Table Of ContentCorporate Governance in the US and Europe
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Corporate Governance in the
US and Europe
Where Are We Now?
Geoffrey Owen, Tom Kirchmaier and Jeremy Grant
This book is based on a conference organised by the London School of
Economics and New York University, held in London on 4 and 5
November 2004.
The conference brought together academics and practitioners from both
sides of the Atlantic to review recent developments in corporate gover-
nance, focusing in particular on the lessons to be learnt from the stock
market boom and bust and from the corporate scandals that came to light
in 2001 and 2002. A list of conference participants is on pp.ix–xi. This
book comprises, first, an overview of the themes that were discussed at the
conference together with some comments on unresolved issues where
further research is needed, and, second, summaries of the contributions
made by conference speakers. The appendices contain details of recent
changes in corporate governance rules that have been introduced in the
US, Germany and the UK, together with an account of events leading to
enactment of the European Takeover Code.
© Geoffrey Owen, Tom Kirchmaier and Jeremy Grant 2006
Softcover reprint of the hardcover 1st edition 2006 978-1-4039-9866-8
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
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Any person who does any unauthorized act in relation to this publication
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The authors have asserted their rights to be identified as the authors
of this work in accordance with the Copyright, Designs and
Patents Act 1988.
First published 2006 by
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PALGRAVE MACMILLAN is the global academic imprint of the Palgrave
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ISBN 978-1-349-54717-3 ISBN 978-0-230-51245-0 (eBook)
DOI 10.1057/9780230512450
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A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Corporate governance in the US and Europe : where are we now? /
[edited by] Geoffrey Owen, Tom Kirchmaier, and Jeremy Grant.
p. cm.
“A report on a conference organised by the London School of Economics
and New York University, held in London on November 4th and 5th, 2004.”
Includes bibliographical references and index.
1. Corporate governance–United States–Congresses. 2. Corporate
governance–Europe–Congresses. I. Owen, Geoffrey, 1934– II. Kirchmaier,
Thomas, 1968– III. Grant, Jeremy. IV. London School of Economics and
Political Science. V. New York University.
HD2741.C7758 2005
658(cid:1).045(cid:1)0973–dc22 2005049326
10 9 8 7 6 5 4 3 2 1
15 14 13 12 11 10 09 08 07 06
Contents
Foreword by William T. Allen vii
Conference Participants ix
1 Geoffrey Owen, Tom Kirchmaier and Jeremy Grant:
Corporate Governance in the US and Europe:
Where Are We Now? 1
2 Michael Jensenon Agency Costs of Overvalued Equity 21
3 Jonathan Rickfordon Corporate Governance Systems –
How Much Convergence? 25
4 Colin Mayeron Corporate Governance Systems –
How Much Convergence? 31
5 Steven N. Kaplanon the State of US Corporate
Boards and Governance: What is Right and Wrong? 37
6 Paul Davieson Boards of Directors: the European
Perspective 42
7 Martin Liptonon the Role of the Board of Directors 47
8 Roberta Romanoon Institutional Shareholders and
Corporate Governance in the US 52
9 Alastair Ross Goobeyon Institutional Shareholders
and Corporate Governance – a UK Perspective 57
10 Kevin J. Murphyon Executive Compensation:
Is Europe Catching Up with the US, and Should it
Do So? 61
11 Brian G. M. Mainon the Question of Executive Pay 65
12 Sean O’Hareon UK Compensation Trends 70
13 Martin Liptonon the Role of the Corporation in
Society 73
v
vi Contents
14 David Hendersonon Corporate Social Responsibility
and the Role of Business Today 79
15 Krishna G. Palepuon Information and the Regulation
of Markets 84
16 Joshua Ronenon Financial Statement Insurance 88
17 Andrei Shleiferasks Is There a Major Problem with
Corporate Governance in the United States? 91
18 Luigi Zingaleson the Importance of Bad News 96
Appendices: Evolution and Summary of Corporate
Governance Codes
Appendix I: UK 101
Appendix II: US – NYSE New Listing Standards 117
Appendix III: Germany 133
Appendix IV: European Takeover Code 145
Notes 153
Bibliography 157
Index 160
Foreword
In the fall of 2004 a small group of leading corporate governance
thinkers from across the territory of the European Union and from
the United States gathered at the London School of Economics to
share insights and challenge conventional thinking respecting the
governance of the large publicly financed business corporation.
These institutions, in a sense, dominate the production of goods and
services in the modern economy, not only in the US and Europe but
also in Japan, Australia, Canada and other ‘advanced’ economies.
That large publicly financed corporations function efficiently and in
the public interest is a matter of high public importance. Indeed,
while it is less than 25 years since the term ‘corporate governance’
entered the English language as a commonly heard phrase, none can
today doubt the importance of the set of legal rules and social prac-
tices that form the structure within which individuals guide the
activities of these entities.
If our understanding of effective corporate governance concepts
and techniques is to be advanced, insights from academic study in
law, finance and economics must be integrated with real world
insights and experiences of practitioners of the art, as well as from
government regulators. Thus, at the London meeting leading legal
and finance scholars from both the US and the EU were joined by
regulators from several jurisdictions, as well as leading US and EU
practitioners. This book constitutes a summary of the proceedings of
that meeting. The meeting was an intellectually exciting event and
this book represents an effort of the organising institutions to make
the benefits of that discussion available to those unable to attend.
The meeting in London was the result of the joint work of the
London School of Economics and the New York University Center
for Law and Business. It was the initial meeting in what is hoped to
be a series of annual meetings alternating between London and New
York that address current issues in corporate governance from a
multi-jurisdictional prospective. I was pleased to be one of the organ-
isers of the conference and I was joined in that effort by Sir Geoffrey
Owen of the London School of Economics, who, with his colleagues,
vii
viii Foreword
has written the overview of the conference proceedings that intro-
duces this book, and Martin Lipton, Esq. of the New York bar, long
recognised as a leading thinker in this field.
William T. Allen
Jack Nusbaum Professor of Law and Business
New York University
Director, NYU Center for Law and Business
Former Chancellor of the Court of Chancery of
the State of Delaware
Conference Participants
William T. Allen, Nusbaum Professor of Law and Business, Director
of the Center for Law and Business, New York University
Hon. Paul Atkins, Commissioner, Securities and Exchange
Commission
Marco Becht, Professor of Finance and Economics, Université Libre
de Bruxelles, Executive Director of the European Corporate
Governance Institute
Tim Besley, Professor of Economics and Political Science, London
School of Economics and Political Science
Tim Clark, Senior Partner, Slaughter and May
G. Michael Crooch, Board Member, Financial Accounting Standards
Board
Paul L. Davies, Cassel Professor of Commercial Law, London School
of Economics and Political Science
Sir Howard Davies, Director, London School of Economics and
Political Science
Antoine Faure-Grimaud, Professor of Finance, London School of
Economics and Political Science
Professor Guido Ferrarini, Professor of Law, Genoa University
Roddy Gow, Chairman, Gow & Partners
Jeremy Grant, Graduate Institute of International Studies, Geneva
David Henderson, Visiting Professor, University of Westminster
Gerard Hertig, Professor of Law and Economics, Swiss Federal
Institute of Technology, Zurich
Hans Hirt, Manager, European Corporate Governance, Hermes
Investment Management
ix
