UK Governance at the Time of the Financial Crisis: Calls for Change

Abstract:     
The financial crisis in the UK began in late 2008 and the consequential economic recession has brought to the attention of media, commentators, policy makers and academics the importance of corporate governance. This research explores UK governance, what it means, what are its influences and how it is changing at the time of this financial crisis. The researchers conducted a series of qualitative interviews in five UK companies across a spectrum of industries (including institutional investors) in late 2008. Three key propositions were investigated: Proposition 1 is that board characteristics, the importance of which are pronounced by agency theorists are not the only key factor in ‘best practice’ governance. Proposition 2 is that shareholders and stakeholder involvement in governance will improve governance practices. Proposition three is that key to understanding governance failures is examining cognition and behaviours inside the black box of decision-making. Propositions two and three were supported by the interviews. The main conclusions are that the importance of good governance in establishing trust again at the time of the financial crisis is key and changes seem to be called for in a number of areas: in enhancing shareholder voice; better disclosure in explaining variations to the application of the principles of the Combined Code, in explaining risks, and in how decisions are made; and ensuring that executive remuneration is more clearly linked to profits, costs of capital and risk and reflects long-term value creation.

Keywords: Corporate governance, board of directors, shareholders, UK, pension funds

JEL Classification: G30, P12, G23

working papers series