Description
Book SynopsisTable of ContentsPreface vii
Acknowledgements ix
Part 1 Frameworks and Mechanisms 1
1 Defining Corporate Governance 3
Introduction 3
What is Corporate Governance? 5
Theoretical Frameworks 7
Agency Theory 8
Transaction Cost Theory 11
Transaction Cost Theory Versus Agency Theory 12
Stakeholder Theory 13
Stakeholder Versus Agency Theory 15
The Enlightened Shareholder Versus the Stakeholder-Inclusive Approach 17
Institutional Theory 17
The Evolving Framework of Corporate Governance 18
Academic Research: The Frontiers of Corporate Governance Research 19
Chapter Summary 20
Questions for Reflection and Discussion 21
2 The Impact of Corporate Governance Weaknesses and Failure 22
Introduction 22
The Collapse of Enron in 2001 23
Laying the Foundations 23
Glittering Success 23
Early Worries 24
Signs of Distress 25
The Fall . . . and Fall . . . of Enron 25
Creative Accounting at Enron and Its Impact on the Accounting Profession 26
The Aftermath 28
The Trial and the Human Dimension 29
A Reflection on the Corporate Governance Problems in Enron 30
The Collapse of the World’s Banking Sector and Governance Failure: 2008 32
Learning from the Crisis: Identifying Corporate Governance Failures 33
The Collapse of Carillion in 2018 35
An Overview of Carillion and its Activities 35
Carillion Spent Zillions 35
The Road to Ruin 36
Failure of the Board of Directors and a ‘Rotten Corporate Culture’ 36
Through a Glass Darkly: Lack of Transparency in Accounting and Auditing 37
Unethical Treatment of Shareholders: Dividends as Impression Management? 37
Unethical Treatment of Non-Shareholding Stakeholders 38
‘Enrillion’: Similar Governance Weaknesses in the Two Corporate Collapses 39
Chapter Summary 39
Questions for Reflection and Discussion 40
3 Corporate Governance Reform 41
Introduction 41
n Illustration 3.1: The Maxwell Affair 1991 42
The Cadbury Report 1992 45
The Greenbury Report 1995 45
The Hampel Report 1998 46
The Turnbull Report 1999 48
The Higgs Report 2003 49
The Tyson Report 2003 49
The Smith Report 2003 50
Revised Guidance on Audit Committees 2008 50
Redraft of the Combined Code 2003, Revised 2006 50
Internal Control: Revised Guidance for Directors on the Combined Code 2005 50
Further Revision of the Combined Code 2008 51
Turner Review March 2009 51
Walker Review July 2009 51
The Stewardship Code 2010 52
Corporate Governance Code 2012 52
The Kay Review 53
Corporate Governance Code 2016 and 2018 53
Corporate Governance Consultations Following Recent Corporate Collapses 54
The Kingman Review and the End of the FRC: Introducing the Arga 54
A Review 54
Comply or Explain 55
Applying the Codes of Practice to Small Companies 55
Ranking Corporate Governance Initiatives 56
Why is Good Corporate Governance Important? 57
Corporate Governance and Corporate Performance 57
A Risk Perspective on Corporate Governance 59
Corporate Governance Ratings, Indexes and Links with Financial Performance 59
Chapter Summary 60
Questions for Reflection and Discussion 60
4 The Role of Boards in Corporate Governance 61
Introduction: Enhancing Board Effectiveness 61
Unitary and Two-Tier Board Structures 62
Splitting the Role of Chairman and Chief Executive 62
Research into Split Roles 63
The Role of Non-Executive Directors in Corporate Governance 64
n Illustration 4.1: The Non-Executive Director Function in the Wake of the Financial Crisis 65
Research into the Role of Non-Executive Directors 70
Getting the Balance Right 72
Who Wants the Job Anyway? 73
Executive Remuneration 73
n Illustration 4.2: Executive Remuneration in Banks in the Wake of the Financial Crisis 74
n Illustration 4.3: Bankers Called to Account and Apologize 76
The High Pay Commission: Cheques with Balances 77
Academic Research into Executive Remuneration 77
Voting on Directors’ Remuneration 79
n Illustration 4.4: Reforming Executive Pay: Establishing a Blueprint for Change 80
Directors’ Training 80
What Else Can Contribute to Board Effectiveness? 81
Boardroom Diversity 81
Brave New Boardrooms? How Can Governance and Boards Be Reformed? 83
Addressing the Ethical Health of Boards: Focusing on Boardroom Culture 84
n Illustration 4.5: Broadening Stakeholder Representation on Boards: A New Framework 85
Chapter Summary 86
Questions for Reflection and Discussion 87
5 The Role of Institutional Investors in Corporate Governance 88
Introduction 88
The Ongoing Transformation of UK Institutional Ownership 89
A Complex Web of Ownership 91
What Do We Mean by Stewardship? 94
The Kay Review (2012) Principles and Recommendations 96
Conflict and Pension Fund Trustees 96
The Growth of Institutional Investor Activism 97
n Illustration 5.1: Trust Institutional Investment and the Kay Review 99
Institutional Investor Voting 100
Reviewing the Impediments to Voting Shares 101
Voting on Remuneration Policy 102
n Illustration 5.2: Fat Cat Slim 102
Research into Voting by Institutional Investors 104
Institutional Investors: Engagement and Dialogue 106
n Illustration 5.3: Failure of Engagement in the Financial Crisis 108
Research into Engagement with Institutional Investors 110
Institutional Investor Engagement and Power 112
Factors Affecting Shareholder Activism 112
Shareholder Activism and Financial Performance 113
Emerging Trends in Research on Shareholder Activism 114
Chapter Summary 115
Questions for Reflection and Discussion 115
6 The Role of Transparency, Audit, Internal Control and Risk Management in Corporate Governance 116
Introduction 116
Transparency and Disclosure 117
Research into Disclosure and Corporate Governance 118
Improving Transparency: Cutting Clutter? 119
Corporate Disclosure and Executive Remuneration 119
Corporate Disclosure and Non-Executive Directors 120
Developments in Governance Reporting 120
The Role of Internal Control, Internal Audit, External Audit and Audit Committees in Effective Corporate Governance 123
Corporate Governance and Risk in the Wake of the Financial Crisis 124
Turnbull, Internal Control: A UK Perspective 125
Risk and Risk Prioritization 125
An Existing Implicit Framework for Internal Control 126
The Turnbull Framework for Internal Control 126
The Revised Guidance on Internal Control 128
Risk Disclosure and Corporate Governance 129
An ‘Ideal’ Framework for Corporate Risk Disclosure 129
The Revised Guidelines and Corporate Risk Disclosure 132
Recent Research into Risk Disclosure 132
The Operating and Financial Review Fiasco 133
Sarbanes–Oxley and Internal Control: A US Perspective 134
Dodd–Frank Act 136
Sarbanes–Oxley 17 Years Later 136
The Role of Audit in Corporate Governance 136
The External Audit 136
The Audit Committee 139
Research into the Effectiveness of Audit Committees 140
The Internal Audit 141
Research into the Effectiveness of the Internal Audit Function 141
Chapter Summary 142
Questions for Reflection and Discussion 142
Part 2 Global Corporate Governance 143
7 An Introduction to Corporate Governance Systems Worldwide: Global Corporate Governance 145
Introduction 145
Categorizing Corporate Governance 145
Insider-Dominated Systems 146
Outsider-Dominated Systems 147
Factors Influencing Corporate Governance in an International Context 148
Global Convergence in Corporate Governance 151
The OECD Principles 152
The Revised OECD Principles 2004 153
OECD Principles 2015 154
The European Union 154
The Commonwealth Guidelines 157
Corporate Governance in the Middle East and North Africa 157
Andean Corporate Governance Code 2004 157
Ethical Issues in International Corporate Governance: Controlling Bribery and Corruption 157
The Outcome of Corporate Governance Convergence 158
Country Studies 160
Chapter Summary 161
Questions for Reflection and Discussion 161
8 A Reference Dictionary of Corporate Governance Systems: Global Corporate Governance 162
Albania 162
Argentina 162
Australia 163
Bahrain 163
Bangladesh 163
Belgium 164
Botswana 164
Brazil 164
Canada 164
Chile 165
China 166
Colombia 166
Cyprus 167
Czech Republic 167
Denmark 168
Egypt 169
Estonia 169
Finland 169
France 169
Germany 170
Ghana 171
Greece 171
Hong Kong 172
Hungary 172
Iceland 172
India 173
Indonesia 173
Iraq 174
Ireland 174
Italy 174
Case Study on Italian Governance: The ‘European Enron’: Parmalat 175
Corporate Governance Failure in Parmalat 175
Jamaica 176
Japan 176
Jordan 178
Kenya 178
Latvia 178
Lebanon 178
Libya 178
Lithuania 178
Luxembourg 178
Macedonia 178
Malaysia 179
The Netherlands 179
New Zealand 180
Nigeria 180
Norway 180
Oman 181
Pakistan 181
Peru 181
The Philippines 181
Poland 181
Portugal 182
Qatar 182
Romania 182
Russia 182
Saudi Arabia 183
Singapore 184
Slovakia 184
Slovenia 184
South Africa 184
South Korea 185
n Illustration 8.1: The Influence of Culture on Corporate Governance 186
Spain 186
Sri Lanka 187
Sweden 187
xx Contents
Switzerland 187
Taiwan 187
Thailand 188
Trinidad & Tobago 188
Tunisia 188
Turkey 188
Uganda 189
Ukraine 189
United States 189
Venezuela 190
Vietnam 190
Chapter Summary 191
Questions for Reflection and Discussion 191
Part 3 Holistic Governance 193
9 Corporate Governance and Stakeholder Accountability 195
Introduction 195
n Illustration 9.1: The Risks Associated with Climate Change and Global Warming 196
n Illustration 9.2: Assessing the Impact of the UK Company Law Review 198
Early Roots of Corporate Social Responsibility in the UK 199
Friedman and Corporate Social Responsibility 200
Does Corporate Social Responsibility Improve Financial Performance? 201
n Illustration 9.3: Enron and Ethics 201
n Illustration 9.4: The Mexican Gulf Oil Spill 2010 203
n Illustration 9.5: Sports Direct 204
n Illustration 9.6 204
Corporate Environmental Reporting 205
Incentives for Corporate Environmental Reporting 206
Disincentives for Corporate Environmental Reporting 208
A Risk Society Theory of Social and Environmental Reporting 209
Users of Corporate Environmental Reporting 210
Qualitative Characteristics of Corporate Environmental Reporting 210
Elements of Corporate Environmental Reporting 211
Bearing the Cost of Corporate Environmental Reporting 211
Time Period and Communication of Corporate Environmental Reporting 211
The Suggested Content of Corporate Environmental Reports 212
Sustainability and a Stakeholder Perspective 212
Sustainability Reporting 212
Accounting for Biodiversity, Accounting for Bees, and Extinction Accounting 214
Bee-Ing Bee-Friendly at Every Level: What Can Local Councils and Gardeners Do? 215
Integrated Reporting: The Dawning of a New Reality? 216
Assurance of Social, Environmental, Sustainability and Integrated Reporting 218
Stakeholder Engagement 221
Scepticism about Stakeholder Engagement 222
A Theoretical Framework for Stakeholder Engagement 222
Stakeholder Engagement in Challenging International Environments 223
n Illustration 9.7: W(h)ither Accountability? Striking Miners in South Africa 224
Governance in Public and Third-Sector Organizations 225
Governance in the Public Sector 227
The Nolan Committee Principles, 1995 228
The Good Governance Standard for Public Services, 2004 228
Corporate Governance in Central Government Departments 229
Code of Good Practice, July 2005 229
Governance in the Third Sector 230
Chapter Summary 232
Workshop Activity 232
10 Responsible Investment 233
Introduction 233
Terminology and Definitions 235
From SEE to ESG 237
From ESG to EAI and Extra Financials 237
United Nations Principles of Responsible Investment (UNPRI, Now PRI) 238
The UK Social Investment Forum, UKSIF 239
The European Social Investment Forum, EUROSIF 239
Some Statistics on Responsible Investment 239
Responsible Investment Strategies 241
Screening 241
Best in Sector 241
The Financial Performance of Responsible Investment 241
The Drivers of Responsible Investment 244
A Growing Demand for Social Ethical and Environmental Disclosure 247
Private Social and Environmental Reporting 250
n Illustration 10.1: Shareholder Activism on Animal Rights: The Case of Huntingdon Life Sciences 251
n Illustration 10.2: Backlash Against Animal Rights Extremists 252
n Illustration 10.3: The Role of Lobby Groups in Corporate Environmental Issues: The Case of BP Amoco in Alaska 253
Private Social and Environmental Reporting: Mythicizing or Demythologizing Reality? 254
Impression Management in Private Social and Environmental Reporting 255
Private Climate Change Reporting 255
Responsible Investment, Pollinators and Species Extinction 255
Responsible Investment and an Integrated Approach to Institutional Investment 255
Pension Fund Trustees and Responsible Investment 255
UKSIF Report on Pensions and Responsible Investment 261
The Role of Pension Fund Trustees in Climate Change 261
Socially Responsible Investment in an International Context 262
Socially Responsible Investment in the USA 262
Socially Responsible Investment in Canada 263
Socially Responsible Investment in Australia 263
Socially Responsible Investment in Continental Europe 264
Socially Responsible Investment in Japan 264
Socially Responsible Investment in South Africa 265
Chapter Summary 265
Questions for Reflection and Discussion 266
11 Future Directions for Corporate Governance and Accountability 267
The Future of Institutional Investor Activism 268
A Global Convergence in Corporate Governance 269
A Continuing Broadening of the Corporate Governance Agenda: Holistic Governance and Stakeholder Accountability 270
Has Corporate Governance Reform Gone Too Far? Or has it Gone Far Enough? 271
Endnotes N-1
References R-1
Index I-1
