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Über dieses Buch

The book is the first comprehensive consideration, since the UK Cadbury Report recommended a voluntary Corporate Governance Code, of the question whether Corporate Governance Codes are the most effective way of ensuring adherence to good corporate governance principles. There is no doubt that the idea of voluntary compliance with good corporate governance practices, based on the principle of ‘comply or explain’, has captured the imagination of the world. It is probably one of the best and most comprehensive examples of ‘self-regulation’ ever seen in any area where the society could be affected significantly, for current purposes by corporations.However, is this the most effective way of ensuring that corporations act responsibly and adhere to good corporate governance principles? Have these Codes really improved corporate governance practices significantly? Is it time for a rethink and, at least in certain areas, start to rely more on ‘hard law’ and clearer expectations to ensure compliance? All these issues are addressed in the book.





Corporate Governance Codes Under the Spotlight

Although somewhat simplistic, this highlights the importance of processes that companies should institute and implement to ensure that effective practices transcend the various levels of the organisation. These were viewed at the time as necessary responses to what was considered a lack of managerial oversight which led to the spectacular corporate collapses of the Bank of Credit and Commerce International, Coloroll, the Polly Peck Group and Maxwell Communication Corporation in the late 1980s and early 1990s. These collapses not only resulted in substantial financial losses to shareholders, employees, creditors, investors as well as the government—they were also perceived as posing considerable challenges to the integrity and reputation of the City of London as an international financial centre.
Jean J. du Plessis, Chee Keong Low

Fundamental Flaws with Self-regulation Through Voluntary Corporate Governance Codes


When the Solution Becomes the Problem: The Triple Failure of Corporate Governance Codes

Corporate governance codes are widely regarded as the ultimate sign of a modern and efficient market economy. Bypassing the comparatively slow machinery of legislation, corporate governance codes are now a common instrument for corporations and shareholders to signal their perceptions of best practice and steer the governance of corporations in the desired direction. When a country’s corporate legislation is amended, corporate governance codes tend to be altered too—to always be one step ahead. But in what direction are these steps taking us? And who is deciding the aims and means? Already in 2006, Steen Thomsen criticised corporate governance codes for lacking a ‘theoretical or empirical rationale’ to the extent that they are ‘unlikely to do much good (and if so only by accident)’. Since then, corporate social responsibility language has made its way into ever more codes, without this necessarily resolving any of the increasingly cited issues with the codes.
Beate Sjåfjell

No Law?

Voluntary codes of corporate governance have not captured the imagination of the managerial and financial elite in the United States as they have elsewhere. But this absence of ‘soft’ codes is not cause to assume the law of corporate governance in the US is particularly ‘hard’. The fact that corporate law is the product of competition among states creates incentives for that law to soften in two ways. It softens by decreasing the level of legal constraint on management and by decreasing the clarity with which those constraints are articulated.
Kent Greenfield

Self-regulation in International Corporate Governance Codes

Soft law refers to a deviation from hard law that begins with the weakening of legal arrangements ‘along one or more of the dimensions of obligation, precision, and delegation’. Such a weakening of legal arrangements is considered potentially beneficial.
Jeroen Veldman

Corporate Governance in India: The Transition from Code to Statute

This chapter explores the evolution and implementation of corporate governance norms in India. While India initially jumped on the bandwagon of countries adopting voluntary codes of corporate governance following the Cadbury Report, the approach towards “soft law” was rather quickly jettisoned in favour of a mandatory approach towards corporate governance. As a result of more recent reforms, corporate governance norms have now become well ensconced almost in their entirety in the primary corporate legislation (a phenomenon this chapter refers to as the “ultra-mandatory” approach), arguably more so than most jurisdictions. As this chapter demonstrates, voluntary codes are ill-equipped to serve their goals in dissimilar jurisdictions, as their success is dependent upon a cocktail of factors that may not be present in all legal systems. 
Umakanth Varottil

The Specific Aims with Voluntary Corporate Governance Codes


An Analytical Study of Board Accountability in Transnational Codes of Corporate Governance

The accountability of boards of directors is a critical element of good corporate governance. It has been widely observed that good corporate governance is best achieved by holding directors accountable for their behaviour and decisions. The World Bank has stated that corporate governance is ‘concerned with the systems of law and practice which will promote enterprise and ensure accountability.’ Many countries have codes of corporate governance. Such codes play an important role in a country’s corporate governance framework and so it follows that they should provide in some way for board accountability, especially given that codes are regarded as providing a set of best practice recommendations regarding, inter alia, the behaviour and role of the board of directors, and the content of codes is heavily affected by corporate governance practices. Certainly one of the first voluntary corporate governance codes, the UK’s Combined Code, stressed the importance of accountability as one of the principles on which it was based. In fact the Report of the Committee on the Financial Aspects of Corporate Governance (commonly referred to as ‘the Cadbury Report’), on which the UK’s Combined Code, and ultimately the UK Corporate Governance Code, was based, stated: ‘The issue for corporate governance is how to strengthen the accountability of boards of directors to shareholders.’ Enforcement of codes is a matter governed by external market forces and, most importantly, the board of directors. If the latter is not accountable then the enforceability of codes is likely to be diminished.
Andrew Keay

Corporate Sustainability Practices and Regulation: Existing Frameworks and Best Practice Proposals

Large corporations do not exist or operate in a vacuum, and must constantly adapt to the environments in which they operate in order to survive and prosper. They must also satisfy, where possible, the many demands and expectations of the groups they influence and with whom they interact. Many listed companies around the globe are voluntarily responding to mounting calls from investor and stakeholder groups for consideration and reporting of non-financial factors and outcomes. This is evidenced by reporting frameworks that include, among others, management discussion and analysis, disclosure of corporate social responsibility (CSR), sustainability and citizenship information, and integrated reporting. As these various reporting developments build momentum, policy makers are reviewing the legal frameworks and are establishing new rules or strengthening existing regulation around the governance and disclosure of information on employee, supplier, diversity, human rights, community impact, and sustainability matters. All of the regulatory options in use or mooted in the corporate sustainability space rely on disclosure as a means to drive awareness of sustainability matters and to ultimately move the culture and activities of corporations towards more sustainable business practices.
Gill North

From Sustainability to Conflict Minerals: The Creeping Codification of Non-financial Disclosure

It is an unfortunate reality that violent conflicts in resource rich regions are often funded by trade in precious metals and minerals. Armed groups seek to control lucrative trade in these commodities in order to support their campaigns whilst engaging in human rights abuses ranging from rapes to killings. For instance, the diamond trade has been linked to conflicts in a number of countries including the Democratic Republic of the Congo (DRC), Angola, the Central African Republic (CAR), and Sierra Leone. More broadly, the extractives trade has an unfortunate record of human rights abuses and there are repeatedly documented instances of child labour, sexual violence, environmental degradation, displacement of people, and other abuses in communities which ought to have profited from the natural resources located there. Some of the worst excesses involving minerals have been documented by the UN in the DRC—home to the deadliest conflict since World War II with over 5.5 million deaths—where armed groups fund their activities by controlling mines and transport routes. This blood taint is not confined to far-flung regions in Africa and South America—‘conflict minerals’ find their way to local and international markets where smelters and refiners transform those minerals into metals. In turn, these metals are subsequently processed downstream of the supply chain into components for a vast number of end products including cars, electronics, mobile phones, packaging, construction, aeronautics, and jewellery.
Sandeep Gopalan

Hardening Soft Law Initiatives in Business and Human Rights

In the wake of the Rana Plaza disaster as well as ongoing human rights abuses perpetuated by multinational corporations, the impetus for the business and human rights (BHR) movement continues to gain momentum. Business and human rights issues are no longer considered two distinct realms operating in isolation from one another but are rather seen as intertwined and in need of being holistically addressed. Nevertheless, despite the growing recognition of the importance for corporations to address human rights issues, responsibilities for corporations in this area have mainly been at the voluntary level. That is, corporate human rights obligations tend to be phrased in permissive rather than mandatory language, and enforcement of these voluntary obligations is either weak or, more likely, non-existent. For that reason, corporate human rights obligations are often termed ‘soft’ law. Recently, however, there have been attempts to ‘harden’ corporate human rights obligations. Several countries are currently negotiating a binding Business and Human Rights treaty which, on completion, would impose legally binding human rights obligations on multinational corporations. Efforts have also been made at the domestic level to harden business and human rights, with notable examples in the UK and France.
Barnali Choudhury

Delisting Rules in the Context of Corporate Governance: Can the Protection of Shareholders Be Effected by a Competition of Listing Rules or Are State-Made Provisions Required?

The company’s stock exchange listing is very important for the shareholders. It guarantees them easy transferability of their shares and high transparency requirements. On the other hand, a delisting offers the opportunity for the management to reduce costs and act free from the public’s scrutiny. Also a majority shareholder can be interested in a delisting. Thus, delisting is a matter of corporate governance in a wider sense. The question of how shareholders can be protected effectively in the case of a delisting has occupied legal scholars and jurisdiction in Germany for years. In November 2015 the German legislator tackled the problem and regulated the requirements for a delisting. The article will contrast the two principal models of investor protection possible in the context of a delisting: on the one hand a state-made provision with strict and binding rules, on the other hand a coexistence of different listing rules that provide different delisting requirement.
Matthias Casper, Niklas Gasse

A Jurisdictional Analysis of Voluntary Corporate Governance Codes


Corporate Governance: Soft Law Regulation and Disclosure—The Cases of the United Kingdom and South Africa

Corporate governance and regulation are intrinsically linked. One formulation of that relationship frames is as follows:
Regulation should begin with strong corporate governance. It is the role of shareholders and boards to scrutinise and ensure that their companies are being led in the right direction over the long term. Encouraging transparency, accountability and long-term stability will promote healthy long term growth …
Another reason why regulation should begin with strong corporate governance is that it establishes a norm on which the regulation can rest. The most effective regulation follows social mores. The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company. Corporate governance is about what the board of a company does and how it sets the values of the company.
Irene-Marie Esser

Disclosure and Auditing of Corporate Social Responsibility Standards: The Impact of Directive 2014/95/EU on the German Companies Act and the German Corporate Governance Code

Companies are obliged to provide information in many ways to a range of stakeholders. German company law implies various rules that require the management to either inform stakeholders voluntarily or on request. Rather broad provisions apply for members of a partnership or a private company. By contrast the shareholders’ rights of information are more restricted. Section 131 of the German Stock Corporation Act (GSCA, Aktiengesetz) states that each shareholder can be provided with information by the management board on request (only) at the shareholders’ meeting regarding the company’s affairs, (only) to the extent that such information is necessary to permit a proper evaluation of the relevant item on the agenda. In other words, if a topic is not on the agenda, the company does not have to provide the information. Despite numerous accounting rules and securities laws, various important aspects of business operations and conduct are not covered. This is why the German Corporate Governance Code (GCGC) provides detailed provisions on disclosure, especially in the context of transparency and on reporting and auditing.
Ingo Saenger

Globalisation of Corporate Governance Depends on Both Soft Law and Hard Law

Directive 2014/95/EU of the European Parliament and of the Council (22 October 2014) amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups has not only attracted global attention on the significance of disclosure of CSR performance, but also raised an even broader corporate governance question: Is it now time to move on from a soft law approach to a hard law approach? In my opinion, both soft law and hard law are equally important. Neither type of law can guarantee the effectiveness of good corporate governance. Soft law will not be jettisoned even after some soft law rules have been transformed into hard law. That said, both soft law and hard law require comprehensive renovation, instead of minor patch-ups. Despite the particularities of corporate governance norms created by unique legal traditions and cultures in individual jurisdictions, globalisation requires further convergence, coordination or harmonisation of corporate governance norms in terms of both soft law and hard law.
Junhai Liu


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