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The Business Case for Corporate Governance

This book goes beyond the ‘what and how’ of corporate governance to explore the impact and benefits of good governance for companies and their investors. The contributors are leading market practitioners, investors, academics and consultants who offer their own views based on a wealth of experience. Topics covered include what makes for an effective board and is the unitary board sustainable? The contribution of governance to financial performance – is the research conclusive? Managing risk and reputation – how do boards ensure they are trusted by their shareholders? The benefits of market-led standard setting – do US and EU regulatory initiatives threaten the traditional UK approach? The book looks to dispel the belief that governance is a burden on companies that adds little value by demonstrating the contribution it makes to board effectiveness and corporate performance.

K E N R U S H T O N is a former Director of Listing, Financial Services Authority and Company Secretary ICI.

The Business Case for Corporate Governance

Edited by

K E N RU S H TO N

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

Cambridge University Press

The Edinburgh Building, Cambridge CB2 8RU, UK

Published in the United States of America by Cambridge University Press, New York

www.cambridge.org

Information on this title: www.cambridge.org/9780521871068

© Cambridge University Press 2008

This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press.

First published in print format 2008

ISBN-13

978-0-511-42311-6

eBook (EBL)

ISBN-13

978-0-521-87106-8

hardback

Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

Contents

 

List of contributors

page vii

 

Acknowledgements

viii

 

Introduction

1

 

K E N R U S H T O N

 

1

The role of the board

10

 

S I R G E O F F R E Y OW E N

 

2

The role of the Chairman

29

 

K E N R U S H T O N

 

3

The role of the non-executive director

50

 

M U R R AY S T E E L E

 

4

The role of the Company Secretary

67

 

D AV I D J A C K S O N

 

5

The role of the shareholder

81

 

P E T E R M O N TA G N O N

 

6

The role of the regulator

100

 

S I R B R YA N N I C H O L S O N

 

7

Directors’ duties

119

 

C H A R L E S M AY O

 

8

What sanctions are necessary?

146

 

K E I T H J O H N S T O N E A N D W I L L C H A L K

 

9

Regulatory trends and their impact on corporate

 

 

governance

176

S T I L P O N N E S T O R

v

Contents

10

Corporate governance and performance: the missing links

201

 

C O L I N M E LV I N A N D H A N S - C H R I S T O P H H I R T

 

11

Is the UK model working?

222

 

S I M O N L OW E

 

 

Index

242

vi

Contributors

Will Chalk

Peter Montagnon

Addleshaw Goddard

Association of British Insurers

Hans-Christoph Hirt

Stilpon Nestor

Hermes Investment Management

Nestor Advisors

David Jackson

Sir Bryan Nicholson

BP plc

Formerly Financial Reporting

Keith Johnstone

Council

 

Addleshaw Goddard

Sir Geoffrey Owen

Simon Lowe

London School of Economics

 

Grant Thornton

Ken Rushton

Charles Mayo

Formerly Imperial Chemical

Industries PLC

Simmons & Simmons

 

Colin Melvin

Murray Steele

Hermes Investment Management

Cranfield School of Management

vii

Acknowledgements

I would like to thank a number of people who have helped me to produce this book. First, my commissioning editor, Kim Hughes, who has been patiently supportive and with good humour. Julia Casson, a former Company Secretary colleague, who helped with some of the editing and Gill Franklin who helped to type some of my own contributions. Above all, I want to thank my authors for their contributions and for accepting my changes, where needed, with good grace. I am particularly indebted to those Company Chairmen, past and present, who gladly gave their time to talk to me about their jobs. These included: Martin Broughton, Sir Christopher Gent, Sir Ronald Hampel, Peter Hickson, Sir Christopher Hogg, Sir David John, Richard Lapthorne, Sir Robert Margetts, Lord Oxburgh and Sir Peter Walters. Finally, I want to thank Sir Robert Worcester and the Institute of Business Ethics for hosting a discussion with some of these Chairmen.

viii