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Enforcement Strategies in UK Corporate Governance: A Roadmap and Empirical Assessment

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

April 2008

ECGI - Law Working Paper No. 106/2008

Shares in publicly-quoted UK companies are, similarly to those in their US counterparts, dispersed amongst many holders. The central problem of corporate governance for UK listed firms is therefore rendering managers accountable to shareholders. This paper investigates the way in which the mechanisms used to control these managerial agency problems are enforced. It provides a roadmap of the enforcement strategies employed, and a first approximation of their empirical significance. The results suggest three stylised facts about the UK corporate governance system. First, shareholder lawsuits are conspicuous by their absence. Formal private enforcement plays little or no role in controlling managers. Secondly, and contrary to leading accounts in the economic literature, it is public, rather than private, enforcement which dominates in relation to listed companies. However, the lion's share of the interventions by the relevant agencies - the Takeover Panel, the Financial Reporting Review Panel, and the Financial Services Authority - is of an informal character, not resulting in any legal action. Suasion, rather than sanction, is the order of the day. Thirdly, a simple divide between public and private enforcement fails fully to take account of the role played by institutional investors in the UK, who have engaged systematically in informal private enforcement activity. Strong informal private enforcement has historically therefore been the flipside, in the UK, of weak formal private enforcement.

Number of Pages in PDF File: 64

Keywords: Corporate law, public enforcement, private enforcement, UK corporate governance, derivative action, institutional investors

JEL Classification: G38, K22, K41, M48

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Date posted: May 21, 2008  

Suggested Citation

Armour, John, Enforcement Strategies in UK Corporate Governance: A Roadmap and Empirical Assessment (April 2008). ECGI - Law Working Paper No. 106/2008. Available at SSRN: http://ssrn.com/abstract=1133542 or http://dx.doi.org/10.2139/ssrn.1133542

Contact Information

John Armour (Contact Author)
University of Oxford - Faculty of Law ( email )
Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
European Corporate Governance Institute (ECGI) ( email )
B-1050 Brussels
HOME PAGE: http://www.ecgi.org
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