- •Contents
- •Contributors
- •Acknowledgements
- •Introduction
- •What is corporate governance?
- •Corporate responsibility and ethics
- •Role of the board
- •Is corporate governance working?
- •Contribution of non-executive directors
- •Sanctions
- •The future of corporate governance
- •Challenges
- •1 The role of the board
- •Introduction
- •The executive/non-executive relationship
- •The board agenda and the number of meetings
- •Board committees
- •Size and composition of the board
- •The board and the shareholders
- •The dual role of British boards
- •What value does the board add?
- •Some unresolved questions
- •2 The role of the Chairman
- •Introduction
- •Due diligence
- •Professionalism
- •Setting the agenda and running the board meeting
- •Promoting good governance
- •Creating an effective relationship with the Chief Executive
- •Sustaining the company’s reputation
- •Succession planning
- •Building an effective board
- •Finding the right people
- •Getting the communications right
- •Making good use of non-executive directors
- •Using board committees effectively
- •Protecting the unitary board
- •Creating a climate of trust
- •Making good use of external advisers
- •Promoting the use of board evaluation and director appraisal
- •Qualities of an effective chairman
- •3 The role of the non-executive director
- •Introduction
- •Role of a non-executive director
- •Importance of the role of non-executive director
- •Personal skills and attributes of an effective non-executive director
- •Technical
- •Interpersonal
- •Importance of independence
- •Non-executive director dilemmas
- •Engaged and non-executive
- •Challenge and support
- •Independence and involvement
- •Barriers to NED effectiveness
- •The senior independent director (SID)
- •NEDs and board committees
- •Board evaluation
- •Training for NEDs
- •Diversity
- •Conclusion
- •References
- •4 The role of the Company Secretary
- •Introduction
- •The background
- •The advent of corporate governance
- •Role of the board
- •Strategic versus compliance
- •Reputation oversight
- •Governance systems
- •The Company Secretary
- •The challenges
- •5 The role of the shareholder
- •Recent history – growing pressure on shareholders to act responsibly
- •Governance as an alternative to regulation
- •Where shareholders make a difference
- •What happens in practice
- •The international dimension
- •Progress to date
- •The challenges ahead
- •6 The role of the regulator
- •Introduction
- •The market-based approach to promoting good governance
- •Advantages of the market-based approach and comply-or-explain
- •The role of governments and regulators
- •How does the regulator carry out this role in practice?
- •Challenges to comply-or-explain
- •Conclusion
- •Perspective
- •Individual and collective board responsibility
- •Enlightened shareholder value versus pluralism
- •Core duties
- •The duty to act within powers
- •The duty to promote the success of the company
- •The duty to exercise independent judgement
- •The duty to exercise reasonable care, skill and diligence
- •The duty to disclose interests in proposed transactions or arrangements
- •Additional obligations
- •The obligation to declare interests in existing transactions or arrangements
- •The obligation to comply with the Listing, Disclosure and Transparency Rules
- •The obligation to disclose and certify disclosure of relevant audit information to auditors
- •Reporting
- •The link between directors’ duties and narrative reporting
- •Business reviews
- •Enhanced business reviews by quoted companies
- •Transparency Rules
- •Safe harbours
- •Shareholder derivative actions
- •8 What sanctions are necessary?
- •Introduction
- •The Virtuous Circle of corporate governance
- •Law and regulation in the Virtuous Circle
- •The Courts in the Virtuous Circle
- •Shareholder and market pressure in the Virtuous Circle
- •Good corporate citizenship in the Virtuous Circle
- •The sanctions: law and regulation – policing the boundaries
- •Sanctions under the Companies Acts
- •Sanctions and corporate reporting
- •The role of auditors
- •Plugging the ‘expectations gap’
- •Shareholders and legislative sanctions
- •FSMA: sanctions in a regulatory context
- •Sanctions for listed companies, directors and PDMRs
- •Suspensions and cancellations
- •The Listing Principles – facilitating the enforcement process
- •Sanctions for AIM listed companies
- •Sanctions for sponsors and nomads
- •Misleading statements and practices
- •The sanctions: the role of the Courts
- •Consequences of breach of duty
- •The position of non-executive directors
- •Protecting directors
- •The impact of the 2006 Act
- •Adequacy of civil sanctions for breach of duty
- •The sanctions: shareholder and market pressure – power in the hands of the owners
- •Shareholders and their agents
- •Codes versus law and regulation
- •What sanctions apply under codes and guidelines?
- •Proposals for reform
- •The sanctions: good corporate citizenship – the power of public opinion
- •Adverse press comment
- •Peer pressure
- •Corporate social responsibility
- •Conclusion
- •9 Regulatory trends and their impact on corporate governance
- •Introduction and overarching market trends
- •Regulatory trends in the EU
- •Transparency
- •Comply-or-explain
- •Annual disclosures
- •Interim and ad hoc disclosures
- •Hedge fund and stock lending
- •Accountability
- •Shareholder rights and participation
- •The market for corporate control
- •One-share-one-vote
- •Shareholder communications
- •Trends in the US
- •Transparency
- •Executive remuneration
- •Accountability
- •Concluding remarks
- •10 Corporate governance and performance: the missing links
- •Introduction
- •Governance-ranking-based research into the link between corporate governance and performance
- •Overview of governance-ranking research
- •Assessment of governance-ranking research
- •Further evidence for a link between corporate governance and performance: effectiveness of shareholder engagement
- •Performance of companies in focus lists
- •Performance of shareholder engagement funds
- •Shareholder engagement in practice: Premier Oil plc
- •Assessment of the research and evidence for a link between corporate governance and performance
- •Conclusion
- •Investors play an important role in using corporate governance as an investment technique
- •References
- •11 Is the UK model working?
- •The evolution of UK corporate governance
- •Other governance principles
- •Cross-border harmony
- •UK versus US governance environments
- •Quality of corporate governance disclosures in the UK
- •Have UK companies embraced the principles of the Combined Code?
- •Do they do what they say they do?
- •Resources and investor interest
- •Governance versus performance and listings
- •Alternative Investment Market (AIM) quoted companies
- •Roles and responsibilities
- •Institutional investors
- •Shareholder rights in the UK versus the US
- •Shareholder responsibilities
- •Board effectiveness
- •Review of board performance under the Code
- •Results of evaluations
- •What makes a company responsible?
- •Is the UK model of corporate governance working?
- •Index
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The Business Case for Corporate Governance
This book goes beyond the ‘what and how’ of corporate governance to explore the impact and benefits of good governance for companies and their investors. The contributors are leading market practitioners, investors, academics and consultants who offer their own views based on a wealth of experience. Topics covered include what makes for an effective board and is the unitary board sustainable? The contribution of governance to financial performance – is the research conclusive? Managing risk and reputation – how do boards ensure they are trusted by their shareholders? The benefits of market-led standard setting – do US and EU regulatory initiatives threaten the traditional UK approach? The book looks to dispel the belief that governance is a burden on companies that adds little value by demonstrating the contribution it makes to board effectiveness and corporate performance.
K E N R U S H T O N is a former Director of Listing, Financial Services Authority and Company Secretary ICI.
The Business Case for Corporate Governance
Edited by
K E N RU S H TO N
CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo
Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521871068
© Cambridge University Press 2008
This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press.
First published in print format 2008
ISBN-13 |
978-0-511-42311-6 |
eBook (EBL) |
ISBN-13 |
978-0-521-87106-8 |
hardback |
Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.
Contents
|
List of contributors |
page vii |
|
Acknowledgements |
viii |
|
Introduction |
1 |
|
K E N R U S H T O N |
|
1 |
The role of the board |
10 |
|
S I R G E O F F R E Y OW E N |
|
2 |
The role of the Chairman |
29 |
|
K E N R U S H T O N |
|
3 |
The role of the non-executive director |
50 |
|
M U R R AY S T E E L E |
|
4 |
The role of the Company Secretary |
67 |
|
D AV I D J A C K S O N |
|
5 |
The role of the shareholder |
81 |
|
P E T E R M O N TA G N O N |
|
6 |
The role of the regulator |
100 |
|
S I R B R YA N N I C H O L S O N |
|
7 |
Directors’ duties |
119 |
|
C H A R L E S M AY O |
|
8 |
What sanctions are necessary? |
146 |
|
K E I T H J O H N S T O N E A N D W I L L C H A L K |
|
9 |
Regulatory trends and their impact on corporate |
|
|
governance |
176 |
S T I L P O N N E S T O R
v
Contents
10 |
Corporate governance and performance: the missing links |
201 |
|
C O L I N M E LV I N A N D H A N S - C H R I S T O P H H I R T |
|
11 |
Is the UK model working? |
222 |
|
S I M O N L OW E |
|
|
Index |
242 |
vi
Contributors
Will Chalk |
Peter Montagnon |
|
Addleshaw Goddard |
Association of British Insurers |
|
Hans-Christoph Hirt |
Stilpon Nestor |
|
Hermes Investment Management |
Nestor Advisors |
|
David Jackson |
Sir Bryan Nicholson |
|
BP plc |
Formerly Financial Reporting |
|
Keith Johnstone |
Council |
|
|
||
Addleshaw Goddard |
Sir Geoffrey Owen |
|
Simon Lowe |
London School of Economics |
|
|
||
Grant Thornton |
Ken Rushton |
|
Charles Mayo |
Formerly Imperial Chemical |
|
Industries PLC |
||
Simmons & Simmons |
||
|
||
Colin Melvin |
Murray Steele |
|
Hermes Investment Management |
Cranfield School of Management |
vii
Acknowledgements
I would like to thank a number of people who have helped me to produce this book. First, my commissioning editor, Kim Hughes, who has been patiently supportive and with good humour. Julia Casson, a former Company Secretary colleague, who helped with some of the editing and Gill Franklin who helped to type some of my own contributions. Above all, I want to thank my authors for their contributions and for accepting my changes, where needed, with good grace. I am particularly indebted to those Company Chairmen, past and present, who gladly gave their time to talk to me about their jobs. These included: Martin Broughton, Sir Christopher Gent, Sir Ronald Hampel, Peter Hickson, Sir Christopher Hogg, Sir David John, Richard Lapthorne, Sir Robert Margetts, Lord Oxburgh and Sir Peter Walters. Finally, I want to thank Sir Robert Worcester and the Institute of Business Ethics for hosting a discussion with some of these Chairmen.
viii