Saturday, 30 October 2010

New Paper on "Private Enforcement of Directors’ Duties: Derivative Actions as a Global Phenomenon"

Presented this week at a UCL & Oxford Law & Finance workshop, and early next year at a conference on collective actions in Fukuoka, Japan. The paper is available here, and the abstract reads as follows:

When directors are in breach of their duties, it seems natural to give shareholders a claim for compensation. However, directors’ duties are owed to the company, not shareholders individually. This raises the question of whether individual shareholders can sue for compensation on behalf of the company. In some legal systems such derivative actions have been in place for a long time, but, recently, many other legal systems have also introduced or facilitated them. Still, there is considerable diversity around the world. In this paper I explore how the availability of derivative actions is related to other differences between countries, for instance, the common law/civil law divide, the ownership structure of firms, and other questions of shareholder protection and civil procedure. The main result is that today the common law/civil divide does not account for the differences and similarities in the law of derivative actions across countries. However, a quantitative analysis of 25 legal systems still confirmed a legal family effect in 1995 which could also be linked to differences in the ownership structure of firms. Other explanatory hypotheses could not be confirmed: cultural characteristics have not stopped countries such as Japan or China from incorporating rules on derivative actions into their company laws. It was also not found that legal systems use derivative actions as an ex-post substitute for other forms of shareholder protection; rather, different forms of shareholder protection can be regarded as complements.
Comments are very welcome.

Sunday, 24 October 2010

A few steps too far: Quantifying the price of academics
Friday’s article in the Wall Street Journal on “Putting a Price on Professors” has received considerable attention in the blogosphere. It discusses an attempt of some US universities to measure precisely whether professors are giving the taxpayers their money's worth. To quote:
A 265-page spreadsheet, released last month by the chancellor of the Texas A&M University system, amounted to a profit-and-loss statement for each faculty member, weighing annual salary against students taught, tuition generated, and research grants obtained.... One metric divides their salary by the number of students that they teach... The concept of a productivity spreadsheet came from the Texas Public Policy Foundation, a conservative think tank .... Bill Peacock, a vice president at the foundation, acknowledges that this approach could mean a radical reshaping of academia, with far more emphasis on filling students with practical information and less on intellectual pursuits, especially in the liberal arts....
What do I think about this? Well, I need to start with the continental European “model”, where many professors are civil servants and can do whatever they like (unless they kill someone etc ...), and therefore some (not all) of them are plainly lazy. So, there is certainly some need for measurement, incentives and competition. In this respect, I’m also not entirely (!) against the forthcoming changes to higher education funding in England: it seems fair enough to move away from the “one-size-fits-it-all fee” and let universities compete (meaning that the top-research universities will charge higher fees then the mere teaching-led ones). But, then, of course the Texas “model” goes many steps too far: it completely misses the “joy of knowledge for its own sake” (see Bainbridge with a nice link to Stephen Fry in Qi), and the problem of “quantifying the unquantifiable (see the equally wonderful Dilbert cartoons available here).

Monday, 11 October 2010

Paradoxically, Lord Browne: the impact of the Review of Higher Education Funding in England

Until now UK universities face a cap in tuition fees to undergraduate students: Home and EU students can only be charged up to £3225 per year, whereas overseas students usually have to pay three times as much. This will change now since English universities will be free to charge up to £9000 per year. What’s the likely impact of this liberalisation of tuition fees? Two consequences may appear likely but, possibly, the effect may be quite different:
  • First, a possible claim could be that Home/EU students will be 'the losers' of this reform since their tuition fees will rise. Well, that will be the case. However, at the moment the problem for Home/EU students is that they may not get into universities in the first place (or at least not the university they want to) since universities are keen on attracting higher-value overseas students. So, the likely effect is that it will actually become easier for Home/EU students to get into (top) universities to the detriment of overseas students.
  • Second, one could claim that now, since universities can charge higher tuition fees, they will focus more on teaching and less on research. I don’t think this is likely. Competition between universities will increase and the core distinguishing feature will be reputation based on the quality of research. As an illustration, just take US universities, which can charge whatever they like (I think): here, of course, any applicant would die to get into the topic research universities (Harvard, Yale etc), and if he/she does not succeed at least one of the tier one universities. So, as the US example shows, liberalised tuition fees do not make universities abandon research but, rather, the opposite: it makes research and its marketing more important.