Mallin, Professor of Corporate Governance and Finance, Center for Corporate Governance Research, University of Birmingham, UK, [email protected]. The aim of this book is to highlight the development of corporate governance in a range of countries from different parts of the world. Corporate governance in Central and Eastern European countries Russia and Poland are the two countries discussed in Part II.
The influence of the communist party is inevitably a key influence on the development of corporate governance in China. Martin Conyon and Danielle Kuchinskas discuss corporate governance developments in the US, with a particular emphasis on aspects of the remuneration (compensation) committee. Melsa Ararat and Mehmet Ugur have written an interesting analysis of corporate governance developments in Turkey.
South African corporate governance developments are extensively covered by Philip Armstrong, with Nick Segal and Ben Davis. This volume contains chapters on the development of business management from many different regions around the world.
CORPORATE GOVERNANCE IN EUROPE
However, corporate governance is much broader because it also captures external relationships of the company. No board member (or CEO) is allowed to issue directions to the rest of the board. Furthermore, the Code contains new recommendations for the election and selection of the supervisory board members.
Shareholders of more than 2 percent of the voting capital at the end of December 2004. A detailed review of the Draghi Act is beyond the scope (and length) of this chapter. Melis (2004) points out that the size of the board of directors is important for the protection of minority shareholders.
Assonime (2004a) states that the board is composed on average of 4.5 directors (approximately 40 percent of the directors) who are defined as independent in the companies' corporate governance reports. Assonime (2004a) states that 75 percent of the companies declare that they comply with these recommendations. Assonime (2004b) emphasizes the importance of comparability of corporate governance structures and, consequently, of the information provided in the corporate governance reports.
The Preda Code of Conduct has focused on the board's role, composition and function.
CORPORATE GOVERNANCE IN CENTRAL AND
EASTERN EUROPEAN COUNTRIES
Thus began one of the most important features of the modern corporation - the separation of management from ownership. Almost simultaneously with the organizational evolution of the corporate form, the legal foundations were put in place. The concept of corporate governance arose as a natural consequence of the separation of management and ownership.
A good example of this approach was the handling of the Corporate Code of Conduct (also referred to as the Corporate Governance Code) in the 2002–03 period. Indeed, there have been only a few and relatively small initial public offerings (IPOs) in the history of the Russian stock market. In the words of the chairman of the Federal Service on Financial Markets, the corporate governance scene in Russia is 'not as we see elsewhere'.
There is an ongoing debate in the literature about which Western models, if any, are most appropriate under Russian conditions. A review of developments since about 1998 shows that much of the driving force behind corporate governance reform in Russia has been provided by international agencies. Most of the legislative, behavioral and operational changes observed to date are compatible with the Anglo-American approach to corporate governance.
Good corporate governance should provide appropriate incentives to pursue goals that are in the interests of the company and shareholders, and should facilitate effective monitoring, thereby encouraging companies to use resources efficiently. For purely private companies, control is largely in the hands of the founders, who at the same time manage the company or supervise (as chairman of the board). The same scenario appeared in Agros – one of the biggest players in the food industry.
This is the result of the government's overlapping functions as an owner and as a regulator. This picture is changing, although the pace of change is questionable in light of the challenges that await the economy. Another variation was applied by the large furniture maker (Forte), where 50 percent of the supervisory board are independent members.
CORPORATE GOVERNANCE IN SOUTH EAST ASIA
In light of this shortcoming, this chapter provides an overview of the new corporate governance system in China since the early 1990s. It is virtually impossible to understand the emergence of the state-dominated corporate governance system without placing it in the broader context of China's 1990s economic reform. It was suspended until 2005 when a trial of the reform was resumed by a limited number of companies.
Annual and accumulated fund exchange balances are shown in the "Balance" column. Every year from 2002 to 2004, more than 5 percent of companies listed on the stock exchange. Additionally, 27 percent of companies committed fraud in their accounting reports to mislead public investors.
First, as the regulator of the emerging stock market, the state is a leading player in improving the institutional and corporate governance system through an intensive campaign on the import of corporate governance best practices from the West. Mayer, Colin (1998), 'Financial systems and corporate governance: a review of the international evidence', Journal of Institutional and Theoretical Economics. One of the central features of the post-war financial system was the main bank.
Another pillar of Japan's postwar system of corporate governance was the state, which provided guidance and a safety net for financial institutions and corporations. This effort brought about the establishment of the Japan Corporate Governance Forum, which produced a manifesto of Corporate Governance Principles published in both English and Japanese (Japan Corporate Governance Forum 1998). There is little consensus on whether weaknesses in the Japanese system of corporate governance caused the crisis of the 1990s.
It is undeniable, however, that by the end of the 1990s, the system had been greatly weakened, creating a void in corporate governance. This revision included provisions for one of the most contentious issues in Japanese corporate governance – independent directors. Since 2002, this survey has been sent annually to companies listed on the first section of the Tokyo Stock Exchange.
In the mid-1990s, proponents of corporate governance reform tended to be firms considered somewhat outside the mainstream due to high levels of foreign ownership, young and innovative CEOs, or non-traditional corporate cultures (Sony and Hoya were some of the leaders in governance reform). Perhaps the most important impetus for change, however, has been the transformation of the financial system and corporate ownership structure and the change in the business environment.
CORPORATE GOVERNANCE IN THE USA AND
AUSTRALIA
They find no relationship between these measures of CEO pay and the proportion of affiliated directors on the compensation committee. Whether the supervisor will work in the principal's best interest or cooperate with the agent depends on who the supervisor's interests are more closely aligned with—the shareholders (the principal) or management (the agent). Anderson and Bizjak (2003) examine the empirical role of the CEO and the compensation committee in determining executive pay.
A fixed-effects regression analysis shows no relationship between pay levels and the proportion of outside directors on the remuneration committee or salary and the presence of the CEO on the remuneration committee. In addition, the authors find that incentives for equity and stock options are greater when the CEO is a member of the compensation committee. The data is annual and covers board members of S&P 500, S&P MidCap, and S&P SmallCap companies since 1996.5 The dataset includes information on director board committees, board affiliations, demographic characteristics, and other information.
Note: The table shows the composition of company boards by year. Between 1998 and 2003, the percentage of companies with connected directors on the remuneration committee declined. For example, one percent of affiliated directors were former employees of the company, and 38.9 percent of affiliated directors provided professional services to the companies.
Overall, the results indicate that there is no relationship between a firm having affiliated directors on its compensation committee and overall CEO compensation. Bizjak (2003), 'An empirical examination of the role of the CEO and Compensation Committee in structuring executive pay', Journal of Banking and Finance. National Presto Industries (2003), Schedule 14A Information, SEC.gov. 2000), “The Impact of Ownership Structure on the Structure of Compensation Committees”, Journal of Business Finance and Accounting, 27 (5 and 6): 653–78.
This is because as a shareholder's ownership stake increases, he or she, ceteris paribus, has a greater incentive to increase corporate value – and monitoring management is one way to do that.15 In addition to the incentive to monitor to increase corporate value a blockholder will also have an incentive to monitor whether the blockholding represents a significant portion of the holder's assets, and whether – as would often be the case – the blockholder has a less diversified portfolio than an institutional investor. At the time of the claim, the chairman and his family owned 33 percent of the share capital. The federal government commissioned a major investigation,41 which ultimately led to a series of reforms.42 Interestingly, one potential barrier to auditor independence – the provision of non-audit services to an audit client – has never been subject to such strict scrutiny. answered. in Australia, as in the US (where many non-audit services are effectively banned).43 The Australian response to this issue is closer to the British response,44 in terms of improving disclosure rules and revising codes of professional conduct.45 This This is despite the fact that in the ten years to 2002 the average audit fee paid by an S&P/ASX 100 company increased by 9 percent, while the average non-audit fee paid to the auditor increased by 230 percent.46
