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KeepingBetterCompany CorporateGovernanceTenYearsOn GreatClarendonStreet,Oxford ox2 6dp OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwidein
OxfordNewYork
AucklandCapeTownDaresSalaamHongKongKarachi KualaLumpurMadridMelbourneMexicoCityNairobi NewDelhiShanghaiTaipeiToronto
Withofficesin
ArgentinaAustriaBrazilChileCzechRepublicFranceGreece GuatemalaHungaryItalyJapanPolandPortugalSingapore SouthKoreaSwitzerlandThailandTurkeyUkraineVietnam OxfordisaregisteredtrademarkofOxfordUniversityPress intheUKandincertainothercountries
PublishedintheUnitedStates byOxfordUniversityPressInc.,NewYork JonathanCharkham2005
Themoralrightsoftheauthorshavebeenasserted DatabaserightOxfordUniversityPress(maker) Firstpublished2005
Allrightsreserved.Nopartofthispublicationmaybereproduced, storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans, withoutthepriorpermissioninwritingofOxfordUniversityPress, orasexpresslypermittedbylaw,orundertermsagreedwiththeappropriate reprographicsrightsorganization.Enquiriesconcerningreproduction outsidethescopeoftheaboveshouldbesenttotheRightsDepartment, OxfordUniversityPress,attheaddressabove
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ISBN0-19-924318-2978-019-924318-1 13579108642
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Itisaprivilegeandapleasuretobeinvitedtowriteaprefaceto KeepingBetter Company.Thereisnowawealthofliteratureoncorporategovernance,but JonathanCharkham’sbookundoubtedlyfillsanimportantgap.Itfillsit throughthebreadthanddepthofitsanalysisofthegovernanceframework withinwhichcompanies,primarilypubliclyquotedones,carryontheir activitiesinGermany,Japan,France,theUnitedStates,andBritain.Itbuilds ontheauthor’spreviousbook KeepingGoodCompany,whichwasthefirst comparativestudyofitskindtobepublished.Thebookmakessenseof currentgovernancepracticesinthefivecountriesandhighlightsbothhow theyarecurrentlychangingandwherethosechangesmaybeleading.
Wherethebookstandsaloneisintheauthor’sabilitytotakeusbeyonda textbookdescriptionofgovernancestructuresandsystems,whicharealltoo oftennotquitewhattheymayseem,andtoshedlightonthewayinwhich theyworkinpractice.ThisunderstandingofthepracticalrealitiesofgovernancederivesfromJonathanCharkham’swealthofexperienceinthe governancefield.HehasadvisedtheBankofEngland,helpedtodrawup codesofbestpracticeforboardsinBritainandinternationally,andestablishedhimselfasanauthoritativewriterandlectureronthesubjectof corporategovernance.Hissingularadvantageasanauthorliesinhispracticalexperienceasadirectorofbothfamilyandpubliccompanies,andof whatitactuallymeanstobeaboardmemberinthiscountryandabroad.Itis hisknowledgeofgovernanceintheoryandinactionwhichilluminateshis analysisofthegovernancescenearoundtheworld.
Thebookbeginswithasuccinctintroductiontothesubjectofcorporate governanceandexplainswhyandhowithaslevitatedinaremarkablyshort spaceoftimefromthearcanevocabularyofaccountancyandlawtoheading theagendaofworldsummitmeetings.Itends,appropriately,withunfinishedbusiness,withthosegovernanceissueswhichremaintoberesolvedand should,therefore,beontheagendaofallthoseconcernedwiththeiroutcome.
Thecountrychaptersfollowacommonformatwhichfacilitatescomparisonsbetweenthem.Theystartwiththelegalpositionofcompaniesineach jurisdiction.Thisisakeyaspectofgovernance,becauseoftheimportanceof theformofthelegalframeworkitselfandbecauseoftheinfluenceithason thepatternofnon-statutoryregulation.Thenatureofgovernancestructures,
ofshareholdings,andofmarketsfollownaturallyon,countrybycountry.It isintheseareasthattheexperienceofapractitionerisinvaluable.To understand,forexample,thesystemofgovernanceinacountry,thestarting pointisthemannerinwhichtheirboardsareformallystructured.Beyond theformalstructure,however,thereisalwaysaninformalonewhichprovidesthedynamicwithinthesystem,andisthemeansbywhichformis turnedintosubstance.Tounderstandeventheworkingsoftheinformal structure,itisnecessarytoappreciatetheroleofthekeyplayerswithinit.As theauthorsays,corporategovernanceisaboutenterprise,transparency,and accountability.Itis,therefore,aboutpower,andtounderstandhowcompaniesareinrealitygovernedindifferentcountriesweneedtoknowwho holdstheleversofpowerwithinthecorporatestructureandhowaccountabletheyareforitsuse.
Thebookanalyseshowmuchthegovernanceframeworksinthecountries itcovershaveincommonandwheretheydiffer.Thispointstothedegreeto whichthereislikelytobeconvergencebetweenthemandtheformwhichit mighttake.Thedriversforconvergencearetheinternationalinstitutional investors,inwhosehandspubliclytradedsharesarebecomingincreasingly concentrated,andworldcapitalmarkets.Bothinvestorsandlendersare lookingforcommonstandardsofboardeffectivenessandofdisclosure fromthosetheyfund.Theworldwideinterestincorporategovernance followsonfromthegrowthofcross-borderinvestment.Capitalwillflowto countriesandcompanieswhichinspiretrust.Trustisinturnbasedon comparativestandardsofcorporategovernance.Astheauthorexplains, thereisnodirectwayofprovingthatgoodgovernanceleadstogood corporateperformance.Thefact,however,thatthemajorityofinvestors takeaccountofcorporategovernanceinmakingtheirinvestmentdecisions confirmsthatthemarketregardsgoodgovernanceasthebestavailableproxy forgoodperformance.
Inthatcontext,theauthorintroducesausefulyardstickforcomparing governancesystemsandstructures—howgoodaretheyatdealingwith ineffectivemanagement?Thebook’sanalysishelpsinmakingthatkindof judgement,becauseitclarifiesthedifferencesinpracticeandinoperation betweensimilar-soundinggovernancestructures.Americanboards,for example,differfromBritishboardsintheircomposition,inthewaytheir membersareselectedandintheirabilitytoinsulatethemselvesfromshareholderpressure.Apparentlysimilarappellationscanconcealsignificant operationaldifferences.Thewholedebateovertheabilityofshareholders toinfluenceboardshasbeendrivenbythegrowingpoweroftheinvesting institutionsandtheirincreasingactivism.Activeengagementbyinvestors withcompaniesraisesitsownquestions.Whataretheissuesoverwhich
investorscanmostconstructivelyengageandhowaccountablearetheyin doingsotothosewhosemoneytheyareinvesting?
Shareholderactivismcomesundertheheadingofunfinishedbusiness,as dotheruleoflaw,accountingandauditing,transparency,theoppressionof minorities,thegovernanceofbanksandcorporatesocialresponsibility. ThesearecomplexandinterrelatedissuesonallofwhichJonathanCharkhamprovideswiseandtimelyguidance.Theyareevidencethatthegovernancedebateissettocontinueandanyonewithaninterestinthepresentstate ofcorporategovernanceworldwideandinitslikelyfuturedevelopmentwill benefitfromreading KeepingBetterCompany.Ithasthesignificantplusof beingadmirablywritten.Theessentialfactsandtheinformedanalysesareall there,butleavenedbytheauthor’sturnofphrase.Hesumsup,forexample, thecentralissueofsuccessionplanningforfamilyfirms,asfollows:
Beingsucceededbyone’soffspringgratifiesanunderstandablehumandesiretodefy mortality,butappearsonlytoooftentohastenthemortalityofthebusiness.
KeepingBetterCompany istoday’scorporategovernancevademecum.
AdrianCadbury
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ACKNOWLEDGEMENTS Thefivestudiesonwhichthefirstedition, KeepingGoodCompany,were basedweremadebetween1986and1990andwereupdatedinthesecond halfof1992.DuringtheinterveningperiodIhavemaintainedacontinuous interestincorporategovernanceandhavesupplementedstudiesbyserving onseveralboardsofcompaniesofvarioussizesinvariablyservingonthe auditcommittee—oftenaschairman.Ihavealsoparticipatedinconferences aroundtheworldandproducedabookletofguidanceforbankdirectorsfor theWorldBank.
Thefirsteditionisnowoutofdateinmanyparticulars,althoughIbelieve itsgeneralthrusthasprovedsound.Soduring2003and2004Irevisitedthe countriespreviouslycoveredtobringthetextuptodateandchartthe variouschanges,manyofwhicharesignificantandnotnecessarilyobvious. ThesevisitsinvolvedmanydiscussionsandIlistbelowsomeoftheorganizationsandpeoplethatprovidedhelp,data,andguidance.Ioweaparticular debttotheaccountingprofession,someofwhoseleadingfirmsarrange seminarsonanextremelywiderangeofrelevanttopicswhichaffordan opportunitytoconsidersubjectsintheroundwithpractitioners.
Theneweditiondiffersinoneimportantway:onechapter,France,was notdraftedbymebutbyMmeHe ´ le ` nePloix,whosecareerhasaffordedher theopportunityofbecominganexpertonaninternationalscale.Shesitson theboardsofmajorcompaniesinbothFranceandtheUKandhasheadedup amajorFrenchsavingsinstitution.Iamdeeplyindebtedtoherforundertakingthisworkandforherguidanceonmanyotheraspectsofthebook.She inturnwishestoacknowledgewithgratefulthankstheadviceandhelpshe receivedfromMadameCharvenat.
IwouldalsoliketothankSheejaSivaprasadofCassBusinessSchool,who helpedmewithmyresearches.
General Iwouldliketoacknowledgegratefullythegeneralguidancegivenatvarious timesandonvarioussubjectsby:
MrN.Oya,ChiefExecutiveOfficerandManagingDirector,Mizuho InternationalLondon,withoutwhosesupportandencouragementthe workcouldneverhavebeencompleted.
SirAdrianCadbury
MrsAnneSimpson(WorldBankandICGN)
MrDavidMusson,OxfordUniversityPress
SirDavidWalker,MorganStanley
ArthurLevi,SFI
Germany MyespecialthanksgotoMsJellaSusanneBenner-Heinacher,Gescha ¨ ftsfu ¨ hrerinofDSWDusseldorf,thelargestshareholdersorganization,whosebiennialconferencesbringtogetherawiderangeofGermanindustrialists, professionals,andofficialsdomesticandinternational.Manyofthetables areaproductoftheirresearch.
TheGermanEmbassyinLondon:MartinWieland(BundesbankRepresentative)
CrommeStandingCommission:DrGerhardCromme UniversityofFrankfurt:DrTheodoreBaums TechnischeUniversita ¨ tBerlin:Prof.AxelVonWerder Universita ¨ tfurInternationalRechtMu ¨ nchen:Prof.DrClausHopt Proshare(UK)
Daimler-ChryslerAG:DrMichaelMu ¨ hlbayer JohannesGutenbergUniversita ¨ t:Prof.DrUweH.Schneider C.E.ComputerEquipment,Bielefield,MilanStahl ComputerLinksAG,Munich:StephenLink,Vorstandsvorsitzender ICGN:Andre ´ Baladi
Japan EspecialthanksgotomycolleaguesinMizuhowhohelpedarrangemy programmeandalsoprovidedcurrentdataandexaminedmydrafts:Mr TakayaSekiandMsRyokoUeda,ofJ-IrisResearch;andtoMrAriyoshi OkumuraofICGN&LotusCorporateAdvisory,whosewisecounselIhave longvalued.IamverygratefultooforthehelpIreceivedfromtheBritish Embassy:
HMAmbassadortoJapanSirStephenGomersall HMAmbassadortoJapan(afterJuly2004)MrGrahamFry
MrPeterGreen,FinancialCounsellor
Itwouldbedifficulttolistallthepeoplewhowerereadytodiscussthe variouselementsofJapanesegovernance;theyinclude:
MizuhoSecurities:MrYoshioOsawa,President
MizuhoHoldings:MrTerunobuMaeda,President
MizuhoCorporateBank:MrHiroshiSaito,President
Canon:MrToshizoTanaka,SeniorManagerDirector
Sonycorporation:MrTeruoMasaki,CorporateSeniorExecutive
ORIX:MrYoshihikoMiyauchi,Chairman
NissanMotors:M.ThierryMoulonguet,ExecutiveVice-President
Omron:MrNobuoTateishi,Chairman
FujiXerox:MrYotaroKobayashi,Chairman, Mercian:MrTadaoSuzuki,President,
Kikkoman:MrKenzaburoMogi,DeputyPresident
Teijin:MrShosakuYasui,Chairman
MerrillLynchJapanSecurities:MrYoshiyukiFujisawa,Chairman
Hitachi:MrKazuoKumagai,ExecutiveVice-President
IBMJapan:MrKatutaroKitashiro,President
PensionFundAssociation:MrTomomiYano,SeniorManagingDirector
DIAM:MrHirokiYamada,Vice-President
GovernmentPensionInvestmentFund:MrHaruoMaruyama,Director
TheDai-IchiMutualLifeInsurance:MrKoichiIki,ManagingDirector
TokyoStockExchange:MrMasaakiTsuchida,PresidentandMrEisuke Nagatomo,ExecutiveOfficer
BankofJapan:MrMasaakiShirakawa,ExecutiveDirector
JapanInvestorRelationsAssociation:MrYoichiYazawa,ExecutiveDirector
TokyoUniversity:Prof.TakWakasugi
AsahiShimbun:MrHoroshiOgino,Editorialwriter
HitotsubashiUniversity:ProfessorChristinaAhmadjin Shojihomu:MrTakuoTakeuchi,Editor
JCAA:MrHiroyukiTakahashi,ExecutiveManagingDirector
TokyoUniversity:Prof.HidekiKanda
PensionFundAssociationforLocalGovernmentOfficials:MrKatsuya Kamiseki,Secretary-General
CentralGlass:MrSadayoshiNakamura,President
USA MyespecialthanksgotoWeilGotshall&Manges,LLP:IraMillstein,Holly Gregory,andGabrielMatus,whoprovidedmewithmuchofthebackground dataandmaterialaswellassoundadvice.AndalsotoJohnCorrigan,
AttorneyofAdlerPollockandSheehanLLP,whoreadmydraftandmade manysoundandhelpfulsuggestions—inwhichhewasassistedbyJohnS. D’AlimonteandRoseDiMartinoofWilkieFarr&Gallagher.MartinLipton ofLiptonWashtellhasinformedandguidedmeovertheyears—especiallyin thewholeareaoftakeovers.Ialsohadthebenefitofconsiderablehelpfrom:
ConferenceBoard,NewYork:RonaldBerenbeim
Securities&ExchangeCommission:HarveyGoldshmid WorldBank:TeresaBarger,AlyssaMachold
PCAOB:KaylaGillan
CouncilofInstitutionalInvestors:AnnYerger
TheCorporateLibrary:BobMonks,NellMinow
InstituteforInternationalFinance:JohnPrice
NationalAssociationofCorporateDirectors:PeterGleason
TIAACRFF:PeterClapman
UK LawrenceGraham,VictoriaYounghusband
InstituteofDirectors:PatriciaPeterandAnnaBurmajster BankofEngland:AlistairClark,MikeYoung,SueMilton,MarioBleiber InvestmentManagementAssociation
LondonStockExchange
MrsAnneSimpson:WorldBank&ICGN
PensionInvestmentResearchConsultants:AlanMacDougallandJanice Hayward
UKSA:DavidBlundellandTobyKeynes
Korn/FerryInternational InstitutionalShareholdersCommittee
KPMG
PriceWaterhouseCoopers
FinancialServicesAuthority
Hermes:TimBushandAlastairRossGoobey; DavidPitt-Watson
AssociationofBritishInsurers:PeterMontagnon Herriot-WattUniversity:Prof.ClaireMarston BoardPerformanceLtd.:Prof.BobGarratt
CIMA:CharlesTilley
CassBusinessSchool,CityUniversity:ProfessorSelim,HenriettaRoyle Proshare:DrAgbenyega,
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4.1Specializedcommittees–CAC40200
4.2Non-residentinvestmentinFrenchlistedequity(%oftotal) 1993–2003205
4.3FamilyfirmsintheleadingEuropeanindices206
4.4Familyownershipofindividualsectors(%oftotal)1998207
1.1Marketchangesinthefivecountries27
ABBREVIATIONS ABIAssociationofBritishInsurers
ACIAuditCommitteeInstitute
ADAMAssociationpourleDe ´ fencedesActionnairesMinoritaires
ADRAmericanDepositaryReceipts
AFEPAssociationdesEntreprisesPrive ´ es
AGAktiengesellschaft
AGMannualgeneralmeeting
AIMAlternativeInvestmentMarket
AMFAutorite ´ desMarche ´ sFinanciers
ASBAccountingStandardsBoard
BDABundesvereinigungderDeutschenArbeitsgeberverbande
BDIFederationofGermanIndustries
BJSPPBankofJapansharepurchaseprogramme
BNPBanqueNationaldeParis
BRTbusinessroundtable
BSPPBanksShareholdingPurchaseProgramme
CACCompagniedesAgentsdeChange
CBConferenceBoard
CBIConfederationofBritishIndustries
CCCommercialCode
CCCGCombinedCodeofCorporateGovernance
CEOChiefExecutiveOfficer
CFOChiefFinanceDirector
CMFConseildesMarche ´ sFinanciers
CNPFConseilNationalduPatronatFranc¸ais
COBCommissiondesOpe ´ rationsdeBourse
COOChiefOperatingOfficer
COSOCommitteeofSponsoringOrganizations
CSRcorporatesocialresponsibility
D&Odirectorsandofficers
DAXDeutscherAktienindex
DMDeutscheMark
DRRRDirectors’RemunerationReportRegulations
DSVRdepositedsharevotingrights
DSWDeutscheSchutzvereinigungfu ¨ rWertpapierbesitz
DTIDepartmentofTradeandIndustry
EGMextraordinarygeneralmeeting
ERISAEmploymentRetirementIncomeSecurityAct
FSAFinancialServicesAuthority
FTSEFinancialTimesStockExchange
GAAPgenerallyacceptedaccountingpractices
GCGCGermanCorporateGovernanceCode
GEMGlobalEntrepreneurshipMonitor
GmbHGesellschaftmitbeschra ¨ nkterHaftung
IASInternationalAccountingStandards
ICGNInternationalCorporateGovernanceNetwork
IFRSInternationalFinancialReportingStandards
IPOinitialpublicoffering
IRCJIndustrialRevitalizationCorporationofJapan
ISCInstitutionalShareholders’Committee
ISSInstitutionalShareholdersServices
JCAAJapanCorporateAuditors’Association
KGaAKommanditgesellschaftaufAktien
KPIkeyperformanceindicators
LBOleveragedbuy-out
LSFLoideSe ´ curite ´ Financie ` re
LTIPlong-termincentiveprogramme
M&Amergersandacquisitions
MBOmanagementbuy-out
MD&Amanagementdescriptionandanalysis
MEDEFMouvementdesEntreprisesdeFrance
METIMinistryofEconomy,Trade,andIndustry
MITIMinistryofInternationalTradeandIndustry
NACDNationalAssociationofCorporateDirectors
NASDAQNationalAssociationofSecuritiesDealersAutomated Quotations
NEDnon-executivedirector
NRENouvellesRegulationsE ´ conomiques
NYSENewYorkStockExchange
OECDOrganizationforEconomicCooperationandDevelopment
OFRoperatingandfinancialreview
P&Lprofitandloss(accounts)
PCAOBPublicCompanyAccountingOversightBoard
PDGPre ´ sidentDirecteurGe ´ ne ´ ral.
PFAPensionFundAssociation
PIRCPensionsInvestmentResearchConsultants
PLCpubliclimitedcompany
PSAGprivatesectoradvisinggroup
PTPpublictoprivate
S&PStandard&Poor’s
SASocie ´ te ´ Anonyme
SARstockappreciationrights
SARLSocie ´ te ´ a ` Responsabilite ´ Limite ´ e
SASSocie ´ te ´ parActionsSimplifie ´ e
SECSecuritiesandExchangeCommission
SIDseniorindependentdirector
SMEsmallandmediumenterprises
SOXSarbanes–OxleyAct
SRIsociallyresponsibleinvestment
TOPTakeoverPanel
TSETokyoStockExchange
WWFWorldWildlifeFund
1 TheEssenceofGovernance Introduction Thisbookisaboutthewaycompaniesaredirectedandcontrolled,andrelateto theirsourcesoffinance—whathascometobecalled corporategovernance.The term‘company’isbetterthan‘corporation’asitreflectsthehumandimension; companiesarecollectionsofpeople,notjustinanimatestructures.
Thereareseparatechaptersdescribingcorporategovernanceinfive leadingeconomies—Germany,Japan,France,theUSA,andtheUK.Each chapterisdescriptive,notnormative.Theaimistomakesenseofcurrent practiceandtoshedlightonthemainchangesandprobabledevelopments bearinginmindwhathasalreadytakenplacesince KeepingGoodCompany waswrittenin1991.Hadthisbookbeenwrittenin2025not2003–4,itwould havecontainedchaptersonthethreeeconomieswhichbythenmayhave surpassedinsizeallexcepttheUSA—China,India,andRussia.Themain focusison quoted companies,buttheprinciplesofgoodgovernanceapplyto companiesofalmostanysize,thoughtheirapplicationmayvaryaccording tocircumstances;unquotedcompanieswillbeconsideredbecauseoftheir significanceandthespecialproblemstheypose.
Nowasin1991weneedtostresstheimportanceofindividualcompanies toeverycountry’seconomysinceprosperitysolargelyhingesonthewaythey arerun.Theyprovideemploymentandarethereforeanimportantelement insocialcohesion.Theyproducetaxesandthereforethesinewsofcivilization—lawandorder,defence,andwelfareofmanykinds.Aboveallthey producethegoodsandservicespeoplewantorneed.Therearethosewho stillseethemsimplyasenginesformaximizingreturnsoncapitaland considerthatistheirsolepurpose.Theextremeviewwasdiscreditedinthe nineteenthcenturywhentheUKParliamentpassedlegislationtostop childrenworkingincoalmines,althoughtheownersprotestedtheywould beruined.Insomejurisdictionscompaniesareseenprimarilyassocial instrumentswithshareholdersashelplessalso-rans.Thisclashofcultures,
whichisveryimportantandisconsideredfurther,canbereconciledifweare readytoacceptthat‘Thepurposeofthecompanyistoprovide ethicallyand profitably thegoodsandservicespeopleneedorwant’.
TheoriginsofthelimitedliabilitycompanyintheUK
Companiesarenottheonlywayoforganizingbusinessactivity.Partnerships ofvariouskindshavetheirplace—aswellastheirlimitations.Thisbook willinglyacknowledgestheirusebutdoesnotcoverthem.Itsscopeis confinedtowhatissometimescalleda‘jointstockcompany’—whichhas apleasanthistoricalringtoit,butIprefertheterm‘limitedliability company’—asitbetterreflectsprobablythemostimportantfeatureofthe moderncompanyworld.Manycountriesdevelopeduponsimilarlines(and thisiscoveredinsubsequentchapters).IusetheUKasanexampleand becauseitwasearlyinthefield.
IntheUKthisworldstartsinthemid-nineteenthcentury.Thereare companiesinmanypartsoftheworldincludingGreatBritainolderthan that,buttheActof1855providesthefirstsuccessfulintroductionofalaw whichmakesincorporationeasyandlimitstheliabilityofthosewhorisk theirsavingsinanenterprisetothemoneytheyhaveinvested.Elevenyears earlierin1844,theUKParliamenthadpassedalawwhichmadeincorporationeasybutleftshareholderswiththeresidualliabilityifthebusiness failed.Itdidnotwork—investorswerenotpreparedtorisktheirentire fortunesforafewshares.
TheUKlawof1855providedfourthings:
. ameansofcollectingsavingsfromawiderangeofsubscribers,whichnow becamepossiblethankstolimitedliability;
. thepossibilityofcorporateimmortality(unlikepartnerships);
. ameansofprovidingleadershiptotheenterprise;
. aprocessforholdingtheleadershipaccountableforitsstewardshipofthe company’sbusiness.
Itisnoaccidentthatthe1855ActwasenactedintheUK.Therapidexpansioninthenumberoflarge-scaleenterprisesintheIndustrialRevolution meantthatitwasfartoocostlyandcumbersometogotoParliamentfora speciallawtoincorporateanindividualenterprise.Smallerfamilybusinesses alsofoundthecompanyframeworkmoreconvenientformanagingtheir affairsthanpartnershipshadbeen.
TheActimplicitlyrecognizedthatinafreemarketeconomycompetition imposesasortofdefactodisciplineandthisdrivesandconstrainsmanagers. The1855Acthugelyfacilitatedit.Competitionactsasaspurtocompetence;
foramarket-basedsystemitisanecessaryprecondition.Governmentsgoto greatlengthsbyvariousanti-monopolylawstoencouragecompetition.They faceadilemmasincethelogicalendtocompetitionismonopoly,evenifthe subsequentabuseofeconomicpowerencouragesnewentrants eventually. Competitionisnecessaryformarketeconomies,butinsufficientfortheir optimalfunctioning.Eventhemostcursorylookatthehistoryofgreat companiesillustratestheneedforgoodgovernanceasoneinstrumentof competitiveadvantage.The StockExchangeYearBook for1962forinstance nowreadslikeacorporateValhalla—itissofullofcorporatecorpses.Thereis thereforenosubstituteforaccountabilitypreciselybecauseoneofthemain thingsforwhichmanagersareheldaccountableistheirsuccessincoping withthecompetition.Theroleofthestateinthedevelopingandconducting ofindustrialenterpriseshasvariedfromcountrytocountryasweshallsee, buttheaccountabilityofmanagementremainsaconstantandthatimplies transparency.
ThestructureofthecompaniesprescribedintheActfittedthetypeof majorenterpriseswhichwerethebackboneoftheIndustrialRevolution— capitalintensive.Muchoftheworldeconomyisstillinthehandsofsuch businesses—oil,gas,power,aviation,andpharmaceuticalstomentiononlya few.Inmostcompanies,howevergoodthemanagement,therearealways successorstohand.Althoughthereareexceptionsmanyofthenewcompaniesoftheworldofinformationtechnologyandthelikearenotcapital intensive;theirsuccessdependsonarelativehandfulofindividuals.Soif theyleavetheymaybeirreplaceable.Manyofthesecompaniesexisttostart with‘onthesmellofanoilrag’andthosewhoparticipateareoftenrewarded mainlybyoptions.Inmanywaystheyareakintopartnerships.Governance alwaysmattersbutitwilllookandfeeldifferentinfledglingcompanies. Whentheyhavegrowntoacertainsize,andcapitalhasbeenincreased(and iswidelydistributed)normalpracticesapply.ItisnocoincidencethatBill Gates’sMicrosofthasnowstoppedissuingshareoptions.
Thelaw Companiesarenotcreaturesofnature.Theycomeaboutbecausethelaw providesafacilitywhichcannotbeconvenientlyorganizedwithintheframeworkofotherexistinglaws—thelawofcontractforexample.Theyonlyexist ifspeciallawsareintroducedandthismeansthatitislogicaltostartany descriptionofanycountry’ssystemwithabriefaccountoftherelevantlaw. Aswelookateachofthefiveinturn,wewilldiscovermanysimilaritiesinthe formallegalframeworksbutalsomanydifferencesinpracticewhichreflect nationalattitudes.Sometimes,asinthecaseofGermany,thereisapparently
amajordistinction—theirtwo-tierboardcontrastedwiththeUK’sand USA’s‘unitary’board.Wewilllookatthisindetaillater;thingsarenot alwayswhattheyseem.
Theruleoflaw Thefivecountriesstudiedhaveonethingincommon—alongexperience oftheruleoflaw,whetherbasedonRomanDutchLaw,theCode Napole ´ on,ortheEnglishCommonLaw.Thewaythelawisused variesgreatly,asthecontrastbetweenJapanandtheUSAshows.Even sothereisacommonelementofaproperlegalframework,sound legalprocess,anduncorruptcourts.Thismeansthatinvestorscanrisk theirmoneyknowingthattheycouldgetredressifitwerejustified(though notnecessarilycheaply,asthelawisseldominexpensive).Furthermore,this doesnotsimplyapplytocivilactionsfordamages,butalsotocrime. Thosewhodefraudorstealcan,ifcaughtandconvicted,expecttobe punished.
Allthisissoobviousithardlyneededstatingbefore.Nowthatcorporate governancehasspreaditswingsitcannotbestatedtooloudly.TheconstructiveworkoftheWorldBankinthedevelopingworldhighlightstheproblems wheretheruleoflawdoesnotexistorwherethesystemofjusticecreaks.
Allcountriesknowthattheftofacompany’sassetswithapparent impunitywillundermineconfidence.Wordsarenotenough.Iassistedin thedraftingofagovernancecodefortheRussianoilcompanySIBNEFTin 1999whichtheypublished.Iwasheavilycriticizedbythosewhoassertedthat itsexemplarytermswerenotmatchedbythewaythecompanywasactually run.Wordsarefine,buttheyshouldbeareflectionofintegrity,notacloak fordishonesty.TheRussiansunderstandallthisveryclearlyandhavegained muchrespectandmanyinvestorsbecauseoftheprogresstheyhavemadein beginningtomaketheruleoflawarealitytoservethepopulationand foreignersalikeswiftlyandfairly.
Therearesadlymanydevelopingcountrieswherelittleofthisistrueand wherecorruptionisrife.Ifthecourtsdon’twork,systemsofgovernancein individualcompanieswilllackpropermeansofenforcement.Corporate governanceisgenerallyagrandchildofsoundgovernance:inanineffective orcorruptregimeitisboundtobeasicklyinfant.Multinationalcompanies operatinginsuchcountriescansetanexample(partlybecausemalefactors canbesuedorprosecutedintheirhomecountry).Anyreaderwithdecent feelingswillrecoilatphotographsofundernourishedandsickchildren,and willwisheithertocontributepersonallytothealleviationoftheirsufferingor influenceaidbodiestothatend.Whattheywillnotwishisforthefunds
providedtoendupintheoffshoreaccountsofcorruptofficials.With countriesorwithcompaniesitisnousepouringfundsdownleakyhosepipes.Investorswhousetheirownmoneymayrunsuchrisks:theyarefreeto wasteitanywaytheychoose.Butinstitutionsthatmanagefundsforothers areinafiduciarypositionandaredutyboundtomakesuretheyhavethe possibilityofredressifthingsgowrongbecauseoftheftorpillage.The implicationsforinternationalaidorganizationsareclearbutunpalatable. Andinthecontextofcorporategovernance,itmeansrecognizingitslimitationsuntiltheruleoflawisestablished,andintegrityisnolongeranorphan.
Thedevelopmentofcorporategovernance Thereisacopiousquantityofliteratureonalmosteveryaspectofmanagement,goingbackintothenineteenthcentury,butoddlyenough,precious littleaboutdirectorsandboards.IntheUKthismightreflectthelegal position.Underthegreat1948CompaniesActanycompanycouldberun bytwodirectors;boardsarenotmentioned!Thesituationwasnotmuch changedbythe1985Act.TheUKisnowrevisingitsprimarylegislationand itwilldoubtlessreflectcurrentusagebetter.ButIthinkitisdeeperthanthat. Corporategovernanceisaboutenterprise,transparency,andaccountability—whichimmediatelyaffecttheexerciseofpowerandpatronage.One interfereswitheitheratone’speril!TheUSAhasneverhadaFederal equivalentoftheCompaniesActs;thisislefttoindividualstates.Whenwe considertheUSAlaterweshallencountertheformidableRoundTableof companychairmen/CEOs—aspowerfulagroupaseverwieldedeconomic influenceinademocracy.WethereforefindthatFederalinterestincorporate governancetendstobeconfinedtoreactionstoparticularscandalsand notoriousfraudssuchasledtothesettingupoftheTreadwayCommission (USA1978),theEnrondebacle(whichresultedintheSarbanes-OxleyAct USA2002).EvenintheUKittookunexpectedcollapsestostimulatethe appointmentoftheCadburycommitteein1992,atwhichpointthemodern governancemovementstarted.
Theproblemwithgovernmentalreactionisthatittendstobeexcessive andill-considered.Sometimesthepoliticalimperativeforarapidresponse meansthatlawsaredraftedwithoutthecareacomplexsubjectdemands. Onemustsympathizewithpoliticians’difficultiesinstrikingasensible balancebetweencompetingpressuregroups.Onlywhentheycannolonger avoidactingdotheyliketoshowthattheycareaboutthegeneralinterest. TheCadburycommittee(onwhichIserved)hadlesspressureandwasable toconsultwidelyonthedraftreportandCode.Thereportdidnotcover everything—ourtermsofreferenceprecludedthat—butitspublication
sparkedanaccelerationofinterestinmanycountriesaroundtheworld,and itcontainedaremarkablyclearstatementofgeneralprinciples.
Therehavebeenspecialreasonssincefortheincreaseingeneralinterestin corporategovernance.Thefirstwastheliberalizationofcapitalflowsandthe increasedopportunitiesforcross-borderinvestment.Eventuallyinvestors everywherewokeuptothefactthatthismeantthatgovernancewasrecognizedasanimportantmedium-andlonger-termissue;intheshortterm anythingmightgo,butsustainabilitywasinthissphereasinmanyothers becominganimportantelement,becausethewastagecausedbyfailuresthat canbeattributedtobadgovernanceiscostly.Itiseconomicallyadvantageous,politicallystabilizing,andethicallydesirabletosecureimprovements ingovernanceandtheruleoflaw.Itisworthasustainedeffort,ifonly becausethepoorerthecountrythelessitcanbearthecostofeitherbeing inadequate.Theincreasedpossibilitiesforcross-borderinvestmentaccentuatedtheimportanceoftransparencyandthetrustworthinessofaccounts. Thisinturnhighlightedarangeofissuesinrelationtoaccountingand auditingstandards,someofwhicharegraduallybeingresolved.
Theseconddevelopmentwasthestillincompleteshifttomarketeconomieswhichintroducedinitstrainthewholeconceptofcorporategovernance—withitsdifferentrelationshipsfromthosewhichobtaininacommand economy.Thetechnicalaspectsofsuchachangecanbestudiedandtaught, butharnessingthesupportofthepeopleisfarharder.Therearemanywho spentalifetimelearninghowto‘workthesystem’intheoldregimes:howto manipulatetargets,obtainsupplies,achievenorms.Sometimestheyattained outstandingexcellence—thefirstmaninspacewasaRussian.Chinatodayis atasortofhalfwayhousebetweenthetwosystems.Ofcourse,somepeople willfinditdifficulttochangeandadapt—learningnewskillswillnotcome easily.Oneisn’tbornunderstandingcostings,forexample.
Therehavebeenmanyteethingtroubles.Somesmartoperatorssoon spottedhowtotakeadvantageoftheopportunitiestoenrichthemselves outrageously,notnecessarilybyfairmeans.In‘frontier’economiespeople tendtotesttheboundariesofthelaw—tillitcatchesupwiththem.Withthe passageoftimecollectiveamnesiadescendsontheoriginsofwealthasithas overourmemoriesoftheUStycoonsandindustrialpiratesofthelast quarterofthenineteenthcentury.Manyatonedbyphilanthropyinold age;andabsolutionofasortisgrantedbecausewecaremoreforwhat theirmoneycandothanthewayitwasacquired.
Thethirdfactorwasglobalization,atermwhichcanmeanmanythings, fromtheincreasedpropensityofmajorcompaniestotraderightroundthe world,toabetterunderstandingofthewidespreadeffectsoflatter-day economicpower.Atonetimemajorcompaniestransferredmanufacturing
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The Project Gutenberg eBook of Taken or left This ebook is for the use of anyone anywhere in the United States and most other parts of the world at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this ebook or online at www.gutenberg.org. If you are not located in the United States, you will have to check the laws of the country where you are located before using this eBook.
Title: Taken or left
Author: Mrs. O. F. Walton
Release date: April 4, 2024 [eBook #73331]
Language: English
Original publication: United States: Robert Carter and Brothers, 1885
*** START OF THE PROJECT GUTENBERG EBOOK TAKEN OR LEFT
Transcriber's note: Unusual and inconsistent spelling is as printed.
SALOME WOULD NOT PART WITH HER TESTAMENT.
TAKEN OR LEFT. BY MRS. O. F. WALTON
AUTHOR OF "CHRISTIE'S OLD ORGAN," "A PEEP BEHIND THE SCENES," ETC.
NEW YORK: ROBERT CARTER AND BROTHERS, 530 BROADWAY.
MRS. WALTON'S STORIES. I. CHRISTIE'S OLD ORGAN; or, Home, Sweet Home. 18mo, cloth. 40 cents.
"One of the sweetest, simplest stories it has been our lot to read for a long time."—Vermont Chronicle.
II. SAVED AT SEA. 40 cents.
III. LITTLE FAITH; or, The Child of the Toy-Stall. 40 cents.
IV. CHRISTIE'S OLD ORGAN, SAVED AT SEA, and LITTLE FAITH. All in one volume, nine engravings. $1.00.
V. A PEEP BEHIND THE SCENES. 16mo. $1.00.
"A very touching and beautiful story, with a sweet and true lesson."—S. S. Times
VI. WAS I RIGHT? 16mo. $1.00.
"A capital book for the Sunday-school library, and for family or private reading."—Episcopal Methodist.
VII. OLIVE'S STORY. 16mo. 75 cents.
VIII. NOBODY LOVES ME. 18mo. 50 cents.
IX. NOBODY LOVES ME, and OLIVE'S STORY. In one volume. 16mo. $1.00.
X. SHADOWS, SCENES AND INCIDENTS IN THE LIFE OF AN OLD ARMCHAIR. $1.00.
XI. TAKEN OR LEFT. 18mo. 40 cents.
CHAPTER
ROBERT CARTER AND BROTHERS NEW YORK. University Press: JOHN WILSON AND SON, CAMBRIDGE.
CONTENTS. I. SALOME'S HOME
II. THE LOST MONEY
III. NOT TO BE TRUSTED
IV. A CHILDREN'S SERVICE
V. THE STORM IN THE NIGHT
VI. MY FIRST PLACE
VII. MASTER REGGIE
VIII. THERE IS NO TIME TO LOSE
IX. THE ROBBER'S CAVE
X. THE STORM
XI. A TERRIBLE TIME
XII. SALOME'S RECOVERY
XIII. GREAT SORROW
XIV. AFTER TWENTY YEARS
TAKEN OR LEFT.
CHAPTER I. SALOME'S HOME. MY mother had ten boys. It was no wonder that she often looked weary and out of spirits. It was no wonder that we seldom saw her in a cheerful and hopeful state of mind, for she was never strong, and she had to work and to toil as if she were.
I used to wish sometimes that our mother would laugh more and sigh less. I could not understand then what care and anxiety we all were to her. But I can see now that she was too tired to be very merry, and that it was not strange that she found plenty to make her sigh.
I can remember the pile of stockings which she had to mend every Saturday night—heels out, and toes out, and many a hole beside. Poor mother, she would turn them over with a sigh before she began! Then there were the endless patches to be put in trousers and knickerbockers, there was the constant struggle to keep us in clean collars, there was the heavy washing every Tuesday, and the still heavier ironing every Thursday. I can see now that our mother had a very hard life.
But I never, thought of it then. I did not know what it was to be tired; I was strong, and hearty, and happy, and I am afraid I gave my mother as much work to do as any of the rest did.
I was the third boy. John and James were older than I was, and Andrew, and Philip, and Bartholomew, and Matthew, and Thomas, and Simon, and Jude were younger. My own name was Peter. Father wished us all to be called after the Apostles.
"They had good old-fashioned names," he said.
