This case examines factors contributing to the collapse of Silicon Valley Bank (SVB) in March 2023, an event as unpredicted as it was quick. SVB funded nearly half of all U.S. venture-backed startups and at the end of 2022 held $173 billion in deposits, largely comprising the venture capital those startups had raised. On February 28, 2023, Moody's warned SVB about a potential credit rating downgrade, reflecting concerns over "funding, liquidity, and profitability" which factored in substantial unrealized losses on SVB's debt securities. To strengthen its balance sheet, SVB sold $21 billion in securities on March 8, but the move shocked its customers, as it resulted in a realized loss of $2 billion. The ensuing bank run intensified as SVB proved unable to placate investor fears or raise capital to plug that hole, and SVB was placed in receivership on the morning of March 10. Finger-pointing began immediately. Some argued that misguided pressure from Moody's over the fair value of SVB's debt securities prompted the bank's death spiral. Others blamed SVB management and directors, its regulators, and the venture capitalists whom SVB otherwise benefited. What went wrong, and what lessons could be learned?
Dan McCrum, an investigative journalist for the Financial Times, had spent the past six years fighting to expose German payment processing firm Wirecard. The company had enjoyed years of exponential growth and was viewed by several investors as the poster child of Germany's tech sector. But to McCrum something smelled fishy and he couldn't help but wonder if Wirecard's true dealings weren't just hidden behind its complex business model. He started chronicling his suspicions of mass scale accounting fraud in his articles, but he could never had expected this would make him the target of several cyber attacks, spy operations and legal procedures. In June 2020, as Wirecard crumbles, McCrum reflects on his journey.
This note focuses on the antecedents of, reactions to, and clarifications about The Business Roundtable's August 19, 2019, "Statement on the Purpose of a Corporation." The note includes background information on corporate governance as practiced in the United States in the twentieth and twenty-first centuries. It discusses "managerialism," "stakeholderism," and shareholder primacy. The latter view is represented by Milton Friedman's essay, "The Social Responsibility of Business Is to Increase Its Profits," which is summarized in the note. The note also includes a history of The Business Roundtable and its periodic statements on topics related to corporate governance, including its original 1997 "Statement on the Purpose of a Corporation." The note then relays the issuance of the 2019 update to that statement, along with reactions from the popular media, shareholder advocates, academics, and stakeholder governance advocates.
This note provides background information on a French law ("the Florange law") passed in 2014 that the French government said would encourage long-term shareholdings. The note describes the law, what led to it, the reactions it evoked, and similar initiatives in other European countries. The note also provides examples of what the application of the Florange law looked like in the real world and how companies and their shareholders were impacted by it.
In early 2019, Anthony Campagna, the global director of fundamental research at ISS EVA, a unit of the proxy advisory firm Institutional Shareholder Services (ISS), was preparing to release ISS's analyses of public company performance and CEO compensation ahead of Say on Pay (SOP) voting. ISS's reports helped institutions and other investors determine how to vote their shares at annual shareholder meetings. The report's assessment of CEO compensation for SOP relied on the degree of alignment between a CEO's industry-relative compensation and the firm's industry-relative performance. ISS had long used total shareholder return (TSR)-a measurement based on a company's stock price appreciation and dividend payouts-to measure company performance. In 2019, for the first time, ISS supplemented the TSR measure with economic value added (EVA)-a measurement based on accounting data that combined operating profit and a charge for capital-to measure performance. ISS believed that using EVA as a complement to TSR painted a more complete picture of company performance than TSR alone. EVA was, however, a far more complicated and not widely understood performance metric. Interpreting EVA for certain types of firms-young, high-growth, investment-intensive-could also be challenging. Campagna wondered how market participants would respond to ISS's use of EVA in its voting recommendations, particularly when TSR and EVA could make company performance look quite different. Did the benefits of EVA make managing its complexities worthwhile? Was EVA too complicated for investors to understand? Would EVA work equally well for young and high-growth firms as for mature firms? How might Campagna best promote the use of EVA?
This note explains the residual income valuation model (RIM), how it relates to "traditional" valuation models, the intuition behind its use, and empirical research related to its value relevance. RIM is theoretically equivalent to the dividend discount model and the discounted free cash flow model. However, it expresses future cash flows to equity in terms of accounting measures of capital (e.g., book value of equity) and performance (e.g., return on equity). Implementing the RIM requires forecasting the amount of expected future "economic profits," which depends on how business strategy plays out in the context of industry competitive dynamics, effective management of financial capital, and governance.
Ivory Tower, the world's leading online education platform, is considering whether to accept payments and invest cash reserves in Bitcoin. The gung-ho CEO thinks the move is a no-brainer, but the board and the finance team have deep reservations. What should the CFO do? This fictional case study by Charles C.Y. Wang features expert commentary by Amrita Ahuja and Roxi Wen.
Ivory Tower, the world's leading online education platform, is considering whether to accept payments and invest cash reserves in Bitcoin. The gung-ho CEO thinks the move is a no-brainer, but the board and the finance team have deep reservations. What should the CFO do? This fictional case study by Charles C.Y. Wang features expert commentary by Amrita Ahuja and Roxi Wen.
Ivory Tower, the world's leading online education platform, is considering whether to accept payments and invest cash reserves in Bitcoin. The gung-ho CEO thinks the move is a no-brainer, but the board and the finance team have deep reservations. What should the CFO do? This fictional case study by Charles C.Y. Wang features expert commentary by Amrita Ahuja and Roxi Wen.
This case is a complement to CIAM: Home-Grown Shareholder Activism in France (A) and describes the events after CIAM learned about a potential misuse of corporate assets at Altice/SFR.
This case describes the movement towards dual-class listings on Asian stock exchanges and the efforts of the Asian Corporate Governance Association (ACGA), a not-for-profit shareholder advocacy group, to discourage this trend. As a not-for-profit organization with no formal regulatory or incentive setting powers, ACGA had been successful in helping to elevate the governance standards in Asian capital markets through its advocacy work, educational efforts, and its biennial publication ("CG Watch") that rated Asian countries' corporate governance quality. With the 2018 decisions by Hong Kong and Singapore to allow for dual-class share listings, which ACGA and its members have previously strongly opposed, ACGA worried about how it could prevent corporate governance standards in the region from deteriorating. Was this a "race to the bottom" by Asian stock exchanges due to their desire to attract listings, or were the proposed safeguards effective in balancing shareholder rights against protecting managers from market pressures? What additional levers of influence should the organization pursue to ensure that shareholder rights were protected or to make corporate governance less of a compliance exercise but more of a value-add in the eyes of corporate managers in Asia?
On February 8, 2021, Tesla revealed, through its 10-K filing to the Securities and Exchange Commission (SEC), that it had purchased $1.5 billion of Bitcoin, totaling 7.5% of the company's cash, and that it planned to accept payments in the cryptocurrency soon. These announcements came at the heel of the sixth straight quarter of positive GAAP profit and the first profitable fiscal year in the company's history. The revelation about Tesla's Bitcoin purchases were met with mixed reactions by stock investors and market participants. This case centers around the accounting treatment of Bitcoin at Tesla: what does the accounting treatment say about Bitcoin as an asset, and what are its implications for Tesla's profitability under the Generally Accepted Accounting Principles or Elon Musk's compensation incentives? The case also raises questions about whether investing in Bitcoin is consistent with the company's strategy or could be deemed a form of speculation, and whether Musk's public communications about cryptocurrencies (e.g., his cryptocurrency-related "Tweets") constitute a form of market manipulation.
Wirecard was a German fintech company, member of the DAX30, that provided payment processing and related services. Wirecard had enjoyed large growth rates over the years and most investors and analysts were enthusiastic about the company's prospects. Wirecard's business model was not easy to understand for outsiders, and the company's financials often lacked the necessary details to fully comprehend the company's dealings. Throughout the years, Wirecard had been subject to allegations of fraud, including money-laundering allegations and accounting-fraud allegations, among others. However, up until spring 2020, Wirecard was able to reject these claims. In June 2020, investors and the public learn the truth about Germany's digital darling: a major part of Wirecard's business was fraudulent, and a sum of €1.9 billion, supposedly held in trust accounts in the Philippines, is non-existent. James Freis, who had just been hired as a new member of the Management Board, finds himself interim CEO and is trying to understand how this seemingly massive fraud could have gone undetected for so long, and why it began in the first place.
The case discusses the strategy of CIAM, a French activist investment firm, involved in a case of a buy-out of minority shareholders in the telecommunications sector. Altice NV, an international telecommunications company based in the Netherlands that owned more than 77% of SFR Group shares, made a bid for the remaining shares of France's second largest mobile operator. Believing that the offer was woefully inadequate and constituted an abuse of power, CIAM had been fighting for a better offer as one of SFR's vocal minority shareholders with a series of action plans-leveraging legal, communications, and public relations tactics. CIAM had just received a new piece of information, divulging a potential misuse of SFR corporate assets by Altice, and was discussing next steps.