Corporate Governance and Accountability

Accounting is the language of business, increasingly standardized across the world through global banks and corporations: a technical tool used to reach the correct, unquestionable answer. Nonetheless, as recent corporate scandals have shown, a whole range of financial professionals (accountants, auditors, bankers, finance directors) can collectively fail to question dubious actions. How is this possible? To understand such failures, this book explores how accountants construct the technical knowledge they deem relevant to decision-making. In doing so, it not only offers a new way to understand deviance and scandals, but also suggests a reappraisal of accounting knowledge which has important implications for everyday commercial life. The book's findings are based on interviews with chartered accountants working in the largest accountancy practices in London. The interviews reveal that although accounting decisions seem clear after they have been made, the process of making them is contested and opaque. Yet accountants nonetheless tend to describe their work as if it were straightforward and technical. This book delves beneath the surface to explore how accountants actually construct knowledge, and draws out the implications of that process with respect to issues such as professionalism, performance, transparency, and ethics. This thought-provoking book concludes that accountants' technical discourse undermines their ethical reasoning by obscuring the ways in which accounting decisions must be thought through in practice. Accountants with particular ethical perspectives more readily understand and construct particular types of knowledge, so the two issues of knowledge and of ethics are inseparable. Increasingly technical accounting rules can therefore be counterproductive. Instead, this book shows how reinvigorating the ethical discourse within the financial world could be a more effective means of averting future scandals.

This book provides a coherent overview of the most important theories and insights in the field of business ethics, together with a substantiated development of ethical norms and values with which organizations must comply. At the end of each chapter is a case study (e.g., Shell, KPN Telecom, IHC Caland, Herald of Free Enterprise disaster, etc.), ideal for graduate courses in business ethics and corporate social responsibility.

Boards of directors are coming under increasing scrutiny in terms of their contribution in monitoring and controlling management, particularly in the wake of high-profile corporate frauds and failures, and also their potential to add value to organisational performance through involvement in the strategy process and through building relationships with key investors. Despite the importance of these issues, not only to organisations, but also arguably to national competitiveness, the nature of board activity remains largely a black box, clouded by prescriptions, prejudices, and half-truths. This book responds to calls for greater scrutiny of boards of directors with an in-depth examination of directors of organisations in the United Kingdom, drawing on the accounts of directors themselves as to their roles, influence, and the potential and limits to their power. The study shows that boards, in many cases, are far more than passive rubber stamps for management and that non-executive directors are encouraged to act as trusted advisers to the executives and the chief executive officer, rather than solely monitors of executive activity. Boards are important mechanisms in maintaining the strategic framework of the organisation through setting the boundaries of organisational activity. The potential of the non-executive board members to fulfil such a mandate depends on a number of factors, including ability, willingness to engage with the organisational issues, and the degree of knowledge they have relevant to the host firm. Above all, the degree of trust built between members of the board, and between the board and key external constituencies, is at the heart of effective board behaviour.

Corporate governance has become a major topic of interest for academics and policymakers in recent years. The advent of major financial scandals in the early 2000s (Enron, WorldCom, Ahold, Parmalat) has been followed by important financial market turmoil by the end of the decade. A common theme associated with these developments is the increased power of finance – especially shareholder value-oriented institutional investors — across advanced capitalist economies. Will the pressures of financial market globalization force companies to converge on a shareholder-based model of corporate governance? This book which highlights the importance of the institutional context in which companies are embedded, focuses on the divergence in the allocation of capital by shareholder value-oriented institutional investors in Europe's two largest nonliberal market economies: France and Germany. The major difference between these two economies is that France has proven to be twice as attractive to short-term, impatient shareholders with short-term horizon as compared to Germany — a disparity that disappears for investors with a longer term horizon. These empirical findings highlight the importance of providing a sophisticated differentiation between different categories of institutional investors in order to assess the impact associated with the greater prominence of finance. Goyer points to the importance of firm-level institutional arrangements in the process by which companies coordinate their activities as the key variable for understanding the investment allocation of impatient investors. The implication is that the governing of corporations is not about whether or not strategies of shareholder value are being adopted — but rather what types of strategies of shareholder value are being pursued.

This book explores current thinking on corporate governance by way of a detailed study of the governance practices of fourteen Japanese companies. The author of this book was granted extensive access to these Japanese companies, as well as to their partner companies, their shareholders, and their banks, and was therefore able to provide a detailed insight into the way that Japanese companies are actually governed on a day-to-day basis. The book suggests that current mainstream conceptualizations of corporate governance are inadequate, as they do not help to understand the way that these Japanese companies are directed and controlled in practice. In the majority of cases, governance operates through a system which draws on the reciprocal obligations, responsibilities, and trust generated in everyday interactions at the individual and organizational level. The conclusions of the research have important implications not only for our understanding of the Japanese system of corporate governance, but also for international corporate governance policy and research in general. In particular, the book commends greater recognition that alongside the currently dominant concern ‘controlling’ the behaviour of company managers, the governance of companies might equally be considered in terms of the responsibilities, reciprocal obligations, and trust inherent in everyday interactions.

Corporate governance has become a major issue in business over the last decade. The author of this book has played a central role in developing policies, good practice, and our understanding of the complex issues involved. In 1992 the author chaired the committee, sponsored by the Bank of England, whose Report on the Financial Aspects of Corporate Governance (commonly known as the ‘Cadbury Report’) put issues of corporate governance on the map. Ten years on, the author now reflects on issues of corporate governance and chairmanship drawing on his own business and policy-making experience. This book discusses and explains the central issues of corporate governance; provides practical advice to chairmen and directors on their roles and responsibilities; and surveys the major codes of practice that have been developed in the last decade. It also considers the implications of the current review of company law and speculates on the implications of electronic developments for shareholders' voice and voting, the extent of a company's social responsibility, and the changing relationship between boards, managers, and investors. This book is both an informed commentary and a practical guide.

The book provides a new approach to Corporate Governance (CG) between and beyond, on one side, the agency and property right theory views, criticized for being too narrow; and, on the other side, the stakeholder view, criticized for being overly descriptive and analytically unmanageable. Bringing together distinguished scholars from economics, organization theory, cognitive science, and economic sociology, the book addresses the agenda of developing a pluralistic yet precise and design oriented approach to CG. Core basic traits of the proposed approach, linking the various contributions together, include: a revision of some rather questionable assumptions (such as that ‘objective alignment’ is a good thing, that firms do not have a personality distinct from that of shareholders, and that agents are only moved by extrinsic motivation); a recommended exit from the shareholder/stakeholder and the convergence/divergence dilemmas — which stem from rather universalistic and ‘one-best-way’ views of CG on both sides; and the development of a contingency approach to the design of effective CG structures. The book provides for policy makers different indications of what ‘good practices’ of CG are, with respect to the dominant view, in at least two respects: the portfolio of such practices is extended beyond the conventional set of incentives and controls; and good governance configurations are made contingent to variables ranging from more proximate factors such as actors' preferences and task complexity, to less proximate factors such as the economic cycle, the relative scarcity of different types of capital, labour market structures, and industrial relations.

This book is about the relationship between corporate governance regimes and labour management. It examines how finance and governance influence employment relationships, work organization, and industrial relations by means of a comparative analysis of Anglo-American, European, and Japanese economies. The starting point is the distinction widely found in the corporate governance, business systems, and political economy literature between countries dominated by ‘shareholder value’ conceptions of corporate governance and those characterized by ‘stakeholder’ regimes. By drawing on a wide range of countries, the book is able to demonstrate the complexities of corporate governance arrangements and to present a more precise and nuanced exploration of the linkages between governance and labour management. Each country-based chapter provides an analysis of the evolution and key characteristics of corporate governance, and then links this to labour management institutions and practices. The book goes beyond the ‘complementarities’ between governance and labour management systems identified in recent literature, and attempts to identify causal relationships between the two. It shows how labour management institutions and practices may influence finance and corporate governance systems, as well as vice versa. The chapters in this book illuminate current debates about the determinants of corporate governance, the convergence of national ‘varieties of capitalism’, and the impact of corporate governance on managerial behaviour. The book highlights the complexities of corporate governance systems and refines the distinction between market/outsider and relational/insider systems.

The chapters in this book address the state of Japanese corporate governance and managerial practice at a critical moment. They are based on detailed and intensive fieldwork in large Japanese companies and interviews with investors, civil servants, and policy makers in the period following the adoption of significant corporate law reforms in the early 2000s up to the months just before the global financial crisis of 2008. At the start of the decade, the time seemed right for Japan to move to a shareholder value‐driven, “Anglo‐American” system of corporate governance. Instead, an adjustment and renewal of the postwar model of the large Japanese corporation has taken place. Japanese managers have adapted to and reshaped corporate governance norms, using them to reform internal decision‐making structures. The board's role is seen in terms of strategic planning rather than monitoring, and external directors are viewed as advisers, not as representatives of the shareholders. Companies have responded to the threat of hostile takeovers by putting poison pills in place and have rebuffed hedge fund activists' demands for higher dividends and share buybacks. Although shareholder influence is more extensive than it was, central aspects of the Japanese “community firm” ‐ in particular, managerial autonomy and a commitment to stable or “lifetime” employment for core of employees ‐ largely remain in place. The Japanese experience suggests that there are limits to the global convergence of company law systems, and that the widespread association of Anglo‐American practices with the “modernization” of corporate governance may have been misplaced.

The corporate governance systems of continental Europe have traditionally been quite different to those of the liberal market economies (e.g., the United States and the United Kingdom). Company ownership has been dominated by incumbent blockholders, with a relatively minor role for minority shareholders and institutional investors. However, since the mid‐1990s, European corporations have adopted many of the characteristics of the Anglo‐American shareholder model. Furthermore, such an increased shareholder orientation has coincided with a significant role for the Left in European government. This presents a puzzle, as conventional wisdom does not conceive of the European Left as the natural ally of pro‐shareholder capitalism. This book provides an analysis of this paradox by arguing that the postwar support of the European Left for the prevailing blockholder‐dominated corporate system depended on the willingness of blockholders to share economic rents with employees, both through higher wages and greater employment stability. However, during the 1990s, product markets became more competitive in many European countries. The sharing of rents between social actors became increasingly difficult to sustain. In such an environment, the Left chose to relinquish its traditional social partnership with blockholders and embraced many aspects of the shareholder model. The hypothesis is initially explored through a panel data econometric analysis of fifteen non‐liberal market economies. Subsequent case study chapters examine the political economy of recent corporate governance change in Germany and Italy.