Millstein Center eNewsletter Vol 1 No 1

IN THIS ISSUE

• Under the Hood of the Capital Market (by Ira M. Millstein)
• Save the Date (Yale Governance Forum - June 9-10)
• Rising Star Nominations 
• Upcoming Center Events
• Call for Papers (Shifting Capital Market)
• The New Capital Market (by Stephen M. Davis)
• Shareholders and Corporate Governance (by Jonathan GS Koppell)
• Governing the Corporation (course taught by Ira Millstein & Anne Simpson)
• Global Governance Calendar
• Discussion Board

UNDER THE HOOD OF THE CAPITAL MARKET

By Ira M. Millstein
Senior Partner, Weil Gotshal & Manges; Senior Associate Dean for Corporate Governance, Yale SOM

   There is a growing awareness that today’s capital markets are very different than they were 50, 20, or even 10 years ago.  Beginning in the second half of the 20th century, we’ve seen considerable changes in the pattern of share ownership, complemented by technological market advances, globalization, and the rapid and continuous proliferation of complex financial instruments. 

   These changes cannot be ignored as they may well have an impact on corporate performance in the broadest sense.  The capital markets are not an end in themselves, their end game is providing the “energy,” the fuel, for corporate performance; corporate performance, in turn, is the bedrock of our economy.  It would be reckless not to try to understand what’s “going on”.

   In the era when share ownership was dispersed and diffused among individuals, the capital markets could be likened to the Ford model “T” or even “A”.  You could pop the hood and see for yourself what was going on, the engine and transmission system were relatively simple; what needed tinkering, adjusting or replacing to make the car run.  Today’s capital markets are complex and less and less transparent.  Modest, let alone major, corrections are difficult to pinpoint even with current technology.   Seeming “blips” are capable of sending ripples, even waves, throughout the capital market given its size, interdependency, globalization, and the free flow of capital across ever-shrinking borders.  And the impact on corporate performance can be dramatic.

   If we were to look under the hood today, our capital markets may look more like the inside of an Aston Martin . . .  

To read the full article, please click here.

To comment on this article (or any of the others in this newsletter), please visit the Center’s Discussion Board.

UPCOMING CENTER EVENTS 

SHAREHOLDERS & CORPORATE GOVERNANCE: Research Agenda and Conference

By Jonathan GS Koppell
Faculty Director, Millstein Center & Associate Professor of Politics and Management, Yale SOM

   In the seventy-five years since Berle and Means considered the separation between ownership and control in large business organizations, markets around the world have experienced continuous change in securities statutes, corporation laws, investor profiles, trading systems, management of investment capital, distribution of ownership rights, information technologies, and the structure of enterprises themselves.  The pace and power of change is accelerating, giving rise to demand for insights that can inform decision making among players such as regulators, lawmakers, corporate directors and investment professionals.

   With the generous support of Broadridge, the Yale School of Management’s Millstein Center and the University of Oxford’s Saïd Business School co-sponsored a conference to consider the consequences of these changes in comparative perspective.  In response to an open call, ten papers were selected for presentation in October 2007 at Oxford University.

  Collectively the papers considered the evolving role of shareholders in the governance and performance of the corporation.  They did so by focusing on specific aspects of the shareholder's relationship to the corporation.  From hedge fund activism to shareholder voting to private litigation as an enforcement strategy, the topics provide an indication of the breadth of issues to be considered in future corporate governance research . . .  

To read the full summary, conference versions of the papers, or brief paper summaries, please click on the icon directly above this story.

GOVERNING THE CORPORATION: New Course at Yale Focuses on “Leadership for Real Life”

   Teaching is a central part of the Center’s mission. This is nowhere more evident than to the students who attended the semester long course on corporate governance class at SOM in the fall of 2007, taught by Ira Millstein and Anne Simpson. In addition to Anne's role as Executive Director of the International Corporate Governance Network, she is also a Faculty Fellow at the Center. She and Ira have worked closely over many years through international agencies, such as the World Bank and OECD. Their combined experience provided the class with an opportunity to hear first hand how governance is - and isn't - practiced in markets ranging from the US to Europe, but also around the world in Brazil, China, Russia, South Africa and other emerging markets.

   The professors were able to draw upon law, global developments in the capital markets, and ethics to provide second year MBA students with a chance to develop their leadership skills in understanding and solving dilemmas in the boardroom.  The class was designed to be interactive and participatory, with students hearing from a wide range of outside experts on class themes, followed by student presentations on case studies that tested their ability to come up with solutions to corporate dilemmas: General Motors and the strategic challenges thrown up by climate change; Cadbury and the ethics of sourcing cocoa from strife torn and poverty stricken West Africa; negotiating the Lenovo-IBM spin-off in China with a communist state as a key player.

   “This was not intended as a traditional note-taking class,” Professor Millstein commented. “Real life will not present CEOs and boards with simple problems, capable of simple solutions. The key to effective leadership will be the ability to understand and deal with complexity in global markets. Business life is not lived in silos.” Professor Simpson agrees. “In any business decision at the senior executive and board level, law will matter, financial markets will exert demands, but ultimately business leaders will have to be able to navigate their way guided by their own moral compass.”

   Following input from the class and updates to include recent developments, Governing the Corporation will be further refined over the summer of 2008 in preparation for the fall semester, then it will be taught again.

   Governing the Corporation "is a class you’ll look back on and be glad you took 15 years from now,” reflected one student.