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Über dieses Buch

This book provides an overview of the development of corporate governance with a focus on literature concerning the UK.



1. Introduction

Good governance is a joy to observe in any organization. But to know what it is we must define “good” While we acknowledge its limitations, we will largely define “good corporate governance” as that which maximizes the long-term value of shareholder interests in the company. The focus on the long-term value implicitly acknowledges the importance of other stakeholders’ interests as no company will survive in the long term if they ignore the interests of customers, employees, suppliers, and the community at large, to name but a few stakeholders. This definition accords with the majority of prevailing orthodoxy of both academic debate and policy discussion. But this objective has not gone, and certainly should not go, unchallenged. Nevertheless we warn readers that our review is a partial one conducted largely from a shareholder wealth maximizing perspective.

William Forbes, Lynn Hodgkinson

2. Modes of Governance

The UK governance system is often seen as part of the common-law/Anglo-Saxon governance regime we share with our former colonies and the US. While this form of governance is seen as particularly favorable to shareholders’ rights in controlling the corporation, much depends on how avidly and flexibly these rights are enforced. Nor is the governance regimes impact upon corporations truly separable from the structure of ownership and control it reflects or the extent of product market competition that a nation or industry faces.

William Forbes, Lynn Hodgkinson

3. Historical Context and Codification of Corporate Governance

The UK governance system privileges shareholder rights as residual claimants on the profits of the corporation. But law constrains these rights to produce what has been called an “enlightened shareholder” regime for corporate control. Yet it is the decline of owners’ rights in the face of a diffuse shareholder base precedes any active attempt by the UK to encourage an active market in equity claims. Indeed the current limited liability [corporate form] only emerged quite late in our history, after gaining a somewhat disreputable reputation in the industrial revolution. Limited liability implies that the rights of a corporation must always be more than the sum of its individual shareholders’ rights. So we might ask who is to be the beneficiary of these additional rights?

William Forbes, Lynn Hodgkinson

4. Nature of Ownership

The nature of ownership of UK companies has evolved over time and, in 2011, 43% of UK listed companies were held overseas. The impact of this increase in foreign ownership on the UK economy is discussed. The implementation of a central registry of company-beneficial ownership has been seen, by some, to be costly leading to some exemptions, but the outcome of a central registry is yet to be determined. Details of a major database providing ownership data are provided.

William Forbes, Lynn Hodgkinson

5. Boards

The Cadbury Code appears to have impacted and improved corporate governance in the UK and overseas, and its main features continue to be a prominent aspect of much more recent codes. Benefits enjoyed by board members engaging in insider trading due to access to price-sensitive information appear to have declined. Calls to increase the diversity of boards have been met with some success with respect to gender although this may be limited to particular industries.

William Forbes, Lynn Hodgkinson

6. Executive Remuneration

Concerns over levels and the nature of executive remuneration have been prominent in the press for the last decade. The ability for performance related pay to incentivise management has been questioned and, in particular, its tendency to encourage management to take risks has been considered one of the major causes of the financial crisis. This chapter examines recent research concerning these issues. The impact of recent legislation giving shareholders a binding vote on remuneration policy will be a fruitful area for research in the future.

William Forbes, Lynn Hodgkinson

7. Institutional Investors

Institutional shareholders are increasingly the voice of equity capital and it is the threat of them exiting a company’s shareholder register that disciplines management in their control of the corporation. An active market for corporate control, institutionalized via meetings/discussions between fund managers analysts and the senior management team of the corporation subject the board of executives of the corporation to constant interrogation of the viability of their (shareholder) value addition strategy. Recently John Kay has criticized institutional shareholders for their short-term obsession with shareholder wealth at the expense of longer term, investment-led, corporate success.

William Forbes, Lynn Hodgkinson

8. The Market for Corporate Control

Bidders and targets in cross-border mergers, in both financial and non-financial industries, appear to perform better than purely in domestic takeovers although this may be due to differences in the bidders’ and targets’ corporate governance regimes. Research findings are, as yet, mixed as to whether private equity financed takeovers earn significant returns on exit. The impact of recent reforms to UK legislation concerning competition rules are yet to be fully understood but whilst it appears to have enabled anti-trust actions to be taken more quickly, some consider the reforms intrusive whilst others consider the reforms are insufficient.

William Forbes, Lynn Hodgkinson

9. Future Directions

This chapter discusses briefly some unresolved problems we anticipate will loom large in future corporate governance research. Firstly we ask is the UK an optimal, or even a desirable, size of democratic state on which to design a system of corporate governance? Here the EU “in/out” referendum slated for 2017 will resolve much uncertainty. Secondly we point to the role and rights of whistle-blowers in exposing and thus righting poor governance. Such actions often arise either from selfless actions or personal ambition/spite. We ask if a more systematic framework of whistle-blower enabling leglisation is now necessary. We also suggest the following may be fruitful areas for future research: the impact of a binding vote on executive pay; the success of calls for increased board diversity and the further evaluation of private equity buyouts and exits.

William Forbes, Lynn Hodgkinson


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