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A timely new edition of Euromoney Books’ ground-breaking title, International Corporate Governance, this is an essential guide for issuers and investors holding international portfolios.
The book has contributions from leading practitioners, academics, lawyers, bankers, ratings agencies, institutional investors, asset managers and consultants from across the globe.
Compliance issues for corporates and investors have become more complex in an increasingly regulated environment where the stakes have been raised considerably. This book considers corporate governance issues facing issuers and investors in the US, Europe, Japan and China, including:
- What are the financial and economic impacts of different corporate governance approaches?
- How should corporates and investors react to corporate governance scandals to best protect their key investments?
- What steps should institutional investors take to affect the governance in their key investments?
- How has Sarbanes-Oxley raised the cost for US companies?
- What are the issues flowing from the increasing imposition of Anglo-US corporate governance across the globe?
- How comprehensive is the EU Action Plan for corporate governance?
- How are new techniques, from governance ratings to internet message boards affecting governance and shareholder value?
Table of Contents
International Corporate Governance
Strategic Action Plans for Management and Investors
Second Edition
Table of Contents
Editor’s acknowledgements
Contributors’ biographies
Introduction
Chapter 1: The value of corporate governance
Colin Melvin, Hermes Pensions Management, Ltd.
Introduction
Governance ranking research
Focus list research
Active ownership funds
Conclusion
Chapter 2: The international corporate governance revolution
Professor Aron C. Viner, Endicott College
Negligence and profusion
Explosion of interest
Why now?
A new consensus
Corporate governance codes across the globe
Chapter 3: The Sarbanes-Oxley Act and its impact on US listed companies
William J. Brock, Robert H. Hotz and Youmna Salameh
Houlihan Lokey Howard & Zukin
Introduction
Management accountability post Sarbanes-Oxley:
bridging the divide between compliance and strategic vision
Board of directors: structural independence
Spotlight on the audit committee
Informational independence
Outside advisers
Incremental costs of remaining public under Sarbanes-Oxley
Communication with research analysts
The drive to go private
Other transaction management issues
Conclusion
Chapter 4: The shareholder wealth effects of CalPERS’ Focus List
Mark Anson, R. Theodore White and Ho Ho
CalPERS
Agency problems and the lack of corporate control
The CalPERS Focus List
Corporate governance in the ‘new age’
The case for shareholder activism by passive index funds
A Focus List case history
Conclusions
Chapter 5: Managing the corporate governance functions of a major institutional investor: Hermes Investment Management Limited (United Kingdom)
Colin Melvin, Hermes Pensions Management, Ltd.
Introduction
Hermes’ ‘Statement on UK Corporate Governance & Voting Policy 2001’
Shareholder or shareowner?
Chapter 6: Current trends in regulating corporate governance by the European Union
Dario Trevisan, Studio Legale Trevisan & Associati
Introduction
Divergence
Convergence: the Action Plan
Conclusions
Chapter 7: Beyond Wall Street: charting the international corporate governance agenda
Anne Simpson, Global Corporate Governance Forum
Introduction
Historical context
International initiatives
Conclusions
Chapter 8: Corporate governance principles for business enterprises
Arvind P. Mathur, Asian Development Bank
Colin Melvin, Hermes Investment Management, Ltd.
Introduction
Objectives
The principles
Practical definitions of director independence
Chapter 9: Corporate governance in Japan
Professor Aron C. Viner, Endicott College
Corporate governance?
The core of corporate governance: the Japanese board
Cross-shareholding
President clubs (Shacho-kai)
Statutory auditors (kansayaku)
Outsiders: the AGM and shareholder litigation
The executive officer system (shikko-yakuin-seido)
The new committee system
Japanese corporate governance in the 21st century
Chapter 10: Finding value creation opportunities in Japan
Shuhei Abe, SPARX Asset Management Co., Ltd.
Chapter 11: Corporate governance in China
Professor Aron C. Viner, Endicott College
The gradual opening of China’s financial markets
Banking in ‘China Inc’
Corporate governance (Farenzhilijiegou)
Boards of directors
Board of supervisors
Law and governance
Birdcage corporate governance?
Chapter 12: Calibrating corporate governance practices – corporate governance scores
George S. Dallas and Nick Bradley
Standard & Poor’s
Why measure corporate governance?
Corporate governance, the economy and financial markets
Measuring corporate governance practices
Applications of corporate governance scores and benchmarks
Methodology, development and references
Chapter 13: New technology issues for corporate governance: internet message boards
Jonathan Carson, BuzzMetrics
James Felton, Central Michigan University
Introduction
The information content of stock message boards
Corporate challenges from message boards
Corporate governance and message boards
Epilogue: warnings from the HealthSouth message board
Chapter 14: Putting it all together: practical strategies for institutional investors
Joseph C.F. Lufkin
Introduction
Is there a governance role for institutions with fixed-income portfolios?
Strategies for indexers
Developing an institution’s governance personality
Organising an institution’s proxy voting department
What makes custody efficient makes voting a nightmare for institutions
(and shareholder identity a nightmare for issuers) – and why
Appendix: Some practical resources for corporate governance specialists
Professor Aron C. Viner, Endicott College
The global code movement – corporate governance codes, reports
and legislation in 50 countries, 1994–2003
Corporate governance-dedicated journals and newsletters
Leading corporate governance institutes and organisations
Corporate governance ratings organisations
Academic departments offering corporate governance courses
Degree programs in corporate governance
Authors
International Corporate Governance
Second Edition
Strategic Action Plans for Management and Investors
Contributors’ biographies
The editor
Joseph C.F. Lufkin is a pioneering entrepreneur in international investment and corporate governance. Shifting to capital markets in 1980, after post-graduate stints with Sotheby’s and Christie’s in London and New York, he became, at 26, founder and Managing Director of Marine Midland (CI), Ltd., an asset management subsidiary of the HongkongBank Group in New York, and Chairman of Intercurrency Fund, Ltd., a pioneering managed currency fund. Leaving HSBC to start his own business, Joe spent several years as a private equity and risk arbitrage investor in the United States and the United Kingdom through Hopwood Investments. After selling that firm, he became active in US ‘buy side’ corporate governance as one of the first officers of T. Boone Pickens’ United Shareholders Association. Taking this into the global arena, as US institutional portfolios began to internationalise in the late 1980s, he founded Global Proxy Services Corporation (GPSC). Over the next 10 years, GPSC rose to become the preeminent representative and legal proxy of major US and international institutional investors, including CalPERS, JP Morgan, Morgan Stanley, Bank of Ireland, Citibank, State Street, Cedel Bank, GT Global and more than 1,000 other major banks, pension funds, insurers and fund managers, exercising voting rights over more than US$200 billion in corporate equities in over 50 countries, and advising many of the world’s leading investors on corporate governance. During this period, Joe was also involved in a number of public-sector governance initiatives, including organising and chairing the United States Investment Committee on US-Japan SII for the US Treasury department in the first Bush administration, and organising the first trilateral governance conference with the Keidanren in Tokyo. Joe sold GPSC in 1997 to ADP, a Fortune 100 corporation at a compound annual RoI of ~89 per cent.
Joe is the author of many articles on corporate governance, published in Global Investor, Global Custodian, and Investor Relations, and was editor of the first edition of this book, which was published in 1991. A Yale graduate (BA 1976), he has been a fellow of the Institute of Directors, London, and member of other finance and investment professional associations. His pioneering work in corporate governance during the last decade has been documented extensively by magazines, newspapers and television in the United States, France, Germany, the United Kingdom, Japan, Korea, Holland, Belgium and other countries. He is currently a private investor and consultant to the Asian Development Bank and other clients on matters related to the organisation, governance and management of investment funds and financing vehicles, and remains an entrepreneur in the area of international
investments.
The contributors
Shuhei Abe, President, CEO and CIO of SPARX Asset Management Co., Ltd., founded the firm in 1989. Prior to SPARX, in 1995 he formed Abe Capital Research, where he managed Japanese equity investments for US and European investors. From 1982, Shuhei worked in Japanese equity sales for Nomura Securities International (New York). He began his career as an analyst for Nomura Research Institute (Japan). Shuhei holds an MBA from Babson College and a BA in Economics from Sophia University.
Mark Anson is the Chief Investment Officer for CalPERS. He has full authority and responsibility for all asset classes in which CalPERS invests, including passive, quantitative and external equity, domestic and international fixed income, high yield bonds, real estate, corporate governance, securities lending, currency overlay, venture capital, private equity, and hedge funds. These assets total approximately US$160 billion. He also manages a staff of 150 investment professionals. Previously, Mark was the Senior Investment Officer for Global Equity at CalPERS, managing US$90 billion of assets. Mark has a PhD and Master’s degree in Finance from Colombia University Graduate School of Business, and a JD from Northwestern University School of Law. He is a Chartered Financial Analyst, Certified Public Accountant, Certified Management Accountant and Certified Internal Auditor.
Nick Bradley is a Managing Director and European Practice Leader of Standard & Poor’s Governance Services, formed in 2000. Nick was instrumental in the development of Standard & Poor’s Corporate Governance Evaluations & Scores – new services for investors, companies, regulators, investment banks and other interested parties. Corporate Governance Evaluations & Scores, and the accompanying analyses, measure and evaluate the corporate governance standards of companies around the world. Prior to his current assignment, Nick was Regional Practice Leader for Standard & Poor’s Ratings’ Product Development group in Europe, where he was responsible for the launch of new products and services, including the corporate governance initiative. Nick studied Business Studies in the United Kingdom and completed an MBA at Aston Business School in Birmingham.
William J. Brock is a Director in the Board Advisory Service at Houlihan Lokey Howard & Zukin. He has over 20 years’ experience in providing financial advisory services for domestic and non-US companies, and foreign governments. Prior to joining Houlihan Lokey, William was Managing Director at Liberty Hampshire Company, where he was responsible for developing structured financial products. He has held senior positions at Salomon Smith Barney, Goldman Sachs & Co. and CSFB. William has served as President, Chief Operating Officer and Board Member of an internet financial services company, and as Board Member of a publicly traded electronic commerce services provider. William earned an AB, cum laude, from Harvard College and an MBA from the Harvard Business School.
Jonathan Carson is the CEO of BuzzMetrics, a market research firm that analyses the unaided conversations that consumers have in public online discussion forums. Jonathan is on the Board of Directors of Sharpflat, Inc., and AdamSmith.net, an internet company spun off from Adam Smith Global Television. Jonathan graduated from Georgetown University, where he also worked for four years as a research assistant in the Center for Business-Government Relations. While there he completed numerous studies, including a two-year project to develop a new loan loss reserve model for the World Bank and a financial modelling project commissioned by the Polish government for their new stock market.
George S. Dallas is Managing Director and Global Practice Leader in Standard & Poor’s Governance Services unit, based in London. This unit was formed in 2000 and is active in providing individual company corporate governance evaluations, corporate governance scores and customised governance research in both emerging and developed markets. George has been involved actively with the development of Standard & Poor’s corporate governance analytical criteria and with the application of its governance scoring service in markets around the world. He has also served on the boards of several Standard & Poor’s affiliates in Europe. George holds a BA, with distinction, from Stanford University and an MBA from the University of California at Berkeley.
James Felton is an Associate Professor of Finance at Central Michigan University, where he specialises in investments and portfolio management. His research interests include behavioural finance, internet message boards and teaching evaluation, and he has published in academic journals such as The Journal of Behavioral Finance, The Journal of Investing, and the Journal of Financial Education. James earned a BS in Economics from Arkansas Tech University, and an MA in Economics and a PhD in Finance from the University of Arkansas.
Ho Ho, Quantitative Portfolio Manager in the Global Equity Unit for CalPERS, is responsible for the research and development of internal active strategies for equity portfolios, hedge fund risk management and hedge fund quantitative modelling, and is a team member of the CalPERS’ hedge fund programme. He is also responsible for the system and model validation of CalPERS’ enterprise-wide risk management system. Prior to joining CalPERS, Ho was derivative manager for Transamerica Life Insurance Company. He also worked for KPMG as manager of their Structure Finance Consulting Group. Ho holds an MBA in finance from the University of Chicago and a BA in Economics from the University of California, Irvine.
Robert H. Hotz is a Senior Managing Director, Head of Investment Banking, Head of the Board Advisory Service and a member of the Board of Directors of Houlihan Lokey Howard & Zukin. Prior to joining Houlihan Lokey, Robert was Head of Corporate Finance for the Americas, Senior Vice Chairman and a board member of UBS Warburg, LLC. Robert joined Dillon, Read & Co., Inc., a predecessor firm to UBS Warburg, in 1991, where he served as Head of Corporate Finance and as a member of the Board of Directors. Prior to that, he was Head of the Corporate Finance Department and a member of the Board of Directors at Smith Barney, where he worked for 22 years. Robert has 20 years’ experience as a board member of public companies. He is a graduate of Rutgers University and Cornell University.
Arvind P. Mathur, CFA, is the Principal Capital Markets Specialist at the Asian Development Bank (ADB). He has held a variety of positions, including Head of Capital Markets at ADB and Vice President of Citibank. He has structured, and invested in, a range of private equity funds in partnership with institutional investors such as CalPERS, La Caisse de Depot et Placement du Quebec, the Prudential Insurance Company of America and some of the largest institutional investors in Australia, Singapore, Malaysia and India. These funds have targeted investments in Asian economies such as India and China. He has promoted the theme of corporate governance in many of these funds, particularly the ones involving CalPERS. Arvind is author of the paper, ‘The Corporate Governance of Banks: CAMEL-INA- CAGE’.
Colin Melvin has been Director of Corporate Governance at Hermes Pensions Management, Ltd., since September 2002. Colin is responsible for developing and implementing corporate governance and shareholder engagement policies in relation to Hermes’ clients’ equity investments in the United Kingdom and overseas. Colin is a member of the International Corporate Governance Network’s Committee on Executive Compensation and an associate member of the Association for Investment Management and Research. Colin holds an MA from Aberdeen University and an MPhil from Cambridge University, both in History, and a Diploma in Investment Analysis from Stirling University.
Youmna Salameh is a Financial Analyst with Houlihan Lokey Howard & Zukin’s New York office. Youmna joined Houlihan Lokey in September 2002 as a dedicated analyst for the Board Advisory Service. Prior to joining Houlihan Lokey, Youmna spent two years as an Investment Banking Analyst at Barclays Capital. Prior to Barclays, Youmna served as Deputy Director for the Republicans Abroad, the international arm of the US Republican Party. Youmna graduated, cum laude, from Georgetown University’s School of Foreign Service in 2000, where she earned a BS in International Economics, with a concentration in International Commerce and Finance.
Anne Simpson is Head of the Secretariat at the Global Corporate Governance Forum, which was founded by the World Bank Group and OECD to support developing and emerging markets in their efforts to reform corporate governance. Prior to joining the World Bank Group in 1999, Anne was a joint Managing Director of corporate governance specialists Pensions and Investment Research Consultants, Ltd., based in London. While there, she served as a member of the Ad Hoc Taskforce which advised the OECD on the development of its Principles of Corporate Governance. She is the author of a number of publications on corporate governance, including (with Jonathan Charkham) Fair Shares: the future of shareholder power and responsibility (Oxford University Press, 1999).
Dario Trevisan has been a member of the Board of Directors of Pirelli Real Estate S.p.A. since June 2003. From October 1996–April 2003, he was a member of the Board of Directors of Ing. Olivetti S.p.A. (today Telecom Italia S.p.A.); he was also member of the company’s Audit Committee. In 1999, he was a member of the Board of Directors of SNIA S.p.A. and the Top Management remuneration committee. Since May 2001 he has been the Saving Shareholders’ Corporate Representative in Marzotto & Figli S.p.A. He also contributes on matters regarding corporate law to Il Sole 24 Ore in the column ‘L’Esperto risponde’. He has been a speaker at many industry events. He is the Managing Partner of Studio legale Trevisan & Associati of Milan, Italy.
Aron C. Viner received his PhD from the London School of Economics and is Professor of International Business at Endicott College. He has done work in Southeast Asian development economics followed by postdoctoral research and study at Harvard University. As a consultant in Japan in the early 1990s, he was involved in the first systematic proxy voting by foreign institutional investors. He authored the earliest journal articles on the subject of Japanese corporate governance, and established a consulting practice in Cambridge, Massachusetts, serving corporate clients in Japan, Korea and Southeast Asia. His book, Inside Japanese Financial Markets, published by The Economist (and by Dow Jones-Irwin in the United States) was named one of the ten best business books of the year by the Best of Business Quarterly.
R. Theodore White is currently Director of Corporate Governance for the California Public Employees’ Retirement System (CalPERS). He is responsible for CalPERS’ Focus List programme and proxy voting. Ted also oversees CalPERS’ actively managed corporate governance strategy, which currently constitutes a combination of external managers with a total of approximately US$1.3 billion allocated. Formerly, Ted was an Investment Officer in the California State Treasurer’s Office, and was a Deputy State Treasurer. For three years, Ted represented State Treasurer Matt Fong on the Board of Administration of CalPERS and the California State Teachers’ Retirement System (CalSTRS).
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