Is Corporate Governance Delivering Value?
Interest in corporate governance--the foundation on which companies set their goals, assign responsibilities and measure performance--has exploded throughout the world in the last few years. Is governance best practice something that should be devised by regulators or best left to the market? Is there a distinct European model and, if so, is it appropriate for a global, inter-connected economy? Above all, why should managers bother to take the topic seriously and how in practice can its study improve their companies' performance?
In this issue of EBF we have invited a range of distinguished contributors to address these and other issues. The opening essay by Valter Lazzari. Full Professor of Banking and Finance at Universita Cattaneo and Universita Bocconi, Milan, is a tour de force, skilfully outlining the basic, theoretical principles from which corporate governance has emerged and explaining why divergent patterns in Europe are best understood by reference to national law.
In the next contribution, shareholder activist Robert Monks picks up this legal dimension and exposes the gulf between appearance and actual practice in the US and UK, as well as offering some important reflections on the appropriate model for continental Europe. Next, Sir Adrian Cadbury, who gave his name to the UK's influential corporate governance code, argues that what we are witnessing across the European Union is a convergence of governance standards and processes, if not necessarily of structures. Claudio Dematte, former chairman of Italy's Railways and main television network, and Lutgart van den Berghe, founding partner of the European Corporate Governance Forum, put the spotlight on organisations where governance standards should be improved.
We then focus on governance issues in three European countries: the merits and demerits of the German supervisory board system (Wolfgang Salzberger and Manuel Rene Theisen); the case of voting rights in Italy (Francesco Chiappetta and Stefano Micossi); and the impact and significance of recent corporate governance initiatives in Spain (Miguel Trias). Finally Graham Gilmour of PricewaterhouseCoopers sums up the debate and offers some useful guidelines for practitioners.
Corporate governance: first principles, current debates and future prospects
Corporate governance has emerged in the last decade as the most pervasive topic in the field of management. In virtually any debate on policy or theory "governance considerations" play a relevant role. How are a company's goals set and pursued? How is responsibility for achieving them assigned? How can we measure the results? How can changes in a firm's management be assured if its performance proves unsatisfactory?
Without first answering these questions it becomes impossible to develop a convincing theory of why and how firms are born, merged, restructured or liquidated, to put into perspective their organisation dynamics and human resource management practices, and to understand their corporate finance and accounting choices.
The problem for managers and other students of corporate governance is the wide range of issues involved and the consequent difficulty of understanding the big picture. Corporate governance, for example, involves making judgements on the optimal extent of shareholder power; its distribution between different groups of shareholders; the structure and functions of the board; the nature and limits of the fiduciary duty and accountability of managers; efficiency and fairness in managerial rewards; employee involvement in the ownership and in the management of the company; the disciplinary function provided by the threat of takeovers; and the regulation of mergers and acquisitions. Even that list is not comprehensive.
Given the complexity of the issues, it is no surprise that we run into different definitions of corporate governance. …