The Firm Divided

Graeme Guthrie is a professor in the School of Economics and Finance at Victoria University of Wellington, New Zealand. His research has appeared in the top journals on finance and economics, and as a consultant he has provided advice on a wide variety of issues in relation to agriculture, electricity, gas, real estate, and telecommunications, much of it using real options analysis. He is the author of Real Options in Theory and Practice (Oxford University Press).

• ContentsPreface v I Monitor 1 1 A gadfly in the ointmentThe consequences of separating ownership and control 32 Whose side are you on?The role of the board of directors 233 Overseeing the unseeableThe conflict between managers and shareholders 47 II Motivate 69 4 Narrowing the gapThe incentives generated by managerial ownership 715 A primer on payExecutive compensation and efficient contracting 976 Hiding high payExecutive compensation and managerial power 1357 Separating the wheat from the chaffIncentives generated by executives' career concerns 169 IIIDelegate 205 8 With one hand tied behind their backDelegating monitoring to external capital markets 2079 No skin in the gameDelegating monitoring to financial analysts 23910 Crashing the partyDelegating monitoring to large shareholders 275 IVSell 309 11 A new broomThe market for corporate control 31112 Bypassing the boardOffensive tactics in hostile takeovers 34113 Fighting backDefensive tactics in hostile takeovers 377 V The rules of the game matter as well 413 14 Caught in the middleReforming the legal and regulatory environment 415 Epilog 431Acknowledgments 433Notes 435Bibliography 509

"This book is an engaging description of the ongoing war between managers and investors. It is a bit unusual in the governance field as it is most enjoyably written, but retains academic credibility. It is an enlightening read.' -- Charles M. Elson, Edgars S. Woolard, Jr. Chair in Corporate Governance and Director, John L. Weinberg Center for Corporate Governance, University of Delaware"The Firm Divided is a comprehensive investigation of the tensions that arise in the modern shareholder-manager conflict that sheds light on monitoring, selling, motivating, and delegating - in ways that might improve corporate governance. Guthrie clearly understands the details of modern corporate governance and expresses the ideas and narratives in an easy, flowing manner." -- Frank Partnoy, George E. Barrett Professor of Law and Finance, University of San Diego, and author of WAIT: The Art and Science of Delay"Guthrie provides a comprehensive but highly accessible analysis of corporate governance at publicly traded firms. The blending of real-world cases with the underlying economic intuition provides unique insights into the peril and promise of modern governance systems. The book will appeal to anyone interested in an entrée into the sphere of corporate governance, from the casual reader, to the corporate executive or board member, to graduate students." -- Stuart Gillan, Associate Professor of Finance, University of Georgia