Time: 18.30 - 20.00 Venue: Shaw Library, Old Building, LSE (Map)
Speaker: Charles Goodhart (SRC, FMG, LSE)
Chair: Dirk Jenter (LSE, CEPR)
Charles Goodhart will discuss a proposal that he is developing with Rosa Lastra (Queen Mary University School of Law) that aims to fix a fundamental problem with limited liability corporations, viz.: CEOs remunerated in ways that depend upon the level of equity prices (such as bonuses) have an incentive to take excessive risk, and shareholders have little incentive to stop them. Consequently, firms do take excessive risks, and they shift the losses that occur when those risks do not work out onto other stakeholders.
Goodhart and Lastra’s idea to fix this problem is to create a class of “inside” shareholders who are subject to multiple liability (that is, they are on the hook for a multiple of the initial book value of their shares in the event that the company fails). These inside shareholders will be shareholders capable of monitoring and controlling management, and the multiple liability to which they are subject will give them strong incentives to do so. Drawing upon 18th and 19th century practice and the renewed legal and economic interest in this topic following the Global Financial Crisis of 2008, they discuss how to implement this idea while still preserving the benefits that limited liability creates.
Charles Goodhart, CBE, FBA is Emeritus Professor of Banking and Finance with the Financial Markets Group at the LSE, having previously been its Deputy Director between 1987-2005. From 1985 until retirement in 2002, he was the Norman Sosnow Professor of Banking and Finance at LSE. Previously, he worked at the Bank of England for seventeen years as a monetary adviser, becoming a Chief Adviser in 1980. In 1997 he was appointed one of the outside independent members of the Bank of England's new Monetary Policy Committee until May 2000. Earlier in his carreer he had taught at Cambridge and LSE. Besides numerous articles, he wrote a couple of books on monetary history; a graduate monetary textbook, 'Money, Information and Uncertainty' (2nd Ed. 1989); two collections of papers on monetary policy, 'Monetary Theory and Practice' (1984) and 'The Central Bank and The Financial System' (1995); and several books and articles on Financial Stability, on which subject he was Adviser to the Governor of the BoE, 2002-2004, and numerous other studies relating to financial markets, monetary policy and history. His recent books include 'The Basel Committee on Banking Supervision: A History of the Early Years, 1974-1997', (2011), and 'The Regulatory Response to the Financial Crisis', (2009).
Dirk Jenter is Associate Professor of Finance in the Department of Finance at LSE and CEPR Research Fellow.
Registration
This event is free and open to all with no ticket or pre-registration required. Entry is on a first come, first served basis.
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The event is co-hosted with the Financial Conduct Authority.