Chpt 2 - governance structures Flashcards
What is the Cadbury (1992) definition of corporate governance?
“The system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.”
What is agency theory?
Boards are the fiduciaries that resolve the agency problem inherent in a separation of ownership and control of public enterprise. Principles engage the agent to perform some service on their behalf.
What is stewardship theory?
No conflict of interest between principle and agent. Structure requires coordination. (basis of Continental European approach)
Cross on theatre
Structure provides the theatre boundaries in which the board actors are asked to perform.
What is stakeholder theory?
Recognises that the boardroom needs to take into account wider views of society.
What are the board structures elements of the 11 Cs model?
Board set-up (NED ratios, size, committees)
Chair set-up (CEO split, former CEO, Exec)
Director set-up (enture, diversity, remun.)
Board tasks (meeting freq., review, induction/dev)
What does Cross suggest in lit review re: NEDs?
There is a suggestion that NED ratios have no link to performance.
Sometimes outsider dominated better (Restructure)
Sometimes insider (research and developemnt)
Moving from being “free from CoIs” to “having the right attitude”
What about board size?
To few = too operational
Too many = too symbolic?
What do committee ranges and types depend on?
They are created for whatever the current strategic need may be.
FTSE150 - “brand and values” “CSR”
BP - “geopolitical”
Dulewicz and Herbert (2004) on audit
“[…] the prescription of Audit and Remuneration committees appears to have no visible impact, beneficial or otherwise, on company performance.”
Lit review on duality
Governance logic points towards CEO-Chair split but this does not guarantee good board governance.
May create confusion about who is actually leading the comapny (very clear in US). Enables things to be done at pace (even if uncomfortable). strong leadership sometimes warranted (transition/org crisis)
Some studies show correlation to performance, others not.
However, research tends to suggest that relationship between duality and performance more contingent on organisational characteristics and business environment.
Case Study: M&S
Stuart Rose named as Executive Chairman in 2008. Shareholder (L&G) unhappy due to separation in Code.
Logic to avoid succession planning becoming unwanted distaction (previously associated with decline in 1990s).
Later appointed CEO from outside (2009) - later “most admired leader” in Management Today.
Characteristics of boards with more gender diversity
- hold more meetings
- less volatility in stock returns
- give directors more pay-for-performance incentives
William Donaldson:
“Such a ‘check the box’ approach to good corporate governance will not inspire a true sense of ethical obligation. It could merely lead to an array of inhibiting ‘politically correct dictates’”
