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Corporate

Governance

Principles, Policies, and

Practices

THIRD EDITION

Bob Tricker

OXPORD UNIVERSITY PRESS

Contents

 

ListofCaseStudies

 

xv

Introduction

xvii

What the book is about

xvii

Who the book is for

xvii

The basis of the book

xviii

How the book came to be written: a personal note from the author

 

xviii

PART ONE Principles

 

1

1 Corporate Governance: Asubjectwhosetimehascome

3

All corporate entities need governing

 

3

Corporate governance is old, only the phrase is new

4

The early days: merchantsand monopolists

5

The invention ofthe limited-liability Company

6

The Separation of ownership from Operations

7

Developments in the 1970s: audit committees, two-tier boards, and corporate responsibility

9

Developments

in the 1980s: corporate

collapses

10

Developments

in

the

1990s: corporate

governance codes

arrive

12

Developments early in the 21st Century: reactions to more corporate collapses

15

Corporate governance implications ofthe global financial

crisis

17

New frontiers for corporate governance

20

2 Governance and Management

 

30

Definitions of corporate governance

30

The

scopeof corporate governance

32

The significance of constitutions forcorporate entities

 

38

The difference between governance and management

43

The

Performance and conformance aspects of governance

45

Alternative board structures

 

47

Board diversity

 

53

CONTENTS

3 Theoriesand Philosophiesof CorporateGovernance

59

The agency dilemma

59

Agency theory

61

Transaction cost economics

64

Stewardship theory

65

Resource dependency theory

68

Managerial and dass hegemony

68

Psychological and organizational perspectives

69

The societal perspective:stakeholder philosophies

70

Enlightened shareholder theory

71

Differing boundaries and levels:Systems theory

72

A subject in search of its paradigm

74

4 The Governance Partnership:Investors, companies, and directors

84

Shareholder rights

84

Shareholder

stewardship and activism

86

Shareholder Information

90

Different types of director

92

Directors' legal duties and

rights

96

The board leadership role of the chairman

98

The

corporate officers

99

5 The Regulatory Framework

107

Legislation, regulation, and corporate governancecodes

107

Corporate

regulation

in the

United States

108

Corporate

regulation

in the

United Kingdom

115

Corporate regulation in other countries

123

Codes

Codes

from international agencies

128

from institutional Investors

131

Company codes

134

Codes for the publicand voluntary sectors

136

The importance of compliance: corporate governance reports

138

Principles or prescription: thegovernance debate

139

6 Models of Corporate Governance

147

How context and culture affect corporate governance

147

The US rules-based model

149

The UK/Commonwealth principles-based model

150

The Continental European two-tier model

151

TheJapanese business network model

152

 

CONTENTS

 

The Asian family-based model

154

Corporate governance: convergence or differentiation?

155

Institutions necessary forsuccessful corporate governance

158

PART TWO Policies

165

7

Functions ofthe Board

167

What the board does

167

Balancing the board's Performance and cpnformance roles

178

Board committees: functions and authority

179

Delegating board functions to management

182

Corporate transparency

187

8

The Governance of Corporate Risk

194

The

US COSO integrated framework for enterprise risk management (ERM)

195

The

global financial crisis:a new emphasis on corporate risk

196

Levels of risk: the conceptof enterprise risk management

.

197

Responsibility for risk profiling, risk strategy, risk policy, and risk supervision

198

Identifying types of risk

200

Riskanalysis

204

Risk recognition and assessment

206

Risk evaluation

208

Risk management Information systems

210

Risk transfer

210

9

Corporate Social Responsibility and Sustainability

219

The concept of corporatesocial responsibility (CSR)

219

Changing expectations in the governance of organizations

222

Enlightened shareholder value (ESV)

224

CSR strategies and policies

225

The CSR competency framework

225

Balancing corporate responsibilities

228

Sustainability and the triple bottom line

231

Communication with stakeholders: integrated reporting

232

The United Nations Global Reporting Initiative

234

10

The Governance of Listed Companies

242

Ownership of listed companies

242

Shareholder rights

244

CONTENTS

 

Shareholder activism and the roleof institutional Investors

246

Shareholder relations

248

Disclosure of substantial shareholdings and directors' interests

249

The governance of complex corporate structures

250

Block-holders and universal ownership

256

Dual-Iisted companies

257

Dual-class shares

258

 

Listings on

alternative stock

markets

259

11 The Governance of Private Companies and Other Corporate Entities

267

 

The

governance of

governance of

private companies

268

The

family-owned companies

268

The

governance ofsubsidiaryand associated companies

271

The

governance of

employee-owned companies

273

The

governance of

governance of

Joint ventures

275

The

mutuals, social enterprises, and non-profit entities

275

The

governance of partnerships and limited-liability

partnerships

279

The

governance of hedge funds, private equity,

and sovereign funds

281

The Stateas shareholder

287

12 Corporate Governance around the World

297

 

Corporate

governance

in China

297

Corporate

governance in

India

303

Corporate

governance in

Russia

305

Corporate

Corporate

governance

governance

in Brazil

307

in Hong Kong and Singapore

308

 

Corporate governance in South Korea: the chaebol

309

Corporate governance inJapan

309

 

Corporate

governance in the Middle East and North Africa

310

PART TH REE Practices

315

13

Board Membership: Directors'appointment, roles, and remuneration

317

The appointment of

directors

317

Desirable attributes

in a director

319

Gore competencies of a director

322

Roles that

directors play

 

323

Directors' duties, rights, and powers

326

Directors' disclosures,service contracts, and agreements

328

Directors' remuneration

331

14 Board Leadership:The realityof the boardroom

345

How people, power, and politics affect practice

345

The chairman's leadership role

346

Sources of governance power

351

Games that directors play

353

Board styles and the culture of the board

360

Business ethics begin in the boardroom

364

Corporate codes of ethics and their enforcement

366

Implementing corporategovernance below board level

370

15 Board Activities:Corporate governance in practice

379

Committees of the board

379

The influence of the audit committee

381

The role of internal audit in corporate governance

394

The

importance

of

the external auditor

397

The

significance

of

the Company secretary

401

16 Board Effectiveness: Buildingbetter boards

409

Making a board affective

409

Director orientation and director induction

411

Director development, training, and updating

413

Directors' liabilities and indemnity

415

Board Information

417

Managing meetings, agenda, and minutes

422

Communications with shareholdersand other stakeholders

424

Appendix to Chapter16: Director's induction checklist

430

17 Board Evaluation:

Reviewing directors and boards

436

Assessing boards and board committees

436

Assessing individual directors' Performance

447

Corporate governance ratingsystems for companies

450

Corporate governanceassessment systems forcountries

453

CONTENTS

 

Appendix to Chapter17: The Fannie Maecorporate governance guidelines

461

18

Corporate Governance:The next thirty years

469

Today's frontiers of corporate governance

470

Beyond today's frontiersof corporate governance

477

Drivers of change

484

Appendix 1 Corporate Governance Codes around theWorld

495

Appendix 2 Answers to End-of-Chapter Self-Test Questions

503

Index

513

List ofcase studies

1.1

Robert Maxwell

1.2

Drexell, Burnham, Lambert

1.3

HIH Insurance

2.1

Long-term Capital Management (LTCM)

2.2

Lord Black and Hollinger International

2.3

The Sunbeam Corporation

3.1

The Walt Disney Company

3.2

Network Rail

4.1

Foreign and Colonial Asset Management plc

4.2

Enron-a classic corporate governance case

5.1

China Unicom and SOX

5.2

Marconi

5.3

Southern Cross Healthcare

6.1

Lehman Brothers Inc.-a corporate governance classic

6.2

Siemens AG

6.3

Tokyo Electric Power and the disaster at Fukushima Daiichi

7.1

Tyco International and Dennis Kozlowski

7.2

Li & Fung Ltd supply chain code of conduct

8.1

The collapse of Northern Rock bank

8.2

The BP Deepwater Horizon disaster

9.1

Foxconn and Apple

9.2

The CLP Group on governance and ethics

10.1

TheJardine Matheson Group

10.2

Alleged vote-rigging at PCCW, Hong Kong

11.1

Teletronic Riehes Ltd—governance of a joint venture

11.2

The governance of the Co-op

12.1

China Sinopec

12.2

Yukosand Mikhail Khodorkovsky

XVI LIST OF CASE STUDIES

13.1

News Corporation

337

13.2

RBSand Fred the Shred

340

14.1

Should Terry blow the whistle?

372

14.2

Libor rate rigging scandal

373

15.1

Waste Management

403

15.2

Aggressive tax avoidance

404

16.1

Directors' right to information—Hong Kong Stock Exchange

426

16.2

The corporate cultureat Goldman Sachs

427

17.1

Board failings at OlympusJapan

454

17.2

The collapse of HBOS bank

456

18.1

Explaining the structureand membership of the board

490