirés du contrôle d’une firme, distincts de la valeur totale de l’entreprise et susceptibles de profiter au contrôleur plutôt qu’aux autres investisseurs.
• Costs of Large Investors : coûts liés à la concentration de la propriété, quand un grand investisseur utilise ses droits de contrôle pour maximiser son propre bien-être au détriment d’autres investisseurs, des salariés ou des dirigeants.
• large investors : investisseurs détenant une part importante du capital et disposant d’un pouvoir de contrôle suffisant pour demander le retour de leur argent et influencer la firme.
• large investors are : acteurs qui ont à la fois l’intérêt de récupérer leur mise et le pouvoir d’exiger ce retour, mais qui peuvent aussi imposer des coûts aux autres investisseurs lorsqu’ils privilégient leurs propres intérêts.

📝 Points essentiels

• Les banques peuvent n’avoir aucun intérêt à discipliner les dirigeants et peuvent au contraire chercher à les ménager pour obtenir davantage d’affaires lorsque le risque de défaut est encore éloigné.
• Les grands investisseurs peuvent être trop conciliants parce qu’ils préfèrent poursuivre des projets non rentables plutôt que de les liquider.
• Un grand investisseur peut chercher à maximiser ses avantages privés de contrôle plutôt que la valeur totale de la firme, ce qui impose des coûts aux autres investisseurs.
• Ces problèmes signifient que les grands investisseurs peuvent échouer à contraindre les dirigeants à maximiser les profits et à distribuer les rendements.

💡 À retenir

La concentration du pouvoir n’a pas seulement des avantages : elle peut aussi produire des investisseurs dominants faibles, biaisés ou opportunistes. Au lieu de protéger les autres actionnaires, ils peuvent préserver leurs propres avantages et laisser les dirigeants s’écarter de la maximisation des profits.

📖 7. Specific Governance Arrangements

🔑 Notions clés & Définitions

• Bankruptcy : Gilson, Stuart, 1990, Bankruptcy, boards, banks, and block
• Corporate governance : For this reason, corporate governance is typically exercised by large investors.

📝 Points essentiels

• If a covenant is violated, especially if payment is defaulted on, the lender can repossess collateral or force bankruptcy.
• State ownership is treated as a distinct organizational form that is rarely conducive to efficiency.
• Governance 757 Last but not least, hostile takeovers are politically an extremely vulnerable mechanism, since they are opposed by the managerial lobbies. In the United States, this political pressure, which manifested itself through state anti- takeover legislation, contributed to ending the 1980s takeovers (Jensen (1993)). In other countries, the political opposition to hostile takeovers in part explains their general nonexistence in the first place. The takeover solution practiced in the United States and the United Kingdom, then, is a very imperfect and politically vulnerable method of concentrating ownership. C. Large Creditors Significant creditors, such as banks, are also large and potentially active investors. Like the large shareholders, they have large investments in the firm, and want to see the returns on their investments materialize. Their power comes in part because of a variety of control rights they receive when firms default or violate debt covenants (Smith and Warner (1979)) and in part because they typically lend short term, so borrowers have to come back at regular, short intervals for more funds. As a result of having a whole range of controls, large creditors combine substantial cash flow rights with the ability to interfere in the major decisions of the firm. Moreover, in many countries, banks end up holding equity as well as debt of the firms they invest
• Governance 765 Because the equity holders have voting power and legal protection of minor- ity shareholders, they have the ability to extract some payments from the managers in the form of dividends. Easterbrook (1984) articulates the agency theory of dividend payments, in which dividends are for equity what interest is for debt: pay out by the managers supported by the control rights of the financiers, except in the case of equity these control rights are the voting rights. More recently, Fluck (1995) and Myers (1995) present agency-theoretic models of dividends, based on the idea that shareholders can threaten to vote to fire managers or liquidate the firm, and therefore managers pay dividends to hold off the shareholders. These models do not explicitly address the free rider problem between shareholders; namely, how do they manage to organize themselves to pose a threat to the management when they are small and dispersed? Concentration of equity ownership, or at least the threat of such concentration, must be important to get companies to pay dividends. One of the fundamental questions that the equity contracts raise is how- given the weakness of control rights without concentration- do firms manage to issue equity in any substantial amounts at all? Equity is the most suitable financing tool when debt contracts are difficult to enforce, i.e., when no specific collateral can

💡 À retenir

This section shifts from broad governance principles to concrete control devices embedded in contracts and ownership form. It emphasizes debt as a control-based contract and state ownership as a poor governance arrangement.

📖 8. Debt Versus Equity Choice

🔑 Notions clés & Définitions

• Debt versus equity choice : The Debt Versus Equity Choice Recent years saw a veritable flood of research on the debt contract as a mechanism for solving agency problems.

📝 Points essentiels

• Equity is associated with voting rights, while debt gives lenders control rights when covenants are violated or default occurs.
• The choice between debt and equity is therefore also a choice about who gets governance power.
• Governance 757 Last but not least, hostile takeovers are politically an extremely vulnerable mechanism, since they are opposed by the managerial lobbies. In the United States, this political pressure, which manifested itself through state anti- takeover legislation, contributed to ending the 1980s takeovers (Jensen (1993)). In other countries, the political opposition to hostile takeovers in part explains their general nonexistence in the first place. The takeover solution practiced in the United States and the United Kingdom, then, is a very imperfect and politically vulnerable method of concentrating ownership. C. Large Creditors Significant creditors, such as banks, are also large and potentially active investors. Like the large shareholders, they have large investments in the firm, and want to see the returns on their investments materialize. Their power comes in part because of a variety of control rights they receive when firms default or violate debt covenants (Smith and Warner (1979)) and in part because they typically lend short term, so borrowers have to come back at regular, short intervals for more funds. As a result of having a whole range of controls, large creditors combine substantial cash flow rights with the ability to interfere in the major decisions of the firm. Moreover, in many countries, banks end up holding equity as well as debt of the firms they invest
• Governance 765 Because the equity holders have voting power and legal protection of minor- ity shareholders, they have the ability to extract some payments from the managers in the form of dividends. Easterbrook (1984) articulates the agency theory of dividend payments, in which dividends are for equity what interest is for debt: pay out by the managers supported by the control rights of the financiers, except in the case of equity these control rights are the voting rights. More recently, Fluck (1995) and Myers (1995) present agency-theoretic models of dividends, based on the idea that shareholders can threaten to vote to fire managers or liquidate the firm, and therefore managers pay dividends to hold off the shareholders. These models do not explicitly address the free rider problem between shareholders; namely, how do they manage to organize themselves to pose a threat to the management when they are small and dispersed? Concentration of equity ownership, or at least the threat of such concentration, must be important to get companies to pay dividends. One of the fundamental questions that the equity contracts raise is how- given the weakness of control rights without concentration- do firms manage to issue equity in any substantial amounts at all? Equity is the most suitable financing tool when debt contracts are difficult to enforce, i.e., when no specific collateral can

💡 À retenir

This section compares debt and equity as alternative allocations of control, not just alternative payout structures. In the newer view, debt gives creditors control rights when covenants are violated or default occurs, while equity is tied to voting rights.

📖 9. Leveraged Buyouts (LBOs

🔑 Notions clés & Définitions

📝 Points essentiels

• The section belongs to the discussion of financing structures that use debt as a governance device.
• The governance significance of an LBO comes from the way debt can reshape incentives and control rights.
• Governance 765 Because the equity holders have voting power and legal protection of minor- ity shareholders, they have the ability to extract some payments from the managers in the form of dividends. Easterbrook (1984) articulates the agency theory of dividend payments, in which dividends are for equity what interest is for debt: pay out by the managers supported by the control rights of the financiers, except in the case of equity these control rights are the voting rights. More recently, Fluck (1995) and Myers (1995) present agency-theoretic models of dividends, based on the idea that shareholders can threaten to vote to fire managers or liquidate the firm, and therefore managers pay dividends to hold off the shareholders. These models do not explicitly address the free rider problem between shareholders; namely, how do they manage to organize themselves to pose a threat to the management when they are small and dispersed? Concentration of equity ownership, or at least the threat of such concentration, must be important to get companies to pay dividends. One of the fundamental questions that the equity contracts raise is how- given the weakness of control rights without concentration- do firms manage to issue equity in any substantial amounts at all? Equity is the most suitable financing tool when debt contracts are difficult to enforce, i.e., when no specific collateral can
• The management has almost complete control and substantial cash flow rights, which can in principle lead to dramatically improved incentives.

💡 À retenir

Cette section présente les LBO comme une forme hybride de financement et de rachat qui met en jeu la propriété concentrée. Leur intérêt en gouvernance vient du fait que la dette peut modifier les incitations et les droits de contrôle.

📖 10. Cooperatives and State Ownership

🔑 Notions clés & Définitions

• State ownership : A similar argument has been used to justify state ownership of firms.

📝 Points essentiels

• The survey gives some attention to cooperatives but does not focus on the broader range of noncapitalist ownership patterns.
• Worker ownership and nonprofit organizations are explicitly set aside from the main analysis.
• In addition, we discuss state ownership-a particular organizational form that, for reasons discussed in this article, is rarely conducive to efficiency.

💡 À retenir

Cette section isole des formes de propriété en dehors du capitalisme actionnarial standard et montre qu’elles occupent une place limitée dans la revue. Les coopératives sont seulement évoquées, tandis que la propriété des travailleurs et les organisations à but non lucratif sont mises à l’écart, et la propriété d’État est jugée rarement efficace.

📖 11. Comparing Governance Systems

🔑 Notions clés & Définitions

• Legal protection of investors : Concentration of ownership as complementary approaches to governance.

📝 Points essentiels

• The survey compares corporate governance systems across countries by focusing on legal protection and concentrated ownership.
• The United States receives the most attention because most English-language empirical evidence comes from there.
• The article stresses that corporate governance arrangements differ widely around the world.
• Governance 773 informed investors. These investors may be better able to help distressed firms as well. Still, there are serious questions about the effectiveness of these investors, largely because their toughness is in doubt. As Charkham (1994) has shown, German banks are large public institutions that effectively control themselves. There is little evidence from either Japan or Germany that banks are very tough in corporate governance. Finally, at least in Germany, large- investor-oriented governance system discourages small investors from partic- ipating in financial markets. In sum, despite a great deal of controversy, we do not believe that either the theory or the evidence tells us which of the three principal corporate governance systems is the best. In this regard, we are not surprised to see political and economic pressures for the three systems to move toward each other, as exemplified by the growing popularity of large share- holders in the United States, the emergence of public debt markets in Japan, and the increasing bank-bashing in Germany. At the same time, in thinking about the evolution of governance in transition economies, it is difficult to believe that either significant legal protection of investors or takeovers are likely to play a key role. In all likelihood, then, unless Eastern Europe is stuck with insider domination and no private exter- nal finance
• Governance 769 theory. First, the virtual absence of protection of minority shareholders makes it attractive for managers to divert resources from the firms despite their large personal cash flow stakes, since in this way they do not need to share with outside investors at all. Second, managers in many cases are not competent to restructure the privatized firms, yet in virtue of their control rights remain on the job and "consume" the benefits of control. In fact, some of the most successful privatizations in Russia have been the ones where outside investors have accumulated enough shares to either replace or otherwise control the management. Such outside investors have typically been less capable of di- verting the profits for themselves than the managers, as well as better capable of maximizing these profits. The example of the Russian privatization vividly illustrates both the benefits and the costs of concentrated ownership without legal protection of minority investors. VII. Which System is the Best? Corporate governance mechanisms vary a great deal around the world. Firms in the United States and the United Kingdom substantially rely on legal protection of investors. Large investors are less prevalent, except that owner- ship is concentrated sporadically in the takeover process. In much of Conti- nental Europe as well as in Japan, there is less reliance on elaborate legal

💡 À retenir

Cette section compare les systèmes de gouvernance d’entreprise selon les pays, en mettant l’accent sur la protection juridique des investisseurs et la concentration de la propriété. Elle souligne aussi que la base empirique est très inégale, avec une forte domination des travaux sur les États-Unis.

📖 12. Conclusion on Corporate Governance Research

🔑 Notions clés & Définitions

• Empirical evidence : Although there has been a great deal of theoretical discussion of governance by large creditors, the empirical evidence of their role remains scarce.
• Question of corporate governance : Agency problem: the separation of management and finance.

📝 Points essentiels

• The survey concludes that corporate governance is of enormous practical importance even in advanced market economies.
• The article repeatedly notes that the existing research base is uneven and incomplete across countries.
• The overall contribution is to synthesize theory and evidence on how financiers get returns from firms despite the separation of financing and management.
• Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance.

💡 À retenir

La conclusion souligne à la fois l’importance pratique majeure de la gouvernance d’entreprise et les limites de la recherche disponible. Elle présente aussi le champ comme une synthèse de la théorie et des preuves sur la manière dont les financeurs obtiennent un retour malgré la séparation entre gestion et financement.

🧩 Compléments de couverture

1. La gouvernance d’entreprise est définie comme l’ensemble des moyens par lesquels les fournisseurs de finance s’assurent d’obtenir un retour sur leur investissement.
2. En pratique, les tribunaux n’interviennent souvent que dans les violations massives des droits des investisseurs, par exemple quand des actionnaires sont rayés du registre.
3. Le problème du passager clandestin rend les petits investisseurs peu incités à s’informer ou à participer à la gouvernance.
4. Les droits de vote des actionnaires sont coûteux à exercer et à faire respecter, ce qui limite leur efficacité réelle.
5. Dans les pays où les systèmes juridiques sont plus faibles, les droits de vote des actionnaires sont violés plus ouvertement.
6. La structure des conseils d’administration varie fortement selon les pays, allant des conseils à deux niveaux en Allemagne aux conseils dominés par les initiés au Japon.
7. Les conseils d’administration n’agissent souvent qu’en cas de catastrophe de performance, même lorsqu’ils remplacent parfois les dirigeants.
8. Les restrictions juridiques sur l’auto-contrôle peuvent interdire explicitement le vol, la rémunération excessive ou l’émission de titres supplémentaires aux dirigeants et à leurs proches.
9. Les banques n’ont souvent aucun intérêt à discipliner les dirigeants et peuvent au contraire chercher à les ménager pour obtenir davantage d’affaires.
10. Les banques allemandes ne semblent pas aussi actives en gouvernance d’entreprise qu’on pourrait l’attendre de leur pouvoir de prêt et de vote.
11. Les grands investisseurs peuvent être trop conciliants lorsqu’ils préfèrent poursuivre des projets non rentables plutôt que les liquider.
12. Un grand investisseur peut privilégier ses avantages privés de contrôle plutôt que la valeur totale de l’entreprise.
13. La dette se distingue de l’équité parce qu’elle transfère des droits de contrôle au prêteur en cas de violation des clauses ou de défaut.
14. En cas de défaut, le prêteur peut reprendre des actifs donnés en garantie ou placer l’entreprise en faillite.
15. La dette est particulièrement facile à valoriser lorsqu’il existe beaucoup de collatéral.
16. 180 on Sat, 18 Feb 2023 15:46:23 UTC All use subject to https://about.
17. Gorton and Schmid (1996) show that bank block holders improve the perfor- mance of German companies in their 1974 sample, and that both bank and nonbank block holders improve performance in a 1985 sample.
18. 737-783 Published by: Wiley for the American Finance Association Stable URL: https://www.

📅 Repères chronologiques

📊 Tableaux de Synthèse

Governance mechanisms and control rights

Costs and limits of concentrated power

⚠️ Pièges & Confusions Fréquentes

1. Confusing the agency problem with a simple payout problem: the core issue is how financiers avoid expropriation or waste by managers.
2. Treating complete contracts as feasible: the text says future contingencies are hard to describe and foresee, so complete contracts are technologically infeasible.
3. Assuming large investors are always beneficial: they can also expropriate others or protect their own private control benefits.
4. Mixing up debt and equity control: debt gives control rights after covenant violation or default, while equity is tied to voting rights.
5. Assuming banks always discipline firms: the text notes banks may instead seek to preserve business when default risk is still distant.
6. Thinking hostile takeovers are a stable governance tool: the text describes them as politically vulnerable and opposed by managerial lobbies.

✅ Checklist Examen

1. Define the agency problem as the difficulty of assuring financiers that funds are not expropriated or wasted.
2. Explain why complete contracts are infeasible because future contingencies are hard to foresee and describe.
3. State that residual control rights are allocated when contracts do not fully specify decisions.
4. Link corporate governance to the separation of management and finance.
5. Distinguish legal protection for investors from concentrated ownership by large investors.
6. Know that large investors can reduce agency costs but also create costs through expropriation or private control benefits.
7. Remember that banks and other large creditors can have weak incentives to discipline managers.
8. Recall that debt becomes a governance device when covenants are violated or default occurs.
9. Connect equity governance to voting rights and the ability to threaten to fire managers or liquidate the firm.
10. Remember that hostile takeovers are politically vulnerable and were affected by anti-takeover legislation in the United States.