UK Boards Research Articles

Outside directors and corporate board decisions

Between 1993 and 2000, at least 18 countries saw publication of guidelines proposing minimum representation of outside directors on corporate boards. Underlying this movement is an apparent presumption that boards with significant outside directors will make different and, perhaps, better decisions than boards dominated by insiders. As the first-mover in this movement, the United Kingdom provides a laboratory for a “natural experiment” to examine this presumption empirically. We find that UK boards that complied with the exogenously imposed standard were more likely to appoint outside chief executive officers (CEOs). Additionally, announcement period stock returns indicate that investors appear to view appointments of outside CEOs as good news. Apparently, boards with more outside directors make different (and perhaps better) decisions.

LEADERSHIP AT THE TOP: THE NEED FOR EMOTIONAL INTELLIGENCE IN ORGANIZATIONS

The need for effective leadership has become paramount to meet the challenges of the 21st Century and a growing number of academics and senior managers have recently come to recognize the importance of emotional intelligence (EI) for effective leadership. Furthermore, Goleman, Boyatzis, & McKee (2002) have contended that the higher up one advances in an organization, the more important EI becomes. In this paper the authors have focused on evidence at the very top of the organization, the Board. They review the findings from a major study of UK boards and re‐analyze the data on tasks and competencies relating to EI constructs. Their results show that EI competencies are considered to be extremely important according to the majority of a large sample of UK directors in a survey and they go on to argue that many of the tasks (outputs) of the Board require EI competencies, as well as many aspects of Team Process (for Organizing and Running the Board). The authors also produce new findings which support Goleman's hypothesis that the higher one advances, the more important EI becomes. Possible explanations for the findings are discussed and the paper concludes with a review of important current and future research such as the full integration of EI elements into instruments to assess leadership competence and style, and the effect that organization culture has on these constructs.

A New Year and a new look

We are delighted to present to you the first issue this year of Practical Diabetes International (PDI). During 2002 we have been putting in place a number of changes to the journal, which are described below. We believe these changes will enhance PDI's reputation and credibility, while ensuring it remains true to its unique philosophy of multidisciplinary, integrated clinical care in the UK and globally. Following discussions over the last 18 months, the previously separate UK and International Editorial Boards have now merged to form one united board. A new senior layer of Co-editors has been introduced to help the Editor-in-Chief steer the overall direction of the journal. Seven Co-editors have been appointed to date: Sue Cradock, Simon Croxson, Mike Cummings, Miles Fisher, Deirdre Kyne-Grzebalski, Peter Tasker and Gerald Watts. This number will expand during the course of the year to perhaps 12, in order to represent different professional, therapeutic and geographical interests. The Co-editors are taking responsibility, under the overall direction of the Editor-in-Chief, for organising the peer review process, which should lead to faster publication times and an improved service to our authors. Manuscripts should still be sent to the Editorial Office at the address shown on the Editorial Board page. We warmly thank those board members who retired during 2002 for their commitment and valuable past contributions to the journal: Bill Alexander, Jean-Philippe Assal, Florence Brown, Ian Campbell, Sue Hamilton, Colin Kenny, Michel Krans, Urban Rosenqvist and John Wales. We also welcome members who have joined in the past year: Alan Begg, Line Kleinebreil, Andrew Krentz, Ken MacLeod, Aldo Maldonato and Krystyna Matyka. To coincide with the incorporation of Cardiabetes, we decided to take the opportunity to freshen up the design of PDI with a new front cover, still maintaining the characteristic picture and contents list. A few modifications of the previous design in the direction of a more user-friendly format should make the text pages even easier to read. All figures and tables are now set to a single style. In this issue we have introduced a new regular section of Commentaries (see page 4). These will comprise a paragraph or two of reflection on articles in each issue. They are intended to provide the reader with practical messages to take into practice, addressing questions such as how does this article relate to my practice and can it influence my practice? In some cases they may stimulate the reader with thoughts of what the article is not saying. In short, the series will look at evidence and practice. The commentaries will be written initially by the Co-editors, but will then extend to invited guests reflecting different aspects of the diabetes team. To start the series, the Commentaries for this issue have been written by Sue Cradock and Mike Cummings who have both focused on the Review article by Woodman and Watts, ‘Measuring arterial stiffness in diabetic patients’. Sue has also provided thoughts on the Original article by Tankova et al, ‘Intravenous glucose tolerance test and anti-GAD65 antibodies in the diagnosis of the type of diabetes mellitus’. As an immediate reaction to the publication of the NSF for Diabetes: Delivery Strategy, this issue contains a four-page summary, with some initial responses from members of our Editorial Board (see pages 31 and 37). Still on the NSF/NHS theme and with the kind permission of the Fabian Society, we have published extracts from a speech Professor Shaw gave at the Labour Party Conference last year. In case we are accused of being ‘English-centric’ we are delighted to inform readers that we are planning to publish soon a series of articles examining health systems and delivery of diabetes care in other countries. We always have and always will welcome any comments, thoughts or ideas about content published within the journal. We look forward to hearing from you.

The unitary board: Fact or fiction?

A recent consultation process in the UK produced strong support for the concept of the unitary board. Many respondents in this process connected the concept of the unitary board with the principle that all directors should have the same legal responsibilities or duties. This article explores the legal responsibilities of UK executive and non-executive directors and in doing so exposes the gap between the concept of the unitary board and the messy reality of the courts’ treatments of specific non-executive scenarios. It also identifies a change in the language used to describe UK boards. Previously the unitary board, comprising executive and non-executive directors, had been described as a team. The most recent rhetoric is of a “partnership” between the executive and non-executive directors. This shift could signal the end of the unitary board.

Pay Comparability Across and Within UK Boards: An Empirical Analysis of the Cash Pay Awards to CEOs and Other Board Members

Drawing on the literature on social comparison and equity theories, this paper analyses the determinants of, and the relationships between, the cash pay awards of CEOs and other board members for a sample of large UK companies over the period 1992–95. Our results suggest that external labour market and internal (i.e., within board) pay comparisons are important in explaining both CEO and other directors’ pay awards. In the case of CEOs, however, there is evidence of an asymmetric adjustment to prior period pay anomalies, whereby the pay of the relatively underpaid executives displays significantly greater sensitivity to external market comparison pay levels. This asymmetric adjustment process results in a ‘bidding‐up’ of average CEO pay relative to other board members over the four year period investigated.

Andrew Pettigrew on Executives and Strategy:: An Interview by Kenneth Starkey

Andrew Pettigrew on Executives and Strategy:: An Interview by Kenneth Starkey

Women Directors on Top UK Boards

Research suggests that more diversity in board membership could improve overall performance. This paper considers the business case for increased numbers of female directors, and the lack of female representation on UK FTSE 100 company boards in 1999 and 2000. It also offers a comparison to US data. In 1999, almost two‐thirds of FTSE 100 companies had at least one female director, but numbers had dropped by July 2000 from 64 per cent to 58 per cent, paralleling the levelling‐off at top level reported in North America. More firms having female directors are to be found amongst those with the highest turnover, profit and number of employees in the FTSE 100, again paralleling the findings from the US.

The Increasing Use of Non‐Executive Directors: Its Impact on UK Board Structure and Governance Arrangements

The last decade has seen a sharp increase in the number of non‐executive directors (NEDs) on the boards of UK listed firms. Using a sample period spanning the publication of the Cadbury Report (1992), this paper evaluates the implications of this increase. The main findings can be summarised as follows. First, the increased demand for NEDs has been more pronounced for firms classified as having proportionately too many executive board members in the pre‐Cadbury period. Secondly, the probability of compliance with the Cadbury Report's proposal for a minimum of three NEDs is positively related to the magnitude of the expected net benefits of adding further non‐executives to the board. Finally, there is little evidence that the increased use of NEDs caused firms to make costly adjustments to other elements of their control systems in an attempt to re‐equilibrate their governance portfolios. These findings are consistent with claims that the recent trend towards greater NED representation on UK boards may have helped to raise general governance standards.

The Impact of the Cadbury Code on Selection of Directors and Board Composition in UK Newly‐quoted Companies, 1990–1994

The publication in the UK of the Cadbury Report and its associated Code of Best Practice focused attention on the conduct and structure of boards in large companies. The Code suggested that greater financial accountability would be facilitated by increasing the number of non‐executive directors, creating new sub‐committees and ensuring that the power of the chair is limited. Surveys amongst FT100 companies show that their compliance with the Cadbury Code has been rapid and virtually complete (Bostock [1995], Cadbury [1995]); less attention has been paid to the compliance of small and medium‐sized companies. The approach that is taken in this survey is to investigate the board structures chosen by these enterprises as they prepare for stock market listing. Companies are prepared for market with the advice of professional advisors who it is assumed have a reputational interest in the success of the issue; therefore, they advance corporate governance structures that satisfy potential investors’ expectations. Such companies are making their boards anew and should represent best‐practice. This paper examines whether current practice in small and medium‐sized companies conforms to the prescribed model for UK boards. It is concluded that the Cadbury Code is not the only model for emergent small to medium sized companies and that the market does not value its adoption in all cases.

Paediatric home care in the UK.

Paediatric home care services in the UK were ascertained in 1991 and 1992. Respondents from 209 (97%) UK health districts and boards identified 62 general and 124 specialist paediatric home care services by January 1993, 15% having opened in the previous year. Of all UK children, 30% lived in a district with a general home care service. Five health regions had only specialist services. Districts differed widely in the availability of home care for different disorders. The home care services were small, general services employing a mean (SD) of 2.5 (1.6) whole time equivalent (WTE) nurses, and specialist services 1.3 (0.8) WTE nurses. Few services were available 24 hours a day. Funding arrangements were diverse and some services had difficulties in obtaining consumables and equipment for home use. Despite rapid growth there remains considerable scope for the development of paediatric home care throughout the UK.

The Financial Foundations of Industrial Success

UK companies have to pay the same real interest rates as European and North American companies, but they are in general less profitable so there is less breathing space between profits and interest. Consequences include short‐termism by both the City which is reluctant to lend and companies which are reluctant to borrow when investment is so risky. Another consequence is that UK Boards of Directors are dominated by accountants rather than those who lead production, research and marketing. The real rate of return is best raised by increasing productivity more than wages and by moving up‐market where higher margins can be earned. Industry′s difficulty is that moving up‐market involves R&D which cannot easily be financed when profit rates are only slightly above interest rates. Emphasizes the advantages to industry of low inflation, low government borrowing and a tight control over public expenditure leading to internationally low tax rates.

Standards in testing: a study of the practice of UK examination boards in EFL/ESL testing

It is often asserted that the UK tradition in language testing is different from the North American tradition. Whereas in North America it is considered normal practice to examine the psychometric properties of tests, in the UK more emphasis is thought to be placed on test content. However, there has been no systematic study of this stereotypical view. The research reported in this article aimed to investigate the issue by examining the practices of UK EFL/ESL examination boards. A survey was carried out in two phases, using an open-ended instrument in phase one and a detailed questionnaire in phase two. The results, presented and discussed in some detail, show that no accepted standards exist which UK boards adhere to, that current practice and procedures followed by the boards vary greatly, but that information appears to exist within some boards which could attest to the quality of their examinations. However, that information is not publicly or easily available. The article argues that the time is ripe for the development of a set of standards boards should follow, and for a public discussion of those procedures that would be most appropriate to ensure that standards were met.