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In an earlier paper the authors discussed how D&O insurance can be used to reduce the governance risk facing insurers, by linking coverage to contractual obligations to follow best practice governance controls. In this paper they place governance-linked D&O insurance within the broader context of the way in which the conflicts of interest between owners and managers of firms are managed by the key intermediary institution of the board of directors. There has been increasing controversy over whether directors are playing the role they are meant to in governance or whether they have become excessively beholden to chief executive officers. Regulation and the use of the legal system have been the predominant means of disciplining directors, but each has its drawbacks, particularly in terms of the disincentives they create for qualified individuals to serve as directors in the first place. What is missing is any role for market forces in governance, with their promise to achieve better cost effectiveness and innovation in governance practice. The authors argue that governance-linked D&O insurance is a means toward that end of market-based governance, with process-based coverage bringing together the tools for better governance risk management with the motivation for directors to exercise their fiduciary responsibilities. [ABSTRACT FROM AUTHOR]

Corporations lobbied for the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA) to limit private enforcement of the US securities laws. While the PSLRA has achieved this goal to a certain extent, it has also impacted securities litigation, and related Employee Retirement Income Security Act (ERISA) and derivative litigation, in ways that its proponents never intended. This paper discusses the impact of institutional investor participation in securities litigation, which increased significantly as a result of lead plaintiff provisions in the PSLRA that evince an intent to have institutional investors play a larger role in securities cases. Specifically, the paper focuses on the ability of institutional investors to obtain corporate governance reforms and the contribution of personal funds by outside directors, as components of securities litigation settlements. The paper also provides an overview of ERISA actions that are often litigated in parallel with securities fraud actions. While these actions concern different legal theories, pleading standards and damages formulations to those of securities actions, there is an interplay between the two types of actions in at least two major areas — settlement and discovery. Indeed, the presence of parallel ERISA litigation in several high-profile securities actions has enabled the securities plaintiffs to obtain relief from the PSLRA’s discovery stay allowing them to have early access to any materials that have been produced to the ERISA plaintiffs. [ABSTRACT FROM AUTHOR]

External auditing is promoted as a trust-engendering technology. Recurring audit failures, however, undermine confidence in corporate governance. The traditional response to the crisis is to manage it by tweaking the regulatory structures: revising accounting or auditing standards, ethical guidelines and arrangements for disciplining accountants and accountancy firms. Such responses do not appear to check the incidences of real or alleged audit failures. Since audit failures are the product of the values governing accountancy firms, this paper encourages a focus upon such values, providing some evidence of their nature. The paper concludes that accountancy firms are firmly focused upon the need to make a profit, possibly at the expense of wider social obligations. [ABSTRACT FROM AUTHOR]

The recent years have seen many reforms in corporate governance and disclosure in the USA as well as in Europe — so also in Finland. Although the reforms in Europe mostly are based on voluntary corporate governance codes rather than laws such as the Sarbanes–Oxley Act 2002, these developments have in many cases quite radically reshaped elements of corporate governance, such as board work, in Finland. This paper sets out to give an overview of the governance framework in Finland, its recent developments, and reports on some empirical findings concerning governance and compliance. [ABSTRACT FROM AUTHOR]

This paper provides an argument that corporate managers co-opt the allegiance of their board members. Though owners elect board members, if the board is controlled by management the nominating process tends to guarantee a continuation of that control. Though board members operating with a managerial bias might violate a duty to shareholders, directors and officers (D&O) insurance assists managers in co-opting board support by eliminating the financial consequences of violating that duty. Corporate social responsibility and stakeholder movements, by increasing the number of stakeholders whose interests are likely to be violated by a continued managerial bias, are likely to increase the price of D&O coverage. This price effect and other recently proposed governance-linked coverage changes alter, but do not eliminate, the benefit of a continuing managerial bias. [ABSTRACT FROM AUTHOR]

This paper examines the rise of foreign ownership in France. The author uses Germany as a controlling, comparative case study. It is argued that firm-level institutional arrangements of workplace organisation constitute the most significant variable in accounting for the greater attractiveness of French firms over their German counterparts to short-term, impatient capital — namely, hedge and mutual funds. The author demonstrates how institutional changes in both French and German corporate governance has not affected the process by which firms build their innovative capabilities, thereby highlighting the compatibility between institutional change in national business systems and the absence of convergence between them. [ABSTRACT FROM AUTHOR]

Since the Cadbury Report of 1992 several Member States of the European Union have provided national codes on corporate governance or best practice, and the European Commission in its Company Law Action Plan has declared its intention to see these coordinated and converge. The five Nordic countries that are all members of either the EU or EEA have passed such codes relatively late. Based on these Nordic Codes, this paper takes a critical look at what this venture into European soft law or best practices is about, and points out the differences in the Nordic approach to this kind of company law regulation that are visible in the Codes and may be at odds with the intended convergence. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to explore a more constructive role for corporate boards — one that would entail directors recognising the operational primacy of management and focusing their attention on the manner in which a corporation can best fulfil its long-term strategy. Paying more attention to nurturing long-term, sustainable value will help differentiate roles and will suggest the need for new metrics and a deeper appreciation by directors of corporate strategy and organisational capacity. At a time when senior management are dedicating disproportionate resources to immediate compliance issues, it is critical that boards take such a broad view. [ABSTRACT FROM AUTHOR]

In response to today’s wave of corporate investigations and prosecutions, prosecutors have sought to require significant changes in corporate culture, compliance and controls and, as importantly, to monitor those changes for a reasonable time. The result is the corporate deferred prosecution agreement and its adjunct, the Independent Monitor. This paper first will review the development of deferred prosecution agreements and the factors which may determine which companies receive such treatment; secondly, it will analyse the Independent Monitor’s role, both the common terms of reference and certain unique terms relevant to specific cases; and thirdly, it will suggest the outlines of an Independent Monitor’s workplan. [ABSTRACT FROM AUTHOR]

Close links between banks and large companies have been seen as a key component of Germany’s corporate governance system. The recent sale of large shareholdings by banks raises the question of to what extent this system will converge to the US model of dispersed ownership. This paper argues that concentrated ownership will remain a key feature of this system. In addition, board-level representation of employees and the lack of a culture of independent directors are further factors supporting incremental change in Germany’s corporate governance system rather than wholesale convergance to the US model. [ABSTRACT FROM AUTHOR]

Since its reopening in the early 1990s, the stock market has gained considerable momentum in China. In less than 15 years, the Chinese stock exchange has grown into the eighth largest in the world, with market capitalisation of over US$500bn. This expansion, however, has been accompanied by frequent discoveries of accounting malpractice at Chinese listed firms. This paper begins by tracing the origins of these accounting failures through analysis of the Chinese stock market’s institutional context, and goes on to classify 11 cases of accounting failures into various categories. [ABSTRACT FROM AUTHOR]