Brennan, Niamh and McDermott, Michael [2004] Alternative Perspectives on Independence of Directors, Corporate Governance: An International Review, 12 (3): 325-336.
This paper examines the issue of independence of boards of directors and non-executive direc¬tors of companies listed on the Irish Stock Exchange. Based on information published in annual reports, the study found that most Irish listed companies were complying with the Combined Code’s recommendations for a balanced board structure, albeit with only 60 per cent having majority-independent boards. The study found a lack of consistency in inter-preting the definition of “independence”, a lack of disclosure of information and, by apply¬ing criteria generally regarded as prerequisite to independence of non-executive directors, certain situations which imposed upon their independence.
The effects of corporate governance on company performance evidence from sri ...Alexander Decker
This document examines the relationship between corporate governance and company performance in Sri Lanka's financial services industry from 2008-2011. It reviews literature showing mixed results on relationships between governance factors like board size/composition and performance measures like return on assets/equity. The study analyzes 20 randomly selected banks/insurers, finding no significant relationships between governance variables and performance. This is consistent with prior Sri Lankan research finding corporate governance does not affect financial performance metrics.
This document summarizes seven commonly held myths about boards of directors that are not supported by empirical evidence. The myths discussed include: 1) an independent chairman always provides better oversight; 2) staggered boards always harm shareholders; 3) directors meeting independence standards are truly independent; 4) interlocked directorships reduce governance quality; 5) CEOs make the best directors; 6) directors face significant liability risks; and 7) company failure is always the board's fault. The document reviews relevant research studies for each myth and finds mixed or inconclusive evidence regarding their impact. It concludes that more attention should be paid to the board process rather than just its structural features in evaluating governance quality.
Investigating Corporate Governance And Its Effect on Firm Performance with As...QUESTJOURNAL
ABSTRACT: Corporate governance and its effect on firm performance are investigated in this research. Research independent variables include non-bound members of board of directors, board of directors’ independence, institutional shareholders, and dependent variable includes assets return which is the index of firm’s performance. Accordingly, data of 125 accepted firms in Tehran securities exchange during 2009 to 2013 was extracted and panel data regression model was applied to test the hypotheses. Results indicate an inverse significant relationship between non-bound members of board of directors and assets return and a positive significant relationship between board of directors’ independence and firm’s performance. Also, there is a positive relationship between institutional shareholders and firm’s performance. In general, results showed that appropriate corporate governance improves firms’ performance.
Ownership and control in corporate organisations in developing countries evid...Alexander Decker
This document summarizes a study that examines how ownership and board control structures function to achieve good corporate governance in developing countries, using four large quoted corporate organizations in Ghana as case studies. The study finds that these companies have large shareholders who wield extensive control through involvement in decision-making, helping to address principal-agent issues but potentially disadvantaging small shareholders. The study also finds that boards tend to exercise more control when major shareholders do not interfere, acting more as advisory bodies otherwise. It proposes that establishing audit and remuneration committees with independent directors as well as separating CEO and chairperson roles leads to more extensive board control.
This study examines the relationship between corporate governance and financial performance of pharmaceutical firms in Pakistan. The study uses data from annual reports of 20 multinational and 90 national pharmaceutical firms from 2003-2013. Regression analysis is used to analyze the impact of various corporate governance mechanisms (board composition, board size, board education, board experience) and CEO duality on financial performance measured by return on assets and return on sales. The results indicate that board composition, size, education and experience are positively associated with financial performance, while CEO duality is negatively associated with performance. Thus, better corporate governance through greater board independence and separation of CEO/chairperson roles can enhance pharmaceutical firm performance in Pakistan.
Eyes on Hands off, The Ambiguous Role of Non-Executive Directors in Corporate...Ken Low
This paper investigates the relationship between non-executive directors (NEDs) and firm performance in top Malaysian companies. The study examines the relationship between firm performance and several corporate governance factors, including board size, proportion of NEDs, and NED remuneration. However, the study did not find significant correlations between these governance structures and firm performance. The inconclusive results suggest more analysis is needed to understand how corporate governance impacts performance in developing countries.
The Level of Corporate Governance Disclosures by UK FirmsRuth Noel
This document provides an overview of a study on corporate governance disclosures by UK firms. It begins with an introduction stating the importance of corporate governance disclosures and the aim of investigating disclosure levels over time in two UK companies. A literature review then discusses why corporate governance is necessary due to conflicts between shareholders and managers. Regulations require certain disclosures and the study will analyze annual reports to assess disclosure quality and adherence to regulations. The goal is to determine if the sample companies provide transparent governance practices to investors.
Corporate governance and financing dicisions of listed firms in pakistanAlexander Decker
This document summarizes a study that examines the relationship between corporate governance mechanisms and financing decisions of listed firms in Pakistan. Specifically, it looks at how ownership concentration, board size and composition, and CEO duality relate to capital structure, measured by debt ratio. The study uses data from 24 listed banks in Pakistan from 2008-2012. It finds that ownership concentration and board size are positively correlated with debt ratio, but finds no significant relationship between board composition, CEO duality and capital structure. The document provides context on prior literature regarding how corporate governance factors like board characteristics and leadership structure have been found to impact capital structure decisions. It outlines the research methodology used in the study.
The effects of corporate governance on company performance evidence from sri ...Alexander Decker
This document examines the relationship between corporate governance and company performance in Sri Lanka's financial services industry from 2008-2011. It reviews literature showing mixed results on relationships between governance factors like board size/composition and performance measures like return on assets/equity. The study analyzes 20 randomly selected banks/insurers, finding no significant relationships between governance variables and performance. This is consistent with prior Sri Lankan research finding corporate governance does not affect financial performance metrics.
This document summarizes seven commonly held myths about boards of directors that are not supported by empirical evidence. The myths discussed include: 1) an independent chairman always provides better oversight; 2) staggered boards always harm shareholders; 3) directors meeting independence standards are truly independent; 4) interlocked directorships reduce governance quality; 5) CEOs make the best directors; 6) directors face significant liability risks; and 7) company failure is always the board's fault. The document reviews relevant research studies for each myth and finds mixed or inconclusive evidence regarding their impact. It concludes that more attention should be paid to the board process rather than just its structural features in evaluating governance quality.
Investigating Corporate Governance And Its Effect on Firm Performance with As...QUESTJOURNAL
ABSTRACT: Corporate governance and its effect on firm performance are investigated in this research. Research independent variables include non-bound members of board of directors, board of directors’ independence, institutional shareholders, and dependent variable includes assets return which is the index of firm’s performance. Accordingly, data of 125 accepted firms in Tehran securities exchange during 2009 to 2013 was extracted and panel data regression model was applied to test the hypotheses. Results indicate an inverse significant relationship between non-bound members of board of directors and assets return and a positive significant relationship between board of directors’ independence and firm’s performance. Also, there is a positive relationship between institutional shareholders and firm’s performance. In general, results showed that appropriate corporate governance improves firms’ performance.
Ownership and control in corporate organisations in developing countries evid...Alexander Decker
This document summarizes a study that examines how ownership and board control structures function to achieve good corporate governance in developing countries, using four large quoted corporate organizations in Ghana as case studies. The study finds that these companies have large shareholders who wield extensive control through involvement in decision-making, helping to address principal-agent issues but potentially disadvantaging small shareholders. The study also finds that boards tend to exercise more control when major shareholders do not interfere, acting more as advisory bodies otherwise. It proposes that establishing audit and remuneration committees with independent directors as well as separating CEO and chairperson roles leads to more extensive board control.
This study examines the relationship between corporate governance and financial performance of pharmaceutical firms in Pakistan. The study uses data from annual reports of 20 multinational and 90 national pharmaceutical firms from 2003-2013. Regression analysis is used to analyze the impact of various corporate governance mechanisms (board composition, board size, board education, board experience) and CEO duality on financial performance measured by return on assets and return on sales. The results indicate that board composition, size, education and experience are positively associated with financial performance, while CEO duality is negatively associated with performance. Thus, better corporate governance through greater board independence and separation of CEO/chairperson roles can enhance pharmaceutical firm performance in Pakistan.
Eyes on Hands off, The Ambiguous Role of Non-Executive Directors in Corporate...Ken Low
This paper investigates the relationship between non-executive directors (NEDs) and firm performance in top Malaysian companies. The study examines the relationship between firm performance and several corporate governance factors, including board size, proportion of NEDs, and NED remuneration. However, the study did not find significant correlations between these governance structures and firm performance. The inconclusive results suggest more analysis is needed to understand how corporate governance impacts performance in developing countries.
The Level of Corporate Governance Disclosures by UK FirmsRuth Noel
This document provides an overview of a study on corporate governance disclosures by UK firms. It begins with an introduction stating the importance of corporate governance disclosures and the aim of investigating disclosure levels over time in two UK companies. A literature review then discusses why corporate governance is necessary due to conflicts between shareholders and managers. Regulations require certain disclosures and the study will analyze annual reports to assess disclosure quality and adherence to regulations. The goal is to determine if the sample companies provide transparent governance practices to investors.
Corporate governance and financing dicisions of listed firms in pakistanAlexander Decker
This document summarizes a study that examines the relationship between corporate governance mechanisms and financing decisions of listed firms in Pakistan. Specifically, it looks at how ownership concentration, board size and composition, and CEO duality relate to capital structure, measured by debt ratio. The study uses data from 24 listed banks in Pakistan from 2008-2012. It finds that ownership concentration and board size are positively correlated with debt ratio, but finds no significant relationship between board composition, CEO duality and capital structure. The document provides context on prior literature regarding how corporate governance factors like board characteristics and leadership structure have been found to impact capital structure decisions. It outlines the research methodology used in the study.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
The Journal will bring together leading researchers, engineers and scientists in the domain of interest from around the world. Topics of interest for submission include, but are not limited to
This paper examines how information asymmetry affects the relationship between board independence and firm value in Korean firms between 1999-2006. It finds that independent outside directors, who have no business or professional ties to the firm, are positively correlated with firm value, while "gray" outside directors are not. Additionally, the positive impact of independent outside directors on firm value is more pronounced when the firm has lower information transaction costs, as measured by market microstructure models and other proxies. The results suggest that higher information asymmetry weakens the monitoring role of independent directors.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
The Impact of Corporate Governance on Firms’ Profitability in Nigeriainventionjournals
The purpose of this paper is to investigate the impact of corporate governance on firms’ profitability in Nigeria. This research has been performed using a sample of 60 companies listed on the Nigeria Stock Exchange (NSE) from 2004 to 2014. The relationship between corporate governance mechanisms (board characteristics, audit committee, board independence, size, growth and profit variability) and firms’ profitability was observed. The results of the multiple regression analysis were statistically significant at 0.05 level. The F Statistics of 1.036 also shows that the result typically explained the model. The findings of the study confirmed that corporate governance mechanisms enhance firms’ profitability in Nigeria.
Principles of Corporate Governance and Ethics for Sustainable Businessinventionjournals
This theoretical paper examines the importance of corporate governance and business ethics that impact organizations and individuals. In the aftermath of the public embarrassment of corporate malfeasance, organizations should underpin their policies and regulations to overcome numerous ethical issues and to ensure the well-being of all. Further, corporate governance is concerned with the ownership, control and accountability of organizations, and how the corporate pursuit of economic objectives relates to a number of wider ethical and societal considerations. Thus, this paper presents an adoption of proper governance practices and business ethics standards, and discusses the importance of such an approach in analyzing and understanding corporate governance practices. Many studies have discovered that an integrated approach towards corporate governance and business ethics should help organizations implement high standards of ethical behavior throughout the organization. In general, the prominence of such a holistic approach, by integrating several components, is the precondition of better understanding of corporate governance practices and procedures to enhance ethical behavior in organizations.
Article: Influence of Corporate Board Characteristics on Firm Performance of ...McRey Banderlipe II
Using disclosure information from 29 listed property companies in the Philippines, the results revealed that managerial ownership positively influences firm performance. Moreover, firm size, leverage, and age influence the accounting-based measures of performance to a great extent than the market-based measures. Further research should focus on the overall impact of corporate governance using different measures of performance to better assist the decision making of the company’s stakeholders.
Corporate governance and banking performance a comparative study between priv...Alexander Decker
This document summarizes a study that examined the relationship between corporate governance and banking performance in Sri Lanka. The study analyzed four dimensions of corporate governance - board size, board diversity, percentage of outside directors, and board meeting frequency. Banking performance was measured by return on equity and return on assets. The results showed that most corporate governance variables were positively correlated with return on equity in state banks and private banks. Similarly, most variables had a negative relationship with return on assets in state banks and private banks. Overall, the study found that corporate governance had a moderate impact on performance in both private and state banks in Sri Lanka.
Internal corporate governance mechanisms and agency co evidence from large ks...Alexander Decker
This document summarizes a study that analyzed the relationship between various internal corporate governance mechanisms and agency costs in large firms listed on the Karachi Stock Exchange from 2003-2010. The study used two proxies for measuring agency costs - asset utilization ratio and asset liquidity ratio. Several independent variables thought to influence agency costs were examined, including board/committee activities, board size, CEO tenure, block ownership percentage, largest investor percentage, and CEO/chairman duality. The results found that agency costs decreased with more frequent board/committee meetings and lower block ownership. Higher agency costs were associated with larger board size, longer CEO tenure, and CEO/chairman duality.
Brennan, Niamh and McCafferty, Jacqueline [1997] Corporate Governance Practic...Prof Niamh M. Brennan
This research analyses corporate governance practices as disclosed in the annual reports of Irish companies. In particular the paper investigates:
• Independence of boards;
• Separation of the role of chairman and chief executive;
• Presence of board sub-committees;
• Women on boards.
The study is based on a sample of 84 Irish quoted and commercial semi-state companies. Significant improvements were found in corporate governance practices compared with similar earlier studies. Most Irish companies comply with the Cadbury Committee recommendations. Nonetheless there is some evidence of non-compliance. There is evidence that women continue to be under-represented on boards of Irish companies.
This document summarizes recommendations for improving corporate governance in the wake of the Enron scandal and the subsequent legal responses in the US and UK. There are differing views between supporters of the stakeholder model versus the shareholder model. Recommendations that find broad support include: (1) providing more training and professional development for board members; (2) conducting industry-sponsored research on best practices; and (3) requiring companies to publish codes of ethics. The US responded through laws like the Sarbanes-Oxley Act that aimed to increase management accountability and disclosure of transactions. The UK issued reports like the Higgs Report that recommended improving board independence and transparency.
SOX led to changes in corporate governance, accounting conservatism, and earnings management. Regarding corporate governance, SOX strengthened audit independence and improved board oversight. It increased financial reporting conservatism initially but this effect was not sustained long-term. SOX moved firms from accrual-based earnings management to real earnings management. Future research on costs/benefits of SOX and its long-term impacts is needed.
This document discusses alternative models of corporate governance beyond traditional public companies. It examines the governance features of family-controlled businesses, venture-backed companies, private equity-owned firms, and nonprofit organizations. For each model, it provides statistics on ownership structure, boards of directors, executive compensation, and impact on firm performance. Overall, the document finds that while alternative models face different issues than public firms regarding ownership and control, they can positively or negatively impact companies depending on specific circumstances.
A comparative study of the corporate governance codes of a developing economy...Alexander Decker
This document summarizes and compares corporate governance codes between developing and developed economies. It begins with an abstract describing how corporate governance codes aim to prevent corporate collapses by regulating corporate executives and financial practices. The document then provides details on two case studies of corporate collapses in Nigeria's banking sector to analyze the effectiveness of Nigeria's corporate governance codes. It evaluates Nigeria's codes in light of codes from the UK and US to identify weaknesses. The research method of qualitative analysis through case studies and secondary sources is described as most appropriate.
This document is a dissertation submitted by Mohit Kumar to Leeds University Business School in partial fulfillment of an MSc in Finance and Investment. The dissertation examines the impact of managerial ownership on firm performance during a financial crisis using a sample of 180 UK firms from 2009-2011. The dissertation includes an abstract, acknowledgements, table of contents, literature review on the relationship between ownership structure and firm performance, research methods and methodology, findings and conclusions.
This study attempts to investigate the role of Corporate Governance in mitigating agency cost. For
this purpose a sample of 100 firms selected on the basis of 100 INDEX of Karachi Stock Exchange during the
period 2007 to 2011. To do so, alternative proxies for agency costs are employing: the ratio of total sales to total
assets (asset turnover) and the ratio of selling, general & administrative expenses (SG&A) to total sales.
Multivariate fixed effect regression is used to analyze the data. The explanatory variables include director
ownership, institutional ownership, ownership Concentration, board size, CEO/Chair duality, Non Executive
Directors, Debt Ratio, remuneration structure and board independence. The analysis is controlled for the
influence of company size. The results show that higher director and institutional ownership reduces the level of
agency cost. Smaller sized boards also results in lowering agency cost. Board independence has positive
association with asset utilization ratio. The separation of the post of CEO and chairperson and higher
remuneration lower agency cost. Bank debt constitutes one of the most important Corporate Governance devices
for Pakistani Listed Companies. Also, managerial ownership, managerial compensation and ownership
concentration seem to play an important role in mitigating agency costs
This document summarizes a study that investigated the relationship between corporate governance and financial performance of insurance companies in Ghana. The study found that large board size, board skill, management skill, longer serving CEOs, independent audit committees, foreign ownership, institutional ownership, dividend policy, and annual general meetings were positively associated with financial performance. The findings suggest that insurance companies should adopt good corporate governance practices to improve performance and protect shareholder interests. Regulatory authorities must also ensure compliance with governance standards and enforce sanctions for non-compliance to support industry growth.
Effects Of Corporate Governance On Capital Structure: Empirical Evidence From...Arfan Afzal
Effects Of Corporate Governance On Capital Structure: Empirical Evidence From Pakistan, The aim of this empirical study is to investigate whether corporate governance attributes such as board size, outside directors, ownership concentration, managerial ownership, director remuneration, and CEO duality affect capital structure choices of Pakistani firms.
This study aims at examining the impact of the ownership structure on the overall performance of listed companies in Pakistan to specify how different ownership structures and corporate governance culture differ from each other and thus explores the effects of different ownership structures and corporate governance on the performance of companies’ productivity. In order to compare Returns on Investment (ROI) and Returns on Equity (ROE) of the five (5) listed food companies in Pakistan were calculated using secondary data from the audited financial reports of such companies based on their annual reports between 2007 and 2016. During this research for the analysis of gathered data, regression model was used with the assistance of EViews in order to examine the relationship between the corporate governance mechanism including board is size, board composition, and audit committee and the performance variables including Net Profit Ratio (NPR) and Rate of Return (RoR). The findings of the our study are consistent with the reviewed literature, as the performance of firms (in terms of return on assent and net profit ratio) does not seem to be dependent on the board size, composition, and audit committee composition of firms.
Impact of corporate governance on firm performance publishedMuhammad Usman
In the light of corporate financial scandals, there is an increasing attention on corporate governance issues. The investors look for emerging economies to diversify their investment portfolios to exhaust the possibilities of returns. This paper examines the impact of corporate governance variables on firms’ performance. This Research found that there is a direct positive relationship between profitability measured either by Earnings per share (EPS) or Return on assets (ROA) and corporate governance, also have a positive direct relationship between each of liquidity, dividend per share, and the size of the company with corporate governance, finally the study found a positive direct relationship between corporate governance and corporate performance. Various studies have been conducted in developing countries including Pakistan to investigate the relationship among corporate governance and firm performance. This study indicates that corporate governance can be measured through the following elements.
(1) board size (2) Female Member (3) CEO duality (4) Education of Directors (5) Board working experience(6) independent directors (7) board compensation (8) Board ownership (9) Audit committee (10) Board composition(11)Leadership Structure
Merkl-Davies and Brennan A Conceptual Framework of Impression Management: New...Prof Niamh M. Brennan
In this paper we develop a conceptual framework, based on the concepts of rationality and motivation, which uses theories and empirical research from psychology/behavioural finance, sociology and critical accounting to systematise, advance and challenge research on impression management. The paper focuses on research which departs from economic concepts of impression management as opportunistic managerial discretionary disclosure behaviour resulting in reporting bias or as ‘cheap talk’. Using alternative rationality assumptions, such as bounded rationality, irrationality, substantive rationality and the notion of rationality as a social construct, we conceptualise impression management in alternative ways as (i) self-serving bias, (ii) symbolic management and (iii) accounting rhetoric. This contributes to an enhanced understanding of impression management in a corporate reporting context.
03 14 brennan merkl davies accounting narratives and impression managementProf Niamh M. Brennan
This chapter examines impression management in accounting communication through four theoretical perspectives: economic, psychological, sociological, and critical. Impression management refers to organizations constructing impressions to appeal to audiences like shareholders and stakeholders. Discretionary accounting narratives in corporate reports are analyzed for seven communication choices that could constitute impression management. The chapter concludes by discussing implications for corporate reporting practice and suggestions for future research on how impression management may undermine reporting quality and influence stakeholder perceptions.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
The Journal will bring together leading researchers, engineers and scientists in the domain of interest from around the world. Topics of interest for submission include, but are not limited to
This paper examines how information asymmetry affects the relationship between board independence and firm value in Korean firms between 1999-2006. It finds that independent outside directors, who have no business or professional ties to the firm, are positively correlated with firm value, while "gray" outside directors are not. Additionally, the positive impact of independent outside directors on firm value is more pronounced when the firm has lower information transaction costs, as measured by market microstructure models and other proxies. The results suggest that higher information asymmetry weakens the monitoring role of independent directors.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
The Impact of Corporate Governance on Firms’ Profitability in Nigeriainventionjournals
The purpose of this paper is to investigate the impact of corporate governance on firms’ profitability in Nigeria. This research has been performed using a sample of 60 companies listed on the Nigeria Stock Exchange (NSE) from 2004 to 2014. The relationship between corporate governance mechanisms (board characteristics, audit committee, board independence, size, growth and profit variability) and firms’ profitability was observed. The results of the multiple regression analysis were statistically significant at 0.05 level. The F Statistics of 1.036 also shows that the result typically explained the model. The findings of the study confirmed that corporate governance mechanisms enhance firms’ profitability in Nigeria.
Principles of Corporate Governance and Ethics for Sustainable Businessinventionjournals
This theoretical paper examines the importance of corporate governance and business ethics that impact organizations and individuals. In the aftermath of the public embarrassment of corporate malfeasance, organizations should underpin their policies and regulations to overcome numerous ethical issues and to ensure the well-being of all. Further, corporate governance is concerned with the ownership, control and accountability of organizations, and how the corporate pursuit of economic objectives relates to a number of wider ethical and societal considerations. Thus, this paper presents an adoption of proper governance practices and business ethics standards, and discusses the importance of such an approach in analyzing and understanding corporate governance practices. Many studies have discovered that an integrated approach towards corporate governance and business ethics should help organizations implement high standards of ethical behavior throughout the organization. In general, the prominence of such a holistic approach, by integrating several components, is the precondition of better understanding of corporate governance practices and procedures to enhance ethical behavior in organizations.
Article: Influence of Corporate Board Characteristics on Firm Performance of ...McRey Banderlipe II
Using disclosure information from 29 listed property companies in the Philippines, the results revealed that managerial ownership positively influences firm performance. Moreover, firm size, leverage, and age influence the accounting-based measures of performance to a great extent than the market-based measures. Further research should focus on the overall impact of corporate governance using different measures of performance to better assist the decision making of the company’s stakeholders.
Corporate governance and banking performance a comparative study between priv...Alexander Decker
This document summarizes a study that examined the relationship between corporate governance and banking performance in Sri Lanka. The study analyzed four dimensions of corporate governance - board size, board diversity, percentage of outside directors, and board meeting frequency. Banking performance was measured by return on equity and return on assets. The results showed that most corporate governance variables were positively correlated with return on equity in state banks and private banks. Similarly, most variables had a negative relationship with return on assets in state banks and private banks. Overall, the study found that corporate governance had a moderate impact on performance in both private and state banks in Sri Lanka.
Internal corporate governance mechanisms and agency co evidence from large ks...Alexander Decker
This document summarizes a study that analyzed the relationship between various internal corporate governance mechanisms and agency costs in large firms listed on the Karachi Stock Exchange from 2003-2010. The study used two proxies for measuring agency costs - asset utilization ratio and asset liquidity ratio. Several independent variables thought to influence agency costs were examined, including board/committee activities, board size, CEO tenure, block ownership percentage, largest investor percentage, and CEO/chairman duality. The results found that agency costs decreased with more frequent board/committee meetings and lower block ownership. Higher agency costs were associated with larger board size, longer CEO tenure, and CEO/chairman duality.
Brennan, Niamh and McCafferty, Jacqueline [1997] Corporate Governance Practic...Prof Niamh M. Brennan
This research analyses corporate governance practices as disclosed in the annual reports of Irish companies. In particular the paper investigates:
• Independence of boards;
• Separation of the role of chairman and chief executive;
• Presence of board sub-committees;
• Women on boards.
The study is based on a sample of 84 Irish quoted and commercial semi-state companies. Significant improvements were found in corporate governance practices compared with similar earlier studies. Most Irish companies comply with the Cadbury Committee recommendations. Nonetheless there is some evidence of non-compliance. There is evidence that women continue to be under-represented on boards of Irish companies.
This document summarizes recommendations for improving corporate governance in the wake of the Enron scandal and the subsequent legal responses in the US and UK. There are differing views between supporters of the stakeholder model versus the shareholder model. Recommendations that find broad support include: (1) providing more training and professional development for board members; (2) conducting industry-sponsored research on best practices; and (3) requiring companies to publish codes of ethics. The US responded through laws like the Sarbanes-Oxley Act that aimed to increase management accountability and disclosure of transactions. The UK issued reports like the Higgs Report that recommended improving board independence and transparency.
SOX led to changes in corporate governance, accounting conservatism, and earnings management. Regarding corporate governance, SOX strengthened audit independence and improved board oversight. It increased financial reporting conservatism initially but this effect was not sustained long-term. SOX moved firms from accrual-based earnings management to real earnings management. Future research on costs/benefits of SOX and its long-term impacts is needed.
This document discusses alternative models of corporate governance beyond traditional public companies. It examines the governance features of family-controlled businesses, venture-backed companies, private equity-owned firms, and nonprofit organizations. For each model, it provides statistics on ownership structure, boards of directors, executive compensation, and impact on firm performance. Overall, the document finds that while alternative models face different issues than public firms regarding ownership and control, they can positively or negatively impact companies depending on specific circumstances.
A comparative study of the corporate governance codes of a developing economy...Alexander Decker
This document summarizes and compares corporate governance codes between developing and developed economies. It begins with an abstract describing how corporate governance codes aim to prevent corporate collapses by regulating corporate executives and financial practices. The document then provides details on two case studies of corporate collapses in Nigeria's banking sector to analyze the effectiveness of Nigeria's corporate governance codes. It evaluates Nigeria's codes in light of codes from the UK and US to identify weaknesses. The research method of qualitative analysis through case studies and secondary sources is described as most appropriate.
This document is a dissertation submitted by Mohit Kumar to Leeds University Business School in partial fulfillment of an MSc in Finance and Investment. The dissertation examines the impact of managerial ownership on firm performance during a financial crisis using a sample of 180 UK firms from 2009-2011. The dissertation includes an abstract, acknowledgements, table of contents, literature review on the relationship between ownership structure and firm performance, research methods and methodology, findings and conclusions.
This study attempts to investigate the role of Corporate Governance in mitigating agency cost. For
this purpose a sample of 100 firms selected on the basis of 100 INDEX of Karachi Stock Exchange during the
period 2007 to 2011. To do so, alternative proxies for agency costs are employing: the ratio of total sales to total
assets (asset turnover) and the ratio of selling, general & administrative expenses (SG&A) to total sales.
Multivariate fixed effect regression is used to analyze the data. The explanatory variables include director
ownership, institutional ownership, ownership Concentration, board size, CEO/Chair duality, Non Executive
Directors, Debt Ratio, remuneration structure and board independence. The analysis is controlled for the
influence of company size. The results show that higher director and institutional ownership reduces the level of
agency cost. Smaller sized boards also results in lowering agency cost. Board independence has positive
association with asset utilization ratio. The separation of the post of CEO and chairperson and higher
remuneration lower agency cost. Bank debt constitutes one of the most important Corporate Governance devices
for Pakistani Listed Companies. Also, managerial ownership, managerial compensation and ownership
concentration seem to play an important role in mitigating agency costs
This document summarizes a study that investigated the relationship between corporate governance and financial performance of insurance companies in Ghana. The study found that large board size, board skill, management skill, longer serving CEOs, independent audit committees, foreign ownership, institutional ownership, dividend policy, and annual general meetings were positively associated with financial performance. The findings suggest that insurance companies should adopt good corporate governance practices to improve performance and protect shareholder interests. Regulatory authorities must also ensure compliance with governance standards and enforce sanctions for non-compliance to support industry growth.
Effects Of Corporate Governance On Capital Structure: Empirical Evidence From...Arfan Afzal
Effects Of Corporate Governance On Capital Structure: Empirical Evidence From Pakistan, The aim of this empirical study is to investigate whether corporate governance attributes such as board size, outside directors, ownership concentration, managerial ownership, director remuneration, and CEO duality affect capital structure choices of Pakistani firms.
This study aims at examining the impact of the ownership structure on the overall performance of listed companies in Pakistan to specify how different ownership structures and corporate governance culture differ from each other and thus explores the effects of different ownership structures and corporate governance on the performance of companies’ productivity. In order to compare Returns on Investment (ROI) and Returns on Equity (ROE) of the five (5) listed food companies in Pakistan were calculated using secondary data from the audited financial reports of such companies based on their annual reports between 2007 and 2016. During this research for the analysis of gathered data, regression model was used with the assistance of EViews in order to examine the relationship between the corporate governance mechanism including board is size, board composition, and audit committee and the performance variables including Net Profit Ratio (NPR) and Rate of Return (RoR). The findings of the our study are consistent with the reviewed literature, as the performance of firms (in terms of return on assent and net profit ratio) does not seem to be dependent on the board size, composition, and audit committee composition of firms.
Impact of corporate governance on firm performance publishedMuhammad Usman
In the light of corporate financial scandals, there is an increasing attention on corporate governance issues. The investors look for emerging economies to diversify their investment portfolios to exhaust the possibilities of returns. This paper examines the impact of corporate governance variables on firms’ performance. This Research found that there is a direct positive relationship between profitability measured either by Earnings per share (EPS) or Return on assets (ROA) and corporate governance, also have a positive direct relationship between each of liquidity, dividend per share, and the size of the company with corporate governance, finally the study found a positive direct relationship between corporate governance and corporate performance. Various studies have been conducted in developing countries including Pakistan to investigate the relationship among corporate governance and firm performance. This study indicates that corporate governance can be measured through the following elements.
(1) board size (2) Female Member (3) CEO duality (4) Education of Directors (5) Board working experience(6) independent directors (7) board compensation (8) Board ownership (9) Audit committee (10) Board composition(11)Leadership Structure
Merkl-Davies and Brennan A Conceptual Framework of Impression Management: New...Prof Niamh M. Brennan
In this paper we develop a conceptual framework, based on the concepts of rationality and motivation, which uses theories and empirical research from psychology/behavioural finance, sociology and critical accounting to systematise, advance and challenge research on impression management. The paper focuses on research which departs from economic concepts of impression management as opportunistic managerial discretionary disclosure behaviour resulting in reporting bias or as ‘cheap talk’. Using alternative rationality assumptions, such as bounded rationality, irrationality, substantive rationality and the notion of rationality as a social construct, we conceptualise impression management in alternative ways as (i) self-serving bias, (ii) symbolic management and (iii) accounting rhetoric. This contributes to an enhanced understanding of impression management in a corporate reporting context.
03 14 brennan merkl davies accounting narratives and impression managementProf Niamh M. Brennan
This chapter examines impression management in accounting communication through four theoretical perspectives: economic, psychological, sociological, and critical. Impression management refers to organizations constructing impressions to appeal to audiences like shareholders and stakeholders. Discretionary accounting narratives in corporate reports are analyzed for seven communication choices that could constitute impression management. The chapter concludes by discussing implications for corporate reporting practice and suggestions for future research on how impression management may undermine reporting quality and influence stakeholder perceptions.
Brennan, Niamh [2006] Boards of Directors and Firm Performance: Is there an E...Prof Niamh M. Brennan
Reflecting investor expectations, most prior corporate governance research attempts to find a relationship between boards of directors and firm performance. This paper critically examines the premise on which this research is based. An expectations gap approach is applied for the first time to implicit expectations which assume a relationship between firm performance and company boards. An expectations gap has two elements: A reasonableness gap and a performance gap. Seven aspects of boards are identified as leading to a reasonableness gap. Five aspects of boards are identified as leading to a performance gap. The paper concludes by suggesting avenues for empirically testing some of the concepts discussed in this paper.
Brennan, Niamh M. and Flynn, Maureen A. [2013] Differentiating Clinical Gover...Prof Niamh M. Brennan
This document proposes new definitions to distinguish between clinical governance, clinical management, and clinical practice. It analyzes 29 existing definitions of "clinical governance" and finds they confuse governance, management, and practice roles. The document suggests 3 new separate definitions: clinical governance focuses on accountability, oversight, and setting standards; clinical management focuses on efficient service delivery through processes and resources; and clinical practice focuses on delivering high-quality care. Clearer distinctions between these roles could help implement clinical governance more effectively.
Brennan, Niamh [2003] Accounting in crisis: A story of auditing, accounting, ...Prof Niamh M. Brennan
Recent accounting scandals are the product of multiple failings of auditing, accounting, corporate governance and of the market. In discussing the many factors that led to failure, this paper attempts to provide insights on regulatory inadequacies that contributed to these problems. At the centre is human failure – in particular greed and weakness. Reforms in progress are briefly examined, with the caveat that no reforms will ever fully cater for human weakness.
Brennan, Niamh M., Merkl-Davies, Doris M., and Beelitz, Annika [2013] Dialogi...Prof Niamh M. Brennan
We conceptualise CSR communication as a process of reciprocal influence between organisations and their audiences. We use an illustrative case study in the form of a conflict between firms and a powerful stakeholder which is played out in a series of 20 press releases over a two-month period to develop a framework of analysis based on insights from linguistics. It focuses on three aspects of dialogism, namely (i) turn-taking (co-operating in a conversation by responding to the other party), (ii) inter-party moves (the nature and type of interaction action characterising a turn i.e., denial, apology, excuse), and (iii) intertextuality (the intensity and quality of verbal interaction between the parties). We address the question: What is the nature and type of verbal interactions between the parties? First we examine (a) whether the parties verbally interact and then (b) whether the parties listen to each other.
We find evidence of dialogism suggesting that CSR communication is an interactive process which has to be understood as a function of the power relations between a firm and a specific stakeholder. Also, we find evidence of intertextuality in the press releases by the six firms which engage in verbal interaction with the stakeholder. We interpret this as linguistic evidence of isomorphic processes relating to CSR practices resulting from the pressure exerted by a powerful stakeholder. The lack of response by ten firms that fail to issue press releases suggests a strategy of ‘watch-and-wait’ with respect to the outcome of the conflict.
Brennan, Niamh and Clarke, Peter [1985] Objective Tests in Financial Accounti...Prof Niamh M. Brennan
A multiple choice questionnaire (MCQ) style examination typically consists of 20/30 short statements, each of which is followed by a number of alternative answers. Only one answer is strictly correct. This allows the examiner to mark candidates' responses in an objective rather than subjective fashion. This style of examination question has recently been adopted by the Institute of Chartered Accountants in Ireland and is also used in third level institutions.
MCQs have a number of advantages over traditional examination formats. First, they allow the examiner to ask questions on every topic on the syllabus and thus test the candidates range of knowledge. Perhaps more importantly, correction of answers is entirely objective and comparatively easy. Large numbers of scripts can be objectively tested in a short space of time.
Objective tests can also be an effective teaching tool. The topics covered in each chapter are logically sequenced so that as the student progresses through the chapter they build up their know¬ledge and skills in relation to that topic. In addition, the book emphasises problem areas and attempts to help students avoid common mistakes in financial accounting. Thus the tutor can indicate the correct solution and also explain or seek responses as to why other plausible answers are incorrect to the given statement. Such a process should ensure greater understanding of the topic under discussion.
This book is suitable for students taking introductory financial accounting examinations of the professional accountancy bodies, third level accounting students or other students studying introductory financial accounting courses. The three revision examinations at the end of this book are reproduced with the kind permission of the Institute of Chartered Accountants in Ireland.
Brennan, Niamh and Clarke, Peter [1985] Objective Tests in Financial Accounti...
Similar to Brennan, Niamh and McDermott, Michael [2004] Alternative Perspectives on Independence of Directors, Corporate Governance: An International Review, 12 (3): 325-336.
Influence of board size and independence iim reportBFSICM
This document examines the relationship between board size, independence, and firm performance in Indian companies. It summarizes previous research that has produced mixed results on this topic. The study analyzed data from 164 Indian companies over 6 years. The main findings were:
1) There was an inverse relationship between board size and firm performance, with smaller boards being more efficient.
2) Different levels of board independence had different impacts on firm performance, with independence between 50-60% correlating most strongly with better performance.
3) Independent directors did not effectively perform their monitoring role and improve firm performance.
4) Factors like cross-board membership and lack of training may have hindered independent directors' effectiveness.
This document summarizes research that challenges several commonly held beliefs about best practices for corporate boards of directors. It discusses four such myths:
1. That the chairman should always be independent of the CEO. Research finds no consistent relationship between chairman independence and company performance, and in some cases forced separation can hurt the company.
2. That staggered boards are always bad for shareholders. While they can entrench poor management, staggered boards can also benefit shareholders by allowing long-term planning and protecting valuable company assets.
3. That directors meeting NYSE independence standards are truly independent. Factors like social connections can compromise a director's independence even if they meet regulatory standards.
4. That interlocked directorships always
MacCanna, Leo, Brennan, Niamh and O’Higgins, Eleanor [1999] National Networks...Prof Niamh M. Brennan
This paper maps the network of interlocking directorships formed by the boards of the top 50 financial and 200 non-financial companies in Ireland. The Irish network is compared with those in ten countries, based on the same sample size and selection criteria as used in this paper, using the methods and theory of Social Network Analysis (SNA). Fundamental to the paper is the idea that the network of interlocking directorates is in some way structured, and not the result of random processes.
Irish boards were found to have a relatively loose connected network structure which is sparser and less dense than those of other countries. This is reflected in the relatively low percentage of multiple directors and the relatively fewer number of directorships per multiple director.
In general, indigenous Irish public companies tended to be central in the network, while a disproportionately large number of foreign and private companies were isolated on the periphery. However, a number of foreign-owned companies were central to the network - in particular, those which started as indigenous Irish companies which were subsequently taken over.
When account is taken of the nature of the Irish economy and business in comparison with that of the ten other countries, it is seen that the opportunities for company interlinking at board level in Ireland are relatively fewer. However, within these constraints, there is a thriving network of corporate power in Ireland.
r Academy of Management Journal2015, Vol. 1015, No. 1, 1–9..docxmakdul
r Academy of Management Journal
2015, Vol. 1015, No. 1, 1–9.
http://dx.doi.org/10.5465/amj.2014.4006
FROM THE EDITORS
RETHINKING GOVERNANCE IN MANAGEMENT RESEARCH
In the field of management, the study of gover-
nance has primarily dealt with decision-making by
boards of directors, chief executives, and senior
managers. The corporate governance literature has
generated important insights regarding incentive
alignment, risk taking, and coordination chal-
lenges. Emerging trends, highlighted in this issue,
raise new questions regarding managerial roles,
organizational contexts, internal and social pro-
cesses, and changes in governance over time. We
encourage management scholars to rethink their
approach to governance research by considering
stakeholder engagement, the implications of big
data, social impact, global dimensions, and com-
parative analysis of governance. A broadened con-
ceptualization of governance may also deal with the
dynamics of interorganizational arrangements, in-
cluding the co-creation of organizations of varying
governance forms.
WHAT IS GOVERNANCE?
In this “thematic issue,” we assembled articles
that reflect evolving practices in governance.1
Corporate governance is the system by which
companies are directed and controlled. Boards of
directors are responsible for the governance of
their companies. The shareholders’ role in gover-
nance is to appoint the directors and the auditors
and to satisfy themselves that an appropriate gov-
ernance structure is in place. The responsibilities
of the board include setting the company’s strategic
aims, providing the leadership to put them into
effect, supervising the management of the business,
and reporting to shareholders on their stewardship.
The board’s actions are subject to laws, regulations,
and the shareholders in general meeting (Cadbury,
1992). Corporate governance is therefore about
what the board of a company does and how it sets
the values of the company, but is distinct from the
operational management of the company by full-
time executives.
These views of corporate governance stem pre-
dominantly from a financial perspective. For ex-
ample, Shleifer and Vishny (1997: 737) address
corporate governance as “the ways in which sup-
pliers of finance to corporations assure themselves
of getting a return on their investment. How do the
suppliers of finance get managers to return some
of the profits to them? How do they make sure
that managers do not steal the capital they supply
or invest it in bad projects? How do suppliers
of finance control managers?” These views stem
primarily from an agency theoretical perspective
that investigates the consequences of separation of
ownership and control in the modern corporation
(Jensen & Meckling, 1976). Recent corporate ac-
tivity and views, however, have an expanded view
of governance as involving stewardship and lead-
ership, in addition to the narrower financial pru-
dence role. From a survey of board members from
15 countri ...
Brennan, Niamh M. and Solomon, Jill [2008] Corporate Governance, Accountabili...Prof Niamh M. Brennan
Purpose – This paper reviews traditional corporate governance and accountability research, to suggest opportunities for future research in this field. The first part adopts an analytical frame of reference based on theory, accountability mechanisms, methodology, business sector/context, globalisation and time horizon. The second part of the paper locates the seven papers in the special issue in a framework of analysis showing how each one contributes to the field. The paper presents a frame of reference which may be used as a 'roadmap' for researchers to navigate their way through the prior literature and to position their work on the frontiers of corporate governance research.
Design/methodology/approach – The paper employs an analytical framework, and is primarily discursive and conceptual.
Findings – The paper encourages broader approaches to corporate governance and accountability research beyond the traditional and primarily quantitative approaches of prior research. Broader theoretical perspectives, methodological approaches, accountability mechanism, sectors/contexts, globalisation and time horizons are identified.
Research limitations/implications – Greater use of qualitative research methods are suggested, which present challenges particularly of access to the “black box” of corporate boardrooms.
Originality/value – Drawing on the analytical framework, and the papers in the special issue, the paper identifies opportunities for further research of accountability and corporate governance.
A Study on the Impact of Manager’s Personality on the financial performance o...IRJET Journal
This document discusses a study on the impact of managers' personality traits on the financial performance of companies listed on the BSE 100 index in India. It aims to analyze the correlation between managers' characteristics like age, gender, experience, and tenure with companies' return on assets and return on equity. The study reviews previous literature on these relationships and outlines its research methodology, including objectives, hypotheses, sampling plan, and data analysis tools. Regression models will be used to analyze the relationship between financial performance indicators and managers' traits. The study is limited to BSE 100 companies from 2017-2022 but aims to contribute to understanding how management qualities influence organizational success.
1. Corporate Governance-Assessment of the Determinants of the Effectiveness o...cpamutui
The document discusses factors that determine the effectiveness of corporate boards of directors. It reviews theories of board effectiveness, including agency theory, stewardship theory, and stakeholder theory. Structural factors like board size and composition, as well as non-structural factors like decision-making processes, board cohesiveness, and cognitive conflict are examined. The literature finds that decision-making quality and board cohesiveness positively influence board effectiveness in fulfilling its roles of control, service, and strategy. However, accurately assessing individual director characteristics and board processes remains challenging.
Brennan, Niamh M. [2010] “A Review of Corporate Governance Research: An Irish...Prof Niamh M. Brennan
An overview of corporate governance is provided in this chapter, commencing with a discussion of alternative definitions of governance. Internal and external mechanisms of governance are described. The role of boards of directors, and theories explaining those roles, are also considered. In order to provide some insights into governance research, 15 academic papers with an Irish angle were selected for analysis, by reference to theoretical perspective, governance mechanism studied, research method adopted and results. The analytical table demonstrates the variety of research conducted. Some concluding comments are then drawn.
Impact of Corporate Governance on Organizational PerformanceJenıstön Delımä
Citation: Delima, V. J., & Ragel, V. R. (2017). Impact of corporate governance on organizational performance. International Journal of Engineering Research and General Science, 5(5).
Abstract- This study examined whether corporate governance has impact on organizational performance in Financial Institutions as research problem. This research was carried out with objective to measure association between Corporate Governance and Financial Institution’s Performance in Batticaloa district. Conceptual framework has been developed to measure linkages between Corporate Governance and Financial Institution’s Performance. Board Size, Corporate Governance Mechanism, Communication Strategies, and Code of Conduct are considered as the measurement variables of Corporate Governance which was derived from Changezi & Saeed (2013) and Customer Satisfaction, Employee Commitment and Corporate Reputation are considered as the measurement variable of Organizational Performance which was derived from Bayoud (2012) and Carton (2004). Questionnaires were used to collect data for this study. 115 Management Respondents and 115 Customers from whole Financial Institutions in Batticaloa district have been selected for this study. Data were analyzed and evaluated by Univariate and Bivariate techniques. In Univariate analysis, Descriptive statistic has been used for the analysis. In Bivariate analysis, Correlation and multiple regressions have been used for the analysis. Findings have shown the Corporate Governance and Organizational Performance are at high level. Moreover, it also found that there is a strong positive relationship between Corporate Governance and Organizational Performance. Corporate Governance significantly impacts Organizational Performance of Financial Institutions. These findings would be useful to consider more on Corporate Governance practices to avoid the Corporate Collapses and to achieve successful Organizational Performance
Using panel data from firms listed on the Nairobi Securities Exchange during the period
2004-2014, this paper examines the effect of board diversity and firm performance. Specifically the study investigates the effect of independent directors, board size, gender and financial expertise of directors and firm performance. The study finds, steadily with trends in most countries, the representation of women on the corporate board remains low. Regression results indicate that board independence has a negative and significant relationship on firm performance. The study also finds that gender diverse boards perform better as measured by Return on Assets (ROA).
Classified boards, firm value, and managerial entrenchmentLucianus Kelen
This paper examines the relationship between classified boards and firm value. It finds that classified boards, which stagger the election of directors over multiple years, are associated with lower firm value. The paper also finds evidence that classified boards entrench management and reduce accountability to shareholders. Specifically, classified boards decrease the likelihood of CEO turnover following poor performance, reduce the sensitivity of CEO compensation to performance, deter proxy contests led by shareholders, and decrease the likelihood that shareholder proposals will be implemented. The evidence suggests classified boards hurt shareholders by insulating management from market discipline rather than providing benefits related to stability and continuity.
The aim of this study was to determine the link between multiple directorships (MDs) and cash holdings. This study used the source from the firm’s annual report, as these studies were secondary data. Smart PLS 3.0 was used to verify the secondary data collected. This study shows that the number of people holding MDs inside the institution is growing, and this has a great effect on the organization’s interests. In addition, the findings support the first theory, which promotes chief executive officers to hold varied directorships because they contain desired elements from the companies. This study is unique because it is the first in the Sultanate of Oman to investigate financial enterprise at the Muscat Stock Exchange with the goal of achieving certainty. It evaluates whether having executives with one or numerous directorships is advantageous for the organization and its stakeholders
Corporate Governance, Firm Size, and Earning Management: Evidence in Indonesi...IOSR Journals
Purpose –Thepurpose of this paper is to evaluate the impact of the corporate governance regulationsimplementation and firm size onthe earning management for food and beverages companies in Indonesian Stock Exchange. Design/methodology/approach –The multiple regression is utilized to test this relationship at 95% confidence.Corporate governance was proxied by board of director, audit quality, and board independence. Firm size was represented by natural logarithm of total assets. Earning management was measured by Jones model withdiscretionary accruals. Findings – Using data from the year 2005 annual reports of 51 food and beverages listed companies,including the composite index, the results showed that twoof the corporate governance variables, namely board of director and audit quality, as well as firm size are statistically significant in explaining earning management measured bydiscretionary accruals. Research limitations/implications – The regulations on corporate governance were implementedin 2005, but not all of food and beverages listed companies implemented the regulations in 2005. Practical implications – An implication of this finding is that regulatory efforts initiated after the1997 financial crisis to enhance corporate transparency and accountability did not appear to result on better corporate performance. Originality/value – This is one of the few studies which investigates the impact of regulatory actionson corporate governance on earning management immediately after its implementation.
Impact of Corporate Governance on Firms’ Financial Performance: Textile Secto...inventionjournals
Purpose: The basic standard of this article is to find out the outcome of corporate governance on firm’s profitability in textile sector of listed companies in Pakistan. Methodology: The data are collected from respective textile sector annual reports from 2005 to 2014.The results of different variables arise by using different techniques like descriptive, correlation and regression in using software of E-views in this study. Findings: These results of study explain that corporate governance and firm’s financial performance shows positive relationship between each other. This indicates that in textile sectors adopting corporate governance and plays a significant role in textile sectors. Research limitations: This study restricts by fewer digit of determinantslinked corporategovernance and data gathered from 2005 to 2014 were addressed, which restrictions the overview of the result. Further research can be conduct by using more variables and more years for finding more in future. Originality: This study shows that the firm’s performance has increased by using corporate governance in textile sector firms.
Impact of Corporate Governance on Firms’ Financial Performance: Textile Secto...inventionjournals
Purpose: The basic standard of this article is to find out the outcome of corporate governance on firm’s profitability in textile sector of listed companies in Pakistan. Methodology: The data are collected from respective textile sector annual reports from 2005 to 2014.The results of different variables arise by using different techniques like descriptive, correlation and regression in using software of E-views in this study. Findings: These results of study explain that corporate governance and firm’s financial performance shows positive relationship between each other. This indicates that in textile sectors adopting corporate governance and plays a significant role in textile sectors. Research limitations: This study restricts by fewer digit of determinantslinked corporategovernance and data gathered from 2005 to 2014 were addressed, which restrictions the overview of the result. Further research can be conduct by using more variables and more years for finding more in future. Originality: This study shows that the firm’s performance has increased by using corporate governance in textile sector firms.
Corporate Governance and Corporate Profitability Empirical Study of Listed La...ijtsrd
Corporate governance is concerned with ways in which all parties interested in the well- being of the organization attempt to ensure that mangers and other insiders take measures or adopt mechanisms that safeguard the interests of the stakeholders.. The purpose of the study is to find out the impact of corporate governance on profitability of listed Land and Property companies in Sri Lanka. Return of Assets is used as dependent variable. To measure the corporate governance, Board size, Board composition and independent directors of Remuneration committee. number of auditors are considered in this study. Firm size was considered as control variable in this study. The data were collected from firms annual financial reports and Data Stream over the period of 2011to 2016, from the CSE website. Descriptive statistics, correlation analysis, multiple linear regression analysis were used to analyse the data and examine the hypotheses by using the E-views 10 version, in this study. The findings revealed that there is a positive and significant relationship between ROA with auditors, board composition. Independent directors of Remuneration committee and board size are insignificantly correlated with ROA. Furthermore, it was found that the control variable firm size was insignificant in influencing firm performance ROA ..This study provides useful information for policy makers, regulators in improving the corporate governance policies in the future and also helps in increasing and understanding the relationship between corporate governance and firms performance. S. Anandasayanan | H. Thavarasasingam "Corporate Governance and Corporate Profitability: Empirical Study of Listed Land and Property Companies in Sri Lanka" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-2 , February 2019, URL: https://www.ijtsrd.com/papers/ijtsrd20309.pdf
Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/20309/corporate-governance-and-corporate-profitability-empirical-study-of-listed-land-and-property-companies-in-sri-lanka/s-anandasayanan
This document provides an introduction and literature review on corporate governance practices in India. It discusses how weak corporate governance has led to corporate fraud cases. It then summarizes the regulatory efforts in India to improve transparency and accountability, including the implementation of Clause 49. The literature review highlights various studies that have evaluated corporate governance practices around the world and identified factors that help or hinder effective corporate governance. These include board independence, ownership structure, national culture, and regulatory enforcement. The document aims to assess adherence to corporate governance regulations among the largest Indian companies.
The document analyzes the failure of corporate governance in the telecommunications industry and recent reform efforts. It discusses how a lack of oversight and toxic cultures at companies like WorldCom led to massive accounting scandals and failures. Reform efforts included the Sarbanes-Oxley Act, which aimed to improve internal controls and board oversight. Recent proposals emphasize the board's role in monitoring management, aligning executive pay with long-term performance, and engaging with shareholders. Good corporate governance with transparency, accountability and an emphasis on sustainability is important for companies to avoid failures and crises.
Similar to Brennan, Niamh and McDermott, Michael [2004] Alternative Perspectives on Independence of Directors, Corporate Governance: An International Review, 12 (3): 325-336. (18)
Brennan, Niamh M. and Conroy, John P. [2013] Executive Hubris: The Case of a ...Prof Niamh M. Brennan
Purpose – Can personality traits of Chief Executive Officers (CEOs) be detected at-a-distance? Following newspaper speculation that the banking crisis of 2008 was partly caused by CEO hubris, this paper analyses the CEO letters to shareholders of a single bank over ten years for evidence of CEO personality traits, including: (i) narcissism (a contributor to hubris), (ii) hubris, (iii) overconfidence and (iv) CEO-attribution. Following predictions that hubris increases the longer individuals occupy positions of power, the research examines whether hubristic characteristics intensify over time.
Design/methodology/approach – This paper takes concepts of hubris from the clinical psychology literature and applies them to discourses in CEO letters to shareholders in annual reports. The research comprises a longitudinal study of the discretionary narrative disclosures in the CEO letters to shareholders in eight annual reports, benchmarked against disclosures in the CEO letters to shareholders of the previous and subsequent CEOs of the same organisation.
Findings – Results point to evidence of narcissism and hubris in the personality of the Bank CEO. Over half the sentences analysed were found to contain narcissistic-speak. In 45% of narcissistic-speak sentences, there were three of more symptoms of hubris – what Owen and Davison (2009) describe as extreme hubristic behavior. In relation to CEO overconfidence, only seven (2%) sentences contained bad news. More than half of the good news was attributed to the CEO and all the bad news was attributed externally. The research thus finds evidence of hubris in the CEO letters to shareholders, which became more pronounced the longer the CEO served.
Research limitations/implications – The analysis of CEO discourse is highly subjective, and difficult to replicate.
Originality/value – The primary contribution of this research is the adaptation of the 14 clinical symptoms of hubris from clinical psychology to the analysis of narratives in CEO letters to shareholders in annual reports to reveal signs of CEO hubris.
Craig, Russell J. and Brennan, Niamh M. [2012] An Exploration of the Relation...Prof Niamh M. Brennan
This paper proposes a taxonomy to assist in more clearly locating research on aspects of the association between corporate reputation and corporate accountability reporting. We illustrate how our proposed taxonomy can be applied by using it to frame our exploration of the relationship between measures of reputation and characteristics of the language choices made in CEO letters to shareholders. Using DICTION 5.0 software we analyse the content of the CEO letters of 23 high reputation US firms and 23 low reputation US firms. Our results suggest that company size and visibility each have a positive influence on the extent to which corporate reputation is associated with the language choices made in CEO letters. These results, which are anomalous when compared with those of Geppert and Lawrence (2008), highlight the need for caution when assessing claims about the effects on corporate reputation arising from the language choice in narratives in corporate annual reports.
Brennan, Niamh [1996] Disclosure of Profit Forecasts during Takeover Bids. Do...Prof Niamh M. Brennan
This thesis examines disclosure of 250 profit forecasts in 701 UK takeover bids in the period 1988 to 1992 against five research issues:
• Factors influencing disclosure of forecasts
• Influence of prevailing market expectations
• Effect of disclosure of forecasts on the outcome of bids
• Factors influencing disclosure content in forecasts
• Whether forecasts disclosed convey good news
Logit analysis and negative binomial regression are the two primary statistical techniques used to analyse the results.
Results show the domination of the takeover-context of the research. Two variables accounted for almost all the influence on disclosure of forecasts for both bidders and targets: bid horizon and type of bid. Probability of disclosure of a forecast is greater the shorter the bid horizon and during contested bids.
In addition to bid horizon and type of bid, for bidders, year, value of bid and purchase consideration were significant, and for targets value of bid and industry were significant in one of the two models estimated.
Evidence supporting the hypothesis that forecast disclosure is more likely when market expectations are out of line with actual results is provided.
There is some evidence that forecasts by targets affect the outcome of bids, but there is no such evidence for bidders.
Takeover-context variables and forecast-related variables were most relevant in determining disclosures in forecasts. Disclosure content in forecasts was significantly greater during contested bids, in voluntary forecasts and in longer period forecasts. Significantly more assumptions were disclosed by target forecasters and in longer horizon forecasts.
Evidence shows a tendency to disclose good news, with some disclosure of bad news. Good news forecasts are more likely during contested bids. Targets are more likely to disclose bad news forecasts, but when bidders disclose bad news it tends to be worse on average than targets’ bad news.
Merkl-Davies, Doris M., Brennan, Niamh M. and McLeay, Stuart J. [2011] Impres...Prof Niamh M. Brennan
Purpose – Prior accounting research views impression management predominantly though the lens of economics. Drawing on social psychology research, we provide a complementary perspective on corporate annual narrative reporting as characterised by conditions of ‘ex post accountability’ (Aerts, 2005, p. 497). These give rise to (i) impression management resulting from the managerial anticipation of the feedback effects of information and/or to (ii) managerial sense-making by means of the retrospective framing of organisational outcomes.
Design/methodology/approach – We use a content analysis approach pioneered by psychology research (Newman et al., 2003) which is based on the psychological dimension of word use to investigate the chairmen’s statements of 93 UK listed companies.
Findings – Results suggest that firms do not use chairmen’s statements to create an impression at variance with an overall reading of the annual report. We find that negative organisational outcomes prompt managers to engage in retrospective sense-making, rather than to present a public image of organisational performance inconsistent with the view internally held by management (self-presentational dissimulation). Further, managers of large firms use chairmen’s statements to portray an accurate (i.e., consistent with an overall reading of the annual report), albeit favourable, image of the firm and of organisational outcomes (i.e., impression management by means of enhancement).
Research limitations – The content analysis approach adopted in the study analyses words out of context.
Practical implications – Corporate annual reporting may not only be understood from a behavioural perspective involving managers responding to objectively determined stimuli inherent in the accountability framework, but also from a symbolic interaction perspective which involves managers retrospectively making sense of organisational outcomes and events.
Originality/value – Our approach allows us to investigate three complementary scenarios of managerial corporate annual reporting behaviour: (i) self-presentational dissimulation, (ii) impression management by means of enhancement, and (iii) retrospective sense-making.
Brennan, Niamh M., Daly, Caroline A. and Harrington, Claire S. [2010] Rhetori...Prof Niamh M. Brennan
This exploratory study extends the analysis of narrative disclosures from routine reporting contexts such as annual reports and press releases to non-routine takeover documents where the financial consequences of narrative disclosures can be substantial. Rhetoric and argument in the form of impression management techniques in narrative disclosures are examined. Prior thematic content analysis methods for analysing good and bad news disclosures are adapted to the attacking and defensive themes in the defence documents of target companies subject to hostile takeover bids. The paper examines the incidence, extent and implications of impression management in ten hostile takeover defence documents issued by target companies listed on the London Stock Exchange between 1 January 2006 and 30 June 2008. Three impression management strategies – thematic, visual and rhetorical manipulation – are investigated using content analysis methodologies. The findings of the research indicate that thematic, visual and rhetorical manipulation is evident in hostile takeover defence documents. Attacking and defensive sentences were found to comprise the majority of the defence documents analysed. Such sentences exhibited varying degrees of visual and rhetorical emphasis, which served to award greater or lesser degrees of prominence to the information conveyed by target company management.
While exploratory in nature, this paper concludes with suggestions for future more systematic research allowing for greater generalisations from the findings.
Brennan, Niamh M., Guillamon-Saorin, Encarna and Pierce, Aileen [2009] Impres...Prof Niamh M. Brennan
Purpose – This paper develops a holistic measure for analysing impression management and for detecting bias introduced into corporate narratives as a result of impression management.
Design/methodology/approach – Prior research on the seven impression management methods in the literature is summarised. Four of the less-researched methods are described in detail, and are illustrated with examples from UK Annual Results’ Press Releases (ARPRs). A method of computing a holistic composite impression management score based on these four impression management methods is developed, based on both quantitative and qualitative data in corporate narrative disclosures. An impression management bias score is devised to capture the extent to which impression management introduces bias into corporate narratives. An example of the application of the composite impression management score and impression management bias score methodology is provided.
Findings – While not amounting to systematic evidence, the 21 illustrative examples suggest that impression management is pervasive in corporate financial communications using multiple impression management methods, such that positive information is exaggerated, while negative information is either ignored or is underplayed.
Originality/value – Four impression management methods are described in detail, illustrated by 21 examples. These four methods are examined together. New impression management methods are studied in this paper for the first time. This paper extends prior impression management measures in two ways. First, a composite impression management score based on four impression management techniques is articulated. Second, the composite impression management score methodology is extended to capture a measure for bias, in the form of an impression management bias score. This is the first time outside the US that narrative disclosures in press releases have been studied.
Merkl-Davies, Doris M. and Brennan, Niamh M. [2007] Discretionary Disclosure ...Prof Niamh M. Brennan
This paper reviews and synthesizes the literature on discretionary narrative disclosures. We explore why, how, and whether preparers of corporate narrative reports use discretionary disclosures in corporate narrative documents and why, how, and whether users react thereto. To facilitate the review, we provide three taxonomies based on: the motivation for discretionary narrative disclosures (opportunistic behavior, i.e. impression management, versus provision of useful incremental information); the research perspective (preparer versus user); and seven discretionary disclosure strategies.
Brennan, Niamh M. and McGrath, Mary [2007] Financial Statement Fraud: Inciden...Prof Niamh M. Brennan
This document summarizes a research paper that studied 14 cases of financial statement fraud from the US and Europe. It found that senior management was usually responsible, and the most common method of fraud was recording false sales to meet external earnings forecasts. Fraud was typically discovered by management, either existing or new management taking over.
Brennan, Niamh and Kelly, John [2007] A Study of Whistleblowing Among Trainee...Prof Niamh M. Brennan
Over the last number of years whistleblowers have been gaining prominence. This paper investigates some of the factors that influence the propensity or willingness to blow the whistle among trainee auditors. Three categories of factors are examined: audit firm organisational structures, personal characteristics of whistleblowers and situational variables.
A survey of 240 final year students of the Institute of Chartered Accountants in Ireland was undertaken. Trainee auditors (just about to sit their finals) were asked about their confidence in internal and external reporting structures in their firms. Using four scenarios, audit trainees were questioned on their willingness to challenge an audit partner’s inappropriate response to concerns raised during the audit. Finally, audit trainees were asked about the influence of legal protection on their likelihood of whistleblowing.
Results indicate that where firms have adequate formal structures for reporting wrongdoing, trainee auditors are more likely to report wrongdoing and have greater confidence that this will not adversely affect their careers. Training increases this confidence. Trainee auditors also express a willingness to challenge an audit partner’s unsatisfactory response to wrongdoing. Significant differences were found in attitudes depending on whether the reports of wrongdoing were internal or external. The willingness to report wrongdoing externally reduces for older (aged over 25) trainees.
Brennan, Niamh and Gray, Sidney J. [2005] The Impact of Materiality: Accounti...Prof Niamh M. Brennan
This paper comprises a review of the literature on materiality in accounting. The paper starts by examining the context in which materiality is relevant, and the problems arising from applying the concept in practice. Definitions of materiality from legal, accounting and stock exchange sources are compared. The relevance of materiality to various accounting situations is discussed. Methods of calculating quantitative thresholds are described and illustrated. Prior research is reviewed, focussing on materiality thresholds, and on the materiality judgments of auditors, preparers and financial statement users. The paper concludes with some suggestions for future research and for policy makers concerning this best kept accounting secret.
Brennan, Niamh [2005] Accounting Expertise in Litigation and Dispute Resoluti...Prof Niamh M. Brennan
This document summarizes the role of expert witnesses in litigation, with a focus on accounting experts. It discusses how expert witnesses are used to assist courts in resolving complex issues outside the knowledge of judges and juries. The expert's primary duty is to the court, not to the hiring party. The summary also outlines important qualities of expert testimony like being unbiased, relevant, reliable, and cost-effective. It notes that experts can face civil liability for negligence if these qualities are lacking. Finally, it provides an overview of the process for selecting and engaging expert witnesses.
Brennan, Niamh [2001] Reporting Intellectual Capital in Annual Reports: Evide...Prof Niamh M. Brennan
This paper examines the extent to which a sample of 11 knowledge-based Irish listed companies is adopting methodologies for reporting of intellectual capital in their annual reports. Their market and book values were compared and a content analysis of the annual reports of the 11 listed companies was conducted. With the exception of two of the 11 listed companies, significant differences in market and book values were found suggesting that knowledge-based Irish listed companies have a substantial level of non-physical, intangible, intellectual capital assets. The level of disclosure of intellectual capital attributes by the 11 listed companies studied was low.
Brennan, Niamh and Connell, Brenda [2000] Intellectual Capital: Current Issue...Prof Niamh M. Brennan
Substantial differences between company book values and market values indicate the presence of assets not recognised and measured in company balance sheets. Intellectual capital assets account for a substantial proportion of this discrepancy. At present, companies are not required to report on intellectual capital assets which leaves the traditional accounting system ineffective for measuring the true impact of such intangibles.
Regulations currently in place are analysed in this paper. Prior research concerning intellectual capital is next presented. Frameworks for intellectual capital are compared. Indicators used for the measurement of intellectual capital are examined. The research methodologies employed for collecting information about the use of intellectual capital accounts in companies are reviewed.
Guidelines available to companies for reporting on intellectual capital are considered and also the efforts made towards developing an accounting standard for intellectual capital. Finally, current issues and policy implications of accounting for intellectual capital in the future are examined.
Brennan, Niamh and Hourigan, Denis [2000] Corporate Reporting on the Internet...Prof Niamh M. Brennan
This document summarizes a study examining corporate reporting practices on the Internet by Irish companies in 1998. The study analyzed 109 Irish listed and semi-state companies. It found that 35 (37%) listed companies and 15 (100%) semi-state companies had a website. Larger companies and those in the services and financial industries were more likely to have a website. The study aimed to examine the level of Internet usage, types of financial information disclosed, and characteristics of companies with websites, such as size, leverage, and industry.
Brennan, Niamh [2000] An Empirical Examination of Forecast Disclosure by Bidd...Prof Niamh M. Brennan
This paper examines voluntary disclosure of profit forecasts by bidding companies during takeovers. Disclosure is examined from two perspectives: (i) factors influencing disclosure and (ii) the influence of good news and bad news on disclosure.
Takeover documents published during 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992 were examined.
Two variables accounted for almost all the influences on disclosure of forecasts: bid horizon and type of bid. Probability of forecast disclosure was greater the shorter the bid horizon and during contested bids. In addition, there was some evidence that the nature of the purchase consideration offered by the bidder (cash or paper) and the industry of the bidder influenced disclosure. Disclosure was significantly more likely in paper bids and in the durable goods industry.
Forecasts were more likely to be disclosed when firms had good news to report.
Brennan, Niamh and Marston, Claire [1999] A Comparative Analysis of Required ...Prof Niamh M. Brennan
This paper explores the extent to which there are significant differences in disclosure requirements under US, UK, international accounting standards. Previous research into international disclosure diversity has focused on an analysis of disclosure practices in different countries rather than on disclosures required by regulations in different countries.
Financial disclosures required by UK professional regulations and by International Accounting Standards (IASs) are summarised and classified using Barth and Murphy’s (1994) categorisation by purpose of disclosure and by category and subject. US, UK and international required disclosures are compared and areas of divergence are highlighted.
Although differences in required disclosures between the three regulatory regimes are evident from the analysis, these differences are not significant in the multivariate models tested. A notable difference is greater required disclosures in the UK/IASs concerning entity structures (business combinations, consolidations, segmental reporting etc.).A greater proportion of US required disclosures address risks and potentials and assess returns. A much greater proportion of UK/IASs disclosures related to items recognised in accounts.
The Financial Accounting Standards Board is currently examining the issue of disclosure effectiveness in the US. By highlighting areas of diversity in required disclosures in the US, UK and internationally this study will add insights to this discussion of disclosure effectiveness.
Brennan, Niamh [1999] Voluntary Disclosure of Profit Forecasts by Target Comp...Prof Niamh M. Brennan
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more likely during contested bids. In agreed bids, probability of forecast disclosure was greater the shorter the bid horizon. In contested bids, forecasts were more likely where there were large block shareholdings, for larger targets and for targets in the capital goods industry. There was a clear tendency to disclose good news forecasts. A significant positive association between forecast disclosure and increase in offer price was found.
Brennan, Niamh and Nolan, Patrick J. [1998] Remuneration of Irish Chartered A...Prof Niamh M. Brennan
Literature on gender based salary differentials has proliferated in recent years but there have been few studies on salary differentials in the accounting profession. This paper examines factors influencing remuneration of Irish chartered accountants. Responses to the Leinster Society of Chartered Accountants (LSCA) annual salary survey in 1995 and 1996 were analysed. Employee-related and employer-related factors influencing remuneration were examined including Gender, Work experience, Level of responsibility, Employment contract and Size and Industry.
Gender was a significant explanatory variable in explaining differences in salaries paid to employees working in non-audit businesses. Gender, however, was not found to be significant in explaining differences in salaries paid in audit practices. As partners in auditing firms are not included in this research (because partners do not earn a salary) this finding must be interpreted cautiously.
Brennan, Niamh M. [2011] “Applying Principles of Good Governance in a School ...Prof Niamh M. Brennan
This chapter provides insights into the governance of schools. Roles and responsibilities of school boards and school board members are considered, as is the composition of school boards. The elements contributing to effective boards are discussed, in particular the key roles of chairman and school principal which in turn influence board dynamics. Some practical suggestions follow on how to improve school board processes, including agendas, minutes of meetings, board papers, information flows and school board committees. The chapter concludes by referencing the value of school boards evaluating their own effectiveness.
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Brennan, Niamh and McDermott, Michael [2004] Alternative Perspectives on Independence of Directors, Corporate Governance: An International Review, 12 (3): 325-336.
1. Alternative Perspectives on Independence of Directors
Niamh Brennan* and Michael McDermott
(Published in Corporate Governance: An International Review,
12 (3) (July 2004): 325-336)
* Address for correspondence: Prof. Niamh Brennan, Quinn School of Business, University College Dublin,
Belfield, Dublin 4. Tel. +353-1-716 4707; Fax. +353-1-716 4767; email: Niamh.Brennan@ucd.ie
2. Abstract
This paper examines the issue of independence of boards of directors and non-executive
directors of companies listed on the Irish Stock Exchange. Based on information published in
annual reports, the study found that most Irish listed companies were complying with the
Combined Code’s recommendations for a balanced board structure, albeit with only 60 per
cent having majority-independent boards. The study found a lack of consistency in inter-
preting the definition of “independence”, a lack of disclosure of information and, by applying
criteria generally regarded as prerequisite to independence of non-executive directors, certain
situations which imposed upon their independence.
Keywords: Director independence, Higgs Report, Irish plcs
3. Introduction
The role of non-executive directors has changed significantly since the Cadbury Report
(1992) highlighted the particular contribution that independent directors can make to the
governance process. McKinsey & Company (2002) highlights that investors believe
companies should create more independent boards and achieve greater boardroom
effectiveness through better director selection, more disciplined board evaluation processes
and greater time commitment from directors. The objective of this study is to examine the
issue of independence, both at a board level and individual non-executive director level, for
all companies listed on the Irish Stock Exchange, using information disclosed in company
annual reports.
Regulatory framework
The Irish Stock Exchange and London Stock Exchange regulations are for the purposes of
this paper identical. Responding to public concerns in relation to creative accounting, high
profile company failures and a lack of confidence in external auditors, a number of reports
attempted to improve the standard of corporate governance, culminating in the Combined
Code (London Stock Exchange, 1998). In April 2002, the UK Department of Trade and
Industry launched a review on the role and effectiveness of non-executive directors including
“independence” of non-executive directors, following a number of corporate debacles where
board effectiveness has come under the spotlight. The resulting Higgs Report (Higgs, 2003)
was published in January 2003. To the extent that the Higgs Report is adopted in the Listing
Rules, it will have an effect equally in Ireland and in the UK.
This study examines compliance of companies listed on the Irish Stock Exchange with the
recommendations of the Combined Code and with those of the Higgs Report in respect to
board structure and issues related to independence of non-executive directors. Although the
research was carried out in July 2002, prior to publication of the Higgs Report in January
2003, it anticipated many of the Higgs recommendations on independence of directors. This
allowed the results to be assessed subsequently against the Higgs recommendations. The
examination reveals an array of definitions for and interpretations of “independence”.
1
4. Literature review
Independence of boards of directors
The extent to which boards and non-executive directors are independent varies depending
upon business or personal associations with senior management (Mace, 1986; Patton and
Baker, 1987). As a consequence, no common consensus exists as to a unique definition for
independence.
Arguably, improvements in the independence of corporate boards ought to yield
improvements in corporate performance. Independent directors are expected to be more
effective in monitoring managers, thereby reducing the agency costs arising from the
separation of ownership (shareholders) and control (managers) in day-to-day company
management. Empirical evidence challenges the conventional wisdom that board
independence produces better corporate performance (Bhagat and Black, 1997, 2002), stating
that there is no evidence that companies with more independent boards perform better than
other companies. Studies of outsider ratios and corporate performance have produced
correlations ranging from positive (Pearce and Zahra, 1992) to negative (Beatty and Zajac,
1994). Some studies have found zero or near-zero effects (Buchholtz and Ribbens, 1994).
Yermack (1996) found a negative relationship between the proportion of independent
directors and corporate performance. Further doubt was cast by two UK studies (Vafeas and
Theodorou, 1998; Laing and Weir, 1999) which failed to find a relationship between the
proportion of non-executive directors and corporate performance. Other research has reported
that a higher ratio of executive, not outside directors, is associated with higher R&D spend
(Baysinger et al., 1991), greater likelihood of CEO dismissal in times of financial crises
(Ocasio, 1994) and higher firm performance (Pearce, 1983). These studies argue that
executive directors, who have access to fuller information about their companies, are in a
better position than outside directors to make decisions about critical areas of operation and
performance.
On the other hand, the contrasting executive-dominated board is seen as a device for
management entrenchment; there have been calls for boards to have a “substantial majority”
of independent directors. Yet there are numerous anecdotes where apparently independent
2
5. boards have not prevented shareholder wealth destruction, (e.g. Enron had 15 so-called
“independent” directors on its 17-member board) (Paltrow, 2002; United States Senate,
2002).
Independence of non-executive directors
Proponents of board reform have long advocated non-executive director representation as a
means of increasing the independence and effectiveness of boards (Bacon and Brown, 1973;
Dayton, 1984; Waldo, 1985). However, defining “independence” and applying appropriate
criteria to selecting non-executive directors is a question of judgement. What one person
considers independent, the next person may not.
A UK survey (KPMG, 2002) of views on independence found that directors should not:
• Represent a specific shareholder or other single interest group (96 per cent);
• Participate in company share option or performance-related remuneration schemes (93
per cent);
• Have conflicting or cross directorships (89 per cent); or
• Have significant financial or personal ties to the company or its management which could
interfere with the director’s loyalty to shareholders (96 per cent).
Furthermore, far more respondents considered directors not to be independent where they had
been employees for more than five years (64 per cent). By contrast, only 25 per cent of
respondents considered directors to lose their independent status when they had served as a
director for more than five years.
Interlocking directorates
Several theories on the influence of interlocking directorates on corporate behaviour have
been proposed. Interlocking directorates may:
(i) be a mechanism for collusion and cooperation (e.g. Koenig et al., 1979; Burt 1983);
(ii) enable companies to control, or monitor others (Pfeffer and Salancik, 1978; Mizruchi,
1982; Mizruchi and Stearns, 1994); and
(iii) be a source of information on business practices (Useem, 1984; Davis, 1991;
Haunschild, 1993).
3
6. Despite the range of studies, research has produced contradictory results on the issue of
whether interlocking actually affects companies (Palmer et al., 1995; Fligstein, 1995). Some
research found positive effects of interlocking on company profits (e.g. Burt, 1983), while
others found negative effects (Fligstein and Brantley, 1992). Fligstein and Brantley argue that
interlocks do not influence a company’s strategic choices.
Because of Ireland’s small size and close-knit business community, it might be expected that
there is a strong, closely connected network. Possibly because of features of Ireland’s largest
250 companies (large number of foreign and private companies, only 14 per cent of sample
comprising plcs), networks of interlocking directorates were relatively sparse compared with
other countries (MacCanna et al., 1999).
Remuneration of non-executive directors
Recent research indicates that remuneration for outside directors has significantly increased,
largely due to the growth of stock-based compensation (Oppermann, 1997; Perry, 1999;
Schellhardt, 1999). Perry documented that, for firms with independent boards whose outside
directors receive stock options, the probability of CEO dismissal increases the more poorly
the firm performs.
Bryan et al. (2000) studied the relationship between a set of company characteristics and
outside director compensation, and concluded that outside board members are paid
increasingly in a manner to mitigate agency problems (i.e. are paid increasingly in the form
of shares and share options, and less in cash). They concluded that outside board
compensation packages are designed largely around agency-cost reduction, arising from
management oversight and control that is separate from ownership.
Independence of boards of directors – sub-committees
Many companies have adopted the monitoring sub-committee structure, which allows for a
more detailed involvement of the non-executive directors in representing the interests of the
shareholders. Klein’s (1998) research on board committee structures states that independent
4
7. directors can only perform the monitoring function if they are embedded in the appropriate
committee structure. However, both a US study (Klein, 1998) and a UK study (Vafeas and
Theodorou, 1998) concluded that board subcommittee structures had no effect on corporate
performance.
Nomination committees bring an objective approach to director selection (Bostock, 1995),
and its presence signals to the market the company’s attitude to board independence.
One of the doubts relating to the Cadbury Report (1992) was the assumption that the
objectivity of the remuneration committee would control excessive executive pay. These
doubts were reinforced by empirical research which showed that chief executives receive
higher pay in firms which operate a remuneration committee, and not the reverse (Main and
Johnston, 1993).
Paragraph D3.1 of the 1988 Combined Code states that the audit committee should have “at
least three directors, all non-executive, with written terms of reference . . .” and “The
members of the committee...should be named in the report and accounts”. Business and
academic press have persistently focused on audit committee composition as an important
determinant of quality financial reporting (Vicknair et al., 1993), and there is widespread
agreement that audit committees should consist of independent directors to oversee the
financial reporting process (Beasley, 1996). However, even independent audit committees do
not always function as desired. As revealed in the case of Elan (see Pierce (2003) for a dis-
cussion of this case) and Allied Irish Banks plc (see McNee (2002) for a discussion of this
case), the existence of a properly constituted audit committee did not guarantee that non-
executive directors would identify/act on either internal control weaknesses or unusual
accounting policies. As observed with Enron’s audit committee, there was little incentive to
perform their oversight responsibilities. Three of the six committee members lived outside
the country, and the remaining three members received financial payments from Enron, sug-
gesting their independence from management was limited. The audit committee chairman
had held the position for 15 years, suggesting his independence could have been sacrificed by
his long involvement with Enron.
5
8. Research questions and methodology
The objective of the research is to assess the extent of the independence of boards of directors
of companies listed on the Irish Stock Exchange in the impartial undertaking of their
responsibilities. The research reviews independence from two perspectives:
(i) the first part examines the independence of boards of directors and board subcommittees
by analysing board compositions as disclosed in the annual reports;
(ii) the second part examines the independence of individual non-executive directors by
analysing disclosures in the annual reports, and applying specific determinants generally
regarded as prerequisites for an independent director.
Nine research questions are examined:
Independence of boards
1. What is the proportion of non-executive directors to executive directors on Irish plc
boards?
Independence of individual directors
2. How many non-executive directors have previously held executive roles in the company?
3. How many non-executive directors have previously had relationships with the external
auditors of the company?
4. How many non-executive directors have previously had business relationships with the
company?
5. How many immediate family connections are there between non-executive directors and
management? A “family association” includes a director’s spouse, parents, children,
mothers-and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law.
6. How many non-executive directors have held their positions for more than nine years?
7. How many non-executive directors serve on boards of other companies with common non-
executive directors?
8. How much are non-executive directors paid by way of fees?
6
9. Independence of board sub-committees
9. To what extent have companies established audit, remuneration and nomination com-
mittees in accordance with recommended best practice of the 1998 Combined Code?
Population and sample
The population consists of all 81 companies listed on the Irish Stock Exchange on 17 July
2002 (70 fully listed, 11 listed on the Exploration Securities Market/Developing Companies
Market). One company had to be excluded from the research due to difficulty in obtaining a
copy of the company’s annual report, leaving a sample of 80 plcs.
Data collection
Information was collected from the published annual reports. Of the 80 annual reports
included in the study, 68 related to fiscal year 2001, three related to year 2002 and nine
related to year 2000 (details are available from the authors on request). There were no rele-
vant changes in corporate governance regulations, nor were there any other notable
differences between the years (although it could be argued that the Enron scandal which
came to light in late 2001 may have had some impact on the three 2002 annual reports).
Results
Independence of boards of directors
Table 1 shows that of the 749 directors’ biographies studied, 460 (61 per cent) were non-
executive directors and 289 (39 per cent) were executive directors.
7
10. Table 1: Analysis of board of directors – by percent of non-executive directors
Non-executive directors (%) No. Average number Average Total
Companies of executive number of
directors non-executive
directors
91–100 4 0.8 12.8 13.5
81–90 3 2.0 10.3 12.3
71–80 14 2.2 7.1 9.3
61 –70 13 3.7 7.1 10.8
51–60 14 3.9 5.4 9.4
33⅓–50 30 4.6 3.6 8.2
Less than 33⅓ 2 4.5 1.5 6.0
Average 3.6 5.8 9.4
Total 80 289 (39%) 460 (61%) 749 (100%)
Board size was an average 9.4 directors, of which 5.8 were non-executives. The Higgs Report
was published in January 2003 after the research in this paper was conducted. It recommends
(A3.5) that at least half the board (excluding the chairman) should comprise independent
non-executive directors. Although first indications suggested that Irish listed companies were
weighted towards majority-independent boards, further analysis showed 32 (40 per cent)
companies did not have majority-independent boards. Two companies failed to reach the
Combined Code recommendation of having a one-third quota of non-executive directors,
while five companies had exactly the one-third quota. At the other extreme, seven boards had
greater than 80 per cent non-executive director representation, of which, surprisingly, none
were financial institutions. Four boards had supermajority independent boards, i.e. only one
executive director with all remaining directors being non-executive.
The Higgs Report recommends (A3.1) that boards should not be so large as to become
unwieldy, but that they should be of sufficient size in relation to having available the appro-
priate balance of boardroom skills and experience. Average board size of 9.4 directors ranged
from 26 directors down to three. Non-executive directors ranged from 24 to one, with an
average of 5.8 non-executive directors. Of the five largest boards, three were former co-
operatives. Five boards did not have the recommended minimum quota of three non-
executive directors, while 55 (69 per cent) boards had between three and six non-executive
directors (Table 2).
8
11. Table 2: Analysis of board of directors – by number of non-executive directors
No. of non-executive No. Average Average Total
directors Companies number of number of non-
executive executive
directors directors
More than 12 4 5.0 17.3 22.3
11–12 6 3.0 11.3 14.3
9 –10 6 4.3 9.5 13.8
7–8 4 4.3 7.3 11.5
5 –6 21 3.6 5.4 9.0
3–4 34 3.4 3.4 6.8
1–2 5 3.4 1.6 5.0
Total 80 3.6 5.8 9.4
Independence of non-executive directors
The Cadbury Report (1992) recommends that boards should include high-calibre directors.
Although the Stock Exchange listing rules/yellow book requires biographical information on
non-executive directors to be disclosed in annual reports (that requirement was dropped in
1999), biographical information on directors was provided by all 80 companies, varying from
very basic to providing much seemingly unwarranted information. For example, Rapid
Technology Group plc say of one of its directors that he “has extensive commercial
experience and is a director of a number of companies in the computer software industry and
other areas of Irish business” and of another that he “brings sales, service and operational
experience to the board. He is a non-executive director of three other early stage software
companies”. Barlo Group plc describes all of its non-executive directors as being “a director
of a number of other companies”.
Non-executive directors with former executive responsibility
The Higgs Report suggests that a non-executive is not independent if s/he is a former
employee or had any other material connection within the previous five years. Table 3
identifies 41 (9 per cent) non-executive directors as former executives of the company. Three
non-executive directors had retired more than five years, 27 had retired within five years and
the retirement period for 11 former executives could not be ascertained due to insufficient
information.
9
12. Table 3: Analysis of non-executive directors with former
executive responsibility
No. Directors
No former executive responsibility 419 (91%)
Former executive responsibility:
- retired more than five years 3
- retired within five years 27
- insufficient disclosure 11 41 (9%)
Total 460 (100%)
Non-executive directors with auditor associations
The Higgs Report recommends (A3.4) that a person is not an independent director if s/he has
(within the last three years) a material business relationship with the company either directly,
or as a partner, shareholder, director or senior employee of a body that has such a relationship
with the company. This would include company external auditors. Four non-executive
directors were identified as being former employees of the external auditors, and all four
directors were members of their audit committees. The role of the audit committee is to
ensure that an appropriate relationship exists between auditors and management, and as the
annual reports did not indicate the time lapsed since employment was terminated with the
audit firm, independence of these non-executive directors could not be determined.
Non-executive directors with business associations
Most companies provided details of solicitor and stockbroking firms retained by the com-
pany. This disclosure is not comprehensive and the research could only be completed to the
extent of the information provided. For example, some stockbroking firms were known to
have non-executive representation on the plc boards, yet the annual reports did not disclose
the company’s stockbroking affiliations (although it is accepted that this information could
have been obtained from other sources). The research identified a number of boards where
non-executive directors were current or former employees of solicitor and stockbroking firms
or other businesses associated with the company. The annual reports did not indicate the time
lapsed since the four non-executive directors terminated employment with their former
business.
10
13. Non-executive directors with family associations
A person who has close family ties with any of the company’s advisers, directors or senior
employees does not qualify as an independent director under the Higgs Recommendations
(A3.4). A total of 11 non-executive directors representing six boards were identified as
having immediate family associations with executive director(s) of the company.
Non-executive directors with more than nine years of service
The Higgs Report (A7.3) recommends that non-executive directors serving nine years or
more should be subject to annual re-election. For purposes of measuring independence of
non-executive directors, this study has adopted this recommendation and considers board
service beyond nine years (i.e. three ¥ three-year terms) as an encumbrance to independence.
Of the 460 non-executive directors, Table 4 shows that 64 (14 per cent) were identified as
serving for periods longer than nine years, with one company accounting for the largest share
with eight long-serving directors on its board. Service periods of 123 (27 per cent) non-
executive directors could not be determined due to insufficient disclosure.
Table 4: Analysis of non-executive directors – years service
Years of service No. Directors
Up to 9 273 (59%)
10–15 39
16–20 8
21–25 8
26 + 9 64 (14%)
Insufficient disclosure 123 (27%)
Total 460 (100%)
Interlocking directorates
With Ireland’s small and close-knit business community, networking is often considered
necessary for career advancement. However, comparison with other countries shows a com-
paratively lower occurrence of multiple directorships (MacCanna et al., 1999). Interlocking
of directorships was not as frequent as might be expected, probably due to the composition of
Ireland’s top 250 companies including semi-state companies (with political appointments)
11
14. and multinationals (with directors who would be less integrated into Irish business networks).
Recommendation A3.4 of the Higgs Report refers to cross-directorships or significant links
with other directors through involvement in other companies or bodies as impeding
independence. The analysis highlighted only six situations of interlocking directorates of
various degrees.
Fees for non-executive director services
The Cadbury Report (1992) recommends (4.13) that in order to safeguard their independence,
non-executive directors should not participate in share option schemes, and their service as
non-executive directors should not be pensionable by the company. The Higgs Report states
(B1.7) that remuneration in share options should be avoided for non-executive directors.
Most companies comply with these recommendations. A few companies grant share options
to non-executive directors, but this is the exception rather than the rule.
Fees varied according to company size, rank of non-executive chairman, non-executive
deputy chairman and non-executive director, and additional fees were also paid for board
sub-committee duties. Generally, financial institutions and companies with larger boards
made up the bulk of the above-average paying Irish-listed companies. Six companies did not
disclose individual director’s remuneration, opting only to disclose total amounts.
Most non-executive directors received fees for their board service. A number of non-
executive directors only received a small fee/no fee due to having served on the board for
only a portion of the year. Of the 14 non-executive directors who received fees (i.e. excluding
other remuneration) in excess of €100,000, six were with UK-registered companies and five
were chairmen of Irish financial institutions.
The Cadbury Report (1992) stated that non-executive director fees should “recognise their
contribution without undermining their independence”. Table 5 shows that of the 57 directors
1
who received fees above €50,000, 32 were with Irish-registered companies, while five of the
six highest paid Irish non-executives were chairmen of financial institutions. The Higgs
Report (2003, p. 56) states that the average remuneration of a FTSE-100 non-executive
12
15. director is £44,000 p.a., and for FTSE-350 non-executives it amounts to £23,000.
Appropriateness of fee levels is subjective but, on average, fees paid by Irish plcs to non-
executives appear to be comparatively lower than their UK equivalent. This may be partly
due to the lower size of plcs in Ireland compared with the UK. As recommended by the
Cadbury Report (1992), most companies excluded non-executive directors from share option
schemes and company pensions.
Table 5: Analysis of companies – non-executive directors’ fees
No. No.
Average fees per company Companies Average fees per director Companies
More than €70,000 3 More than €250,000 4
60,001–70,000 1 100,001–250,000 10
50,001–60,000 4 50,001 – 100,000 43
40,001–50,000 10 25,001 – 50,000 161
30,001–40,000 12 Up to €25,000 222
20,001–30,000 18
Up to €20,000 26
Insufficient disclosure 6 Insufficient disclosure 20
Total 80 Total 460
The Higgs Report recommends (A4.8) that no individual should chair the board of more than
one major (FTSE-100) company. Non-executive directors should undertake that they have
sufficient time for the position, taking account of their other commitments. In this context, a
total of 37 non-executive directors hold directorships with two or more Irish plcs, with three
non-executive directors each holding four directorships with total fees of €189,000, €156,000
and €220,000, respectively.
In addition to board fees, 71 non-executive directors also received fees for consulting and
other services. Table 6 shows that 11 directors received payments greater than €100,000 for
13
16. additional services provided by the individual to the company, of which seven were associ-
ated with two companies.
Table 6: Analysis of non-executive directors’ other
remuneration
No. Directors
More than €250,000 2
100,001 – 250,000 9
50,001 – 100,000 5
25,001 – 50,000 5
Up to €25,000 50
Total 71
Independence of boards of directors – sub-committees
Of the 80 sample companies, Table 7 shows that 41 (51 per cent) had separate audit, re-
muneration and nomination committees. A further 21 (26 per cent) companies had audit
and additional services provided by the individual to the company, of which seven were
associated with two companies.
Table 7: Analysis of board sub-committees
Audit Remuneration Nomination
No. companies Committee Committee Committee
41 C C C
21 C C NC
1 C PC C
1 C PC NC
1 C NC NC
4 PC C C
3 PC C NC
2 PC PC NC
1 NC C C
1 NC C NC
1 NC PC NC
3 NC NC NC
Total = 80
C=Full compliance
PC=Part compliance (i.e. less than requisite committee members or includes
executive director).
NC= No committee
14
17. Independence of boards of directors – sub-committees
Of the 80 sample companies, Table 7 shows that 41 (51 per cent) had separate audit, re-
muneration and nomination committees. A further 21 (26 per cent) companies had audit and
remuneration committees, but did not have a separate nomination committee for reasons
varying from board size to believing that the entire board of directors was a more appropriate
forum to nominate and ratify appointments. Finally, although a number of companies did not
have a nomination/remuneration/audit committee, there were three companies which did not
have any of these sub-committees.
Nomination committee
The Combined Code advocates that, unless a board is small, a nomination committee should
be established, and leaves the definition of a “small board” open to interpretation. Thirty-
three (41 per cent) companies elected not to establish a separate committee, which included
significantly capitalised companies, stating their preference for the board as a whole to
function as the nomination committee.
Remuneration committee
Four companies had no remuneration committee, while five companies had executive director
involvement on the committee. In a number of cases the function of both the remuneration
and nomination committees was rolled into one.
Audit committee
Six companies had no separate audit committee, and referred such audit duties to the full
board of directors. Five companies had executive director involvement on the audit com-
mittee, while five companies were unable to meet the quota due to having less than three non-
executive directors on the board.
Independence of non-executive directors
The level of biographical disclosure to assess director’s independence varied from providing
inadequate to providing unwarranted information. In addition, insufficient disclosure was
another concern. Tables 3, 4 and 5 have already shown incidences of insufficient disclosure,
15
18. which are summarised in Table 8. Table 8 also shows other incidences where insufficient
disclosure was found of prior auditor/business relationships not disclosed in the annual report
but known (mainly from the financial press) to exist. The insufficiency of data does not
permit a full assessment of independence, and the study could only be completed to the
extent of information provided. It is difficult to systematically assess the extent to which data
were not disclosed that should have been disclosed by companies, without having in-depth
knowledge of the 80 firms in the research. However, a total of 162 instances of insufficient
disclosure were found. The analysis also shows the number of insufficient disclosures per
company. There were 19 companies (24 per cent of the sample) that had more than three
insufficient disclosures per company. There were 127 insufficient disclosures in respect of
these 19 companies, i.e., nearly seven per company. These 19 companies are so inadequate in
their disclosures that it begs a question about the value of a non-mandatory Code.
Table 8: Companies with insufficient disclosures
Former Auditor Business Years of NED Total
No. insufficient No. executive association association/ board service fees
disclosures companies responsibility affiliation
Number of insufficient disclosures
More than 3 19 9 1 1 102 14 127
3 insufficient 7 1 1 1 12 6 21
disclosures
2 insufficient 4 1 1 1 5 8
disclosures
1 insufficient 6 - 1 1 4 6
disclosures
Zero 44 - - - - - -
Total 80 11 4 4 123 20 162
In some cases, the biographical information clearly revealed circumstances which would
conflict with conditions for independence currently being recommended by the Higgs Report.
These were discussed earlier in the context of Tables 3 and 4. All such cases are brought
together in Table 9 to show the extent to which companies at the time of the research were
not observing one or more of the Higgs Report recommendations on independence. For the
80 companies in the sample, a total of 115 instances of non-observance were found. There
were seven companies with more than three breaches each, totalling 48 breaches (i.e. nearly
16
19. seven breaches per company). Again this begs the question: how proactive is the Irish Stock
Exchange in ensuring high standards of compliance with its Combined Code? Is it to the
advantage of the market that the comply-or-explain aspects of the voluntary combined code
operate in the absence of any regulatory oversight? Is the Irish Stock Exchange more tolerant
of breaches of the Combined Code than, for example, its near neighbour the London Stock
Exchange?
Table 9: Companies not meeting Higgs’ independence standards
Former Business Family Board service Total
No. non- No. executive association/ associati0ns > 9 years
observations companies responsibility affiliation
Number of non-observations
More than 3 7 6 8 6 28 48
3 insufficient 6 4 2 - 12 18
disclosures
2 insufficient 13 7 - 3 16 26
disclosures
1 insufficient 23 10 3 2 8 23
disclosures
Zero 31 - - - - -
Total 80 27 13 11 64 115
Summary and conclusions
The topic of independence has been widely discussed and debated in recent times, yet there
has never been agreement on what constitutes an independent director. This paper examines
the issue of independence of boards of directors and non-executive directors of companies
listed on the Irish Stock Exchange and refers to the recommendations made in the Higgs
Report in the UK.
The study finds that only 48 (60 per cent) companies had majority-independent boards. Board
size at 9.4 directors is below the UK average of between 12 and 13 members (Conyon, 1994;
Bostock, 1995). This trend extends to the monitoring sub-committees where only 41 (51 per
cent) companies complied with the recommendations for separate audit, remuneration and
nomination committees. The Cadbury Report (1992) refers to the audit function and its
objectivity and effectiveness as the cornerstone of corporate governance, yet only 65 (81 per
17
20. cent) companies consider it appropriate to establish a separate audit committee, suggesting
anecdotal evidence that some Irish companies pay only “lip service” to the recommendations.
Non-availability of information was a serious drawback to the research. In total, 162
instances of insufficient disclosure were found, with 19 (24 per cent) companies contributing
127 (78 per cent) of the non-disclosures.
Results indicate that Irish plcs have a long way to go to fully comply with the Higgs
recommendations on independence of non-executive directors. Only 31 (38 per cent)
companies had full Higgs-independent boards. The remaining 49 companies did not meet the
Higgs definitions of independence 115 times. Of these, there were seven problem companies
that did not meet the Higgs independence standards 48 times (i.e. almost seven times per
company). Thus, there is a lack of agreement as to what constitutes an independent director.
The definition of an independent director requires clarification to prevent misinterpretation.
The Higgs Report (2003) is a welcome move in this direction.
Implications for policymakers
The lack of compliance by some companies with some of the provisions of the Combined
Code highlights the limitations of using non-mandatory codes. It is likely that problem
companies, most in need of following best practice, are least likely to adopt non-mandatory
provisions.
There is a need for greater consistency in information being disclosed in the annual reports.
This does not infer that more information is required, but rather specific information on both
executive and non-executive directors should be made explicit to prevent ambiguity.
Limitations of the research
Several limitations of the study should be acknowledged.
• The sample comprising Irish listed companies contains a very diverse group of
companies and it is questionable whether they should be treated on an equal basis. Firms
vary considerably, notably in terms of size/market capitalisation. In reality a small
18
21. number of companies comprise approximately 70–80 per cent of market capitalisation.
• The comprehensiveness of information provided in the annual report may be
questionable. Companies may be reluctant voluntarily to divulge proprietary information.
However, without specific disclosure requirements, the annual report may remain an
interesting rather than an influential document.
• This study concurs with the popular press that business or personal associations can
impede board independence. Conversely, other studies (Westphal, 1999) suggest that in
fact board effectiveness, and ultimately firm performance, can be enhanced by close
relationships with management. Thus, rather than dividing directors into insiders and
outsiders, a company can benefit by using team development techniques to develop a
cohesive and effective board.
As regulators look to strengthen the role and responsibility of the independent director in
overseeing and policing the conduct and behaviour of management, perhaps it is the rationale
behind the behaviour that needs to be better understood. Principles and codes of corporate
practice influence the behaviour of boards of directors, but it was investors’ relentless desire
for double-digit earnings growth that had the greater influence on their behaviour. As the
level of interest in honesty, transparency and corporate governance rises in proportion to the
number of corporate disasters, so too must the markets and investment community come to
admire these same qualities.
Note
1. The Euro/sterling exchange rate between August 2001 and March 2002 (period of many
annual reports) ranged from €1 = £1.55 to 1.64. Thus, €50,000 is equivalent to
approximately £30,000/£32,000.
19
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Niamh Brennan is Academic Director of the Institute of Directors Centre for Corporate
Governance at University College Dublin (www.corporategovernance.ie).
Michael McDermott is Director of Finance, Digital Hub Development Agency and an MBA
graduate of University College Dublin.
23