The role of nominating committees and director reputation in shaping the labor market for directors: an empirical assessment

Research Question/Issue: Do the presence and independence of nominating committees within boards of directors affect the extent of rewards and sanctions provided by the labor market to directors with a reputation for being active in monitoring management? Research Findings/Insights: Results drawn from a longitudinal sample of directors sitting on the board of 200 public French firms suggest that the stronger a director's reputation for being active in increasing control over management, the larger the number of his/her subsequent appointments to (1) boards with a nominating committee, (2) to boards with a nominating committee which excludes the CEO and (3) to boards with a nominating committee dominated by non-executive directors. In contrast, we found that a director's reputation of being active in increasing control over management does not impact the number of his/her subsequent appointments (1) to boards without a nominating committee, (2) to boards with a nominating committee which includes the CEO and (3) to boards with a nominating committee dominated by executive directors. Theoretical/Academic Implications: This study shows that the outcome of the power struggle between the CEO and incumbent directors during the candidate selection process determines the profile of directors who will ultimately obtain the board appointment. On the one hand, independent nominating committees are likely to reduce the influence of CEOs over the process of a director's appointment, and therefore are likely to increase the recruitment of directors with reputations for being active in exercising control over managers. On the other hand, nonexistence of nominating committees or presence of weak nominating committees under the influence of the CEO decouple directors' reputations for being active in controlling management from the likelihood of obtaining new appointments. Practitioner/Policy Implications: This study offers insights to policy makers interested in increasing the efficiency of the labor market for directors. More specifically, it highlights the conditions under which directors with a reputation of being active in increasing control over management are likely to be rewarded by the labor market for directors. These conditions include (1) the creation of a nominating committee; (2) exclusion of the CEO from this committee and (3) domination of this committee by outside directors

Environmental policy, sustainable development, governance mechanisms and environmental performance

We investigate the effects of environmental policy (Climate Change Act – CCA), sustainable development frameworks (Global Reporting Initiative – GRI; UN Global Compact - UNGC) and corporate governance (CG) mechanisms on environmental performance (Carbon Reduction Initiatives – CRIs and Actual Carbon Performance – GHG emissions) of UK listed firms. We use generalised method of moments (GMM) estimation technique to analyse data consisting of 2,245 UK firm-year observations over the 2002-2014 period. First, we find that the CCA has a positive effect on CRIs, and this effect is stronger in better-governed firms. Second, we find that the GRI-based framework is positively associated with CRIs. Third, we find that firms with poor CG structures have lower actual carbon performance compared with their better-governed counterparts. Overall, our evidence suggests that firms can symbolically conform to environmental policy (CCA) and sustainable development frameworks (GRI, UNGC) by engaging in CRIs without necessarily improving actual environmental performance (GHG emissions) substantively

Does 'Best Practice' in Setting Executive Pay in the UK Encourage 'Good' Behaviour?

We examine how UK listed companies set executive pay, reviewing the implications of following best practice in corporate governance and examining how this can conflict with what shareholders and other stakeholders might perceive as good behaviour. We do this by considering current governance regulation in the light of interviews with protagonists in the debate, setting out the dilemmas faced by remuneration-setters, and showing how the processes they follow can lead to ethical conflicts. Current ?best? practice governing executive pay includes the use of market benchmarks to determine salary and bonus levels, significant levels of performance-related pay, the desire for executives to hold equity in their companies, the disclosure of total shareholder return compared to an index, and a perceived need for conformity, in order to grant legitimacy to policies. Whilst each of these may in some circumstances lead to good practice, each has the potential to cause dysfunctional behaviour in executives. Overall, we conclude that although best practice might drive good executive behaviour that coincides with the company?s and key stakeholders? objectives, there are many reasons why it should not

The Financial Sector and Corporate Governance: the UK case

Post 1992 Cadbury Committee report developments in UK corporate governance provisions are reviewed. The role of institutional investors, and the financial sector as a whole, in corporate governance is considered. Practices in "Continental Europe", the UK and the US are contrasted, along with the roles of banks, strategic investors ("insiders"), institutional investors ("outsiders") and capital markets. To be effective, capital markets must be efficient and competitive and auditing must be reliable. Current EU and US reform proposals are compared and prospects for convergence in corporate governance procedures assessed. Copyright Blackwell Publishing Ltd 2005.

The Compensation of UK Executive Directors: Lots of Carrots but are there any Sticks?

This article provides evidence on the level and composition of the pay of the top executives of a sample of UK public listed companies (PLCs). The study uses hand-collected data on the compensation for 698 CEO years and 2,609 other-executive years over the period 1995-2000. In order to focus on the consequences of exceptional performance the sample is stratified to include sub-samples of PLCs experiencing extreme positive and negative stock-price performance. With regard to management compensation clear differences are found in the treatment of executives across the three sub-samples. Consistent with standard contracting theory, the executives of exceptionally well performing firms fare better than the executives of mid-performing firms, who in turn fare better than the executives of poorly performing firms. In particular it appears the executives of exceptionally poorly performing firms experience mean cuts in their salaries and bonuses. That trend also applies to equity-based compensation. It should be mentioned, though, that a time-series investigation reveals increased participation and value in the equity-based schemes provided to CEOs and other executives of poorly performing firms. This is against the agency theory prediction that agents refrain from risk sharing in more volatile corporate environments. With regard to loss of tenure the finding, consistently with current literature, is that the CEOs of poorly performing firms are significantly more likely to be dismissed. This turnover, though, does not seem to directly affect the CEOs' emoluments during the year of departure. It is argued that the effect of turnover on CEOs' wealth depends on whether departure affects their ability to find an equally lucrative new job