Corporate Governance Debate Research Articles

WHEN SHAREHOLDERS CHOOSE NOT TO MAXIMIZE VALUE: THE UNION BANK OF SWITZERLAND'S 1994 PROXY FIGHT

This paper examines the fight over a share reunification plan that pitted Swiss financier Martin Ebner against Union Bank of Switzerland (UBS), once the largest Swiss bank and a global leader in asset management. In the U.S. corporate governance debate, large shareholders are often held up as a possible solution to corporate governance problems. But this examination of the UBS proxy fight shows why some large shareholders can themselves be a source of governance problems.The share reunification plan was designed to combine the firm's two classes of stock: registered (voting) shares and bearer (non‐voting) shares. As its motive for the plan, the UBS board cited a desire both to increase liquidity and to prevent a control change. The majority of the holders of the company's registered stock—many of whom had other financial ties to the bank—ended up voting for a proposal that caused them to lose 11% of the value of their shares during the three trading days following its announcement, and eventually almost twice as much. Moreover, even the holders of the bearer stock hurt themselves by approving the reunification plan. Although the plan clearly transferred value from the registered to the bearer shares, the redistribution benefits from the plan for the bearer shareholders were not sufficient to offset their losses from the reduced probability of a control change.Although it did not succeed in accomplishing its immediate goal, the UBS proxy fight is today recognized as a watershed event in Swiss corporate governance. Until recently, Switzerland's economy has been dominated by cartels, with closely overlapping boards of directors. Hostile takeovers were essentially unheard of, and criticism of management by shareholders was highly unusual. Ebner's activities have had the effect of stimulating public debate about shareholders' rights and shareholder activism. In so doing, they have made it more acceptable for shareholders to criticize management and established shareholder value as a “politically correct” goal for Swiss corporations.

Corporate governance: from accountability to enterprise

This paper discusses the development of the corporate governance debate in the UK since the formation of the Cadbury Committee to the recent reports of the Hampel Committee within the context of a general corporate governance framework. It identifies the changing emphasis in this period between accountability and enterprise aspects of governance. The literature relating to accountability and enterprise is reviewed in terms of the key areas of governance (board structure, directors' remuneration, directors' ownership, institutional shareholders; auditors, auditing and accounting information; and the market for corporate control). Issues of substitutability and complementarity of governance mechanisms are also examined. The paper argues that although there has been a shift in emphasis towards enterprise, there is a need for further rigorous UK-based research to underpin this development. Areas for future research are identified.

Top Executive Pay in the United Kingdom: A Corporate Governance Dilemma

This study represents a first attempt in the UK literature to split total pay into salary, annual bonus and share options for the purpose of empirically verifying how each is related to executive performance. As predicted from earlier studies on total pay, salaries were found primarily determined by firm size. Contarary to prior research, however, our findings suggest a pronounced link does exist between performance and pay over both the short- and long-term. This is manifested particularly by the magnitude of the coefficient estimates found between changes in shareholders return and changes in executive share options. This finding strongly suggests that the leverage executives achieve, on average, in their rewards as share prices increase may well be substantial; a finding that has not been captured in previous research on executive remuneration and which is of considerable relevance to the current corporate governance debates.

Deconstructing Sunbeam - Contemporary Issues in Corporate Governance

Corporate governance has become a commercial mantra, yet there exists a tension between competing visions of its primary goal. While early developments in corporate governance tended to focus on an accountability rationale, during the 1990s there was a significant shift toward an efficiency rationale for corporate governance. The dramatic events at Sunbeam in 1998, involving the removal of CEO, Albert Dunlap, reflected this tension. They also highlighted a number of important issues in contemporary corporate governance debate, including board composition; the role and responsibilities of outside directors; remuneration of executives and directors; and relational investing. This article, which was written as a case study at the time of these developments at Sunbeam, provides insights into the incentives for accounting manipulation in the contemporary commercial environment, and the benefits and limitations of governance mechanisms in controlling such conduct. The article also argued that the Sunbeam saga should not be treated as an example of one individual's fall from grace and therefore dismissed as an isolated event. Rather, the article contended that a commercial culture stressing short-term profit maximization, together with the rhetoric of contemporary remuneration orthodoxy based on alignment of managerial and shareholder interests, may provide strong incentives for manipulation of accounting records and create systemic problems in the commercial environment. The subsequent fall-out from more recent corporate scandals, such as Enron and WorldCom, seems to have reinforced the dangers and perverse incentives which may be created by a corporate culture, such as existed at Sunbeam.

Corporate Governance in France and the UK: Long-Term Perspectives on Contemporary Institutional Arrangements

The Cadbury Report on the financial aspects of corporate governance, published in the UK in 1992, was landmark in thinking on governance, leading to the publication in Francen in 1995 of the Viénot Report, which boldly urged the removal of the cross-shareholdings which have formed the bedrock of French capitalism for three decades. This article considers the impact of this new emphasis on corporate governance on patterns of governance in Britain and France, examining matters of ownership and control, board membership and business elites, business cultures and decision-making, and responsibilities to shareholders. It questions whether the new focus on corporate governance has brought closer together the ways in which businesses are managed in Britain and France, towards a European model, or whether indeed France is gradually embracing the Anglo-Saxon model, and finds that such convergence as has occurred since the Second World War shows as yet no sign of leading to uniformity. Finally, the article suggests that the contemporary corporate governance debate offers a framework through which the past may be revisited and, potentially, reassessed, business historians being well placed to shed light on the competing natures as well as the competing forms of corporate governance in the world today.

The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duty and its Remedies

A central concern for all those actively engaged in the continuing corporate governance debate is the question of how best to hold the tension between allowing company directors their entrepreneurial heads whilst ensuring appropriate safeguards for the company itself. Take one problem as an illustration. What is the potential liability of a director who personally pursues a business venture which corresponds to the line of business of the company in which he or she holds a directorship? Prominent amongst the equitable devices which it is thought can be harnessed to good effect in striking an acceptable balance between these potentially conflicting objectives is what has become known as the 'corporate opportunity doctrine'. Corporate opportunities, though not in the strict sense assets of the company, are regarded as such, with the consequence that it is not open to company directors to exploit them for their own personal gain.

An Evolutionary Perspective on Audit Committee Effectiveness

In the wake of the report of the Cadbury Committee on Financial Aspects of Corporate Governance, most major public companies in the UK now have an audit committee in place. However, commentators have noted that the establishment of an audit committee does not guarantee its effectiveness and it is pertinent to the continuing corporate governance debate to consider how such effectiveness may be assessed. This paper reports on a study which examines audit committee activities through interviews with audit committee chairs, finance directors and internal and external auditors. The study identifies influences on the development and activities of audit committees which have not previously been researched in any detail: these include the reasons for audit committee establishment, the timing and conduct of meetings, and communication between participants. The paper argues that audit committee effectiveness should be evaluated from a perspective which acknowledges these influences and recognises the continuing development of the audit committee role over time.

Corporate "Ownership": A Misleading Word Muddies the Corporate Governance Debate

Corporate "Ownership": A Misleading Word Muddies the Corporate Governance Debate

Investment Companies as Guardian Shareholders: The Place of the MSIC in the Corporate Governance Debate

Investment Companies as Guardian Shareholders: The Place of the MSIC in the Corporate Governance Debate

Auditors' Liability: Its Role in the Corporate Governance Debate

Abstract The purpose of this paper is to examine the role of auditors' liability in the context of the corporate governance debate currently taking place in the United Kingdom. Much of the current dissatisfaction with the role of auditing may be attributed to an apparent tension between the economic and legal interpretations of the auditor's risk sharing role. There are powerful economic motives for both company management and other stakeholders to seek an extension of auditors' liability. This paper argues against an extension of liability to third party audit users. It is suggested that such a move would create difficulties in the auditor-client relationship, accentuate moral hazard problems associated with third party litigation and lead to a restriction in the availability of professional indemnity insurance. Ultimately, the effect is likely to be a reduction in the availability of audit services, especially to high risk companies such as new ventures and participants in the market for corporate control.

The Corporate Governance Jigsaw

Abstract The corporate governance debate in the UK over the last two years has clarified the fact that the corporate governance system is a jigsaw and that the interconnections between all the pieces have to be considered when making proposals for reform. This paper describes different models of corporate governance in the UK, Germany and Japan. In particular, it discusses changes made to the UK model and the weakening confidence in it, particularly in respect of listed companies. After discussing the Cadbury Committee recommendations, the paper offers the conclusion that corporate governance in the UK will only improve if there is a process of ongoing review and a coordinated programme of research.