Key Drivers of 'Good' Corporate Governance and the Appropriateness of UK Policy Responses: Final Report to the Department of Trade and Industry

Posted: 7 Feb 2007

See all articles by Igor Filatotchev

Igor Filatotchev

City University London - Sir John Cass Business School

Howard Gospel

King's College London - The Management Centre

Gregory Jackson

Freie Universit├Ąt Berlin

Deborah Allcock

University of Huddersfield

Date Written: January 2007

Abstract

Since the early 1990s, the UK has been very active in undertaking policy reforms that includes a number of corporate governance codes, expert reports, a high level review of company law, and new regulations and legislation. These policy initiatives need to be monitored and evaluated in terms oftheir success in influencing the key drivers of 'good' corporate governance. This Report undertaken for the DTI has several aims: to identify key drivers of good corporate governance based on a review of social science literature; to describe the content of UK regulatory initiatives with regard to those drivers; and to evaluate gaps in the content and implementation of UK policy regarding corporate governance, using those drivers as benchmarks. In addition, some further implications of this study are discussed for future policy and research on UK corporate governance.

The Report defines 'good' corporate governance with regard to the rights and responsibilities of company stakeholders, and the wealth-creating and wealth-protecting functions of corporate governance within this context. Based on this definition, a detailed review of the theoretical and empirical social science literature on corporate governance was undertaken across seven broad areas: boards of directors, shareholder activism, information disclosure, auditing and internal controls, executive pay, the market for corporate control, and stakeholders. The result was the identification of 18 key 'drivers' or governance mechanisms, which promote 'good' corporate governance. Key gaps in the UK regulatory framework are then explored with reference to the drivers of good corporate governance. A comprehensive review was undertaken to evaluate corporate governance related developments in UK regulation since 1990. Several potential gaps in coverage were identified in the areas of executive pay and employees stakeholders. A number of potential gaps in effectiveness were also identified with regard to other key drivers such as boards, shareholder involvement, information disclosure, auditing, and the market for corporate control.

The Report also emphasises that the effectiveness of corporate governance regulation depends very much on balancing different governance demands and regulatory trade-offs. Corporate governance is shaped by a number of contingencies, complementarities, and costs. Various organisational contingencies may place different demands on corporate governance drivers, and their implementation is also associated with different sorts of costs. Looking more generally, different drivers may act as complements or substitutes for one another. Better appreciation of such interdependencies is crucial to formulating a coherent regulatory strategy and balancing important regulatory trade-offs between the following - mandatory regulation (uniform requirements) and more flexible forms of soft-law such as codes based on comply-or-explain principles and self-regulatory norms of professional groups.

Keywords: Corporate Governance

JEL Classification: G30, G34

Suggested Citation

Filatotchev, Igor and Gospel, Howard and Jackson, Gregory and Allcock, Deborah, Key Drivers of 'Good' Corporate Governance and the Appropriateness of UK Policy Responses: Final Report to the Department of Trade and Industry (January 2007). Available at SSRN: https://ssrn.com/abstract=961369

Igor Filatotchev (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Howard Gospel

King's College London - The Management Centre ( email )

150 Stamford Street
London, SE1 9NN
United Kingdom
44 020 78484121 (Phone)

Gregory Jackson

Freie Universit├Ąt Berlin ( email )

Boltzmannstrasse 20
D-14195 Berlin, 14195
Germany

HOME PAGE: http://www.wiwiss.fu-berlin.de/institute/management/jackson/team/gjackson/index.html

Deborah Allcock

University of Huddersfield ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

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