Lucian Bebchuk & Edward Waitzer
Two seminal research papers have won the Investor Responsibility Research Center Institute’s (IRRCi) prestigious annual researchcompetition focused on the interaction of the real economy with investment theory. One research paper highlights the financial market’s ability to learn the value of corporate governance, and the second explores evolving fiduciary responsibilities resulting from the need for long-term value creation. IRRCi Chair Linda Scott announced the 2013 prize recipients yesterday at the Columbia University Millstein Governance Forum, Corporate Governance in the New ‘Normal’: The Impact of New Patterns of Corporate Ownership.
The academic award was presented to Lucian Bebchuk of Harvard Law School, Alma Cohen of Tel-Aviv University Economics Department, and Charles Wang of Harvard Business School. Entitled, Learning and the Disappearing Association between Governance and Returns, the study shows how financial markets have learned over time to appreciate the significance of certain governance provisions, and to factor these provisions into market prices and earnings forecasts.
The practitioner award was presented to Edward Waitzer, partner at Stikeman Elliott LLP in Toronto and director of the Hennick Centre for Business and Law at York University, and to Douglas Sarro, a student at Osgoode Hall Law School. The research, The Public Fiduciary: Emerging Themes in Canadian Fiduciary Law for Pension Trustees, argues that evolving trends in fiduciary responsibility will impose public and inter-generational obligations on trustees and require that they consult with beneficiaries (or their proxies), be strategic, and collaborate with other like-situated fiduciaries. Such actions will serve the interests of beneficiaries over time better than maximizing short-term relative returns, which “has no bearing on whether such an investment will yield benefits to current or future pension beneficiaries.
“The IRRCi Award fills a vacuum by fostering critical research that integrates investment theory and the real world,” said Linda Scott, IRRCi chair. “These two winning papers will be valuable tools for investors, policymakers, academia, and other stakeholders as their findings challenge us to rethink old assumptions that may be ‘received wisdom,’ but prove false when examined objectively.” Scott presented the winners with a $10,000 award prize for each paper at the Millstein Governance Forum.
Academic award recipient Lucian Bebchuk said,
Our study contributes to resolving long-standing questions concerning the relationship between governance provisions and the value of firms. The governance provisions incorporated in the standard indices used by financial economists have an association with operating performance that has remained significant and persistent over time. Because the markets have learned to appreciate the significance of these governance provisions, abnormal profits from trading based on them were possible during the period of learning but not afterwards. Still, investors can benefit from stock price appreciation by improving the governance provisions of firms.
The practitioner winner Edward Waitzer said,
Pension trustees face the possibility of legal challenges related to their duty of impartiality – the requirement that they balance the interests of present and future beneficiaries. This requires them to take a systemic view of markets and to collaborate with other asset managers dedicated to meeting long-term obligations. Our research shows that social expectations, which tend to be a leading indicator of the law, are rapidly evolving to reflect these ‘public’ fiduciary obligations.
Both papers are available at IRRCi and Social Sciences Research Network.
The following panel of renowned judges reviewed the submissions and selected the two winning papers:
- Mark Anson, Managing Partner & Chief Investment Officer, Oak Hill Investment Management
- Robert Arnott, Chairman, Research Affiliates
- Collette Chilton, Chief Investment Officer, Williams College
- James Hawley, Professor & Director, Elfenworks Center for Fiduciary Capitalism, St. Mary’s College
- Bill Miller, Chairman, Chief Investment Officer & Portfolio Manager, Legg Mason Capital Management
Biographies of the judges are available here.
The winners of the 2012 inaugural research competition were Steve Lydenberg for research entitled, Reason, Rationality and Fiduciary Duty, and Professor Menachem Brenner and Dr.YehudaIzhakian at New York University the Stern School of Business for research entitled, Asset Pricing and Ambiguity: Empirical Evidence. More information about past winners and the award is available here.
About The IRRC Institute
The IRRC Institute is a not-for-profit organization that provides thought leadership at the intersection of corporate responsibility and the informational needs of investors. More information is available at the IRRC Institute.
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