What sanctions are necessary?

now widely accepted, serious consideration could be given to introducing a requirement for AIM companies to implement a similar code on a comply-or- explain basis; one which is tailored to companies listed on that market (and therefore along the lines of those published by the QCA and/or NAPF). Such a code should impose an obligation on AIM companies to focus on their own corporate governance regime.

The sanctions: good corporate citizenship – the power of public opinion

The power of public opinion is an effective, albeit smaller, part of the Virtuous Circle. It is constituted in general terms by the following factors.

Adverse press comment

While it is not possible to prove that adverse press coverage can bring pressure on boards or galvanise shareholders into action and intervention, the evidence is compelling. Over recent years, much of the UK press coverage on governance issues has focused on the remuneration of directors. For example:

‘Pay at Vodafone: now we are talking telephone numbers’ (Financial Times, 21 July 2006) – Vodafone responds to pressure over controversial bonuses for directors by launching a special review of its remuneration policy;

‘Four Berkeley directors to share £200m windfall’ (The Daily Telegraph, 19 March 2007) – concerns about a highly controversial management incentive scheme at housebuilder Berkeley Group were reopened after a near tripling in thirty months of the reward directors were on course to share under the unusual scheme.

In a paper entitled ‘The corporate governance role of the media’ by Alexander Dyck (Harvard Business School) and Luigi Zingales (University of Chicago), ‘The role of the media in pressurising corporate managers and directors to behave in ways that are socially acceptable’ is analysed and the authors comment as follows: ‘The only definite conclusion we can draw at this point is that the media are important in shaping corporate policy and should not be ignored in any analysis of a country’s corporate governance system.’

Peer pressure

It is even more difficult to prove that peer pressure should also be recognised as part of the Virtuous Circle. However, those who have experience of working with boards will recognise that, on occasions, peer pressure does work in this way. The pressure comes typically from non-executive directors who experience best practice as board members of other companies and then preach the gospel. If such a proposal is supported by several non-executive directors, it is difficult for a board to resist.

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