This chapter highlights the importance of board committees, particularly the remuneration committee, the nomination committee, and the audit committee. It explains that the remuneration or compensation committee is responsible for recommending to the board the remuneration packages of executive directors and other top management, while the role of the nomination committee is to suggest names for board membership in an attempt to introduce different experiences, personalities, and diversity to the board. The chapter also discusses the fundamental role the audit committee plays in corporate governance practice. It furthermore draws attention to the audit committee, which provides a bridge between the external auditor and the board. It also considers the significance of the company secretary, who has a duty to act in good faith in the best interest of the company.
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Chapter
Board Activities: Corporate Governance in Practice
Chapter
The Board and Business Ethics
This chapter explains what business ethics are and reviews changing expectations in the governance of organizations, including the concept of corporate social responsibility (CSR). It explores CSR strategies, policies, and the CSR competency framework and highlights enlightened shareholder value (ESV), sustainability, and the triple bottom line. It also analyses communication with stakeholders and integrated reporting and promotes awareness of the United Nations Global Reporting Initiative. The chapter cites the UN Global Compact, which is a strategic initiative for businesses that commit to aligning their strategies and operations with ten universally accepted principles in the areas of human rights, labour, the environment, and anti-corruption. It details how the UN Global Compact calls for participating companies to accept core values that were derived from the Universal Declaration of Human Rights, the International Labour Organization's Declaration of Fundamental Principles and Rights at Work, and the UN Convention against Corruption.
Chapter
Board Effectiveness: Building Better Boards
This chapter considers what makes a board effective, noting that the principal attributes of an effective board are sound leadership with an appropriate leadership style, supported by a well-balanced board team. It discusses director induction, development, training, and updating, which are essential to orient and guide a new member into the ways of the board and the company. It also elaborates the directors' liabilities and indemnity, as the exposure to personal liability becomes real when serving as a company director. The chapter covers how to improve board information and meeting management, agendas, and minutes as a thorough consideration of their purposes can avoid repetitious and time-wasting issues being brought up and discussed. It also considers communications with shareholders and other stakeholders, emphasizing the demand of investors for corporate transparency.
Chapter
Board Evaluation: Reviewing Directors and Boards
This chapter explains the assessment of boards and board committees, such as the corporate governance rules of the New York Stock Exchange that require boards of listed companies to conduct a self-evaluation at least annually. It clarifies that a board review should take a strategic perspective, considering the directors' ability to handle long-term issues and reflecting on recent experience in the short term. It also discusses how information for a board review is obtained from an analysis of board and board committee agendas, papers, and minutes, as well as from interviews with each officer and member of staff concerned. The chapter looks at corporate governance rating systems for companies, noting that a corporate governance rating from an independent and respected organization can reduce a company's cost of capital. It compares corporate governance assessment systems, which monitor and assess the overall level of corporate governance country by country.
Chapter
Board Leadership: The Reality of the Boardroom
This chapter discusses how people, power, and politics affect practice, emphasizing that the directors' behaviour is influenced by interpersonal relationships, perceptions of position and prestige, and the processes of power. It recognizes the chair's leadership role, which includes influencing the company's strategic direction, interacting strongly with the chief executive, and providing wide-ranging leadership of the board. It also investigates how governance power is derived, who wields it, and how it is used. The chapter considers the games that directors can play in badly led boards, that is, boards in which personalities and political manoeuvring prevail. It covers board styles, culture, and ethics, and discusses whistle blowing, that is, informing on a person or an organization believed to be acting improperly.
Chapter
Board Membership: Directors’ Appointment, Roles, and Remuneration
This chapter discusses the appointment of directors of major listed companies, which begins with a nomination through the chair and the existing directors, followed by the approval of shareholders during annual general meetings. It highlights the desirable attributes and core competencies in a director, such as integrity: directors need to be stewards of the interests of the company rather than acting in self-interest, which requires them to be ethically aware and able to recognize conflicts of interest. It also stresses roles that directors play as they inevitably make a variety of contributions to their boards, given their various personal attributes and different competencies. The chapter warns that directors of listed companies must be careful not to benefit personally from confidential corporate information they receive as the confidentiality of the boardroom must be respected and not passed to third parties. It details the contentious remuneration of directors, which is at times challenged due to its allegedly excessive levels.
Chapter
Conclusions
This chapter reviews corporate governance in South Africa, India, and Brazil. These countries have different cultural influences and different legal systems and corporate governance structures. The chapter talks about certain commonality of approach to the corporate governance codes in these countries, particularly in terms of transparency and accountability, and the desire to enhance the protection of minority shareholders' rights. It emphasizes how important it is to have a balanced board with an appropriate proportion of independent directors, and to recognize that a company cannot operate in isolation and should consider the interests of its various stakeholder groups. The chapter illustrates that corporate governance is relevant and valuable to countries around the globe. Over time, it is to be expected that corporate governance will improve, as countries seek to attract international investment and maintain investor confidence.
Book
Christine A. Mallin
Corporate Governance is made up of four main parts. The first part looks at developments in corporate governance. The second part is concerned with owners and stakeholders. This includes an examination of family-owned firms, institutional investments, and socially responsible investment. The third part examines directors and the board structure. The fourth part is about international corporate governance; it reviews corporate governance in continental Europe, central and eastern Europe, the Asia-Pacific, South Africa, Egypt, India, and Brazil.
Book
Corporate Governance offers a comprehensive overview of the key principles of corporate governance that not only considers the regulations, rules, and voluntary codes, but also emphasizes cultural aspects. It draws a distinction between Western and Eastern perceptions of corporate governance and includes cases from China. Its first part covers the principles of corporate governance and looks at management; theories, philosophies, and concepts of corporate governance; the governance partnership; the regulatory framework; and models of corporate governance. The second part is about policies. It examines the governance of corporate risk, the board and business ethics, the governance of listed companies, the governance of non-listed entities, and corporate governance globally. The last part turns to practices and includes chapters considering board membership, leadership, board activities, board effectiveness, board evaluation, and the future of corporate governance.
Chapter
Corporate Governance around the World
This chapter analyses different approaches to corporate governance in the East, such as in China, Hong Kong SAR, India, Singapore, South Korea, and Japan. It mentions the China Securities Regulatory Commission of the State Council (CSRC), which issues the Corporate Governance Code and other corporate governance regulations and publishes regular reports on corporate governance reform and performance in China. It also describes corporate governance in Hong Kong, which evolved under the influence of British law and corporate regulation, reflecting the British oversight of the territory up to 1997 until Hong Kong became a Special Administrative Region (SAR) of China. The chapter then reviews the approaches to corporate governance in the Middle East, North Africa, Brazil, and Russia. It explains that Eastern European transitional economies took a similar approach to China in privatizing their state enterprises and creating companies in which shares were sold to external strategic investors.
Chapter
Corporate governance in Central and Eastern Europe
This chapter discusses the move from a command economy to a market economy, noting the countries that comprised the former USSR that have achieved this transition with varying degrees of success. In general, companies moved from a situation where they were most probably not expected to make a profit. The chapter examines the success of various countries and shows how this can be linked to the type of privatization followed: businesses went from state-owned enterprises to joint stock companies to public corporations. The chapter explains that, in some countries, the term joint stock company describes a company that has share capital which is traded on the stock exchange. In other countries, the term may refer to a stage in the privatization process whereby a state-owned enterprise issues share capital to become a joint stock company.
Chapter
Corporate governance in Continental Europe
This chapter focuses on corporate governance in European countries. This topic has received a lot of attention in the last decade, and it has been key for the development of capital markets and investor confidence. The chapter describes how the barriers between different countries' capital markets declined with the adoption of the euro, and it discusses the internationalization of cross-border portfolios and technological advances. As a result of this corporate governance practices of individual countries increasingly need to satisfy certain perceived core principles of accepted good practice. The chapter cites the Cadbury Code (1992) and the Organisation for Economic Co-operation and Development (OECD) Principles that have been influential in the determination of core principles. The increase in both privatizations of former state-owned enterprises, and mergers and acquisitions in many countries has also led to a need for better corporate governance.
Chapter
Corporate governance in South Africa, Egypt, India, and Brazil
This chapter examines corporate governance developments in a sample of countries and looks at this in a global context. The countries selected are diverse in their cultural and legal backgrounds, ownership structures, and corporate governance structures. The chapter reviews core principles that are evident in the corporate governance codes of these countries. Such principles help build or restore confidence in stock markets, ensure more transparency and disclosure, enhance protection of minority shareholders' rights, and guarantee that the company is managed in the interests of shareholders and stakeholders. The chapter emphasizes the importance of a corporate governance code and of a firm-level corporate governance. Firm-level corporate governance provisions matter more in countries with weak legal environments because firms can partially compensate for ineffective laws and enforcement by establishing good corporate governance and credible investor protection.
Chapter
Corporate governance in the Asia-Pacific
This chapter gives an overview of the development of corporate governance in the Asia-Pacific countries. The 1990s saw the meteoric rise and subsequent catastrophic collapse of many markets in the Asia-Pacific region. This happened in most of the so-called tiger economies. The chapter looks at a number of investors, both local and overseas, that poured money into the stock markets hoping to benefit from the vast gains that could be made. The chapter looks at how investors lost large amounts when the markets crashed and when the bubble burst following on from Japan’s prolonged recession in the early 1990s. By the late 1990s, the recession had spread to South Korea and several countries in the Asia-Pacific region.
Chapter
Corporate Governance: A Frontier Subject
This chapter acknowledges that all corporate entities need governing and recounts how corporate governance has evolved. It discusses the significance of the invention of the limited-liability company and cultural components of corporate governance, including recent developments and current frontiers of the subject. It also explains that corporate governance is about the way power is exercised over corporate entities. The chapter details how corporate governance covers the activities of the board and its relationships with those managing the enterprise, shareholders or members, and external auditors, regulators, and other legitimate stakeholders. It distinguishes corporate governance from management, noting that executive management is responsible for running the enterprise, but the governing body ensures that it is running in the right direction.
Chapter
Corporate Governance: The Next 30 Years
This chapter reviews the present frontiers of corporate governance, citing developments that could cause companies to review their corporate structures and their approach to corporate governance. It considers topics on the minds of directors, regulators, and those who advise them at the moment, such as issues that feature in professional journals and the proceedings of conferences. It also determines what drives the development or change of corporate governance in a country, covering some fundamental realities in each country and jurisdiction. The chapter looks beyond the frontiers of corporate governance today towards possible drivers of change to consider what might become dominant issues in the future. It highlights that the evolution of limited-liability companies, their directors, shareholders, and other stakeholders owes more to a series of historical accidents than developments rooted in logical reasoning.
Chapter
Development of corporate governance codes
This chapter talks about the introduction, or revision, of a corporate governance code in a number of countries. This encompasses a variety of legal backgrounds; cultural and political contexts; business forms; and share ownership. In each of the countries examined, the introduction of corporate governance codes has generally been motivated by a desire for more transparency and accountability, and a desire to increase investor confidence in the stock market as a whole. The chapter highlights the development of codes. This development has often been driven by a financial scandal, corporate collapse, or similar crisis. The chapter reviews corporate governance codes and guidelines that have been issued by a variety of bodies ranging from committees, stock exchange bodies, various investor representative groups, and professional bodies. As regards compliance with the various codes, compliance is generally on a voluntary disclosure basis, while some codes are on a comply or explain basis.
Chapter
Directors and board structure
This chapter covers the board structure of a company and looks at the function of a board and its subcommittees, noting that the most common ones are audit, remuneration, nomination, and risk. It covers the roles, duties, and responsibilities of directors and the attributes and contribution of a non-executive director. While the content is based on a UK company, much of the material can be applied to other countries, especially those that also have a unitary or one-tier board structure and those that may be generalized to a dual or two-tier board structure. The chapter discusses the major corporate governance differences between countries. For example, the board structure, which may have a unitary structure or a dual structure depending on the country. In the UK, as in the majority of EU Member States, the unitary board structure is predominant.
Chapter
Directors’ performance and remuneration
This chapter examines the considerable shareholder, media, and policy attention given to the issue of directors' remuneration in the last two decades. It considers the overall level of directors' remuneration and the role of share options, and it explores the suitability of performance measures linking directors' remuneration with performance. The chapter also reviews the role played by the remuneration committee in the setting of directors' remuneration and the influence that shareholders are able to exercise on directors' remuneration. The chapter notes that the debate about directors' remuneration spans continents and is a topic that is as hotly debated in the USA as it is in the UK. Indeed, the UK’s use of share options as long-term incentive devices has been heavily influenced by US practice.
Chapter
Family-owned firms
This chapter considers family-owned business as the dominant form of business around the world. In many instances, the family-owned business takes the form of a small family business, while in other cases it is a large business interest employing hundreds, or even thousands, of staff. The chapter highlights family-owned businesses including sole traders, partnerships, private companies, and public companies, emphasizing how family ownership is prevalent not only among privately held firms but also in publicly traded firms in many countries across the globe. The chapter explains that firms with effective governance structures tend to have a more focused view of the business, be willing to take into account, and benefit from, the views of outsiders, and be in a better position to evolve and grow into the future. The chapter cites the ownership structure in a number of countries, where the family-owned firm is quite common.
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