corporate governance and corporate responsibility

8/3/2019 Corporate Governance and Corporate Responsibility

1/19

Corporate Governance and CorporateResponsibility:

A Comparison of the UK and US

Cynthia Williams

Ruth Aguilera

John Conley

Deborah Rupp


2/19

FIRM

MANAGERSOWNERS

BOARD OFDIRECTORS

EMPLOYEES

LAWCAPITALMARKETS

PRODUCT

MARKETS

LABOR

MARKETS

SUPPLIERS

CONSUMERS


3/19

Dispersed ownership/uncommitted owners

Developed financial markets Relatively high financial transparency

Active mergers and acquisitions market

Flexible labor markets

Low employee participation in management Outsider system of accountability v. insider

Anglo-American system(in contrast to Continental system):


4/19

Refinements to the UK/US Portrait:

Dispersed ownership versus

increasing institutional ownership

60% of US market and 80% of UK

market held by institutions, domestic

and foreign Owners can coordinate action and act

collectively in both market


5/19

Differences between the UK/US

Inside the firm:

CEO and Chair of Board are split in 90%of UK companies (Higgs)

CEO and Chair are split in only 19% of US

companies (Higgs)

CEO compensation design in US (higher

absolute levels and greater incentive

proportion) may indicate greater power


6/19

Differences between the UK/US

Between the firm and stockholders:

More of institutional ownership in the UK is comprised ofpension funds and insurance companies

US: higher concentration of mutual funds

Do pension funds and insurance companies exhibit a longer

time-frame in their investment strategy?

Indexed owners should as well: Hawley & WilliamsFiduciary Capitalism

Turnover is lower for UK institutions v. US institutions


7/19

How stockholders act: UK

Engagement: Cadbury and then Myners haveencouraged

Result: quiet diplomacy on strategy, boardeffectiveness, succession, executive remuneration:Black & Coffee, 1994; Holland, 1998

Financial institutions avoid one man show style of

US CEOs: Holland, 1998 Mallin et al., 2005: Outsiders in the traditional

corporate governance framework are starting to actlike the insiders of Continental system


8/19

How stockholders act: US

Institutions typically have a more distant relationship

US securities law may require

Reg. FD discourages quiet diplomacy

Recent SEC proposal to allow shareholders more power in therelationship (nominations) have been rejected

Communications filtered through IR departments, not direct tothe top as weve heard in the UK

Closer to the outsider model than in the UK


9/19

Place of CSR also differs

Use of Key Phrase Concepts in Newspaper Articles - "Corporate Social Responsibility

0

20

40

60

80

100

120

140

160

180

200

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

24 year period by years

Nu

mberofarticlescontainingtopic

Wall Street Journa (US)l

Financial Times (UK)


10/19

Government emphasis differs

www.csr.gov.uk

The UK government gateway to Corporate Social

Responsibility: Welcome to the Governments website on CSR. We have

an ambitious vision for UK businesses to consider theeconomic, social and environmental impacts of theiractivities, wherever they operate in the world.

OFR: new requirement for boards to disclose effects of

company action on environment and society What will the impact be? How important is it?

Weve heard conflicting accounts

Explicit emphasis on long-term shareholder value


11/19

Government:

Mr. Malcolm Wicks is

the newM

inister forCorporate Social

Responsibility.

"I want Britain to be a

leading player in this

coming green industrialrevolution"

Rt Hon Tony BlairMP,

Prime Minister


12/19

Institutional investors actions

SIP requirements to disclose SEE as context

Conley & Williams interviews: this made a significant difference

in funds behavior ISC principles, 2002: Will intervene for business strategy and if

approach to CSR is problematic

ABI, Disclosure Guidelines, 2000: Expect disclosure onapproach to CSR

Coalitions on climate change, HIV

/Aids, oil and gas revenuetransparency, labor conditions in supply chains

Why?


13/19

Aguilera, Rupp, Williams & Ganapathi:

Three basic motives based on justice research(Cropanzano, Byrne, Bobocel & Rupp, 2001; Cropanzano, Rupp, Mohler,

& Schminke, 2001)

Instrumental motives- self-interest driven

Relational motives- concerned with relationships

among group members

Moral motives- concerned with ethical standards

and moral principles


14/19

Theoretical FrameworkIndividual level Organizational

level

National

level

Transnational

level

IGO NGOS

Instrumental

motive

Need for Control Shareholder

interests

(short/long term)

Competitiveness

Power

Relational

motive

Need for

Belongingness

Stakeholder

interests

Legitimation

(long-term)

Social Cohesion Collaboration

Moral

Motive

Need for

Meaningful

Existence

Stewardship

interests

Higher order

values

Collective

Responsibility

Altruism

Aguilera, Rupp, Williams & Ganapathi (AMR,f rthc min 2


15/19

The Case of the UK (relative to the US)

Organizational level National level

Instrumental

motive

Shareholder interests(short/long term) Competitiveness

Relational

motive

Stakeholder interests

Legitimation(long-term)

Social Cohesion

Moral

Motive

Stewardship interests

Higher order values Collective Responsibility


16/19

Application to institutional

investors:

Instrumental motives predominate

Competitive advantage to firmsreputations from attending to

environment and social issues

Reputation affects stock prices and

reduces volatility (Clark & Hebb, 2005)

E.g., Extractive Industry Transparency

Initiative

E.g,, I.I. Group on Climate Change


17/19

Other motivations

Relational: Could be a bandwagon effect

E.g., 11 of 20 top fund managers in SocialInvestment Forum, interviews show not all true

believers

Moral: Individuals within funds may have strong

moral or political views about these matters

Usually discuss in terms of long-term value of

investments, not their own values


18/19

Why less interest in the US?

No required disclosure of social andenvironmental facts, either by companies or

pension funds No systematic government encouragement

Less consumer interest, so less likely to have aconsumer backlash?

Demonstrating financial materiality is required in

order to interest US mainstream investors Geography and sociology of London allow

norms to shift rapidly

What else are we missing?


19/19

Conclusions

On matters of core corporate governance,important differences

UK is becoming more relational/more like aninsider system

More emphasis on long-term shareholder value,at least by government and some largeshareholders

CSR is a wedge issue that is further drivingdifferences

At some point it becomes inaccurate to speak ofAnglo-American corporate governance system

corporate governance and corporate responsibility

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