Corporate Governance: Practices, Procedures, and Powers in British Companies
and their Boards of Directors

R. I. Tricker, Gower, London, and the Corporate Policy Group, Oxford (1984)

 

A remark of Lord Caldecote, made when he was Chairman of the Delta Metal Group, Captures the essential point of this book: ‘The trouble with British companies is that the directors mark their own  examination papers.’

There have been many criticisms of the way British companies are run: and yet some continue to be remarkably successful. There are numerous proposals for change – two-tier boards, non-executive directors, worker participation, audit committees, shareholder committees, institutional investor action, a British Securities and Exchange Commission and many more; but in truth the activities of boards of directors in Britain seem very varied and little is known about them.

The studies, on which this book is based, set out to learn more about the nature of corporate direction and supervision at board level. The genesis of this work lies in The Independent Director, a research study about the relevance of audit committees in Britain and the need for independent outside directors.

Interviews with company directors and board chairman, undertaken for this earlier study, showed how diverse were the practices and how inadequate the conventional ideas about boards of directors in modern business. To understand more about corporate direction, control and governance, the Corporate Policy Group was formed in 1979 at Nuffield College, Oxford.

 

What we have learned

Two different strands emerged from our work have been interwoven into this book. On the one hand, there are opportunities to improve board level effectiveness; and on the other, there are challenges to the way in which business entities operate in society and, consequently, a need to rethink the underlying conceptual framework.

The joint-stock company, with limited liability for its shareholders was an elegantly simple and eminently successful development of the mid-nineteenth century. It facilitated the provision of capital, encouraged business growth, secured employment, provided innovation in industry and commerce, and created wealth.

The model of the incorporated, limited liability company proved to be robust, flexible, and enormously adaptable.  But the flowering of the corporate concept produced the seeds of subsequent confusion.

In the corporate idea a legal entity is created, quite separate from its owners and managers, with statutory rights and responsibilities. Directors are elected by the shareholders and required to report to them.

Ownership is the basis of power, and is exercised through meetings of the shareholder-members of the company.  It is an idea that has become over-successful. Companies no longer, necessarily, reflect this underlying concept. Consequently, practices designed to reflect the original model do not relate to the actual situation in many companies today.

Firstly, there has been an enormous proliferation of companies in recent years – over 800,000 incorporated in Britain now (in 1984). Many of them are tiny and dominated by the owner-manager. Others are vast, with huge resources, operating internationally in many businesses and markets.

Then there is the considerable complexity of groups of companies. The original concept of the company did not envisage one company owning another company. Now major com0panies can have hundred of subsidiaries and associated companies in their group: moreover they may be held at many levels of sub-subsidiary. A typical company in the top 50 has 230 subsidiaries ranged down to the fifth level. The largest has over 800 down to eleven levels (as discovered in this research)

Further complexity arises where there is a divorce between the corporate structure of subsidiary companies and the organization structure adopted for running the entire business, taking management decisions and measuring performance. We found many examples of such structures, in which subsidiary companies had a fiscal, regulatory, and liability limiting role; but not a managerial one. Yet each company had its directors, with a duty to direct, and a perception in company law as the accountable business entity.

The underlying theme of this book is that the practices and structures of modern business no longer reflect the ideas that brought about the original joint-stock, limited liability company. Consequently, there is a need to rethink the conceptual framework for enterprise in modern society and to develop our knowledge of the directors’ task.

 

Contents

1. The principal features, issues and ideas

2. The notion of the company, conceptually and legally

3. The evolution of the company idea

4. The corporate take-off, proliferation, concentration and diversification

5. The complexity of corporate groups

   – numbers, levels and a mismatch with management structures

6. Rethinking the corporation

7. The reality of corporate power

8. Accountability, liability and regulation

9. Liability and business reality

10. Governing companies- what boards really do

11. Corporate governance in public companies

12. Corporate governance in private and proprietorial companies

13. Corporate governance in subordinate companies

14. The corporation tomorrow

 

© Bob Tricker 2014

 

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