How Might Corporate Charters be Amended to Enhance Investor Returns?

Thursday, 2 July 2015: 2:15 PM-3:45 PM
CLM.2.05 (Clement House)
Shann Turnbull, Independent academic, Sydney, Australia; Sustainable Money Working Group, Manchester, United Kingdom; International Institute for Self-governance, Sydney, Australia
The research question of this paper is how might investors enhance their returns by amending corporate constitutions and/or by-laws of investee corporations? Porter (1992) identified how European and Japanese firms obtained systemic competitive advantages over US firms because US firms lacked feedback, independently of management, from their stakeholders like customers, suppliers and employees and host communities on firm performance, risks and opportunities. Hippel (1986) identified customer feedback as a major source of innovative opportunities. Evidence of systemic risk of US corporations was provided by the US government commission of inquiry into the 2008 financial crisis that identified as a “key cause” the “dramatic failures of corporate governance and risk management”. Forensic research has since revealed that stakeholders who knew of risks were not connected to individuals with the incentive, power and capability to take corrective action. Stakeholder controlled firms illustrate how appropriate changes in corporate constitutions can introduce a requisite variety of private feedback connections with a diversity of stakeholders, independently of management, to directors and when required also to shareholders. The feedback can not only cross check the integrity of management information but also identify for directors and shareholders completeness of executive knowledge of the known known’s and known unknowns while also adding value with intelligence on the unknown unknowns. Shareholder participation is recommended for developing appropriate resolutions to amend constitutions of investee firms.