The editor's annotated list of articles on corporate governance or related subjects. We welcome additional submissions and suggestions.

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Neff, Thomas J. Boards Make Steady Progress in Key Areas, Directors & Boards, Summer 1994 p. 53-54. The findings of the 1994 SpencerStuart Board Index (SSBI) Report, which analyzes proxy data from 100 companies recognized as leaders in their respective industries and trendsetters in corporate governance, are discussed. A follow-up survey of 60 SSBI companies showed that 56 of these boards currently have a combined total of 86 women directorships, a long-overdue and gratifying development. Of the same 60 companies, 49 of the boards have a combined total of 74 minority directorships. Currently, there are 37 international (non-US0 directorships on 30 of the 100 SSBI boards. Of the 60 SSBI companies surveyed separately, 47 reported that they have met with large institutional investors apart from regular analysts meetings and regularly make themselves available for such meetings.

Nesbitt, Stephen L.steve.nesbitt@wilshire.com, Wilshire Associates Long-Term Rewards from Shareholder Activism: A Study of the CalPERS Effect, Journal of Applied Corporate Finance, Winter 1994:75-80. Examines the stock performance of 42 companies targeted by CalPERS between 1987 and 1992. While the stock price of these companies trailed the S&P 500 Index by 66% in the five year period prior to CalPERS' activities, these same stocks outperformed that index by 41% in the five following years.

Nesbitt, Stephen L.steve.nesbitt@wilshire.com The CalPERS Effect: A Corporate Governance Update, Wilshire Associates, Santa Monica, (310) 451-3051, July 19, 1995. Recalculates 1994 study using updated data on 53 companies. The shortfall prior to intervention was 75%. After CalPERS intervention the same companies outperformed the S&P 500 index by 54%.

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Petruno, TomIn CalPERS Investing, She's Definitely Not the Retireing Type, Los Angeles Times, 12/11/1995, Business p 1. (download from Electric Library) CalPERS board approved boosting SU and foreign stock percentage of the $93 billion portfolio from 55% to 63% by 1998. Annual disbursement will soar from $3.5 billion now to $30 billion in 2023. Article reviews how CalPERS invests its $93 billion.

Petruno, TomHas 'Greed' Supplanbted 'Shareholder Value'?, Los Angeles Times, 2/19/1996, Business p. 1. (download from Electric Library) Argues there has been a high cost to the institutional activism of CalPERS and others. Their efforts to enhance shareholder value have also resulted in the elimination of thousands of jobs.

Pound, John The Promise of the Governed Corporation, Harvard Business Review, March-April, 1995, pp. 89-98. Argues a paradigm shift is moving corporate governance from manager centered to board governed organizations.

Pound, John The Rise of the Political Model of Corporate Governance and Corporate Control, New York University Law Review, Volume 68, November 1993, pp. 1003 1071. Argues that the takeover model is being eclipsed by the political model which is more in keeping with public-sector democratic politics.

Pozen, Robert C. Institutional Investors: The Reluctant Activists, Harvard Business Review, January-February 1994, pp. 140-149. Explains the reasons for institutional investor activism and reassures corporate CEOs that institutional investors do not want to micromanage companies.

Preston, Lee E. Corporate Boards and Corporate Governance, Society, March/April 1995, pp. 17-20. Argues stakeholder orientation is consistent with long-term shareholder interests but formal stakeholder representation on boards must be rejected, since no single stakeholder merits comparable representation on every issue.

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Ramsay, Ian M. i.ramsay@law.unimelb.edu.au and Richard Hoad Disclosure of Corporate governance Practices by Australian Companies Center for Corporate Law and Securities Regulation, University of Melbourne, 1997. Study examines disclosure of corporate governance practices of 268 companies listed on the ASX under Listing Rule 4.10.3 and found disclosure typically better for large companies and for some industries over others. Also noted significant discrepencies between disclosures under 4.10.3 and other reports. Calls for ASX to revise its indicative list to distinguish between non-executive and independent directors. Sees improvement in disclosure needed in several areas including criteria for board membership, exec vs nonexec chair, independent access of directors, renumeration, and performance reviews. Interesting to note some of the disclosures made but not included in the indicative list. For example, the Lend Lease Group identified the precise amount of all political donations. (see also Australian Investment Managers Association report)

Rayton, Bruce A. rayton@wuecona.wustl.edu Are CEOs the Only Residual Claimants? Estimation of the Performance Elasticity of Per-Employee Compensation, Nottingham Trent University, 2/20/96. Demonstrates, through use of Compustat and Bureau of Labor Statistics data, that CEOs are not the only employees with a stake in firm performance. Firms direct approximately 4% of firm value changes to employees through salary, wage, and bonus adjustments. The average employee receives a 0.1% increase in compensation for each 1% increase in firm value. This represents almost $6 million in performance-based pay for the average firm each year. These rewards are proportionate to those of CEOs. Findings are consistent with the notion that average employees hold a significant stake in firm performance.

Repetti, James R. james.repetti@bc.edu The Misuse of Tax Incentives to Align Management-Shareholder Interests, 7/22/97 draft. A similar Repetti article, Management Incentives, Needless Tax Complexity, and Capital Gains, appeared in the 5/19/97 edition of Tax Notes. Repetti argues convincingly that various tax provisions subsidize management's inefficient retention of earnings. He calls for elimination of the preferential tax rate for capital gains, equalizing corporate and individual effective tax rates, and eliminating the step-up basis at death where stock can be sold with no taxable gain to the stockholder's estate. (ed. While Repetti appears to be correct in his assessment, Congress may be less concerned with the efficient allocation of resources than with powerful vested interests that will help them get reelected.)

Roe, Mark J. mroe@lawmail.law.columbia.edu A Political Theory of American Corporate Finance, Volume 91:10, Columbia Law Review, pp. 10-67. Roe reviews the evolution of law impacting the rights of institutional investors. He shows that political constraints influenced the structure of the corporation and the roles available to institutional investors in corporate governance.

Roe, Mark J. mroe@lawmail.law.columbia.edu Backlash, September 1997. For some economic systems, productive arrangements may generate political backlash which complicates economic analysis. When the potential for wealth-decreasing political instability is high, basic efficiency analysis becomes harder. Roes explores why this backlash awareness has not been high, why this unawareness is sometimes justified, and when it might not be justified. Some of these reasons are rooted in American history and help to explain the American-centered nature of law economics. Argues that several American business laws, such as Glass-Steagall, Robinson-Patman, some anti-takeover laws, and chapter 11 of the Bankruptcy Code could be seen as examples of backlash or means of avoiding more serious backlash.

Roberts, Richard Y. Shareholder proposal reform - A search for objectivity in Rule 14a-8, Securities Regulation Law Journal, Fall 1994 p: 235-246. Rule 14a-8, the shareholder proposal rule, currently provides an issuer with 13 grounds under which a proposal may be excluded. Although some of these are not controversial, 2 bases for exclusion have engendered much debate: 1. a proposal relating to operations accounting for less than 5% of the registrant's assets and 5% of its net earnings and gross sales and that is not otherwise significantly related to the registrant's business, and 2. a proposal that deals with a matter relating to the conduct of the ordinary business operations of the registrant. The SEC's staff, when deciding whether these exclusions apply, is forced to make subjective value judgments, which should be left to Congress. Roberts argues the Commission should amend Rule 14a-8 to adopt more objective criteria for excluding proposals.

Romano, Roberta Foundations of Corporate Law, (Oxford University Press, New York) 1993. This is a reader consisting of several articles which provide a good introduction to legal terms used in corporate governance articles.

Romano, Roberta The Politics of Public Pension Funds Public Interest, 04-01-1995, pp. 42. (download from Electric Library) Similar to previous Public Pension Fund Activism in Corporate Governance Reconsidered.

Romano, Roberta Public Pension Fund Activism in Corporate Governance Reconsidered, Columbia Law Review, Volume 93, May 1993, pp.795-853. Argues that political pressure to support local firms places limits on the effectiveness of public fund activism in corporate governance. Romano reviews several changes to increase the independence of public fund boards. She argues that a more effective reform would be for states to switch from defined benefit plans to defined contribution plans and transfer pension assets to individual employee control. The proposal would eventually eliminate the role of public pension funds in corporate governance.

Rothmyer, Karen Speaking of...Executive Pay: Protests Rise Along with Pay of Executives, Newsday, 4/16/1995, pp 1. (download from Electric Library) Of nearly 500 shareholder proposals this year, executive compensation ranks second behind issues related to board governance.

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Schacht, Kurt, Institutional Investors and Shareholder Activism: Dealing with Demanding Shareholders, Vol 21, Directorship, 5/1/95, pp 8. Recomends constructive involvement between owners and operators.

Schwab, Stewart J. schwab@law.mail.cornell.edu and Randall Thomas rthomas@lawnet-po.law.uiowa.edu, "Labor Unions as Shareholders: Careful Monitors or Wildcat Strikers," presented at the NYU 50th Annual Conference on Labor, May 29-30, 1997. Describes recent developments in the law surrounding union shareholder initiatives, including the Fleming Companies (see ANTIDOTE TO POISON PILL) case and the Idaho Power no-action letter as well as submission of floor resolutions allowing bypass of Rule 14a-8 restrictions. The authors conclude that existing legal and market checks adequately constrain unions from using such initiatives to benefit workers at the expense of other shareholders. Checks include the fiduciary structure of Taft-Hartley union pension funds; the need to persuade other self-interested shareholders to vote for union initiatives; and the disciplinary power of capital markets, product markets, and the market for corporate control. Cites Thomas and Martin study of 1994 proxy data which found labor sponsored proposals getting higher votes than similar proposals submitted by others. Argues that union-shareholder activism may have long-lasting effects only if unions focus their shareholder initiatives in areas where they have special advantages in monitoring management.

Schwab, Stewart J. schwab@law.mail.cornell.edu and Randall Thomas rthomas@lawnet-po.law.uiowa.edu, "Reinventing Corpotate Governance Shareholder Activism by Labor Unions," Draft: 8/8/97. Update of above paper. Argues that "union shareholder activism can elarge the corporate pie without reducing the shareholdeing slice" through "value-added" unionism.

Schwert, G. William Poison or Placebo: Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures Poison pill rights issues, control share laws, and business combination laws have not systematically deterred takeovers and are unlikely to have caused the demise of the 1980s market for corporate control.

Sharara, Norma M. and Anne E. Hoke-Witherspoon, The Evolution of the 1992 Shareholder Communication Proxy Rules and Their Impact on Corporate Governance, The Business Lawyer, Vol. 49, November 1993, pp. 327-358. Reviews the October 22, 1992 SEC proxy rule changes.

Shinn, James, Nitwits in Pinstripes vs. Barbarians at the Gate, September 2000 issue of Corporate Governance International proposes "barbarian" investors are using competitive capital markets globally to tame self-serving large stockholders and entrenched managers, "nitwits in pinstripes," as they are called in a German bestseller on corporate control. Shinn rattles off statistics concerning the rapid growth of foreign equity holdings, which in the US shot up from $200 billion in 1989 to $2 trillion in 1999. Foreigners now hold 16 percent of listed equities in Japan (up from 5 percent a decade ago), 16 percent of listed German equities (up from 8 percent in 10 years) and 20 percent of South Korean equities (up from 3 percent 10 years ago).

According to Shinn’s analysis, all three countries s exhibit characteristics of a corporatist bargain between business owners and organized labor which created governance institutions that allow large blockholders to expropriate the property of minority shareholders in exchange for providing employment stability. Family blockholders in Germany outnumber bank blockholders by a ratio of 3-to-1. In South Korea, 68 percent of firms are controlled by a single blockholding family, and Japanese firms are largely held by passive institutional investors.

A study of economic value added found that EVA (returns after the true cost of capital) were negative 1.8 percent in Japan between 1989 and 1996. In effect, Japanese managers have been extracting agency costs from stockholders of roughly three trillion yen (US$30 billion) per year in these 255 firms. In Germany, studied firms' returns were positive, but a scant 1.4 percent. While similar data do not exist from South Korea, anecdotal examples of profits sacrificed for employment stability are common.

Shinn cites recent examples of reform in each country. He proposes four motivations for those reforms:
· Relative prices (reforms improve stock prices)
· Lobbying by technical professional communities
· State-to-state official negotiations
· Domestic politics

Then he systematically examines the evidence from each. For example, with regard to relative price, he looks at the premium or discount assigned by foreign portfolio investors and finds a country-based premium of 20-40 percent based on, in descending order:
1. Compliance with international accounting standards
2. Independent, reputable auditors
3. Detailed disclosure of financial results
4. Performance-based management compensation
5. Active market for control, with fair rules for buyout of minority investors
6. Independent boards of directors

Shinn cites an analysis by Todd Mitton that found evidence of a 12 percent premium valuation for firms in East Asia that had voluntarily adopted corporate governance measures and discusses the market for corporate control in each country (most developed in Germany). Similar analysis is provided for each of the other three factors.

He concludes that relative prices induced changes in financial disclosures. Those changes, in turn, gave rise to more sophisticated third-party analysis. Technical professionals, particularly accountants, lobbied states to adopt international accounting standards. International financial organizations extracted commitments, especially from South Korea, to bring governance institutions more in line with global best practices. When combined with domestic political forces, these reforms undermined the corporatist coalitions in each state and led to convergence towards the Anglo-American model.

"Contrary to the received wisdom whereby private firms adopt best practice where they can and then drag governments after them, formal governance institutions, (such as legally mandated accounting standards), or insider trading rules, changed faster than informal institutions, (such as the use of outside directors or management incentive compensation)." Shinn also concludes that Germany and South Korea are likely to change faster than Japan because they have blockholders who can profit from conforming to global standards, whereas Japan does not.

Shleifer, Anrei shleifer@fas.harvard.edu and Robert W. Vishny, A Survey of Corporate Governance, March 1996 (2nd draft). Provides an excellent review of research on corporate governance from an agency perspective with a good international orientation. They conclude that both legal protection of investors and some form of concentrated ownership are essential elements of a good corporate governance system. Large investors appear necessary to force distribution of profits. Small investors must be protected against expropriation by both managers and large investors. The paper raises a number of interesting questions including the following: What legal protections are available in various countries and how does enforcement vary? Do political and economic forces move corporate governance toward greater efficiency or do powerful interest groups preserve inefficient systems? Nation's hoping to attract investment capital will need to address these and other concerns raised.

Smith, Michael P. Shareholder Activism by Institutional Investors: Evidence from CalPERS, The Journal of Finance, March 1966, pp. 227-252. Revisits and adds to data used by Nesbitt by controlling for intervening variables. Finding highlights: CalPERS' success rate has increased over time; activism has been reasonably successful in achieving changes; activism appears to benefit shareholders if sought after changes are made and may be detrimental to shareholders if unsuccessful; total wealth increases for CalPERS from activism far outweigh costs. Operating income increases for targeted firms but not when controlled for firms in the same industry. There is some evidence that suggests targeted firms divest poorly performing assets in the post-targeting period.

Star, Marlene Givant Shareholder Moves to Role of Lobbyist, Pensions & Investments, April 18, 1994 p: 17. Notes that institutional shareholders are taking on the role of lobbyists for corporate interests, bringing relationships between companies and shareholders to a new frontier.

Stapledon, Geof, and Jeffrey Lawrence, Corporate Governance in the Top 100: An Empirical Study of the Top 100 Companies' Boards of Directors, Centre for Corporate Law and Securities Regulation at the University of Melbourne, June 1996. The authors survey the top 100 Australian listed firms and review their findings in the light of other empirical studies and recommendations by various bodies such as Britain?s Cadbury Committee and the Australian Investment Managers' Association regarding best practices. They point to studies which cast doubt on the common theme that independent non-executive directors enhance corporate performance. Several possible explanations are offered to explain barriers to effective monitoring. Among the most powerful arguments is that even when such directors are actually independent, which is rare, they are not dependent on shareholders. True independence may be possible only by making such directors accountable to another powerful group (institutional shareholders). The study includes many informative findings concerning surveyed companies. For example, only 19% of the Top 100 companies had a board nomination committee.

Stapledon, Geof ccisr@law.unimelb.edu.au, Centre for Corporate Law and Securities Regulation at the University of Melbourne,Exercise of Voting Rights by Institutional Shareholders in the UK Corporate Governance: An International Review, Vol 3 (1995): 144-155. The author finds the level of voting by institutional shareholders in the UK to be fairly low until the early 1990s; only about 25% were voted routinely. Most used external investment managers who face practical difficulties and strong economic disincentives to vote. Stapledon examines the US solution of mandatory voting but finds mostly window-dressing since the Department of Labor has not brought enforcement actions and fund beneficiaries have not brought actions for breach of fiduciary duties. Litigation would be even less likely in the UK. Stapledon offers increasing the minimum notice period as a modest reform.

Stapledon, Geof ccisr@law.unimelb.edu.au, Centre for Corporate Law and Securities Regulation at the University of Melbourne,The Structure of Share Ownership and Control: The Potential for Institutional Investor Activism University of New South Wales Law Journal, Vol 18 (1995): 250-277. Stapledon's interviews with UK fund managers revealed that any attempt to replace underperforming or otherwise unacceptable management teams normally requires 3 to 4 institutions controlling 20-30% of equity. The statistics reveal that it is only in small and, to a lesser extent, medium sized listed UK firms where sufficient leverage will be found. In almost half of Australian companies a non-institutional shareholder is in a position of effective or absolute control.

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Thomas, Randal S. randall-thomas@uiowa.edu and Kenneth J. Martin, Should Labor Be Allowed to Make Shareholder Proposals?, Draft 1/97. Using data on shareholder proposals from the 1994 season, the authors find that labor union proposals garner as much or more support than similar proposals made by other shareholder groups. They examine a subset of proposals identified by the American Trucking Association as instances where labor was acting in its own self-interest rather than those of shareholders and find no significant differences in support from other shareholders. (ATA petitioned the SEC to interpret Rule 14a-8 to allow corporations to exclude shareholder proposals by labor representatives at companies that are involved in collective bargaining negotiations or union organizing activities.) They conclude further reform in this area in not needed.

Thomas, Randal S. randall-thomas@uiowa.edu, Improving Shareholder Monitoring of Corporate Management by Expanding Statutory Access to Information, Arizona Law Review, pp. 331-371, Vol 38, Number 1, Spring 1996. Reviews the history of shareholder access and argues the Delaware inspection statute, or SEC Rule 14a-7 should be modified to provide automatic access to corporate stocklist and limited types of nonsensitive corporate books and records, for certain classes of shareholders, such as long term institutional shareholders. Calls loosening restrictions to most shareholders arguing that privacy can be protected by requiring confidentiality agreements with adequate bond provisions. Includes several specific recommendations.

Thompson, Tracy A. tracyat@u.washington.edu and Gerald F. Davis gdavis@research.gsb.columbia.edu The Politics of Corporate Control and the Future of Shareholder Activism in the United States, Corporate Governance: An International Review, July 1997. The contractarian approach is most prominent in explaining corporate governance as a nexus of contracts connecting managers, board, shareholders, and other suppliers of capital, labor, and materials. An efficient market matches stock price to performance and shareholder-elected managers ensure alignment of ownership and managerial motivation by tying compensation to ownership. The sensible course for shareholders under the contractarian approach is "rational ignorance" based on the assumption that passive voting is reasonable because if management's performance is poor, it will invite a takeover.

The authors argue an alternative view that governance arrangements matter and that the rules of the game are "neither neutral nor outside the control of participants." Four factors influence the success of group resource mobilization: political opportunity structure, interests, social infrastructure and mobilization. Thompson and Davis outline how these factors changed, allowing shareholders to overcome legal impediments with the SEC rule changes in October 1992. They point out that "outside" board members are often not independent because close social ties means that shareholders' interests will, in many cases be subordinated to personal loyalties. In addition, organizations seek growth; the Council of Institutional Investors (CII) risks co-optation with the entry of corporate pension fund members. Already, they argue, CII has had to deal with a wider more conservative range of issues and interests. The authors also argue that Institutional Shareholders Services, who recently began accepting corporate clients, may also soften its edge. According to Thompson and Davis, corporate management continues to hold the upper hand in the battle for corporate control. "The dilemma facing any confrontational social movement organization is whether or not to join the power holders and risk becoming more conservative or to remain pure but miss out on political influence." Movements benefit from having a variety of types of organizations who specialize in different tactics.

Tosi, Henry TOSI@NERVM.NERDC.UFL.EDU, Luis R. Gomez-Meja and Debra L. Moody, The Separation of Ownership and Control: Increasing the Responsiveness of Boards of Directors to Shareholders' Interests?, Journal of Law and Public Policy, University of Florida, Vol 4, 1991, pp 39-58. In the current legal environment, equity holders are often so powerless to influence the firm that their only option, if they are dissatisfied, is to sell. The authors propose to remove the controls of firm management over board elections by assigning the role to independent agents. The effect, it is argued, would be to increase the influence of owners and would lead to a stronger profit maximization strategy.

Turnbull, Shann, sturnbull@mba1963.hbs.edu, Corporate Governance:Its Scope, Concerns & Theories, Corporate Governance: An International Review, Vol. 5, No. 4 (1997). Outlines the conceptual, cultural, contextual and disciplinary scope of corporate governance. As a basis for improving the rigour of research and analysis, some definitions are suggested. Reasons for the diversity of viewpoints and concerns are considered. To provide an orientation for new scholars and those from specialized disciplines, recent surveys of corporate governance are reviewed from their ethnocentric, contextual, and intellectual contingencies. The prospects of developing the topic as a "science of organization" are considered along with areas for future research.

Turnbull, Shann, sturnbull@mba1963.hbs.edu, Stakeholder Governance: A Cybernetic and Property Rights Analysis, Corporate Governance: An International Review, Vol. 5, No. 1 (1997) A cybernetic perspective is used to evaluate firms with or without stakeholder participation in their information and control architecture. Turnbull's approach also provides a basis for evaluating firms with more than one board or control center as found in Japan, Europe, and labor-managed firms. Empirical evidence supports the hypothesis that multi control centers with stakeholder participation can provide competitive advantages. This hypothesis is supported by the Law of Requisite Variety and the Williamson analysis of why Multi-divisional firms provide advantages over Unitary Form firms. The opportunity to support stakeholder governance with stakeholder ownership is identified from an analysis of how corporate rights of perpetual succession permits investors to be overpaid. The public policy implications of investor overpayments are considered. Also considered is the use of cybernetic principles to introduce self-regulation as proposed by the US Vice President. Policy initiatives are identified to build a 'stakeholder economy' as proposed by the Leader of the Labor Party in Britain. The paper concludes that appropriate stakeholder governance could improve equity and self- governance in the private sector, the quality of democracy in the public sector, and the efficiency of both sectors.

Turnbull, Shann, ssturnbull@mba1963.hbs.edu, Stakeholder Cooperation, Journal of Cooperative Studies, Vol. 29, No. 3, 1997. Some of the most successful businesses in the world involve employees, customers and suppliers in their control. This paper describes why this is so and how stakeholder governance could be introduced into English speaking countries. The competitive advantages of establishing co-operative relationships with stakeholders are illustrated by analyzing a Japanese Keiretsu and the stakeholder co-operatives found around the Spanish town of Mondragon. These are shown to share common features in their information and control architecture, which are also shared by all living things, which depend upon obtaining feedback information from their environment to exist. Elements of information theory, which is used to design self-regulating devices, are introduced to indicate how firms could be designed to mimic life forms to become self-regulating. Besides introducing competitive advantages, this would minimize both the internal and external costs of regulation. The paper recommends that governments provide leadership in introducing competitive self-regulation using the strategy proposed by the U.S. Vice President. The result would be to create a "Stakeholder Economy."

Updated list of Turnbull's corporate governance papers at http://ssrn.com/author=26239

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Vogel, Mark A. Department of Labor Encourages Shareholder Activism, The Corporate Governance Advisor, November/December, 1994, pp. 14-16. Discusses a recent interpretive DOL bulletin reminding plan fiduciaries of their duty to monitor proxy voting by investment managers. The bulletin states that monitoring and influencing the management of corporations in which the plan holds stock is consistent with obligations under ERISA where the fiduciary expects such activities will enhance the value of the plans investment, after taking into account the costs involved.

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Wagster, John JWAGSTE@CMS.CC.WAYNE.EDU and Andrew K. Prevost, Wealth Effects of the CalPERS' "Hit List" to the SEC changes in the Proxy Rules, Draft 8/22/96. In 1992 the SEC removed many restrictions and reporting requirements regarding shareholder communications and began allowing proxy votes about executive compensation. The authors measured changes in the value of shares in companies targeted by CalPERS and the association of these changes with nine announcements regarding the new SEC rules. They found correlations between several of the announcements and loss of shareholder value among targeted firms where CEOs were paid less than $1 million a year. They conclude, "these results indicate that investors expect the newly empowered institutional investors to hurt firm performance, especially those firms that cannot afford top executive talent with which to thwart their influence."

The authors seem to have an axe to grind against public pension funds because of their activism in corporate governance issues. They cite arguments that private pension fund managers are more highly scrutinized and not as engaged in shareholder activism. While rightly pointing out that some public fund managers may have political interests that can be furthered if they are seen as crusaders against the interests of big corporations, they fail to point to obvious conflicts of interest often faced by private fund managers. Private fund managers may be scrutinized more than their public sector counterparts, but not for their voting. The DOL's "Proxy Project Report" issued Feb 23, 1996 found that 65% of plans did not have adequate documentation to indicate they performed substantive monitoring of investment managers which had been delegated voting authority. Contrary to the apparent belief of Wagster and Prevost, DOL guidance concerning the importance of voting proxies is not aimed at public pension fund managers, who are usually exempt from ERISA, but at those in the private sector who have lagged in corporate governance activism.

The authors criticize the Nesbitt study, which purports to show positive returns for CalPERS' activism, because it failed to control for firm size or individual company market risk. Yet, their own study has little in the way of controls. The authors look only at CalPERS targets; where is the comparable control group which is not being targeted? How did the nine announcements impact the value of nontargeted firms? The authors criticize studies which attempt to demonstrate the long-term effects of institutional shareholder activism by pointing out that there are thousands of intervening variables. However, their own study relies on findings generalized from 15 "low-compensation" firms.

The study has not convinced me that targeting by CalPERS or other institutional investors will hurt the performance of firms "that cannot afford top executive talent to thwart their performance." For example, Sears is placed in this "low-compensation" category. In 1991, the year before they couldn't afford top talent, as defined by the study, they budgeted $5.5 million for a campaign to keep top talent, in the form of Robert Monks, off their board of directors. Chrysler and Westinghouse are also in this low-compensation category of not being able to afford top executive talent in 1992. Yet, Chrysler could afford to plans to buy back 30 million shares in 1991 and Westinghouse 22 million shares.

Although the authors' generalizations extend beyond their findings, it is a study which should provoke lots of interesting dialogue at the October 1996 FMA conference in New Orleans.

Watson, Ronald D.Does Targeted Investing Make Sense?, Financial Managment, 1/1/1994, pp 68. (download from Electric Library) Carefully selected ETIs may improve overall performance of a portfolio of pension assets and may benefit plan participants.

Weidenbaum, Murray The Evolving Corporate Board, Society, March/April 1995, pp. 9-16. Identifies eight basic voluntary changes in the boardroom.

Werner, Steve MANA836@UHUPVM1.UH.EDU and Henry Tosi TOSI@NERVM.NERDC.UFL.EDU Other People's Money: The Effects of Ownership on Compensation Strategy and Managerial Pay, Academy of Management Journal, Vol 38, No 6, 12/95, pp 1672-1691. In "owner-controlled" firms the size of the bonus and basis for distribution was correlated with improvement in firm performance; no such correlation was found in "management-controlled firms." However, such firms paid their CEOs 29.5% more. The interesting finding, to this reader, is that not only are CEOs being paid more without shareholder oversight but that inflated compensation extended to the next 5 layers of management so that 6 layers of management averaged 9% higher pay. This finding makes CEO pay a much bigger issue. It would be interesting to know what impact this has on profits and share value. One limitation of the study was that it did not take into account long term incentives. If institutional investors are having an impact on the pay practices of "owner-controlled" firms this might reduce the findings somewhat.

On the other hand the findings could have been even more dramatic if the authors could have determined which owner-managed firms actually did any monitoring. I know its a problem of obtaining data. One possible source (for a small sample) might be the Pension Welfare Benefits Administration. They released their "Proxy Project Report" in 2/96 which is the 3rd in a series of reports on compliance with Interpretive Bulletin 94-2 which requires fiduciaries to vote proxies in the interest of plan beneficiaries. (see discussion) Only 35% of plans had any evidence that they monitored the voting of their shares by their investment managers. PWBA's data might be used to find a sample of "owner-managed" firms where there is evidence that the "owner-manger" at least took some minimal interest in proxy voting at the firms they owned. However, I'm not sure how many, if any, of the pension funds studied owned 5% of any one firm.

Weimer, Jeroen j.weimer@sms.utwente.nl Corporate Financial Goals: A multiple constituency approach to a comparative study of Dutch, US, and German firms, PhD thesis, University of Twente, Enschede, the Netherlands. Relationships are defined between corporate financial goals and the way in which they are influenced by various stakeholders using a political organization metaphor. The influence of stakeholders in the US (shareholders) and, to a lesser extent, the Netherlands (mixed) and Germany (suppliers of debt, in particular banks) corresponds with the extent to which financial goals are pursued in which the interest of these stakeholders are reflected.

Whincop, Michael J. m.whincop@law.gu.edu.au and Mary E. Keyes :m.keyes@law.gu.edu.au, Corporation, Contract, Community: An Analysis of Governance in the Privatization of Public Enterprise and the Publicization of Private Corporate Law, forthcoming in the Federal Law Review, Vol. 25, No. 1 (1997) fed.law.review@student.anu.edu.au. This article addresses and rejects a claim that the contractarian theory of corporate law supplies a normative argument in favor of privatization. The article studies several key developments in Australian corporate law and governance. In particular, (1) courts are developing an implicit model of propriety in corporate decision making; (2) the substantive grounds of review of shareholder and director decisions are changing; and (3) standing requirements are either being liberalized, or are becoming increasingly amenable to the representation of non-shareholder, communitarian" interests. These developments imply a greater role for corporate law in Australia as a mediator between interested constituencies. The paper explores the implications of these developments made for efficiency claims for privatization.

Wilson, Gregory Getting Beyond Glass-Steagall, McKinsey Quarterly, 1/1/1995, pp 108. (download from Electric Library) Reviews federal banks acts and argues commercial banks should be deregulated.

The Working Group on Corporate Governance, A New Compact for Owners and Directors, Harvard Business Review, July-August, 1991, pp. 141-143. Sets forth roles for owners and directors.

Worrell, D. L., W.N. Davidson III, & J.L. Glascock, (1993, April). Stockholder Reactions to Departures and Appointments of Key Executives Attributable to Firings, Academy of Management Journal, Vol. 36, No. 2, P. 387-401. Investigation of investors' reactions to announcements of the firings of key executives made over the 25-year period 1963-1987. Announcements containing information about permanent replacements were associated with positive market reactions, whereas other types of firing announcements resulted in no market response. Outsider appointments were perceived as beneficial immediately, while insider appointments elicited a wait and see reaction.

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