Preface vii Acknowledgements ix Part 1 Frameworks and Mechanisms 1 1 Defining Corporate Governance 3 Introduction 3 What is Corporate Governance? 5 Theoretical Frameworks 7 Agency Theory 8 Transaction Cost Theory 11 Transaction Cost Theory Versus Agency Theory 12 Stakeholder Theory 13 Stakeholder Versus Agency Theory 15 The Enlightened Shareholder Versus the Stakeholder-Inclusive Approach 17 Institutional Theory 17 The Evolving Framework of Corporate Governance 18 Academic Research: The Frontiers of Corporate Governance Research 19 Chapter Summary 20 Questions for Reflection and Discussion 21 2 The Impact of Corporate Governance Weaknesses and Failure 22 Introduction 22 The Collapse of Enron in 2001 23 Laying the Foundations 23 Glittering Success 23 Early Worries 24 Signs of Distress 25 The Fall . and Fall . of Enron 25 Creative Accounting at Enron and Its Impact on the Accounting Profession 26 The Aftermath 28 The Trial and the Human Dimension 29 A Reflection on the Corporate Governance Problems in Enron 30 The Collapse of the World''s Banking Sector and Governance Failure: 2008 32 Learning from the Crisis: Identifying Corporate Governance Failures 33 The Collapse of Carillion in 2018 35 An Overview of Carillion and its Activities 35 Carillion Spent Zillions 35 The Road to Ruin 36 Failure of the Board of Directors and a ''Rotten Corporate Culture'' 36 Through a Glass Darkly: Lack of Transparency in Accounting and Auditing 37 Unethical Treatment of Shareholders: Dividends as Impression Management? 37 Unethical Treatment of Non-Shareholding Stakeholders 38 ''Enrillion'': Similar Governance Weaknesses in the Two Corporate Collapses 39 Chapter Summary 39 Questions for Reflection and Discussion 40 3 Corporate Governance Reform 41 Introduction 41 n Illustration 3.1: The Maxwell Affair 1991 42 The Cadbury Report 1992 45 The Greenbury Report 1995 45 The Hampel Report 1998 46 The Turnbull Report 1999 48 The Higgs Report 2003 49 The Tyson Report 2003 49 The Smith Report 2003 50 Revised Guidance on Audit Committees 2008 50 Redraft of the Combined Code 2003, Revised 2006 50 Internal Control: Revised Guidance for Directors on the Combined Code 2005 50 Further Revision of the Combined Code 2008 51 Turner Review March 2009 51 Walker Review July 2009 51 The Stewardship Code 2010 52 Corporate Governance Code 2012 52 The Kay Review 53 Corporate Governance Code 2016 and 2018 53 Corporate Governance Consultations Following Recent Corporate Collapses 54 The Kingman Review and the End of the FRC: Introducing the Arga 54 A Review 54 Comply or Explain 55 Applying the Codes of Practice to Small Companies 55 Ranking Corporate Governance Initiatives 56 Why is Good Corporate Governance Important? 57 Corporate Governance and Corporate Performance 57 A Risk Perspective on Corporate Governance 59 Corporate Governance Ratings, Indexes and Links with Financial Performance 59 Chapter Summary 60 Questions for Reflection and Discussion 60 4 The Role of Boards in Corporate Governance 61 Introduction: Enhancing Board Effectiveness 61 Unitary and Two-Tier Board Structures 62 Splitting the Role of Chairman and Chief Executive 62 Research into Split Roles 63 The Role of Non-Executive Directors in Corporate Governance 64 n Illustration 4.1: The Non-Executive Director Function in the Wake of the Financial Crisis 65 Research into the Role of Non-Executive Directors 70 Getting the Balance Right 72 Who Wants the Job Anyway? 73 Executive Remuneration 73 n Illustration 4.2: Executive Remuneration in Banks in the Wake of the Financial Crisis 74 n Illustration 4.3: Bankers Called to Account and Apologize 76 The High Pay Commission: Cheques with Balances 77 Academic Research into Executive Remuneration 77 Voting on Directors'' Remuneration 79 n Illustration 4.4: Reforming Executive Pay: Establishing a Blueprint for Change 80 Directors'' Training 80 What Else Can Contribute to Board Effectiveness? 81 Boardroom Diversity 81 Brave New Boardrooms? How Can Governance and Boards Be Reformed? 83 Addressing the Ethical Health of Boards: Focusing on Boardroom Culture 84 n Illustration 4.

5: Broadening Stakeholder Representation on Boards: A New Framework 85 Chapter Summary 86 Questions for Reflection and Discussion 87 5 The Role of Institutional Investors in Corporate Governance 88 Introduction 88 The Ongoing Transformation of UK Institutional Ownership 89 A Complex Web of Ownership 91 What Do We Mean by Stewardship? 94 The Kay Review (2012) Principles and Recommendations 96 Conflict and Pension Fund Trustees 96 The Growth of Institutional Investor Activism 97 n Illustration 5.1: Trust Institutional Investment and the Kay Review 99 Institutional Investor Voting 100 Reviewing the Impediments to Voting Shares 101 Voting on Remuneration Policy 102 n Illustration 5.2: Fat Cat Slim 102 Research into Voting by Institutional Investors 104 Institutional Investors: Engagement and Dialogue 106 n Illustration 5.3: Failure of Engagement in the Financial Crisis 108 Research into Engagement with Institutional Investors 110 Institutional Investor Engagement and Power 112 Factors Affecting Shareholder Activism 112 Shareholder Activism and Financial Performance 113 Emerging Trends in Research on Shareholder Activism 114 Chapter Summary 115 Questions for Reflection and Discussion 115 6 The Role of Transparency, Audit, Internal Control and Risk Management in Corporate Governance 116 Introduction 116 Transparency and Disclosure 117 Research into Disclosure and Corporate Governance 118 Improving Transparency: Cutting Clutter? 119 Corporate Disclosure and Executive Remuneration 119 Corporate Disclosure and Non-Executive Directors 120 Developments in Governance Reporting 120 The Role of Internal Control, Internal Audit, External Audit and Audit Committees in Effective Corporate Governance 123 Corporate Governance and Risk in the Wake of the Financial Crisis 124 Turnbull, Internal Control: A UK Perspective 125 Risk and Risk Prioritization 125 An Existing Implicit Framework for Internal Control 126 The Turnbull Framework for Internal Control 126 The Revised Guidance on Internal Control 128 Risk Disclosure and Corporate Governance 129 An ''Ideal'' Framework for Corporate Risk Disclosure 129 The Revised Guidelines and Corporate Risk Disclosure 132 Recent Research into Risk Disclosure 132 The Operating and Financial Review Fiasco 133 Sarbanes-Oxley and Internal Control: A US Perspective 134 Dodd-Frank Act 136 Sarbanes-Oxley 17 Years Later 136 The Role of Audit in Corporate Governance 136 The External Audit 136 The Audit Committee 139 Research into the Effectiveness of Audit Committees 140 The Internal Audit 141 Research into the Effectiveness of the Internal Audit Function 141 Chapter Summary 142 Questions for Reflection and Discussion 142 Part 2 Global Corporate Governance 143 7 An Introduction to Corporate Governance Systems Worldwide: Global Corporate Governance 145 Introduction 145 Categorizing Corporate Governance 145 Insider-Dominated Systems 146 Outsider-Dominated Systems 147 Factors Influencing Corporate Governance in an International Context 148 Global Convergence in Corporate Governance 151 The OECD Principles 152 The Revised OECD Principles 2004 153 OECD Principles 2015 154 The European Union 154 The Commonwealth Guidelines 157 Corporate Governance in the Middle East and North Africa 157 Andean Corporate Governance Code 2004 157 Ethical Issues in International Corporate Governance: Controlling Bribery and Corruption 157 The Outcome of Corporate Governance Convergence 158 Country Studies 160 Chapter Summary 161 Questions for Reflection and Discussion 161 8 A Reference Dictionary of Corporate Governance Systems: Global Corporate Governance 162 Albania 162 Argentina 162 Australia 163 Bahrain 163 Bangladesh 163 Belgium 164 Botswana 164 Brazil 164 Canada 164 Chile 165 China 166 Colombia 166 Cyprus 167 Czech Republic 167 Denmark 168 Egypt 169 Estonia 169 Finland 169 France 169 Germany 170 Ghana 171 Greece 171 Hong Kong 172 Hungary 172 Iceland 172 India 173 Indonesia 173 Iraq 174 Ireland 174 Italy 174 Case Study on Italian Governance: The ''European Enron'': Parmalat 175 Corporate Governance Failure in Parmalat 175 Jamaica 176 Japan 176 Jordan 178 Kenya 178 Latvia 178 Lebanon 178 Libya 178 Lithuania 178 Luxembourg 178 Macedonia 178 Malaysia 179 The Netherlands 179 New Zealand 180 Nigeria 180 No.