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

The governance of privatized firms: authority, reposnisbility and disclosure

In any market economy, a fundamental question is how to make management accountable to shareholders and also to the requirements of law. This paper raises selective, critical issues of corporate governance that are particularly relevant to problems of the accountability of boards of directors to their shareholders in transition economies. These issues include the separation of ownership and control and the duties of directors; the need for disclosure given that separation; and the corporate charter as a vehicle for the direct participation of shareholders in governance. The paper suggests that one of the best models of corporate governance that transition economies can use is that employed by the leveraged-buyout (LBO) and venture capital funds operating in the West. It argues that weaknesses in corporate governance may undermine the entire privatization process. Economics and law are too often seen as separate disciplines. In reality, they come together in transition economies perhaps with greater impact than elsewhere. Copyright The European Bank for Reconstruction and Development, 1998.

The Effects of Ownership Structure and Board Composition on the Audit Committee Meeting Frequency: Spanish evidence

This paper examines the factors that affect the activity of the audit committees in Spain. The data used in the analyses are collected from the Spanish stock market in 2003. The results show the existence of a non-linear relationship between the managerial stock ownership and the activity of the audit committee. We have also verified the existence of a lower audit committee's activity in highly leveraged firms and when the ownership structure is concentrated in the hands of large shareholders. The large firms have more active committees than small firms. Finally, we have not found any evidence of a significant influence of the composition of the board or the audit committee on the activity of the latter. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Explanations for corporate governance non-compliance: A rhetorical analysis

A central element of many corporate governance codes is the ‘comply-or-explain’ system, whereby companies not complying with corporate governance codes are required to provide explanations for each item of non-compliance. This paper develops a typology for examining the rhetorical strategies companies use to persuade audiences of the need to explain rather than comply. Employing a meaning-oriented content analysis approach, the typology is applied to analyse explanations for non-compliance with the UK’s Corporate Governance Code. The sample comprises non-compliance explanations of UK FTSE 100 companies over two periods (2004/05 and 2011/12). These periods were chosen as they follow substantial changes made in the UK’s 2003 Code and 2010 Code. There were 63 (43) (2004/05 with 2011/12 in brackets) companies not complying with one or more provisions of the Code and 146 (71) explanations for non-compliance. Key rhetorical strategies identified in non-compliance explanations include ‘minimization of negative feelings’ (the damage is not too serious), the use of ‘weasel words’ which disguise non-compliance and ‘transcendence’ (ends justify means). The research shows there is increased use of rhetorical strategies in non-compliance explanations in 2011/12 compared with 2004/05, and the strategies found seem more orientated towards misleading explanations than meaningful convincing rationales. The use of such strategies may lead to mistrust by the market or may damage the ‘comply-or-explain’ system itself. This is the first study of the use of rhetoric in corporate governance non-compliance explanations. Valid explanations are critical to the working of the ‘comply-or-explain’ system. Understanding the use of rhetoric can be helpful in assessing those explanations. The typology of rhetorical strategies developed in the paper is also applicable to other corporate situations requiring companies to provide reasons for non-compliance with principles or rules