This paper investigates board judgment in response to management led buyouts (MLBs). Board response is suggested to be guided by the business judgment rule and its dual duties of care and loyalty. The duty of loyalty is seen to be evolving into a specification of fair dealing. With this trend, the current interpretation of the business judgment rule emphasizes the role of care and relies on the market to insure fairness. Possible failures in the MLB market which limit its effectiveness (...) in assuring fairness are discussed. Recommendations to counteract these failures are suggested. (shrink)

ABSTRACT:A key factor in the decision to convert a publicly owned company to private status is the expectation that value will be created, providing the firm with rent. These rents have implications regarding the property rights of the firm’s capital-contributing constituencies. We identify and analyze the types of rent associated with the newly private firm. Compared to public firms, going private allows owners the potential to partition part of the residual risk to bond holders and employees, rendering them to be (...) co-residual risk bearers with owners. We propose that new promotion-based contracts with bond holders and employees, reflecting their particular investments, be negotiated as the firm migrates from public to private status. These contracts should acknowledge the firm’s intent to maximize shareholder value and its need to take the risks necessary to do so, but support that the firm’s survival not be undermined due to its possibly opportunistic owners. (shrink)

The primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization (SWM). Distinctions between SWM and the more widely examined construct of profit maximization are identified, the most significant being the central role played in SWM by the market mechanism for pricing the corporation''s securities. It is argued that empirical tests concerned with evaluating the ethical implications of SWM will almost surely involve a joint hypothesis. A number of recent (...) empirical studies aimed at testing hypotheses with explicit ethical content are reviewed. (shrink)

This paper expands the focus of ethical analysis to look at the basic approaches to strategy used by business firms. Using a set of criteria historically used to judge ethical issues, three strategy paradigms are evaluated in terms of their likely effects on society as well as the firm. From this analysis, recommendations are offered regarding the ethical pursuit of profit and suggestions made for future research into the relationship between strategy and ethics.

We assess the extent to which Chinese MBOs of listed corporations enable a balance to be achieved between facilitating growth and supporting the interests of minority shareholders other than the buyout organization. Using novel, hand-collected data from 19 MBOs of listed corporations in China, a matched sample of 19 non-MBOs and the population of listed corporations, we examine the extent to which boards of directors are changed to bring in executive and outside directors with the skills to grow as well (...) as restructure a business. We also examine the extent to which outside directors become involved in actions to develop the business rather than actions related to fostering the interests of all shareholders. We find in fact little evidence that outside board members have the skills to add value to the MBO firms. Boards appear to focus mainly on related-party transactions with some more limited attention to growth strategies. Outside directors do not seem to openly disagree with incumbent managers on the disclosure of their actions but may express their views and exert pressure behind the scenes. (shrink)

There has been a growing debate about the ethics of management buy-outs (MBOs). One possible criticism of the MBO is that it serves the interests of incumbent management at the expense of shareholders. In this paper we develop the general arguments concerning the ethical aspects of the MBO to include other forms of buy-out beyond going privates and apply the analysis to MBOs as a mode of privatisation in Central and Eastern Europe (CEE). MBOs are justified in this context postperestroika (...) as a means of incentivising economic activity by giving managers an ownership stake in former state enterprises. The actual mode of privatisation, though, raises issues of social justice and the criticism that MBOs are at the expense of the broader social good. The ethical problem for the CEE is to balance the economic gains of a move to markets with the ethical risks to the agents of these markets. (shrink)

By creating new ventures and new job opportunities venture capital is essential to a dynamic economy. But it should also be fair and ethical at every stage. Professor Fassin explores the various ethical issues which arise between venture capitalists, entrepreneurs and investors. He teaches at the University of Mons and has written widely on management. From 1988‐1991 he was Secretary General of the European Venture Capital Association. He is partner of the Veerick School of Management of the University of Ghent.

This article examines how private equity returns in Asia are related to levels of legal protection and corruption. We utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in Asia. The data indicate that legal protections are an important determinant of private equity returns in Asia, but also that private equity managers are able to mitigate the potential for corruption. The quality of legal system (including legal protections) is positively related (...) to returns. Inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments. We also find that private equity managers, irrespective of the quality of legal system they are operating within, can mitigate the potential impact of corruption. Private equity returns are higher in countries with higher levels of corruption, controlling for legal systems. This finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption. Our findings are robust to inclusion of controls for Hofstede cultural variables, economic conditions, and transaction specific characteristics, as well as consideration of econometric sample selection methods for unexited investments. (shrink)

Management buyouts occur when incumbent managers (typically in association with third party investors) purchase all of a firm's outstanding stock and remove it from public trading. Prior ethical analyses of such activities have ignored the fact that large numbers of such buyouts return to public trading. The ethical implications of management buyout activity can be more fully understood if the entire buyout process is considered, beginning with the time the firm is taken private until it is returned to public trading. (...) Using a widely employed strategic management ethical framework developed by Hosmer (1994), this paper examines the ethics of the complete buyout cycle. (shrink)