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HULT International Business School
ACC440 - Corporate Governance (Prof
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Willcox)
Outline of the Required Book (Tricker, ​Corporate Governance​)  

 

# 4  

The Governance Partnership 
Investors, Companies, and Directors  

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➔ Ownership of shares => ​rights​: receive notice, attend/vote at SHH meetings, inspect shareholder
register, register of directors and officers, right to regular statutory information
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➔ 19th C​: model of the joint-stock limited-liability company, shareholders had the right to
nominate and elect the directors of their company, which is still the ase in most of small
companies
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- Scott Report (2004, Committee on Capital Markets Regulation) → majority voting:
directors are elected with a majority of votes cast and for shareholders to put forward
candidates on the BoD by simply having their names added to the ​company nomination
proxy form​
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→ in the ​UK​, ​amendment of the Companies Act
(2006) in regards of resolutions, voting, calling meetings
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10%) to be called at a SHH general meeting
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➔ Shareholder democracy: the fact that SHH are capable of selecting directors, influencing the
company’s direction, discuss the board remuneration, termination and severance pay
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Some corporate governance codes call for such
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➔
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➔

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commitment and acknowledge the benefit of SHH overlooking capacities in the practices
fairness and long-term sustainability of the company
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​2006, Home Depot, HP, McGraw Hill​) →
cleaning of staggered boards to promote shareholder diversity
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subsidiary divestitures, mass redundancies)
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“ Shareholders do need more say in the way the boards are run, but that should be balanced out
by SHH being held responsible for their actions, just as directors are
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”
UK Financial Reporting Council (2010) introduced ​Institutional Investor (I
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) Stewardship Code
→ ​comply or explain​ basis
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institutional investors should publicly disclose their policy on how they will discharge
their stewardship​ responsibilities
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institutional investors should have a robust policy on ​managing conflicts of interests ​in
relation to stewardship, and this policy should be publicly disclosed
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I
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should ​monitor their investee companies​, make sure there is a dialogue with the
board
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I
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should establish clear guidelines on when and how they will ​escalate their activities
(active intervention) and a method of protecting and enhancing shareholder value
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I
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should be willing to ​act collectively with other investors where appropriate, and
disclose their policy on collective engagement
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should have a clear policy on​ voting activity​
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I
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should ​report periodically on their stewardship and voting activities (qualitative and
quantitative information)
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SHH information
➔ Most company law and corporate governance codes encourage ​transparency in corporate
matters and require the ​reporting ​ of specific information
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​UK Corporate Governance Code (2008)​, companies have
to explain the business model and the overall financial strategy, amd show that remuneration
incentives are compatible with the company’s risk profiles
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In the ​UK, listed companies are required to present SHH with an
enhanced business review
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- provide a comparison of the performance against the company ​benchmark​,
- note ​contractual relations​ essential to the business
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Alternative methods of communications (based on IT systems) allow now
for a two-way communication, enabling the company to communicate genuinely
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ICSA Hermes Transparency in
Governance Awards in the ​UK​)
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​insider dealing = ​criminal
offense in most jurisdictions​)
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➔ Shareholder ​identification​ in multinational public companies is also a difficulty
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Different types of director
➔ The architecture of CG is concerned with the design and the style of governance, and the way in
which structures​ match form and function​
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- A ​director ​de jure has been nominated/ appointed as a director in line with the company
law
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Executive ​director → member of the board of director who is also an executive manager
of the company
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Alternate director → a person who can take the place of another director (if cannot
attend meetings)
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- Governing​ director → director not represented by a human being
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- Associate​ directors
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INED = ​Independent non-executive director​, a director with no affiliation or other
affect, exercising objective and independent judgment
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!!! The chief executive director is also known as the ​managing director,​ may not be an
executive director
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Duty of ​Trust
fiduciary duty →
​ requires directors to act with
integrity behaving honestly and fairly for the
benefit of the shareholders, recognizing the
interests of any minority shareholders
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Duty of ​Care
Requires the directors to exercise independent
judgement of care, skill and diligence
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- Plan and runs shareholders meetings
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- the performance evaluation of the board and committees
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➔ UK Combined Code on Corporate Governance​: ​“The roles of the chairman and the chief
executive should not be exercised by the same individual
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”

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➔ Typically they include all the directors and the company secretary, who might also be a director
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- directors have responsibility to the company employees, trading partners, and the state
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In the ​Cadbury Report (1992)​: ​“The Company
Secretary has key role to play in ensuring that board procedures are both followed and
regularly reviewed
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All directors should
have access to their advice and services of the company secretary and should recognize
that their chairman is entitled to strong support of the company secretary in ensuring
the effective functioning of the board
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