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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​)  

 
 

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An operational
perspective

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A relationship
perspective

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Sir Adrian Cadbury,​ ​Report on the Financial Aspects of CG (1992)​ →​ the system by which
companies are directed and controlled
...

OECD (2001) → ​CG is about the procedures and processes according to which an
organization is directed and controlled
...

Monks & Minow (1995)​ →​ CG involves the relationship among various participants

A stakeholder
perspective

CG is about the activities of the board and its relationship with the shareholders or members, and
with those managing the enterprise, as well as the external auditors, regulators, and other
legitimate stakeholders
...


A societal
perspective

Blair (1995) → ​the whole set of legal, cultural, and institutional arrangements that determine what
public corporations can do, who controls them, how that control is exercised, and how the risks and
return from the activities they undertake are allocated
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The scope of CG

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➔ Being artificial, CE have to be created => ​constitution​: formal under law, or informal under a set
of names, a purpose and set of rules
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Incorporating a joint-stock limited-liability-company

➔ founding members (shareholders) => submit ​articles of association + ​memorandum of
associations​
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➔ Company can be bought ​off the shelf from a business that specializes in setting up companies,
and simply change the name of the company to the one they want
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Although the ​SEC provides a ​federal level oversight ​of ​public companies listed on US
stock market
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public & private
- ⅓ and ⅔ board are permitted

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The memorandum and articles of association

The company ​memorandum is a short document that states the company name, outlines the
purposes for which it has been created, gives the addresses of the registered office, lists the nominal
amount and classes the shares with which it is being formed, and states that the liability of its members
is limited to the equity capital subscribed
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The difference between governance and management
➔ Management was a major focus throughout the 20th century, but CG became the central focus
of the 21st: today the way companies are governed became a much more important matter
than the way they are managed
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➔ The board is ​not part of the management structure​, ​nor its hierarchy
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there is no executive boss of the
board
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➔ INED = Independent non-executive director → have no relationship with the company that
could affect the exercise of independent and objective judgment
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This
involves 4 basic elements:
[1] ​strategy formulation​ → the most outward looking and future focused
- the board works with top management
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strategies need to be translated into policies to guide top management action and
provide plans for subsequent control
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➔ Providing accountability and monitoring/supervising represent the ​confromance part​, while the
strategy formulation and policymaking activities refers to the ​performance part​
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​The Cadbury report (1992)​: ​the responsibilities of the board include setting the company
strategic aims, providing the leadership to put them in effect supervising the management of the
business and reporting to shareholders of their stewardship
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Alternative board structures
➔ What is the appropriate balance between executive and non-executive members ?
➔ What is the appropriate size of the board ?
[1] A board with only executive directors
[2] A board with a majority of executive directors
[3] A board with majority non-executive directors
[4] A board with only non-executive directors

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➔ Discussion of this rationale in ​1977 in the ​5th directive of the EEC + ​Lord Bullock's report on
industrial democracy in Britain​ (proposing workers representatives)
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Societal diversity

➔ Members of the board should reflect the impact a company might have on society at large, and
should include representative by age gender, nationality, environmental safety and concerns,
etc
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