JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= Corporate Governance Accountability, Enterprise and International Comparisons Edited by Kevin Keasey Steve Thompson and Mike Wright iii JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= iii JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= Corporate Governance i JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= ii JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= Corporate Governance Accountability, Enterprise and International Comparisons Edited by Kevin Keasey Steve Thompson and Mike Wright iii JWBK003-FM JWBK003-Keasey Copyright C January 7, 2005 2005 18:14 Char Count= John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) 1243 779777 Except Chapter 9: Governance and Strategic Leadership in Entrepreneurial Firms by C Daily, P McDougall, J Covin and D Dalton from Journal of Management, Vol 28, Issue 3, June, pp 387–412, 2002, reprinted with permission from Elsevier Chapter 11: Explaining Western Securities Markets by M Roe from Corporate Governance and Firm Organization, edited by A Grandori (2004), reprinted by permission of Oxford University Press Chapter 12: International Corporate Governance by D.K Denis and J.J McConnell from Journal of Financial and Quantitative Analysis, 38, 1, March 2003, reprinted with permission from JFQA Email (for orders and customer service enquiries): cs-books@wiley.co.uk Visit our Home Page on www.wileyeurope.com or www.wiley.com All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to permreq@wiley.co.uk, or faxed to (+44) 1243 770620 Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The Publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the Publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Other Wiley Editorial Offices John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 33 Park Road, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 22 Worcester Road, Etobicoke, Ontario, Canada M9W 1L1 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books Library of Congress Cataloguing-in-Publication Data Corporate governance : accountability, enterprise and international comparisons / [edited by] Kevin Keasey, Steve Thompson, and Mike Wright p cm Includes bibliographical references and index ISBN 0-470-87030-3 (Cloth : alk paper) Corporate governance—Cross-cultural studies Corporations—Finance—Cross-cultural studies I Keasey, Kevin II Thompson, Steve (R S.) III Wright, Mike, 1952– HD2741.C775 338.6—dc22 2005 2004023807 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-470-87030-3 Typeset in 10/12pt Times and Helvetica by TechBooks, New Delhi, India Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production iv JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= Contents About the contributors xi Introduction Kevin Keasey, Steve Thompson and Mike Wright Introduction Alternative perspectives on corporate governance Background to corporate governance reform Governance reforms: the early days New perspectives from the 1990s The volume’s contents Notes References The Development of Corporate Governance Codes in the UK Kevin Keasey, Helen Short and Mike Wright Introduction Corporate governance in the UK – definitions and framework The evolution of policy recommendations – from Cadbury to Hampel The evolution of governance policy – from Combined Code I to Combined Code II Overview of policy evolution Conclusion Notes References Financial Structure and Corporate Governance Robert Watson and Mahmoud Ezzamel Introduction Capital structure and financial risk Does capital structure matter? The agency costs of debt Employees as residual claimants Notes References 17 18 21 21 22 23 34 40 42 42 42 45 45 48 50 51 56 58 59 v JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= Contents Institutional Shareholders and Corporate Governance in the UK Helen Short and Kevin Keasey Introduction Institutional shareholdings in the UK General overview of the objectives and incentives of institutions The willingness and ability of institutions to intervene in the governance of corporations Methods of intervention Governance by institutional shareholders: empirical evidence Summary and conclusions Notes References Boards of Directors and the Role of Non-executive Directors in the Governance of Corporations Mahmoud Ezzamel and Robert Watson Introduction The corporate form, governance and the board of directors The UK’s governance by disclosure Conclusions Notes References Executive Pay and UK Corporate Governance Alistair Bruce and Trevor Buck Introduction Executive pay and corporate governance in the UK: an overview The empirical analysis of executive pay Executive pay evolution in the UK Performance indicator(s) Further discretionary elements in LTIP design Mix of remuneration components Disclosure Conclusions References Compensation Committees and Executive Compensation: Evidence from Publicly Traded UK Firms Rocio Bonet and Martin J Conyon Introduction Compensation committees and executive pay Prior literature New data and results Discussion and conclusion vi 61 61 63 65 70 80 84 90 92 93 97 97 99 104 112 112 113 117 117 119 120 123 128 131 132 132 133 134 137 137 138 140 144 149 JWBK003-FM JWBK003-Keasey January 7, 2005 18:14 Char Count= Contents Notes References The Governance Role of Takeovers Noel O’Sullivan and Pauline Wong Introduction Takeovers and company performance The likelihood of takeover success Post-acquisition performance Management turnover subsequent to takeover The consequences of takeover failure Conclusions References Governance and Strategic Leadership in Entrepreneurial Firms Catherine M Dalton, Patricia P McDougall, Jeffrey G Covin and Dan R Dalton Introduction Governance and strategic leadership matter CEOs/Founders CEO duality Top management teams Boards of directors Venture capitalists Discussion: an opportunity lost Conclusion References 10 Corporate Governance: The Role of Venture Capitalists and Buy-outs Mike Wright, Steve Thompson and Andrew Burrows Introduction Theoretical issues Empirical evidence Conclusions Notes References 11 Explaining Western Securities Markets Mark J Roe Introduction The argument: corporate law as propelling diffuse ownership Corporate law’s limits Data: political variables as the strongest predictor of ownership separation Conclusion: politics and corporate law as explanations for securities markets Notes References 151 153 155 155 156 158 164 171 172 174 176 183 183 185 186 190 191 193 194 196 199 200 207 207 208 215 227 227 228 235 235 237 239 243 246 247 248 vii JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index debt finance (Continued) financial structure decisions 45–59, 165, 207–28, 237, 268–70 France 356–69, 376–84 Germany 14–15, 209, 260, 285–316 incomplete contracts 9–10, 45–59 Japan 15–16, 209, 265, 327–50 payoffs 49–50 protection provisions 46–7, 54–6 risk exposure 48–58 stakeholder implications 45–59 taxes 51–4, 213 transition economies 424–39 types 48–50 debt-to-equity ratios 185, 187–8 decision making corporate-law limits 235–6, 239–47 financial structure decisions 9–10, 45–59, 165, 170, 207–28, 237, 268–70 self-dealing/bad-decisions contrasts 235–6, 239–47 defaults, debt finance 48–54 defence methods, takeovers 12, 156–76, 260–1, 266–7, 306–8 defined contribution pension schemes, benefits 58 definitions, corporate governance 22–3 deinstitutionalisation processes, Japan 345 Denis, Diane K 14, 251–83 Denmark 244 density concepts, Japanese structural network-governance properties 339, 341–2 Department of Trade and Industry (DTI) 6, 24, 35–6 Deutsche Bank 290 diffuse ownership problems 209–10, 213, 235–47, 252–77, 286–303, 353–4, 375–6 directors 5, 8, 10, 12, 21–42, 97–115, 117–35, 156–76, 252–77, 299–315 see also boards; management appointment terms 5, 6, 8, 10, 25–42, 56, 78, 101–2, 106–12, 124, 141–2, 256–7, 304–5, 383 entrepreneurial firms 183–200, 260–1 international comparisons 255–77 NEDs 5, 8, 10, 12, 21–42, 97–115, 124–5, 139–50, 161, 193–4, 224, 257–8 Registers of Directors’ Interests 127 removals 81, 102–3 remuneration 4, 5–7, 9, 11, 21–42, 62, 89–90, 102–12, 117–35, 137–50, 209–10, 257–8, 305–6, 316, 374–84 takeover reactions 12, 156–76 types 101–2 Directors’ Remuneration Report Regulations (DRRR), DTI 24, 35–6, 62, 90, 137, 140 disclosures 3, 5, 15, 29, 98–112, 121, 139–40, 312–15 discretion buy-outs 210 450 LTIPs 128–33 strategic leadership 196–7 distress costs 51–3 diversification issues 68–9, 90–1, 261, 270, 290–1, 334–7 dividend levels Germany 302–3 UK 86–7, 160 domestic/overseas securities, institutional investors 66–8 DRRR see Directors’ Remuneration Report Regulations Drucker, P.F 67 DTI see Department of Trade and Industry dual-class shares, Germany 290, 293 duality effects, CEOs 190–1, 216, 252, 256–7 early reforms, corporate governance 5–7, 8–10, 21–42, 56, 61–88, 98–9, 104–12, 125–33, 139–41, 223–4, 243 earnings per share (EPS), concepts 128–30 East Asia 265, 268–9, 271–2, 327–50, 389–410 see also individual countries economic issues crises 8, 269, 345–6 empirical evidence 268–70 Japan 15–16, 327–8, 332–3, 335–9, 345–6 legal constraints 268–70 management constraints 1, 22–42 transition economies 2, 7–8, 9, 14, 17, 235–47, 272, 415–43 economic rents, executives 118 EDF 374 efficiencies 4–5, 23–42, 45–59, 85–6, 100–1, 431–4, 439 see also productivity issues capital markets 4–5, 45–59, 85–6, 100–1 stewardship 23–42 efficient markets 4–5, 45–59, 85–6, 100–1 efficient-monitoring hypothesis, institutional investors 78–9 effort–cost–reward trade-off, active investors 14 emerging economies see transition economies employees 2, 3, 14–15, 46–59, 160, 164, 169–74, 175–6, 243–5, 285–316, 416–18, 423–39 see also stakeholders buy-outs 218–19 employment-protection/ownership-separation links 243–5 financial structure decisions 45–59 France 369–84 Germany 14–15, 285–316 incomplete contracts 55–8 insurance 58 pension commitments 46–9, 57–8, 61–95 residual claims 55–8 supervisory boards 14–15, 105–6, 285, 303–16 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index takeovers 160, 164, 169–74, 175–6 transition economies 416–18, 423–39 Encouraging Shareholder Activism (HM Treasury/DWP) 24, 37, 62 Enron 2, 6, 37, 97, 236, 242 enterprise conflicts, accountability issues 23, 29, 34–5, 40–2 entrepreneurial firms 12–13, 17, 30, 40–2, 47–8, 86–7, 183–206, 213–15, 260–1, 415–16, 438–9 see also founder-managed firms background 12–13, 183–200, 213–15, 438–9 CEO duality 190–1 corporate governance 12–13, 183–200, 213, 415–16, 438–9 definitions 184–5, 197–8 empirical evidence 183–200 future research 198–9 non-founder-managed performance contrasts 187–200 performance issues 12–13, 183–200 resource-dependence role 198–9 strategic leadership 12–13, 183–200 TMTs 183, 191–200 transition economies 17, 415–16, 438–9 venture capitalists 9, 13, 183–4, 186–200 EPS see earnings per share Equitable Life 91 equity finance see also shareholders agency costs 10, 45, 53–7, 104, 270–2 asset substitution problem 51–4 debt finance 9–10, 45–59, 219, 237, 254, 268–9 financial structure decisions 45–59, 165, 170, 207–28, 237, 268–70 payoffs 49–50 risk exposure 48–9 venture capitalists 13, 183–4, 429 ESOs see executive stock options Estonia 432, 435, 436 ethics, Cadbury Committee/Report 29–30 European Union (EU) 15, 40, 209, 237–47, 255–6, 259–61, 265, 268–9, 285, 293, 314, 353–84 see also individual countries boards 255–6 Directives 15, 48, 57, 285 ownership concentration 259–61, 265, 287–93, 353–69 securities markets 237–47 voting rights 353 Eurotunnel 366, 376–7 event studies, concepts 156–8, 164 executive directors see also directors concepts 101, 104–5, 124, 138–50 executive pay see remuneration executive stock options (ESOs) 11, 118–33 background 11, 118–33 decline 126–7 LTIP parallel schemes 132 origins 124–5 exit problems, shareholders 4, 7, 13–14, 69–71, 209 expected values, financial structure decisions 49–50 external governance measures see also takeovers concepts 2–7, 12, 100–1, 155–76, 252, 253–4, 266–77, 286, 306–11 Ezzamel, Mahmoud 9–10, 23–5, 30, 45–59, 97–115 ‘fair trade’ family ownership CEOs 272 China 407–9 France 16, 352–84 Germany 260, 299–301 ‘fat cat’ directors 6, 117–18 see also remuneration Federal Reserve Fidelity 76 fiduciary duties, corporate law 241–3, 303–4 Filatotchev, Igor 12–13, 17, 415–43 finance perspective see principal–agent perspective financial markets 16 Financial Reporting Council (FRC) 23, 39, 105, 134 financial statements 5, 21, 104–5 see also annual reports creative accounting 5, 21, 104–5 purposes 104–5 financial structure decisions, stakeholder implications 9–10, 45–59, 165, 170, 207–28, 237, 268–70 Financial Times 75 Finland 244, 257 firm-size influences 11, 73–4, 120–34, 137–50, 163–4, 196–7 institutional investors 73–4 remuneration 11, 73–4, 120–34, 137–50 takeovers 163–4 firms entrepreneurial firms 12–13, 17, 30, 40–2, 47–8, 86–7, 183–206, 213–15, 260–1, 415–16, 438–9 evolution 12–13 financial structure decisions 9–10, 45–59, 165, 170, 207–28, 268–70 life-cycle 13, 187–8, 191–2, 212–13 risk 47–8, 56–8, 103, 333 social issues 16, 47–8, 56, 270, 327–47 survival issues 185–200 first-generation international research, corporate governance 254–67, 275–6 foreign companies, transition economies 426–7 foreign-listed firms 273–4, 367–8 451 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index founder-managed firms 12–13, 183–200, 213 see also entrepreneurial firms boards 13, 183–200 CEO duality 190–1 empirical evidence 183–200 evolution 12–13, 183–200 non-founder-managed performance contrasts 187–200 performance issues 13, 183–200 strategic leadership 12–13, 183–200 France 9, 16–17, 238, 244, 268, 272–3, 292, 294, 351–86 background 9, 16–17, 351–86 bonds 368–9 capital/labour resource proportions 374–5 common heritage 383 competitive characteristics 382–4 convertible debt 361–7 corporate controls 369–84 corporate governance 9, 16–17, 238, 268, 272–3, 292, 294, 351–86 cross-holdings 16–17, 352–84 debt finance 356–69, 376–84 empirical evidence 352–69 employees 369–84 family ownership 16, 352–84 financing issues 354–69 foreign-listed firms 367–8 ‘French touch’ 383 historical background 356–60 hostile takeovers 375–84 industrial structure 16–17, 352–3, 382–4 insiders 16, 352–84 intermediated debt 369 IPOs 361–7 large firms 356–69 management issues 373–84 nationalisation programmes 356–9 ownership issues 16–17, 351–84 PDG 16–17, 352–84 performance issues 374–84 political background 356–9 privatisations 357–72 reforms 375–84 seasoned share offers 365–7 share issues 354–84 social issues 352–5, 383 state role 16–17, 352–84 stock markets 360–7 structures 16–17, 292, 351–84 Vienot reports 375 voting rights 353, 372–3, 378–81 France Telecom 377–80 FRC see Financial Reporting Council free cashflow model, concepts 54, 269–70 ‘free competition’ 452 free-rider problems concepts 61–2, 67–8, 75–80, 100, 208–9, 253, 265–6 institutional investors 61–2, 67–8, 75–80 ‘French touch’ 383 FTSE Fledgling index 145–9 FTSE Small Cap 145–9 FTSE100 38, 145–9 FTSE250 145–9 FTSE350 6, 82, 128–9, 132–3 Fuji Bank 335, 345 functional convergence, concepts 273–5 fund managers 36–42, 61–95 see also institutional investors active/passive fund-management contrasts 68–9 agency problems 72–3, 79–80 league tables 72–3 performance figures 72–3 short-termism problems 71–3 Fuyo Bank 336 GAAP rules 314–15 Gazprom 430–1 Georgia 432, 437 Germany 4–5, 8–9, 14–15, 47–57, 84, 209, 238, 244, 251, 259–61, 268, 272–4, 285–326 accounting standards 314–15 Anglo-American convergence 8, 272–4 background 14–15, 285–326 banks 14–15, 209, 260, 285–316 block trades 308–9 blockholders 285–316 boards 14–15, 285–316 codes 314–15 codetermination system 14–15, 285–316 control patterns 286–303 corporate form 286–303 corporate governance 8, 14–15, 47–57, 84, 209, 238, 251, 259–61, 268, 272–4, 285–316 creditor-monitoring issues 14–15, 285, 309–16 cross-holdings 14–15, 209, 285–316 directors 299–315 dividend levels 302–3 dual-class shares 290, 293 empirical evidence 285–316 employees 14–15, 285–316 external governance measures 286, 306–11 family ownership 260, 299–301 hostile takeovers 15, 266–7, 306–8, 313–14 insider-trading dangers 312–13 internal governance measures 286–306 large shareholders 285–316 management boards 14–15, 285, 303–16 management remuneration 305–6, 316 ownership issues 286–303 partial control stakes 308–9 privatisations 303 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index product market competition 311 reforms 311–15 regulations 285–6, 303–6, 311–15 restructuring issues 313 ‘Rhineland capitalism’ 285–6 securities markets 311–16 shareholder types 299–303 stakeholders 14–15, 47–57, 209, 260, 285–316 stock-exchange developments 311–15 supervisory boards 14–15, 285, 303–16 taxes 313–14 two-tier boards 14–15, 285, 303–16 voting issues 286–303, 307–8 voting pacts 290, 293 ‘give-away’ privatisations, transition economies 416–18, 438 Glass–Steagall Act 327 GlaxoSmithKline 35–6, 62 globalisation effects, corporate governance 275, 373–4, 383 Goergen, Marc 15, 285–326 golden parachutes see also payoffs concepts 103 Goldman Sachs 333 ‘good governance’ 1–2, 9, 23, 40, 92 ‘good rump’ firms, venture capitalists 224–5 ‘governance by disclosure’ concepts 104–12 governments interventions 9, 35–42, 48, 56, 62, 82–3, 117–18, 430–1 owners 253, 261–4, 299–301, 303, 352–84, 389–410, 430–1 privatisations 6, 17, 30–42, 69, 125, 261–4, 274, 303, 357–72, 415–39 transition economies 430–1 Goyer, Michel 371 Granada/Carlton group 76 Green, Michael 76, 81 Greenbury Committee/Report background 6, 22–8, 30–42, 56, 61–89, 109, 125–30 Code of Best Practice 24, 31–2 critique 31–2, 40–2, 56, 89 origins 30–1 recommendations 26–8, 30–1, 40–2, 56, 61–89, 109, 125–30 greenmail 102 Greenspan, Alan GroupDanone 378–81 Hampel Committee/Report 10, 21–42, 61–2, 65–70, 108–12, 125–6, 139–40 see also Combined Codes background 10, 21–42, 61–2, 65–70, 108–9, 125–6, 139–40 origins 32, 139 recommendations 32, 40–2, 61–2, 65, 109, 125–6, 139–40 terms of reference 21–2, 32 Hanson 74 Hanwa Bank 328 Hemmington Scott 144 Herfindahl index 407 Hermes Asset Management 6, 74–5, 78–9, 81 Higgs Report 10, 24, 37–9, 61–2, 108–11 background 37–9, 61–2, 108–11 critique 111 terms of reference 37–8, 110 Hokkaido Takushoku Bank 328 holding companies China 393–410 Germany 299–303 Honda 329 Hoskisson, Robert E 327–50 hostile takeovers 3–4, 8, 12, 15, 74, 80, 100–1, 155–81, 209, 253–4, 266–77, 306–8, 313–14, 375–84 see also takeovers background 12, 15, 74, 100–1, 155–81, 209, 253, 266–77, 306–8, 313–14 CEO turnover 12, 156, 158, 171–6 declining trends 12, 15, 164 defence methods 12, 156–76, 260–1, 266–7, 306–8 employees 160, 164, 169–74, 175–6 failures 4, 12, 156, 158–76 France 375–84 Germany 15, 266–7, 306–8, 313–14 institutional investors 161–3, 173–4 management reactions 12, 156–64 performance issues 12, 100–1, 155–76, 266–7 post-acquisition performance assessments 164–72, 266–7 pre-bid performance assessments 156–8, 266–7 productivity effects 164, 169–71 regulations 15, 156, 158–64, 172–3, 306–8, 313–14 shareholding sizes 74 success factors 156, 158–64, 175–6 wider effects 164, 169–71, 175–6, 209 house banks, Germany 310–11 Hungary 263, 418–19, 424–7, 429–36 IASB see International Accounting Standards Board ICI 74 ILO see International Labour Organisation IMF see International Monetary Fund incentives to act, institutional investors 10, 36–7, 61–95, 106 incomplete contracts concepts 9–10, 45–59 debt finance 9–10, 45–59 definition 55 employees 55–8 residual claims 54–8 453 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index independent NEDs, concepts 27–42, 101–12, 124, 139–50, 161, 193–4 index-matched funds, institutional investors 68–9 India 261, 265 Industrial Bank of Japan 335, 345 industrial companies France 16–17, 352–3, 382–4 German shareholders 299–303 Infogrames 383 information access 10, 14, 25, 85–6, 98–112, 156–7, 160, 209–10, 213–15, 220–1, 266, 302, 330, 332–3 initial public offerings (IPOs) 13, 185–99, 222, 225–7, 361–7, 391–3, 403–9 background 185, 188–99, 225–7, 361–7, 391–3 procedures 199 underpricing factors 188–99, 218–19, 226 innovation levels 86–7, 210–12, 439 insider-dominated boards 11, 16, 102–12, 227, 255–7, 359–84, 423–4, 431–8 insider-trading dangers Germany 312–13 institutional investors 70–1 insiders France 16, 352–84 remuneration committees 11, 138–50 transition economies 423–4, 431–8 Institute of Chartered Accountants in England and Wales 34 Institute of Directors 109 institutional investors 4, 6–9, 10, 21–42, 46, 61–95, 161–3, 299–316, 372–3, 427–9 see also blockholders; fund managers; insurance; pension funds; shareholders accountability issues 79–80 active/passive fund-management contrasts 68–9 activism 4, 6–9, 10, 13–14, 24–42, 46, 61–95, 117–18, 161–3, 274–5, 302, 372–3, 427–9 agency problems 69–84 background 4, 6–9, 10, 13–14, 24–42, 46, 61–95, 117–18, 161–3, 274–5, 302, 372–3, 427–9 coalitions 75–80, 91 conflicts of interest 71–3, 77–80 covert interventions 69–70, 74–7, 81–4, 90 criticisms 36–7, 61–95 director-removal interventions 81 dividend levels 86–7 domestic/overseas securities 66–8 empirical evidence 84–90, 161–3, 294–303 executive-remuneration evidence 89–90 firm-performance evidence 87–9 free-rider problems 61–2, 67–8, 75–80, 253 incentives to act 10, 36–7, 61–95, 106 index-matched funds 68–9 insider-trading dangers 70–1 interventions 35–6, 62, 69–84, 90 issues 62–95 454 monitoring role 35–6, 62, 69–84, 88–9, 301–15, 427–9 Myners Review 24, 36–7, 62, 70–83 objectives 65–70 public-comment interventions 6, 74–9, 81, 90 R&D expenditure 85–7 rights-issues interventions 81 roles 65–70 short-termism attitudes 10, 21–42, 61–95 short-termism evidence 84–7 statistics 63–70, 82 takeover reactions 161–3, 173–4 transition economies 427–9 UK 4, 6–9, 10, 21–42, 46, 61–95, 161–3 voting interventions 81–4 institutional network-governance properties, Japanese banks 329–47 Institutional Shareholders’ Committee (ISC) 24, 37, 62, 81–2 insurance 16, 36–7, 63–95, 299–315, 329–47 see also institutional investors conflicts of interest 78–9 employees 58 Japanese 16, 329–47 residual risks 58 statistics 63–70 interdependency element, social-exchange theory 16, 333–47 intermediated debt 237, 369 internal controls 2–7, 12, 28, 34–42, 209–10, 251–4, 255–77, 286–306 failures 209–10 reforms 28, 34–42, 209–10 International Accounting Standards Board (IASB) 314 international comparisons corporate governance 2–8, 13, 14–15, 98–112, 117–18, 208–9, 235–47, 251–83 corporate law 236–47, 254, 267–75, 303–6 International Labour Organisation (ILO) 434 International Monetary Fund (IMF) 237 investment trusts, statistics 63–70 IPOs see initial public offerings irrelevance theorems 50–1 ISAs 69 ISC see Institutional Shareholders Committee Israel 261, 267, 274 Italy 97, 244, 265, 267, 272, 274–5, 292 Japan 4–5, 8–9, 14, 15–16, 47–57, 84, 209, 244, 251, 255, 257–61, 265, 272–4, 286–7, 327–50 Anglo-American convergence 8, 272–4, 346 Asian implications 345–6 background 15–16, 327–50 bankruptcies 16, 332, 345 banks 15–16, 209, 265, 327–50 Big Bang 344–5 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index boards 255, 274 centrality concepts 229–40, 339–40 chartered responsibilities 334–6 city banks 335–6 clique concepts 339, 342–3 common heritage 334, 336–9 constraints 333–43 corporate governance 8, 15–16, 47–57, 84, 209, 251, 255, 257–61, 265, 272–4, 286–7, 327–47 corruption 345 creditor-monitoring issues 327–47 cultural issues 334, 336–47 debt finance 15–16, 209, 265, 327–50 deinstitutionalisation processes 345 density concepts 339, 341–2 economic issues 15–16, 327–8, 332–3, 335–9, 345–6 historical background 334–9 institutional network-governance properties 329–47 insuring banks 16, 329–47 long-term credit banks 335–47 management remuneration 257–8 networks 327–47 opportunities 333–43 performance issues 330–47 policy makers 344–5 post-war economy 334–6 problems 327–8, 332–3, 344–7 reforms 344–7 regulations 335–9, 344–7 rescued firms 16, 332–3, 337–9, 345 restructuring requirements 327–47 role theory 16, 332–47 social-exchange approach 16, 47, 84, 273, 327–47 structural network-governance properties 329–34, 339–47 trust banks 335–6 UK/US contrasts 330, 346–7 Jensen, M.C 45, 51–2, 54, 138, 155 junk bonds 211 Jupp´e, Alain 357 Keasey, Kevin 1–19, 21–42, 61–95, 137 Kim, Hicheon 327–50 King’s Cross London Underground fire 29 Korea 8, 265, 345 Labour Party see governments large shareholders, Germany 285–316 Latin America 1, 263 see also individual countries Latvia 432 LBOs see leveraged buy-outs leadership issues 9, 13, 183–200 crises 186 entrepreneurial firms 12–13, 183–200, 213 performance issues 12–13, 183–200 league tables, fund managers 72–3 learning needs, transition economies 438 legal codes 10, 22–42, 112, 134, 139–40, 311–15 legal constraints 1, 6, 9, 10, 14, 22–42, 99–100, 112, 134, 139–40, 235–47, 254, 267–77, 303–6, 311–15, 335–9, 353–4 see also corporate law economic issues 268–70 empirical evidence 254, 267–75, 311–15 international comparisons 254, 267–75, 303–6 management 1, 6, 9, 14, 22–42, 235–47, 254, 267–77, 311–15 minority-shareholder protection 14, 99–100, 235–47, 254, 267–75, 311–15, 354–5, 389–90, 403–10 lending-based systems 4–5, 8, 14–15, 259–61, 272–5, 285–316, 327–47 see also Germany; Japan benefits 330 convergence issues 272–5, 346 critique 330–1 leverage issues 8–10, 13, 45–59, 207–28 see also debt leveraged buy-outs (LBOs) 8–9, 13, 207–28 see also buy-outs background 8–9, 13, 207–28 CAPEX/R&D 218 corporate governance 207–28 criticisms 212–13 definition 210–11 discretion 210 empirical evidence 207–8, 215–28 expected effects 212–13, 215–19 failures 225 nature 210–12 performance issues 207–8, 212–28 productivity effects 217–18 taxes 219 life-cycle, firms 13, 187–8, 191–2, 212–13 life-insurance companies 36–7 see also insurance limited partnerships see also buy-outs; venture capitalists concepts 196, 208–28 limited-liability considerations, financial structure decisions 9–10, 45–59 liquidated damages, management compensation liquidations 51–3, 55–6 Lithuania 432, 435–6 Liu, Guy S 17, 389–414 ‘living dead’ firms, venture capitalists 195, 224–5 local authority schemes 36–42 London Stock Exchange 23–4, 40–1, 74, 126, 139, 144, 256 long-term credit banks, Japan 335–47 455 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index long-term incentive plans (LTIPs) 6, 11, 27, 31–42, 100–1, 118–34, 140 award maxima 131 background 6, 11, 27, 31–42, 118–34, 140 comparator groups 129–31 critique 127–34 disclosures 132–3, 140 discretionary elements 128–33 empirical evidence 132–3 EPS 128–30 ESO parallel schemes 132 reforms 6, 27, 31–42, 126–33 scheme duration 131 TSRs 128–30 vesting scales 131 long-term projects Anglo-American approach 4–5 empirical evidence 85–7 lending-based systems 4–5 short-termism problems 3, 4, 10, 21–42, 68–95, 126–33, 212–13 longevity issues, buy-outs/venture capitalists 219, 225–7 LTIPs see long-term incentive plans LVMH 371, 378–84 M&A Consulting M&As see mergers and acquisitions M-form hypothesis 209–10 McConnell, John J 14, 251–83 McDougall, Patricia P 183–206 macro requirements, corporate governance 2–3, 4, 253–4 majority shareholders, minority shareholders 14, 73–5, 87–8, 99–100, 235–47, 252–77, 287–303, 311–15, 354–5, 389–90 Malaysia 8, 257 management 2–6, 10, 14, 21–42, 45–59, 69–84, 99–112, 118–33, 138–9, 251–77, 304–16, 373–84, 415–39 see also remuneration; senior management abuse-of-executive-power debate 2–5, 7–8, 118, 144 agency costs 235–47 bad-decisions/self-dealing contrasts 235–6, 239–47 bias concepts 389–90 bonuses 11, 31–42, 108, 432–6 buy-outs 8–9, 13, 207–28, 404–10, 416–18, 435–9 compensation approaches 6–7 constraints 1–2, 6, 22–42, 235–47, 304–16 entrepreneurial firms 12–13, 183–200, 213, 260–1 international comparisons 255–77, 286–303 notice periods 6–7, payoffs 6–7, 11, 30–42, 78–9, 103 perquisites 11, 23, 27, 31–42, 140 principal–agent perspective 2–4, 6, 10, 14, 21–42, 45–59, 69–84, 99–112, 118–33, 138–9, 251–77, 286–303, 353–84 456 rolling contracts 6, 78–9 takeover reactions 12, 156–76 transition economies 17, 415–39 venture capitalists 219–28 management buy-outs (MBOs) 8–9, 13, 207–28, 404–10, 416–18, 435–9 see also buy-outs; venture capitalists background 8–9, 13, 207–28, 404–10, 416–18, 435–9 CAPEX/R&D 218 corporate governance 207–28, 416–18, 435–9 criticisms 212–13 definition 211 discretion 210 empirical evidence 207–8, 215–28 expected effects 212–13, 215–19 failures 225 nature 210–12 performance issues 207–8, 212–28, 416–18, 435–9 productivity effects 217–18 management remuneration see remuneration Manifest 34 Manjon, Miguel C 15, 285–326 Mannesmann 290 market capitalisation see firm-size market role, corporate controls market-centred governance systems see Anglo-American approach Maxwell, Robert 4, 71, 97 Mazda 332, 343 MBOs see management buy-outs Means, Gardiner 353, 409 Meckling, W.H 45, 51–2 media 75, 125 merchant banks 78 mergers and acquisitions (M&As) 3–4, 8, 12, 15, 74, 80, 100–1, 155–81, 209, 253, 266–77, 306–8, 337–8, 345, 368–84 see also takeovers Messier, Jean-Marie 372, 377 Mexico 263–4 micro requirements, corporate governance 2–3, 4, 251–3 Miller, Alexei 431 Miller, M 50–1 minority shareholders majority shareholders 14, 73–5, 87–8, 99–100, 235–47, 252–77, 287–303, 311–15, 354–5, 389–90 protection provisions 14, 99–100, 235–47, 252–77, 311–15, 354–5, 389–90, 403–10 mitigation approach, management compensation Mitsubishi Trust and Banking 335–6 Mitsui Bank 335–7, 343 Mitterand, Fran¸cois 357 Mizuho Bank 345 Modigliani, F 50–1 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index Moldova 432, 437 Mongolia 432, 436 Monopolies and Mergers Commission see Competition Commission moral hazard 195, 215, 333, 346, 389–90 multidivisional firms (M-form), concepts 209–10 Murakami, Yoshiaki mutual funds 58 Myners Review background 24, 36–7, 62, 70–83 institutional investors 24, 36–7, 62, 70–83 origins 36 recommendations 36–7, 62, 82–3 myopic–market perspective, governance debates 2–3, 4, 85–6 Nadir, Asil NAPF see National Association of Pension Funds NASDAQ 274, 363, 367–8 National Association of Pension Funds (NAPF) 78, 82 nationalisation programmes, France 356–9 NEDs see non-executive directors negative externalities 47–8, 54–5 Neill Report 39 net present values (NPVs) 52–4 Netherlands 244, 267, 275 networks, Japanese network-governance properties 327–47 New York Stock Exchange (NYSE) 367–8 New Zealand 257 Newbold Inquiry 82 nexus of contracts 9–10, 45–6, 56, 344 Nikkei Index 327–8 Nippon Credit Bank 328, 335 non-affiliated outsiders see also independent NEDs concepts 101, 139, 255–8 non-bank financial intermediaries/individuals, transition economies 427–9 non-executive directors (NEDs) 5, 8, 10, 12, 25–42, 97–115, 124–5, 139–40, 161, 193–4, 224, 257–8 see also directors appointment terms 5, 8, 10, 38–9, 101–2, 124–5 background 5, 8, 10, 21–42, 97–115, 139–50, 161, 193–4, 224, 257–8 CEOs 10, 38–9, 101–12, 124–5, 144–50, 257 empirical evidence 102–12, 145–50, 161, 257–8 Higgs Report 37–9, 108–11 independent NEDs 27–42, 101–12, 124, 139–50, 161, 193–4 monitoring/disciplinary role 10, 12, 25–42, 97–112, 139–50 reforms 5, 8, 21–42, 98–9, 104–12 roles 10, 12, 21–42, 97–112, 139–44, 224 SIDs 38–42, 111 takeover reactions 161 non-founder-managed firms, performance issues 187–200 Norway 244 notice periods, management 6–7, NPVs see net present values NYSE see New York Stock Exchange obligations, social-exchange theory 16, 331–47 occupational pension funds see pension funds OECD 1, 237, 243–5, 402–3 Office of Fair Trading 160 operating performance, buy-outs 216–17 optimal capital structures 45–6, 51–4 option gains 5–6 options 49–50, 123 O’Sullivan, Mary 16, 351–86 O’Sullivan, Noel 12, 155–81 outsider-dominated boards 10, 16, 102–12, 142–50, 193–4, 227, 255–8, 351–84, 426–7, 431–8 overregulation dangers, UK 9, 10, 22, 29, 32, 33–4, 40–2, 84, 92 overseas securities, institutional investors 66–8 overview 1–19 owners 2–4, 6, 8–9, 10, 14, 21–42, 45–59, 69–84, 99–112, 118–33, 138–50, 208–9, 252–77, 286–303, 351–84, 390–410 see also shareholders concentrated structures 259–77, 286–303, 353–84, 403–9 corporate form 54–5, 98–104, 286–303 corporate law 235–47, 267–77, 303–6, 354–5, 415–39 diffuse ownership problems 209–10, 213, 235–47, 252–77, 286–303, 353–4, 375–6 governments 253, 261–4, 299–301, 303, 352–84, 389–410, 430–1 international comparisons 258–77, 286–303 minority-shareholder protection 14, 99–100, 235–47, 254, 267–75, 311–15, 354–5, 389–90, 403–10 principal–agent perspective 2–4, 6, 10, 14, 21–42, 45–59, 69–84, 99–112, 118–33, 138–9, 251–77, 286–303, 353–84 Palmalat 97 Paribas 358, 366 ParisBourse 356, 361–8 partial control stakes, Germany 308–9 passive fund management, institutional investors 68–9 payoffs see also compensation debt/equity finance comparisons 49–50 management 6–7, 11, 30–42, 78–9, 103 PDG, France 16–17, 352–84 P´echiney 375 pension commitments, employees 46–9, 57–8 457 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index pension funds 8, 36–42, 61–95 see also institutional investors agency problems 71–3, 78–80 conflicts of interest 71–3, 78–80 criticisms 36, 61–95 falling values 91 Myners Review 36–7, 62, 70–83 statistics 63–70 structures 71–3 pensions misselling scandal 91 perfect and complete market model 50–1 performance issues see also returns; shareholder value banks 330–47, 424–6 blockholder effects 245–6, 258–77, 294–9 boards 101–4, 138–50, 183–200, 255–77, 303–16 buy-outs 207–8, 212–28, 416–18, 435–9 empirical evidence 87–9, 102–12, 120–33, 145–50, 183–200, 257–77, 294–9, 330–47, 374–84, 390–410, 418–39 entrepreneurial firms 12–13, 183–200, 260–1 EPS 128–30 founder-managed firms 13, 183–200 fund managers 72–3 institutional investors 87–9, 427–9 LTIPs 6, 11, 27, 31–42, 100–1, 118–34, 140 non-founder-managed firms 187–200 overregulation dangers 9, 22, 40–2 privatisations 262–4 remuneration links 5–7, 9, 11, 15, 21, 35–42, 89–90, 102–12, 117–35, 141–50, 209–10, 257–8, 305–6, 374–84 strategic leadership 12–13, 183–200 structures 258–61 takeovers 12, 100–1, 155–76, 266–7 transition economies 418–39 TSRs 128–30 venture capitalists 195–6, 207–8, 215–28 perquisites 11, 23, 27, 31–42, 140 Pinault, Fran¸cois 371, 384 PIRC 6, 34, 82, 127, 130 poison pill defences, takeovers 157–8, 161 Poland 263, 419, 424–5, 427–36, 439 political issues 1, 39–40, 55–6, 243–7, 356–9, 389–414, 415–39 agency costs 243–7 donations 39–40 incomplete contracts 55–6 management constraints 1, 39–40, 243–7 transition economies 415–39 Political Parties and Referendums Act 2000 39–40 PollyPeck 97 pooled investment vehicles 36–7 portfolio investments 16, 68–9, 90–1, 352–84 post-transaction monitoring problems, buy-outs/venture capitalists 213, 215, 220, 221–4 458 power elements, social-exchange theory 16, 331–47 PPR 371, 378–84 pre-contracting problems, buy-outs/venture capitalists 213–15, 220 prescription contrasts, principles 32, 40–2 price–earnings ratios 189–94 principal–agent perspective 2–4, 6, 10, 14, 21–42, 45–59, 69–84, 118–33, 138–9, 251–77, 286–303, 353–84 principles, prescription contrasts 32, 40–2 ‘Prisoners’ Dilemma’ 75–7 private benefits, control 270–2, 298–303 private control bias, concepts 389–90 privatisations 6, 17, 30–42, 69, 125, 261–4, 274, 303, 357–72, 415–39 approaches 416–18 background 6, 17, 30–42, 69, 125, 261–4, 274, 415–39 China 17, 389–410 early returns 69, 261–4 empirical evidence 261–4, 285–316 ‘fat cat’ directors 6, 30–42, 125 France 357–72 Germany 303 performance issues 262–4 transition economies 17, 261–4, 415–39 product competition 14, 47–8, 247, 311, 382–3, 416–18 productivity issues see also efficiencies buy-outs 217–18 takeovers 164, 169–71 transition economies 431–4, 439 profit-report defence, takeovers 160 proxy voting 15, 28–42, 82–3, 265–6, 287–303, 307 Prudential 74–5 psychological issues, management constraints public-comment interventions, institutional investors 6, 74–9, 81, 90 put options 49–50 pyramid structures 15, 264–6, 271–2, 287–303, 307–8, 389–410 tunnelling practices 271–2 voting rights 15, 264–6, 271–2, 287–303, 389–410 quality-of-corporate-law arguments 238–47 R&D expenditure buy-outs 218 institutional investors 85–7 reciprocity norm, social-exchange theory 16, 331–47 reforms see also individual Codes/Reports corporate governance 3, 4–10, 21–42, 56, 61–88, 98–9, 104–12, 125–33, 139–41, 223–4, 237–8, 243, 311–15, 344–7, 375–84, 415–16 incomplete contracts 56 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index structures 9, 21–42, 56, 104–12 transition economies 415–16 Registers of Directors’ Interests 127 regulations 1, 6, 9, 10, 15, 22–42, 62, 84, 92, 124–6, 156–64, 172–3, 235–47, 254, 267–77, 303–6, 311–15, 335–9, 389–439 see also legal civil/common-law contrasts 235–6, 242, 268–72 DRRR 24, 35–6, 62, 90, 137, 140 Germany 285–6, 303–6, 311–15 international comparisons 254, 267–75, 303–6 Japan 335–9, 344–7 management constraints 1, 6, 9, 22–42, 235–47, 311–15 overregulation dangers 9, 10, 22, 29, 32, 33–4, 40–2, 84, 92 self-regulation 9, 22–42, 62, 124–6 takeovers 15, 156, 158–64, 172–3, 306–8 transition economies 415–39 voting obligations 9, 35–42, 48, 56, 62, 82–3 relationship banks, concepts 320–47 remuneration background 4, 5–7, 9, 11, 21–42, 62, 89–90, 102–12, 117–35, 137–50, 209–10, 257–77, 305–6, 316, 374–84, 434–5 Black–Scholes option model 123 bonuses 11, 31–42, 108, 434–6 contingency view 120 determination processes 124–5 empirical evidence 11, 89–90, 103–12, 120–33, 137–50, 257–77, 305–6, 316, 374–84 ESOs 11, 118–33 executives/shareholders alignment 11, 120–33, 258–9 firm-size influences 11, 73–4, 120–34, 137–50 government interventions 9, 35–42, 62, 82, 117–18 Greenbury Committee/Report 6, 22–8, 30–42, 56, 61–89, 109, 125–30 historical background 117–34 institutional investors 89–90 international comparisons 257–8, 305–6, 316 LTIPs 6, 11, 27, 31–42, 100–1, 118–34, 140 performance links 5–7, 9, 11, 15, 21, 35–42, 89–90, 102–12, 117–35, 141–50, 209–10, 257–8, 305–6, 374–84 public concerns 5, 11, 22–42, 62, 89–90, 117–18, 125 reforms 5–7, 21–42, 106–7, 125–33, 139–41 shareholder activism 7, 35–42, 62, 89–90, 117–18 Tournament Theory 119–21 transition economies 434–8 UK 11, 21–42, 62, 89–90, 102–12, 117–35, 137–50, 209–10, 257–8 US 11, 89, 120–2, 125, 142–3, 209–10, 257–8 remuneration committees 5, 11, 21–42, 62, 90, 106–12, 118, 124–5, 137–50 agency problems 11, 118, 137–50 background 27–42, 106–12, 124–5, 137–50 composition 27–42, 106–7, 124–5, 137–50 critique 138–50 empirical evidence 107–12, 124–5, 137–50 insider effects 11, 138–50 Renneboog, Luc 15, 285–326 research background corporate governance 251–77 first-generation international research 254–67, 275–6 second-generation international research 254, 267–72, 276–7 residual claims employees 55–8 financial structure decisions 46–59 incomplete contracts 54–8 political issues 55–6 resource-dependence role, entrepreneurial firms 198–9 Restructuring Act, Germany 313 restructuring requirements buy-outs/venture capitalists 224–6 Japan 327–47 transition economies 435–8 retained earnings, investment levels 86–7 return on assets (ROA) 185, 187–8, 189–94, 265, 295–8 return on capital, takeovers 157–8, 164–9 return on equity (ROE) 158, 164–9, 185, 189–94, 295–8, 399–401 return on net worth, takeovers 157–8, 164–9 return on sales (ROS) 185 returns 3, 4, 10, 11, 21–2, 49–58, 61–95, 120–33, 185–200, 295–9, 374–84, 399–401 see also performance issues entrepreneurial firms 12–13, 185–200 executives/shareholders alignment 11, 120–33, 258–9 privatisation windfalls 69, 261–4, 416–18 risk 3, 10, 49–58, 268–9 short-termism 3, 4, 10, 21–2, 61–95, 126–33 takeovers 157–8, 164–9, 266–7 TSRs 128–30 reverse buy-outs 227 Rewards for Failure (DTI) 24, 36 ‘Rhineland capitalism’ 285–6 Rhodia 374, 377 rights-issues interventions, institutional investors 81 risk 2, 3, 9–10, 11, 30, 45–59, 103, 268–9, 333, 346 attitudes 11, 30, 34–5, 103, 195, 215, 333, 346 aversion 11, 30, 99–100, 103, 123, 138–9 capital structures 49–58 debtholders 9–10, 45–59 equity finance 48–9 financial structure decisions 45–59 firms 47–8, 56–8, 103, 333 management 30, 34–42 moral hazard 195, 215, 333, 346, 389–90 returns 3, 10, 49–58, 268–9 shareholder value 2, 103 stakeholders 9–10, 11, 45–59 459 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index ROA see return on assets Rocard, Michel 357 ROE see return on equity Roe, Mark J 14, 17, 235–49 role theory, concepts 16, 332–47 rolling contracts, management 6, 78–9 Romania 432 ROS see return on sales Russell/Mellon CAPS 72 Russia 7, 257, 263, 265, 420–2, 425–39 Rutteman Guidance 24, 34 Saatchi, Maurice 81 Sainsbury’s 62 Sakura 345 Sanwa Bank 336 Sarbanes-Oxley Act 2002 (SOX) 6, 243 savings, corporate governance 2, scandals 2, 6, 8, 29–30, 35, 37–8, 71, 91, 97–8, 105, 112, 236, 242 Scandinavia 238, 268–70 see also individual countries scheme duration, LTIPs 131 Schneider 358 Seagram 372, 377 SEC see Securities and Exchange Commission second-generation international research, corporate governance 254, 267–72, 276–7 Securities and Exchange Commission (SEC) 235–47 securities markets 14, 47–8, 235–47, 311–16 background 235–47, 311–16 corporate law 14, 99–100, 235–47 Germany 311–16 international comparisons 235–47 Security Trading Act 1994, Germany 312–13 self-dealing/bad-decisions contrasts, corporate law 235–6, 239–47 self-regulation 9, 22–42, 62, 124–6 senior independent NEDs (SIDs), concepts 38–42, 111 senior management see also chief executive officers; management abuse-of-executive-power debate 2–5, 7–8, 118, 144 accountability issues 5, 8–9 constraints 1–2, 6, 22–42, 235–47 seniority issues, stakeholders 55–8 severance payments see payoffs share buybacks 49–50 share options 5–6, 10, 27, 30–42, 108–12, 118–33, 140 ESOs 11, 118–33 problems 6, 108, 112, 125–7 reforms 5–6, 27, 30–42, 125–33, 140 shareholder cashflows, leverage effects 45, 48–58 shareholder value 2–5, 9–10, 13, 22–42, 45–59, 98–112, 117–18, 155–76, 219–28, 245, 271–2 see also value 460 Anglo-American approach 2–5, 98–112, 117–18, 259–61, 272–5, 285, 371 blockholder effects 245–6, 258–77, 294–9 buy-outs/venture capitalists 219–28 creative accounting 5, 21, 104–5 financial structure decisions 45–59, 165, 170 German blockholders 294–9 risk 2, 103 takeovers 4, 155–76, 253 shareholders 2–4, 5, 6–9, 10–11, 21–42, 63–95, 155–76, 219–28, 235–47, 252–77, 285–316, 354–84, 390–410 see also equity finance; institutional investors; securities activism 4, 5, 6–9, 10, 13–14, 24–42, 46, 61–95, 117–18, 161–3, 209, 221–8, 252–3, 258–77, 302, 372–3, 427–9 AGMs 4, 25, 28–42, 62, 80–4, 104, 111, 307, 431 block trades 308–9 blockholders 12, 15, 87–8, 144, 161–2, 173–4, 235–6, 237–47, 253, 258–77, 285–316, 389–410 cashflow rights 264–77 executive returns 11 exit problems 4, 7, 13–14, 69–71, 209 financial structure decisions 9–10, 45–59, 165, 170, 207–28, 237, 268–70 Germany 285–316 IPOs 13, 185–99, 222, 225–7, 361–7, 391–3, 403–9 majority/minority shareholder conflicts 14, 73–5, 87–8, 99–100, 235–47, 252–77, 287–303, 311–15, 354–5, 389–90 principal–agent perspective 2–4, 6, 10, 14, 21–42, 45–59, 69–84, 99–112, 118–33, 138–9, 251–77, 286–303, 353–84 rights issues 81 statistics 63–70, 82 takeovers 4, 155–76, 253, 266–77 tunnelling practices 271–2 voting rights 10, 28–42, 73–5, 80–4, 104–12, 264–77, 286–303, 307–8, 353, 372, 378–81, 391–410 shareholder–primacy model, criticisms 48 Shell 62 Shengli Oil Field Dynamic Group 409 Shinsei Bank 345 Short, Helen 5, 9, 10, 21–42, 61–95 short-term bonuses 11, 31–42, 108, 434–6 short-term credit 48–50 short-termism empirical evidence 84–7 institutional investors 10, 21–42, 61–95 long-term projects 3, 4, 10, 21–42, 68–95, 126–33, 212–13 myopic–market perspective 3, 4, 10, 85–6 Sibneft 433 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index SIDs see senior independent NEDs Siemens 383 signalling theory 199 Singapore 8, 257 Sinopec Group 408 Slovak Republic 422–3, 428–30 smaller firms 12–13, 186–200 see also entrepreneurial Smith, Adam 100, 251 Smith Report 24, 37–8, 109 social issues firms 16, 47–8, 56, 270, 327–47, 352–5, 383 France 352–5, 383 Japan 16, 47, 273, 327–47 management constraints minority-shareholder protection 270 negative externalities 47–8, 54–5 social-exchange theory concepts 16, 331–47 definition 331 Sony 329 South Africa 265 Spain 257–8, 260–1 sponsoring companies, institutional investors 79–80 stakeholder perspective, governance debates 2–3, 4–5 stakeholders 2–3, 4–5, 9–10, 14–15, 17, 23, 45–59, 285–316, 423–39 see also community groups; employees; shareholders; suppliers buy-out effects 218–19 concepts 2–3, 4–5, 23, 45–59, 285–316 control issues 57–8, 285–316 financial structure decisions 9–10, 45–59, 170, 237, 268–70 Germany 14–15, 47–57, 209, 260, 285–316 residual claims 54–9 risk 9–10, 45–59 seniority issues 55–8 transition economies 17, 423–39 UK trajectory 45, 57–8 stewardship issues 8, 23–42, 104–12, 118 stock options see share options stock-market responses 216, 236–47, 311–15, 360–7 buy-outs 216 minority-shareholder protection 236–47, 311–15, 403–9 strategic actions, Japanese banks 332–3 strategic leadership discretion 196–7 empirical evidence 183–99 entrepreneurial firms 12–13, 183–200 strategic-alignment hypothesis, institutional investors 78–9 structural network-governance properties, Japanese banks 329–34, 339–47 structures 9–10, 16–17, 21–42, 45–59, 71–3, 89–90, 97–115, 120, 138–50, 209–10, 224–8, 258–77 concentrated structures 259–77, 286–303, 353–84, 403–9 multidivisional firms 209–10 pension funds 71–3 performance issues 258–61 pyramid structures 15, 264–6, 271–2, 287–303, 307–8, 389–410 reforms 9, 21–42, 56, 104–12 stakeholder implications 45–59 Suez 358, 377–81 Sumitomo Bank 327, 332–3, 336, 345 Sun, Pei 17, 389–414 supervisory boards, concepts 14–15, 105–6, 285, 303–16 suppliers see also stakeholders survival issues, firms 185–200 Sweden 244, 264 Switzerland 244, 255 syndicates, venture capitalists 222–3 systemic consequences, failures 2–3 Taiwan 275 takeovers 3–4, 8, 12, 15, 74, 100–1, 155–81, 209, 253, 266–77, 306–8, 313–14, 375–84, 404–10 see also external governance measures accounting information 157–60 background 12, 15, 74, 100–1, 155–81, 209, 253, 266–77, 306–8 bidder returns 165–9 blockholders 161–2 CEO turnover 12, 156, 158, 171–6 City Code on Takeovers and Mergers 159–60 counterbid defence 160 declining trends 12, 15, 164 defence methods 12, 156–76, 260–1, 266–7, 306–8 dividend-increases defence 160 empirical evidence 156–76, 266–77, 306–8, 313–14, 375–84 employees 160, 164, 169–74, 175–6 external governance measures 12, 100–1, 155–76, 252, 253–4, 266–77, 306–8 failures 4, 12, 156, 158–76 firm-size influences 163–4 Germany 15, 266–7, 306–8, 313–14 institutional investors 161–3, 173–4 management reactions 12, 156–76 management/shareholder conflicts 161–4 performance issues 12, 100–1, 155–76, 266–7 poison pill defences 157–8, 161 post-acquisition performance assessments 164–72, 266–7 pre-bid performance assessments 156–8, 266–7 productivity effects 164, 169–71 461 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index takeovers (Continued) profit-report defence 160 regulations 15, 156, 158–64, 172–3, 306–8, 313–14 returns 157–8, 164–9, 266–7 shareholder value 4, 155–76, 253 shareholding sizes 74, 161–4 success factors 156, 158–64, 175–6 target returns 164–9 trade-union defence 160 transition economies 430 UK evidence 157–74, 266–7 US evidence 157–72, 253, 266–77 ‘white knight’ defence 160 wider effects 164, 169–71, 175–6, 209 target returns, takeovers 164–9 taxes 14, 50–4, 86–7, 213, 307, 313–14 buy-outs 218–19 debt finance 51–4, 213 laws 14 teams, TMTs 183, 191–200 TFP see total factor productivity Thailand Thatcher, Margaret 91 Thompson, Steve 1–19, 137, 207–33 TMTs see top management team members Tobin’s Q 157–8, 216, 257, 272, 274 top management team members (TMTs), entrepreneurial firms 183, 191–200 Toshiba 343 total factor productivity (TFP) 217 total shareholder returns (TSRs), concepts 128–30 Tournament Theory 119–21 trade unions 91, 117, 160 see also stakeholders transaction costs 50–1 transactional banks, relationship-banking contrasts 330 transition economies 2, 7–8, 9, 14, 17, 235–47, 272, 415–43 see also individual countries bankruptcies 416–18 banks 424–6 corporate governance 2, 7–8, 17, 235–47, 415–39 corporate law 245–6, 415–39 debt finance 424–39 empirical evidence 415–39 employees 416–18, 423–39 entrepreneurial firms 17, 415–16, 438–9 foreign companies 426–7 ‘give-away’ privatisations 416–18, 438 insiders 423–4, 431–8 learning needs 438 management issues 17, 415–39 non-bank financial intermediaries/individuals 427–9 performance issues 418–39 political issues 415–39 post-privatisation governance 423–4, 435–8 462 private investment funds 427–9 privatisations 17, 261–4, 415–39 product market competition 416–18 productivity issues 431–4, 439 profits performance 431–4 reforms 415–16 regulations 415–39 remuneration 434–8 restructuring findings 435–8 stakeholders 17, 423–39 state role 430–1 takeovers 430 trust issues 2, 7–8, 17 venture capitalists 429–30 wealthy individual investors 429 transparency issues 3, 5, 15, 29, 98–112, 122–7, 273–4, 312–16 trust banks, Japan 335–6 trust issues institutional investors 91–2 transition economies 2, 7–8, 17 trustees 36–7, 56, 65–92 see also institutional investors criticisms 71–3 Myners Review 36–7, 62 TSRs see total shareholder returns tunnelling practices, shareholders 271–2 Turnbull Report 24, 34, 109 turnover rates, CEOs 12, 62, 102–3, 156, 158, 171–6, 195, 220–1, 224, 255–7, 260, 304, 346, 437–8 two-tier boards 14–15, 105–6, 143, 285, 303–16 Tyco 97 Tyumen Oil Company 433 UAP 358–66, 370–2 UK see United Kingdom Ukraine 422, 432, 434, 435–8 uncertainty issues, buy-outs/venture capitalists 213–15 UNCTAD 373–4 underinvestment problems, concepts 52–3 underpricing factors buy-outs 218–19, 226 IPOs 188–99, 218–19, 226 underwriters, venture capitalists 226 Union Bank 333 unit trusts, statistics 63–70 United Kingdom (UK) 2, 4–7, 9, 11, 14, 21–42, 45, 54–8, 61–95, 97–112, 119–33, 157–74, 208–28, 251, 255–77, 287, 302–3, 330 boards 5, 10, 11, 21–42, 97–115, 124–5, 138–50, 156–76, 183, 193–200, 255 ‘Britsoft paradox’ 383 buy-outs/venture capitalists 208–28 Cadbury Committee/Report 5, 9, 10, 21–42, 56, 61–88, 99, 101–10, 125–6, 223–4, 256 City Code on Takeovers and Mergers 159–60 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index codes 8–9, 10, 21–42, 82–92, 108–12, 134, 139–40, 159–60 Combined Codes 9, 22, 26–8, 32–42, 82–92, 108–12, 134, 139–40 Company Law Review Steering Group 24, 35, 39 corporate form 54–5, 98–104 corporate governance 5–7, 8, 9–10, 11, 14, 21–42, 45, 54–8, 61–95, 97–112, 119–33, 139–40, 208–28, 251, 255–77, 287, 302–3, 330 definitions 22–3 dividend levels 86–7, 160 DRRR 24, 35–6, 62, 90, 137, 140 employment-protection/ownership-separation links 244 enterprise/accountability conflicts 23, 29, 34–5, 40–2 framework 22–3 ‘governance by disclosure’ concepts 104–12 government interventions 9, 35–42, 48, 56, 62, 82–3, 117–18 Greenbury Committee/Report 6, 22–8, 30–42, 56, 61–89, 109, 125–30 Hampel Committee/Report 10, 21–42, 61–2, 65–70, 108–12, 125–6, 139–40 Higgs Report 10, 24, 37–9, 61–2, 108–11 institutional investors 4, 6–9, 10, 21–42, 46, 61–95, 161–3 key-developments table 24, 109–10 Myners Review 24, 36–7, 62, 70–83 non-shareholder financial claims 48–57 reforms 5–7, 8, 9–10, 21–42, 56–8, 61–88, 98–9, 104–12, 125–33, 139–41, 223–4 remuneration issues 11, 21–42, 62, 89–90, 102–12, 117–35, 137–50, 209–10, 257–8 Smith Report 24, 37–8, 109 stakeholder interests 45, 57–8 takeovers 157–74, 266–7 Turnbull Report 24, 34, 109 US contrasts 98–9, 112 United States (US) 2–8, 10–11, 14, 85–9, 98–104, 112, 208–28, 235–47, 251–77, 287, 293, 330, 346–7, 353, 367–8 boards 255–77 buy-outs/venture capitalists 208–28 corporate form 54–5, 98–104 corporate governance 2, 4–5, 6–8, 10–11, 14, 85–9, 98–104, 112, 208–28, 235–47, 251–77, 293, 330, 346–7, 353 corporate law 235–47 corporate-governance research 251–77, 287, 293, 353 dual-class shares 293 early reforms 6–7, 243 French firms 367–8 Glass–Steagall Act 327 remuneration issues 11, 89, 120–2, 125, 142–3, 209–10, 257–8 SEC 235–47 securities markets 235–47 SOX 6, 243 takeovers 157–72, 253, 266–77 UK contrasts 98–9, 112 universal banks 14–15, 209, 260, 285–316 US see United States Valeo 378–80 value-added functions see also shareholder value venture capitalists 13, 183–4, 194–200 variance of shareholder cashflows, leverage effects 45, 48–58 venture capitalists 9, 13, 183–4, 186–200, 207–33, 429 see also buy-outs background 13, 183–4, 186–200, 207–33, 429–30 CEOs 195, 216, 220–4 contracts 213–15, 220–1 corporate governance 9, 13, 183–4, 186–200, 207–33 empirical evidence 195–6, 207–8, 215–28 equity finance 13 failures 225 ‘good rump’ firms 224–5 information issues 213–15, 220–1 ‘living dead’ firms 195, 224–5 longevity issues 219, 225–7 performance issues 195–6, 207–8, 215–28 post-transaction monitoring problems 213, 215, 220, 221–4 pre-contracting problems 213–15, 220 problem cases 224–8 restructuring requirements 224–6 roles 13, 183–4, 186–200, 207–28 syndicates 222–3 transition economies 429–30 uncertainty issues 213–15 underwriters 226 value-added functions 13, 183–4, 194–200 vesting scales, LTIPs 131 Vienot reports, France 375 vision 187 Vivendi 366, 372–4, 377–81 Vodafone 290 Volkswagen 290 voluntary codes 10, 29–42, 106, 112, 139–40 voting pacts, Germany 290, 293 voting rights government interventions 9, 35–42, 48, 56, 62, 82–3 mandatory voting 9, 35–42, 48, 56, 62, 82–3 ownership pyramids 15, 264–6, 271–2, 287–303, 389–410 proxy voting 15, 28–42, 82–3, 265–6, 287–303, 307 463 JWBK003-Ind JWBK003-Keasey January 6, 2005 12:9 Char Count= Index voting rights (Continued) shareholders 10, 28–42, 73–5, 80–4, 104–12, 264–77, 286–303, 307–8, 353, 372, 378–81, 391–410 types 264–6, 290, 299–303, 307, 353, 372 World Bank 237 WorldCom 2, 37, 97, 236 Wright, Mike 1–19, 21–42, 137, 207–33, 415–43 Xerox 97 Wan, William P 15–16, 327–50 Watson, Robert 9–10, 25, 30, 45–59, 97–115 Watts, Sir Philip 62 WM Company 72 Wong, Pauline 12, 155–81 Index compiled by Terry Halliday 464 Yiu, Daphne 327–50 YUKOS 433 Zeebrugge ferry disaster 29 ... 12 International Corporate Governance Diane K Denis and John J McConnell Introduction First generation international corporate governance research Second generation international corporate governance. .. Data Corporate governance : accountability, enterprise and international comparisons / [edited by] Kevin Keasey, Steve Thompson, and Mike Wright p cm Includes bibliographical references and index... including politics and sociology, would not have a valid contribution Corporate Governance: Accountability, Enterprise and International Comparisons Edited by K Keasey, S Thompson and M Wright c