Chapter 10. Mini-Case Governance and Activist Investors Outside of the United States

11/29/21, 1:03 PM Chapter 10. Mini-Case Governance And Activist Inve... | Chegg.com

https://www.chegg.com/homework-help/questions-and-answers/chapter-10-mini-case-governance-activist-investors-outside-united-states-governance-… 1/1

1. Many countries adopting “western” governance systems similar to those found in the United States and the United Kingdom that are more shareholder friendly because, in this western governance systems, owners in emerging economies are participating in the market for corporate control and in restructuring investments, especially sovereign wealth funds that also exercise influence in developed as well as developing countries. These funds often focus to support government strategies and Sometimes these sovereign funds also support government position. A revised governance code pushes for more shareholder-friendly governance arrangements, including an emphasis on outside directors and stronger emphasis on executive long-term incentive compensation. With stronger emphasis on shareholders’ rights, activist funds pursued more activity. However, research shows that activist investors have less influence on top management teams because of restrictive governance regulation.

2. The particular governance devices are helping or hindering good governance in these countries that are changing their governance systems is western governance systems. Traditionally, boards of directors have largely been composed of insider manager directors. Now as per western governance systems, a new governance code that strongly emphasized the importance of firms to elect many more independent outside directors. More recently, shareholders have been more active and the most successful ones have been labelled “engagement” funds.

3. Sovereign wealth funds are playing a dominant role by investing in developed economies as well as other emerging economies. In their own way, they are playing an activist role. For example, since the global financial crisis, many German firms have sought investment from sovereign wealth firms from Gulf States in the Mideast. In particular, many German major automobile firms have recruited Gulf Cooperation Council (GCC) sovereign wealth fund investments during the stresses of financial restructuring spurred by the financial crisis. These sovereign wealth funds are long-term investors and reduce the possibility of a hostile takeover, which has become a more prominent feature in the German corporate governance landscape. Sovereign wealth funds are also taking active roles in climate change. For instance, the Norwegian sovereign wealth fund is divesting its assets in coal and other fossil fuels. Its strategy is to focus its wealth to have an influence on salient sustainability issues, such as climate change. Another example is the acquisition activity of Brazilian multinationals, which have been supported by its sovereign wealth fund, the Brazilian Development Bank (BNDES).

4. I recommend to adopt the western governance systems similar to those found in the United States and the United Kingdom that are more shareholder friendly to improve the governance systems in Japan, Germany, and China, respectively, as per the governance devices described in Chapter 10.