CHAPTER ONE - Amazon Web Services



CHAPTER TWO : BOARDS AND DIRECTORS

Figure 2.1 Framework Analyzing Board Activities

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Source: Hilmer F. and Tricker R.I (1991)

Full Source: Hilmer F. and Tricker R.I. (1991). ” An Effective Board”. Company Director’s Manual, Athol Yeomans, Pearson / Prentice Hall; Sydney.

Figure 2.2 Size and Composition of Boards in the UK

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Full Source: Higgs, D. (2003); “Review of the Role and Effectiveness of Non-Executive Directors, London: Department of Trade and Industry, p.18.

Also cited in the London Stock Exchange: A Practical Guide to Corporate Governance



Figure 2. 3 Red Flags Know to Enron’s Board

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Figure 2.4 Reform of Boards in the United States

Source: Aggarwal, R, and Williamson, R. (2006).

Full Source: Aggarwal, Reena and Williamson, Rohan (2006). “Did New Regulations Target the Relevant Corporate Governance Attributes?”, SSRN, May 15. Figure 1: Percentage of Firms Meeting the Six Sigma Regulations.

Figure 2.5 The Transformation From Management Control to Independent Boards

[pic]

Source: Taylor B. (2004: 423)

Full Source: Taylor Bernard (2004). “Leading The Boardroom Revolution” .Corporate Governance-An International Review, Vol. 12, No. 4, p423.

Figure 2. 6 The Learning Board Model

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Full source: Garratt Bob (2003). The Learning Board. Henley International Corporate Governance

Figure 2.7 Composition of Median CEO Pay in the US 1980-2008

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Source: Data up to 2001, compiled from Hall B. (2003). ‘Six Challenges in Designing Equity-Based Pay’. Journal of Applied Corporate Finance, 15(3): 21-23. From 2002, compiled from Salmans, C (2007). ‘Mercer Issues Annual Study of CEO Compensation at Large US Firms’. Mercer LLC 2009; Towers Perrin ‘2009 Proxy Statements Highlight the New Realities in Executive Compensation’; Institute for Policy Studies ‘Executive Excess Report 2008 and 2007’.

Figure 2.8 Executive Pay as A Multiple of Workers Pay in the United States 1990-2008

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Source: Institute For a Fair Economy (2008). “Executive Excess”, Washington D.C. Institute for Policy Studies/ United for a Fair Economy, p.30.



Figure 2.9 Comparison of CEO and Worker Pay in the US 1990-2005 ( In 2005 dollars)

[pic]

Source: Institute For a Fair Economy (2006).

Full Source: Institute For a Fair Economy (2006) “Executive Excess”, Washington D.C. Institute for Policy Studies/ United for a Fair Economy.

Table 2.1 Specialized Board Committees

| |Audit |Audit |Remuneration (1985) |Remuneration |Nomination |Nomination |

|Country |(1995) |(1998) | |(1998) |(1985) |(1998) |

|France – |0% |90% |0% |70% |0% |43% |

|CAC 40 | | | | | | |

|France- Privatized |- |100% |_ |75% |_ |66% |

|firms | | | | | | |

|Germany – Dax 30 |0% |7% |0% |3% |0% |7% |

| | | | | | | |

|Japan – |0% |0% |0% |0% |0% |0% |

|Top 1,300 | | | | | | |

|UK – |21% |100% |23% |100% |7% |73% |

|FTSE 350 | | | | | | |

|USA – | | | | | | |

|S&P 500 |34% |100% |30% |97% |5% |87% |

Source: Goyer M. (2001).

Full Source: Goyer Michael (2001). “Corporate Governance and the Innovation System in France 1985-2000”, Industry and Innovation, 8(2): 135:158.

Table 2.2 Comparative Analysis of Board Structure In 2003 (Selected Countries)

| |USA (1) S&P 500 |

|1 |Board Composition |36 |State Anti-takeover Provisions |

|2 |Nominating Committee |37 |Control Share Acquisition Provision |

|3 |Compensation Committee |38 |Control Share Cash-out Provision |

|4 |Governance Committee |39 |Freeze-out Provision |

|5 |Board Structure |40 |Fair Price Provision |

|6 |Board Size |41 |Stakeholder Law |

|7 |Changes in Board Size |42 |Poison Pill Endorsement |

|8 |Cumulative Voting |  |  |

|9 |Boards Served On – CEO |Executive and Director Compensation |

|10 |Boards Served On – Other than CEO |43 |Cost of Option Plans |

|11 |Former CEOs |44 |Option Repricing |

|12 |Chairman/CEO Separation |45 |Shareholder Approval of Option Plans |

|13 |Governance Guidelines |46 |Compensation Committee Interlocks |

|14 |Response to Shareholder Proposals |47 |Director Compensation |

|15 |Board Attendance |48 |Option Burn Rate |

|16 |Board Vacancies |49 |Performance-Based Compensation |

|17 |Related Party Transactions - CEO |50 |Option Expensing |

|18 |Related Party Transactions - Other than CEO |  |  |

|Audit |51 |Board Performance Reviews |

|19 |Audit Committee |52 |Individual Director Performance Reviews |

|20 |Audit Fees |53 |Meetings of Outside Directors |

|21 |Auditor Ratification |54 |CEO Succession Plan |

|22 |Financial Expert |55 |Outside Advisors Available to Board |

|Charter/Bylaws |  |  |

|23 |Poison Pill Adoption |57 |Director Ownership |

|24 |Poison Pill - Shareholder Approval |58 |Executive Stock Ownership Guidelines |

|25 |Poison Pill - TIDE Provision |59 |Director Stock Ownership Guidelines |

|26 |Poison Pill - Sunset Provision |60 |Officer & Director Stock Ownership |

|27 |Poison Pill - Qualified Offer Clause |61 |Mandatory Holding Period for Options |

|28 |Poison Pill - Trigger |62 |Mandatory Holding Periods for Restricted Stock |

|29 |Vote Requirements - Charter/Bylaw Amendments |  |  |

|30 |Vote Requirements - Mergers & Business Combinations |Director Education |

|31 |Written Consent |63 |Director Education |

|32 |Special Meetings |  |  |

|33 |Board Amendments |  |  |

|34 |Capital Structure – Dual class |  |  |

|35 |Capital Structure – Blank check preferred |  |  |

Source: ISS “Corporate Governance Quotient”, Rockville MD: Institutional Shareholder Services.

Table 2.4 Key Risk Areas

|Business risk |Legislative risk |People risk |Disaster risk |

| | | | |

|Asset management and resource planning |Design and product liability |Ethics and probity issues |Contingency, disaster and |

|Business interruption |Directors’ and officers’ liability|Human, animal and plant |emergency planning |

|Change: organisational/ technical/ |Employment procedures, training, |health |Fire detection/ fire |

|political |discrimination and harassment |Professional advice |prevention |

|Construction activity |Environmental issues |Reputation and image | |

|Feasibility studies |Fraud prevention/ detection/ |issues | |

|Foreign exchange operations |management |Security | |

|Information systems/ computer networks |Legislative requirements | | |

|Investments |Occupational health and safety | | |

|Operations and maintenance systems |Public risk and general liability | | |

|Transport (air, sea, road, rail) | | | |

|Project management | | | |

|Purchasing contract management | | | |

|Treasury and finance | | | |

Source: Adapted from data in Standards Australia (1999) Risk Management: Australian/New Zealand Standard, Sydney: Standards Australia

Table 2.5 Typology of Directors

Source Kirkpatrick, G. (2004)

Full source: Kirkpatrick Grant (2004). “Typology of Directors Policy Dialogue on Corporate Governance in China”, Presentation Shanghai, February 25; Paris OECD.

Table 2.6 Studies on Strategic Involvement of the Board

|Strength of Involvement |Description |Studies |

| | | |

| |Statutory boards |Pro-forma (Pahl & Winkler 1974) |

| | |Minimalist (Pettigrew & McNulty 1995) |

| | |Statutory (Aram & Cowan 1986) |

| | |Managerial control (Molz 1985) |

| | |Ratifying (Wood 1983) |

| | |Legalistic (Zahra & Pearce 1989) |

| | |First-level Board (Ferlie et al 1994) |

|Passive | | |

| | | |

| |Review boards |Review and approve (Molz 1985) |

| | |Review and analysis (Zahra 1990) |

| | |Second stage board (Ferlie et al 1994) |

| | |Third party (Herman 1981) |

| | |Collegial (Vance 1983) |

| | |Shared leadership (Herman 1981) |

|Active |Partnership |Participative (Wood 1983) |

| | |Normative/strategic (Molz 1985) |

| | |Maximalist (Pettigrew & McNulty 1995) |

| | |Partnership (Zahra 1990) |

Source: Stiles, P., and Taylor, B. (2001).

Full Source: Stiles, Phillip and Taylor, Bernard. (2001). “Boards at Work: How Directors View their Roles and Responsibilities”, Oxford: OUP

Table 2.7 Board Defences

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Full Source: Gompers, P.A., Ishii, J.L. and Metrick, A. (2001). “ Corporate Governance and Equity Prices”, NBER Working Paper 8849, Cambridge MA: NBER

Table 2.8 The Incidence of Board Entrenchment and Related Provisions

in US Corporations

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(This sample is from data gathered by the Investor Responsibility Research Centre (IRRC) and covers 1,400 to 1,800 U.S. corporations, including all the S & P 500 firms. The sample covers 90% of the total US stock market capitalization).

Source: Bebchuk, L., Cohen A. and Ferrell A. (2004).

Full Source: Bebchuk, L., Cohen A. and Ferrell A. (2004).“What Matters in Corporate Governance?”, Harvard Law School, Working Paper No. 491, November.

Table 2.9 Adverse Effects of Approaches To Controlling Managers

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Notes:

(1) 2000: CEO Compensation was an average 7.89% of Corporate Profits in firms making up the 1500 company exe comp sata (Balsam 2002).

(2) 2001:5% of 250 Largest US public firms used some form of reduced windfall options (Levinstone 2001).

Source: Adapted from Bebchuk and Fried (2003).

Table 2.10 Changes in Executive Pay Composition: International Comparisons

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Full Source: Hall Brian J. (2003). “Six Challenges in Designing Equity-Based Pay”, Journal of Applied Corporate Finance, 15(3): 21-33. Table p.24

CHAPTER THREE: INSTITUTIONAL INVESTORS

Figure 3.1 Trends in Financial Assets of Institutional Investors

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Source: OECD (2008). Institutional Investors Statistics.

Figure 3.2 Berle and Means Adapted Ownership Model

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Source: Adapted from Blair M. (1995).

Full source: Adapted from Blair M. (1995). “Ownership and Control: Rethinking Corporate Governance for the 21st Century”. Brookings Institution, Washington D.C.

Figure 3.3 Pension Fund Allocation Around The World (Selected Economies 2005)

Figure 3.4 Institutional Investor Concern for Corporate Governance

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Source: Morley Fund Management (2003)

Full Source: Morley Fund Management (2003). “ conference paper name missing, Thomas might know”. Morley, London .

Figure 3.5 Monitoring Activities by Institutional Investors

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Source: ACGA ( 2005)

Full Source: ACGA ( 2005). “Degrees and Types of Activism in Asia: 2005”. Singapore: ACGA.

Figure 3.6 Figure 3.6 Number Of Corporate Governance Proposals (Per Year In Each Subcategory N=732)

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Source: Monks, R et al (2004).

Full Source: Monks, Robert; Miller, Anthony; Cook, Jacqueline (2004) “Shareholder activism on environmental issues : A Study of proposals at large US corporations (2000-2003)” Natural Resources Forum 317-330.

Figure 3.7 Investment Fund Managers Role in Corporate Governance

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Source: The Mays Report (2003). AMP Henderson Global Investors.

Full source: Mays S. (2003). Corporate Sustainability _ An Investor Perspective. The Mays Report. Department of Environment and Heritage Commonwealth of Australia. Page 19

Figure 3.8 Resolutions Not Supported By AMP Capital Investors July – December 2005

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Source: AMP Capital Investors’ Corporate Governance (2006).

Full source: AMP Capital Investors’ Corporate Governance Mid-Year Update (August 2006).

Figure 3.12 The Complex Governance and Regulatory Relationships of the Institutional Investors

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Source: UTS Centre for Corporate Governance 2002

Table 3. 1 The Distribution of Outstanding Listed Equity Among Different Categories of Shareholders

| |United States |Japan |Germany |France |

| |(1996) |(2001) |(1996) |(1994) |

| | | | | |

| |Form of capitalism |Family capitalism |Managerial capitalism |Popular capitalism |

|Elements |Equality of rights to |Implementation: Creation of |Reinforcement: Strengthened by corporate |Reinforcement: Strengthened by new|

|of |ownership |rights to ownership |law; protection for quoted corporation |rules on the right to vote; |

|Democrati| |independent of social | |protection of minority interests |

|c | |standing. | | |

|Governanc| | | | |

|e | | | | |

| |Separation of ownership / |No. |Implementation: Generalisation of the |Reinforcement: Increasing board |

| |control | |limited liability corporation, with |control over managers |

| | | |general meetings, boards, executives. | |

| |Representation with public |No. |No. |Implementation: Mass ownership; |

| |debate | | |stakeholder activism |

Source: Gomez and Korine (2003:18).

Gomez, Pierre-Yves and Korine and Harry (2003). “Democracy in Corporatia: Tocqueville and The Evolution of Corporate Governance, Working Paper No. 2003/09, EM Lyon/ European Entrepreneurial Learning.

Table 3.3 Number of Takeovers by Region

| |Australia |Canada |U.S. |EU 15 | | |Other |

| | | | | |Total-U.K. |Ex-U.K. | |

|Number of Announced Uncontested Takeovers (252) |

| |

|1989 |81 |184 |1,188 |550 |316 |234 |114 |

|1990 |69 |193 |834 |597 |290 |307 |188 |

|1991 |107 |269 |790 |817 |252 |565 |363 |

|1992 |46 |194 |746 |824 |181 | | |

|1993 |100 |215 |789 |803 |196 |607 |456 |

|1994 |124 |224 |1,015 |816 |221 |595 |614 |

|1995 |162 |296 |1,106 |806 |219 |587 |753 |

|1996 |142 |277 |1,115 |676 |195 |481 |745 |

|1997 |107 |258 |1,150 |574 |201 |373 |726 |

|1998 |103 |231 |1,203 |653 |234 |419 |893 |

|1999 |100 |289 |1,236 |801 |271 |530 |1,180 |

|Number of Announced Contested Takeovers (253) |

| |

|1989 |3 |6 |45 |36 |32 |4 |10 |

|1990 |2 | |12 |24 |22 |2 |5 |

|1991 |8 |1 |7 |34 |31 |3 |2 |

|1992 |10 |2 |7 |20 |15 |5 |4 |

|1993 |10 |1 |11 |15 |11 |4 |5 |

|1994 |8 |11 |33 |11 |8 |3 |4 |

|1995 |18 |19 |59 |22 |14 |6 |7 |

|1996 |22 |8 |45 |20 |13 |7 |11 |

|1997 |12 |17 |27 |23 |11 |12 |5 |

|1998 |12 |14 |19 |14 |12 |2 |5 |

|1999 |15 |6 |19 |42 |21 |21 |6 |

(252) Under the Thomson Financial Data (TFSD) definition a tender offer that was recommended by board of the target company to its shareholders.

(253) Under the TFSD definition a tender offer that was initially rejected by the board of the target company.

Source: Becht, Bolton and Roell (2002).

Full Source: Becht, Bolton and Roell (2002). “Corporate Governance and Control” National Bureau of Economic Research Working paper 9371, Cambridge MA: NBER.

Table 3.4 Corporate Governance Regimes

| | | | |

| |Control by Debt |Control by the Securities |Control by Shares |

|Forms of Control | |market | |

|Nature of control and basis of |Solvency prime rate +bank |Market for control (take-over bid; public |Financial evaluation of performance |

|evaluation |risk premium |offer of exchange) market price/private |(EVA/MVA) |

| | |evaluation of the firm’s potential | |

|Style of Governance and |Long-term commitment |Threat to oust the controlling group |Charters of governance |

|constraints on the company | | | |

| |Solvency constrain |Maximization of share price |Maximization of the financial return on |

| | | |equity |

|Types of capitalism | | | |

| |Corporative |Predator |Shareholder value |

Source: Aglietta M. and Breton R. (2001).

Full Source:

Aglietta Michael and Regis Breton (2001). “Financial Systems, corporate Control and capital accumulation”. Economy and Society Vol. 30, No.4, November 2001: 433-466.

Table 2: Types of Corporate Governance, p 444.

Table 3.5 Corporate Governance Alternative Systems

|Feature |Anglo-Saxon |Germanic |Latin |Japanese |

| | | | | |

|Orientation |Market oriented (an active |Market-oriented (relatively |Network-oriented |Network-oriented |

| |external market for corporate |oligarchic, influenced by networks of| | |

| |control) |shareholders, families and banks) | | |

| |USA, UK, Canada, Australia, NZ |Germany, Netherlands, Switzerland, |France, Italy, Spain, |Japan |

|Representative countries| |Sweden, Austria, Denmark, Norway, |Belgium, Brazil, | |

| | |Finland |Argentina | |

|Prevailing concept of |Instrumental (as a means for |Institutional (autonomous economic |Institutional |Institutional |

|the firm |creative shareholder value) |units coming out of a coalition of | | |

| | |shareholders, corporate managers, | | |

| | |suppliers of goods and debts, and | | |

| | |customers) | | |

|The Board system |One-tier (governance with one |Two-tier (executive and supervisory |Optional (France) in |Board of directors, offices |

| |level of directors, making no |board, the latter monitoring, |general one-tier |of representative directors, |

| |distinction but executives and |appointing or dismissing managers; | |of auditors, de facto |

| |non-executives |large shareholders on the Board and | |one-tier |

| | |high pressure from banks) | | |

|Main stakeholders to |Shareholders |Industrial banks (mainly in Germany; |Financial holdings, |City banks, other financial |

|exert influence on | |in general, oligarchic group |the government, |institutions, employees in |

|managerial | |inclusive of employees’ |families, in general |general oligarchic groups |

|decision-making | |representatives) |oligarchic groups | |

|Importance of stock and |High (requiring continued |Moderate or high (legal and |Moderate or poor |High (legal and regulatory |

|bond markets |action and performance) |regulatory bias against non-bank | |bias against non-bank |

| | |finance) | |finance) |

| |Yes |No |No |No |

|Is there a market for | | | | |

|corporate control? | | | | |

|Ownership concentration |Low |Moderate or high (very high in |High |Low or moderate |

| | |Germany) | | |

|Compensation based on |High |Low |Moderate |Low |

|performance | | | | |

|Time horizon of economic|Short-termism (management and |Long termism |Long termism |Long termism |

|relationships |governance myopia) | | | |

|Strengths |Dynamic market orientation, |Long-term industrial strategy, very | |Very long-term industrial |

| |fluid capital, |stable capital, robust governance | |strategy, stable capital, |

| |internationalization extensive |procedures | |major overseas investment |

|Weaknesses |Volatile, short-termism, |Internationalisation more difficult, | |Financial speculation, |

| |inadequate |lack of flexibility, inadequate | |secretive governance |

| | |investment for new industries | |procedures, weak |

| | | | |accountability. |

Source: Adapted from Keenan J. and Aggestam M.(2001); and Clarke T. and Bostock R. (1994)

Full source Adapted from:

Keenan J. and Aggestam M. (2001). “”Corporate Governance and Intellectual Capital: Some conceptualizations”. Emprical Research Based and Theory Building Papers Volume 9, No. 4, October 2001. Blackwell Publishers. Table 1: Taxonomy of systems of Corporate Governance p. 261.

Clarke, T. and Bostock, R. (1994) International Corporate Governance: Convergence and Diversity, in, T. Clarke and E. Monkhouse, Rethinking the Company, London: Financial Times Pitman

Table 3.9 Reputational Intermediaries for Sound Corporate Governance

| |Securities laws on full disclosure of financial results and self-dealing transactions |

| | |

| | |

|Disclosure | |

| |Ownership disclosure rules |

| |One-share, one-vote rule. In general, rules to prevent or restrict pyramid ownership structures |

| |Strong publicly enforced civil and criminal sanctions against insiders for violating the disclosure |

| |and self-dealing rules |

| |Civil liability risk for insiders |

| |Honest, sophisticated and well-functioning courts. |

| |Honest, sophisticated securities agency and prosecutors for criminal cases both furnished with |

| |staff, skills and budget to accomplish their tasks efficiently |

| |Independent directors who can control self-dealing transactions |

|Board of Directors | |

| |Procedural controls on self-dealing transactions with review by independent directors, non- |

| |interested shareholders, or both |

| |Civil liability risk for independent directors who approve gross self-dealing transactions. |

| |Independent directors on auditing and compensations committees |

| |Market transparency rules (time, quantity and price of trades promptly disclosed to investors) |

| | |

|Market Environment | |

| |Investor property rights protection |

| |Stock exchange with reliable listing standards and active surveillance of insider trading to fine or delist |

| |trespassers. |

| |Enforced ban on market manipulation |

| |A culture of disclosure (“concealing bad news is a recipe for trouble”) |

| |Active financial press and securities analysts profession |

| |Reliable judiciary system and widespread law enforcement |

| | |Good accounting and auditing rules |

| | | |

| |Accountants | |

| | | |

| | | |

| | | |

| | | |

|Reputational | | |

|Intermediaries | | |

| | |Accounting review of self-dealing transactions |

| | |Civil liability risk for accountants |

| | |An institution with competence and independence to write accounting rules |

| | |Sophisticated accounting profession |

| | | |

| |Lawyers | |

| | |Securities lawyers to ensure issuers abide by the law and rules of disclosure |

| | |Civil discovery rules and class action procedure to protect minority rights |

| | |Liability risk |

| | |Lawyers review of self-dealing transactions |

| |Investment |Sophisticated banking profession to investigate the issuers of securities |

| |bankers |Civil liability risk for investment bankers |

| | |Rating agencies that furnish not only credit-risk rating but also country-risk ratings worldwide. |

| |Other reputational |Venture capital funds that allow new enterprises to be financed and monitored, and also |

| |interme- |provide them with reputational capital |

| |diaries |Public regulators, like central banks and securities exchange commissions |

| | |Self-regulatory organizations (SRO), either voluntary or mandatory, subject to regulatory oversight |

| | |Corporate monitoring firms (Latham 1999) |

Source: Apreda (2003)

Full Source: Apreda Rodolfo 2003. “The Semantics of Governance”. University of CEMA, Working Paper Series, number 245, September 2003: 20.

Figure 3.10 How Efficient Are The Various Methods Of Controlling Managers?

|Device |Rationale |Limits |

| |

|Incentive Pay |

| | | |

|Indexing wage on performance |Aligning managers’ and rank- |Possible manipulation of |

| |and-file workers’ interests |performance by managers |

|Bonus linked to profit |Aligning managers’ interests | |

| |and firm strategy | |

|Stock options |Aligning CEO interest with shareholders’ |Still a major gap between CEO |

| |wealth |and shareholders’ interests |

|Attribution of stock of the company |Aligning CEO interest with shareholders’ |Loosely correlated with CEO |

| |wealth |strategy and large benefits |

| | |during financial bubble |

| |

|Transparency |

| | | |

|Public disclosure of CEO’s remuneration |Trigger outrage from shareholders and |Camouflage tactic by managers in spite of |

| |institutional investors |statements in favor of transparency |

| |

|Remuneration setting |

| | | |

|Creation of an independent remuneration |Prevent self-determination of remuneration |The CEO may largely |

|committee |by CEOs |control the committee |

|Large number of independent members of the |Prevent excessive remuneration by the |The income of members may |

|board |detriment of shareholders |depend on their generosity |

| | |to the manager |

|Survey by consultant firms of CEO |Set an objective benchmark |The reference to average or median remuneration|

|remuneration | |induces spill-over and excessive pay increases |

| |

|Market for corporate governance |

| | | |

|Firing of CEOs |Incentive to commitment |Exceptional configuration in the past |

|Threat of takeover |Puts a limit on CEO opportunism |Golden parachute for losers CEO income may |

| | |increase even if shareholders suffer value |

| | |destruction |

Source: Adapted from Bebchuk & Fried (2003)

Full Source: Bebchuk Lucian Ayre and Fried Jesse M. (2003); “ Executive Compensation as an Agency Problem”. Journal of Economic Perspectives, 17 (3): 71-92.

Table 3.11 Pension Funds and Life Insurance Assets in Selected OECD Economies 2003-2004

[pic]

Source: Abridged version from “OECD Global Pension Markets in Focus”, December 2005.

CHAPTER FOUR: ANGLO-AMERICAN CORPORATE GOVERNANCE

Figure. 4.1 US Reform of Corporate Governance Regulation 1932- 2002

[pic]

Source: Clarke T. (2006)

Figure 4.2 US Corporate Governance Legislation and the Standard and Poor Index 1990-2008

[pic]

Source: Updated from Clarke (2007)

Figure 4.3 UK Reform of Corporate Governance Regulation 1992-2005

[pic]

Source: Adapted from Taylor B. (2004)

Figure 4.4 UK Corporate Governance Regulation and FTSE 100 Index 1992-2009

[pic]

Source: Updated from Clarke (2007)

Figure 4.5 Australian Reform of Corporate Governance Regulation 1992-2004

[pic]

Source: Clarke T. (2006)

Figure 4.6 Corporate Governance and Regulation in Australia

[pic]

Source: Updated from Clarke (2007)

Figure 4.7 Enron’s Rise and Fall

[pic]

Source: Clarke (2007)

Figure 4.8 The Rise and Fall of WorldCom

[pic]

Source: Clarke, T. (2007)

Figure 4.9 NYSE’s Annual Profit vs CEO Dick Grasso’s Annual Compensation

(Millions US$)

[pic]

Source: Data compiled from Webb Report (2003).

Full Source: Webb Dan K. (2003) Report to the New York Stock Exchange an Investigation Relating to The Compensation of Richard A. Grasso, New York: Winston & Strawn, LLP.

Figure 4.10 Distribution of Stock Market Holdings by Wealth Class 2004

[pic]

Source: Economic Policy Institute :The State of Working America 2006-2007

Full source:

Economic Policy Institute :The State of Working America 2006-2007



Figure 4.11 Comparison of CEO and Worker Pay in the US 1990-2002

[pic]

Source: Adapted from Ertuk, I., et al. (2005)

Full Source: Adapted from

Ertuk, I., Froud, J., Johal, S., and Williams, K. (2005). “Pay for Corporate Performance or Pay as Social Division?, Rethinking the Problem of Top Management Pay in Giant Corporations”. Competition and Change. 9 (1): 49-74.

Table 4.1 US Institutional Ownership Equities 2002- 2006

| |2002 |2003 |2004 |2005 |2006 |percent change |

| | | | | | |2002-2006 |

|TOTAL |$11,900.5 |$15,618.5 |17,389.3 |$18,277.8 |$20,603.3 |73.1% |

|Household sector |4,536.2 |5,612.4 |5,714.4 |5,483.1 |5,482.8 |20.9 |

|State & local governments |79.3 |84.7 |89.3 |92.8 |97.5 |23.0 |

|Rest of the World (2) |1,335.8 |1,839.5 |2,123.3 |2,302.6 |2,831.3 |112.0 |

|Commercial banking |3.5 |15.1 |20.3 |24.0 |35.2 |905.7 |

|Savings institutions |29.1 |30.4 |28.2 |26.2 |24.9 |-14.4 |

|Property/ casualty insurance companies |152.3 |182.7 |201.8 |205.3 |232.5 |52.7 |

|Life insurance companies |708.9 |919.3 |1,053.9 |1,161.8 |1,405.2 |98.2 |

|Private Pension funds |1,558.6 |2,081.8 |2,329.2 |2,416.7 |2,666.7 |71.2 |

|State & local government retirement funds |1,056.8 |1,421.5 |1,607.0 |1,729.0 |1,958.4 |85.3 |

|Federal government retirement funds |45.9 |79.9 |99.3 |115.6 |139.2 |203.3 |

|Mutual funds |2,187.4 |3,051.3 |3,693.6 |4,175.7 |5,018.4 |129.4 |

|Closed end funds |33.7 |53.0 |82.3 |105.6 |121.8 |261.4 |

|Exchange-traded funds |98.2 |146.3 |217.7 |281.0 |402.0 |309.4 |

|Brokers & dealers |74.9 |100.5 |129.1 |158.3 |186.4 |148.9 |

Source: Source: Board of Governors of the Federal Reserve System 2008.

Figure 4.2 Share Ownership in the UK (Total Equity Owned as per 31 Dec 2006 (GBP Billions)

[pic]

Source: UK National Statistics/Share Ownership 2008

Table 4.3 Key Differences between UK & US Reporting Frameworks And Shareholder Rights

|Attribute |UK |US-SEC |

|Basis of laws affecting the core |UK company law: civil law, generally law |Federal regulation – with tort-based remedies |

|framework of financial reporting |of contract / property. |stemming from breaches (not contract/ property law).|

|Purpose of audit |Agency conflict; Protection of the company|Agency conflict; Conveying of false information to |

| |itself ‘stewardship’ |the market influencing the pricing of shares; |

| | |‘General purpose’ |

|History of company law |Companies Acts have evolved by following |1933/34 Securities Acts; Big bang federal |

| |accepted existing best practice |legislation to address governance deficiencies and |

| | |the lack of financial reporting requirements in |

| | |state law – but without impinging on state law in |

| | |matters of governance. |

|Applicability of laws affecting |All companies irrespective of status of |Only SEC listed entities |

|audits of companies |listing. | |

|Primary purpose of audited accounts|Accountability |Pricing of shares |

|Pre-emptive protection of property |Yes. Body of members is sovereign. Civil |No. Delaware Courts tend to judge retrospectively, |

|available to members |freedom to act prospectively or reactively|eg. Hollinger. Boards are sovereign, and |

| |in binding way |self-appointed. Voting on director reappointment |

| | |non-binding. |

|Model intended to address failing |Yes |Not so long as inefficiencies in the micro-economy |

|companies ahead of potential | |of the company are ‘priced’ |

|crisis. | | |

|Who is overseeing who? |Auditors act for shareholders |Auditors act for boards. |

|Auditor ‘independence’ in law |Independent of whole board. |Only independent of executive board and management. |

|What is the intended path of |Shareholders to judge whole board, and the|Independent directors to assess management’s |

|accountability? |self-discipline of frank public |presentation free of ‘scienter’, in order to fulfil |

| |disclosure. |regulatory requirements |

|Legal basis underpinning accounting|Principles – ‘economics’ |Rules – ‘letter of law’ |

|standards | | |

|Development of accounting/ auditing|‘Rounded’. Income and balance sheets. |Focused heavily on earnings. Record in practice of |

|practice, as led by the law. |Returns seen in terms of capital |being weak on off-balance sheet risk. |

| |efficiency, not mere ‘pricing’. | |

|Form of opinion |True and fair view |Fairly presents |

|True and fair over-ride |Yes |No |

|Status of audit report |Evidence from a trusted objective expert |Certification |

|Auditor liability |Contractual |Mainly tort |

|Do investors have any |Yes |No |

|responsibility to read/use accounts| | |

|External points of reference where |Actual members. (sections 390, 392 & 394) |With dematerialised markets, only lawyers and SEC |

|difficulty. | | |

|Expression by an auditor of |Allowed |Disallowed (counter to certification objectives) |

|uncertainty in ‘audit’ reports | | |

|‘Bias’ other than fraud to be |Yes SAS 470, now included in ISA UK and |No, and not in ISAs. |

|tested as part of audit |Ireland ISA 520 | |

|Additional work for new issues |Yes. Reporting Accountant role. Different |No, unless IPO. |

|handled under a specialised |to statutory auditing. | |

|non-audit assignment | | |

|Role of audit committees. |Execution of responsibility of whole |Oversight of management with insider access to |

| |unitary board in presenting financial |accounting systems. 1.5 tier boards |

| |statements – for shareholders. And for | |

| |internal purposes. | |

|Oversight of audit committee by |Normal director accountability of each |Limited binding rights of shareholders in Delaware |

|shareholders |member of audit committee |to alter composition of audit committees |

|Right to call EGMs |Yes |Not Delaware |

|Binding re-election of individual |Yes |Delaware votes non-binding |

|directors | | |

|Compliant with OECD principles |Yes |Not Delaware |

|(2004) | | |

|Pre-emption rights for new issues |Yes |Not Delaware |

|Rights to audited financial |Companies Act |Not Delaware |

|information | | |

|Protection of parties afforded by |Holders of shares. A large majority of UK |Buyers and sellers in capital markets. Not holders |

|core reporting/governance regime |equity is not traded in any one year. |who did not trade. |

Source: Bush (2005)

Full Source: Bush, Tim (2005) “Divided by Common Language: Where Economics Meets the Law –US vs Non-US Reporting Models”, London: Institute of Chartered Accountants of England and Wales ( ICAEW).

CHAPTER FIVE : EUROPEAN CORPORATE GOVERNANCE

Figure 5.1 Weight of Pension Funds in the Economy and Financial Markets (End 2006)

Source: EUROSIF Research 2007

Figure 5.2 Recent Flurry of Corporate Governance Codes in Europe

[pic]

Source: Eurosif “Active Share Ownership in Europe: 2007 European Handbook”

Figure 5.3 Multiple Corporate Governance Reform Processes in Europe

[pic]

Source: Clarke T. (2006) UTS Centre For Corporate Governance.

Figure 5.4 The Dual System (1): Segregation of Duties

[pic]

Source: Joachim Heins-Bunde (2006)

Full Source:

Joachim Heins-Bunde (2006) “Discussion Paper SGL Carbon” Henley Management College, UK on October 4.

Figure 5.5 The Dual System (2): Equal Representation of Employee and Shareholder

Representatives

[pic]

Source: Joachim Heins-Bunde (2006)

Full Source:

Joachim Heins-Bunde (2006) “Discussion Paper: SGL Carbon” Henley Management College, UK on October 4.

Figure 5.6 Activities of Supervisory Board

[pic]

Source: Joachim Heins-Bunde (2006)

Full Source:

Joachim Heins-Bunde (2006) “Discussion paper SGL Carbon” Henley Management College, UK on October 4.

Figure 5. 7 Parmalat Share Price Collapse

[pic]

Source: Compiled from Milan Stock Exchange, Yahoo Finance, various media news sources.

Figure 5.8 Ahold Share Price Collapse

[pic]

Source: Compiled from Yahoo Finance (2006), various media news sources.

Figure 5.9 What Shareholders Democracy?

Companies Applying “One Share/ One Vote” Principle

[pic]

* Companies in the FTS Eurofirst 300 Index

Source: Association of British Insurers: Deminor Rating

Missing year

Figure 5.10 Dividends, Number of Employees, and Personnel Expenditure per Employee

[pic]

Source: Beyer and Hassel (2001)

Beyer,J. and Hassel, A. (2001) The Effects of Convergence: Internationalization and the Changing Distribution of Net Value Added in Large German Firms, Economy and Society, 31, 3, 309-332

(Taylor and Francis Journal)

Table 5. 1 Distribution of Share Ownership in German Publicly Traded Companies

[pic]

Source: Vitols S. (2005)

Full Source:

Vitols S. (2005) “Changes in Germany’s Bank-Based Financial System: Implications for Corporate Governance”, Corporate Governance: An International Review Vol. 13, No. 3, May.

Table 5.2 Summary of Recent Changes to Company Law and Regulation

| |Comply or |Defining audit|Improving |Defining and |Improving or easing |

| |explain with|functions and |transparency |controlling |voting. Greater role for |

| |principles |limits on | |conflicts of |AGM |

| |or codes |auditors | |interest | |

|1992-4 |85.3 |5.4 |5.2 |2.0 |2.2 |

|1996-8 |78.4 |4.3 |6.8 |2.8 |7.8 |

|Change in % |-81 |-20.4 |+30.8 |+40.0 |+254.5 |

Source: Beyer J. and Hassel Anke (2001 : 320)

Explanation: table 3 shows the distribution of net value added in 1992-4 compared to the period 1996-8 as an average for fifty-nine large German companies. The change over time largely supports the assumption of a changing distribution of net value added due to a convergence to Anglo-American practices: the shares of net value added are paid out as dividends and as taxes as to the Government have increased, while the share for labour has decreased. It is, however, unclear why the share of retained earnings has also increased significantly, which was not to be expected.

Table 5.4 Penetration of Active Share Ownership in Some European Countries

|STATE OF LOCAL ACTIVISM |COUNTRIES |

| | |

|Established market culture for institutional Investors and many fund |Ireland, UK |

|managers | |

| | |

| |Denmark, Netherlands, Sweden, Switzerland (Pension funds or institutional |

| |investors) |

|Driven by a limited number of (but nonetheless powerful) activist | |

|players |Austria, France, Germany, Italy |

| |(Research organisations or fund managers) |

| | |

| |Greece |

| |(Institutional investors) |

| | |

|Driven by strong small shareholder associations |Denmark, France, Germany, Netherlands |

| | |

|Rather non-existent |Other countries |

Sources: Deutsche Bank Corporate Governance Research, TUAC, Eurosif,

Full source: cited by

EUROSIF “Active Share Ownership in Europe: 2006 European Handbook”. P-26

CHAPTER SIX: ASIA-PACIFIC CORPORATE GOVERNANCE

Figure 6.1 Concentration of Family Control of Corporate Assets in East Asia

[pic]

Soource: Adapted from Claessens, S., Djankov, S and Lang, L. (2000)

Full source: Adapted from

Claessens, S., Djankov, S., and Lang L. (2000). ”The Separation of Ownership and Control in East Asian Corporations”, Journal of Financial Economics, vol. 58, p. 108.

Figure 6.2 The Japanese Model Transformation

[pic]

Source: Adapted from Japanese External Trade Organization JETRO (2005).

Full Source: Adapted from

Japanese External Trade Organization JETRO (2005).“Focus: Japan Enters New Phase in its Recovery”, Japanese Ministry of Economy, Trade and Industry.

Figure 6.3 Transitions of Japanese Corporate Governance 1960s-2000

[pic]

Source: Toriihara (2004)

Full Source:

Toriihara, M. (2004) “Corporate Governance in Japan”, Policy Dialogue on Corporate Governance in China, 26th February, Paris: OECD.

Figure 6.4 Asia Pacific Reform of Corporate Governance Regulation

[pic]

Source: Clarke T. (2007), UTS Centre for Corporate Governance

Figure 6.5 Countries with Higher Concentration of Wealth Show Less Progress in Institutional

Reforms

[pic]

Full Source; Claesssens, Stijn (2004 “Corporate Governance and Development”, Focus, 1:1-44.

Figure 6.6 Change in Share Indexes of East Asia Region 1997-1998

[pic]

Source: Adapted from Bloomberg IHT

Figure 6.7 Market Capitalization of Stock Exchanges in Asia Pacific 1998

[pic]

Source: Stock Exchanges Respective Annual Reports 1998.

Table 6.1 Dimensions of the East Asian Crisis 1997-1998*

| |Currencies |Stock Index |Market Fall |

|Indonesia |-83.2% |-35.0% |-$96bn (-88%) |

|Thailand |-40.2% |-48.0% |-$40bn (-66%) |

|Malaysia |-39.4% |-56.0% |-$217bn (76%) |

|Philippines |-36.1% |-33.8% |-$43bn (-58%) |

|South Korea |-34.1% |-58.7% |-$111bn (-71%) |

|Singapore |-16.5% |-43.5% |-$91bn (-53%) |

|Hong Kong |Nil |-43.2% |-$223bn (-42%) |

*(Fall in currency exchange rate for US$ between 30 June 1997 and 3 July 1998. Percentage decline in stock market index between 30 June 1997 and 3 July 1998. Fall in stock market capitalization in US$ billions, between 30 June 1997 and 3 July 1998)

Sources: Bank of International Settlements; IMF; World Bank; Asia Week 17 July 1998; Jones Lang Wootton; Dataquest.

Table 6.2 The Distribution of Share Ownership in Japan by Type of Shareholder

| |

|Government and|3.1 |0.6 |0.4 |0.3 |0.4 |0.3 |

|local | | | | | | |

|government | | | | | | |

|1 |Singapore |7.5 |7.4 |7.4 |7.7 |7.5 |

|2 |Hong Kong |7.1 |6.8 |7.2 |7.3 |6.7 |

|3 |India |5.6 |5.4 |5.9 |6.6 |6.2 |

|4 |Malaysia |3.2 |3.7 |4.7 |5.5 |5.8 |

|5 |Korea |5.2 |3.8 |4.7 |5.5 |5.8 |

|6 |Taiwan |5.7 |5.3 |5.8 |5.8 |5.5 |

|7 |Thailand |2.8 |3.7 |3.8 |4.6 |5.3 |

|8 |Philippines |2.9 |3.3 |3.6 |3.7 |5.0 |

|9 |China |3.6 |3.4 |3.9 |4.3 |4.8 |

|10 |Indonesia |2.9 |3.2 |2.9 |3.2 |4.0 |

Source: Adapted from CLSA Asia Pacific Markets and ACGA (2005)

Table 6.5 Market Capitalization of Selected Asia Pacific Countries 2005

| | |(in millions of local currencies) | | | |

|  |  |  |  |% Change |USD |USD |

| | | | |2005/2004 | | |

|Exchange |  |End 2005 |End 2004 | |2005 |2004 |

|  |  |  |  | | | |

|- Pacific |  | | |  | | |

|Australian SE |AUD |1,096,033.0 |990,457.0 |10.7% |1.3632 |1.2757 |

|Bombay SE |INR |24,893,849.0 |16,793,378.0 |48.2% |45.0100 |43.4700 |

|Bursa Malaysia |MYR |682,266.1 |690,170.4 |-1.1% |3.7795 |3.8000 |

|Colombo SE |LKR |584,039.9 |382,065.9 |52.9% |102.1050 |104.4750 |

|Hong Kong Exchanges |HKD |8,179,937.2 |6,695,893.0 |22.2% |7.7535 |7.7727 |

|Jakarta SE |IDR |801,252,702.1 |679,949,067.3 |17.8% |9,840.0000 |9,282.5000 |

|Korea Exchange |KRW |725,801,125.0 |403,182,825.0 |80.0% |1,010.8500 |1,035.2000 |

|National Stock Exchange India |INR |23,223,921.2 |15,791,608.5 |47.1% |45.0100 |43.4700 |

|New Zealand Exchange |NZD |59,601.9 |60,546.0 |-1.6% |1.4683 |1.3845 |

|Osaka SE |JPY |350,527,220.0 |234,353,793.0 |49.6% |118.0300 |102.4700 |

|Philippine SE |PHP |2,111,738.0 |1,605,288.8 |31.5% |53.0350 |56.1250 |

|Shanghai SE |CNY |2,309,613.0 |2,601,434.0 |-11.2% |8.0702 |8.2765 |

|Shenzhen SE |CNY |933,415.0 |1,104,123.0 |-15.5% |8.0702 |8.2765 |

|Singapore Exchange |SGD |427,906.0 |355,239.3 |20.5% |1.6628 |1.6324 |

|Taiwan SE Corp. |TWD |15,633,858.0 |13,989,100.0 |11.8% |32.8430 |31.6900 |

|Thailand SE |THB |5,079,283.5 |4,482,916.3 |13.3% |41.0000 |38.8500 |

|Tokyo SE |JPY | |364,554,898.0 |48.1% |118.0300 |102.4700 |

| | |539,739,508.8 | | | | |

Source: WFE Annual Report 2005

CHAPTER 7 TABLES AND FIGURES: THE GLOBALIZATION OF CORPORATE

GOVERNANCE

Figure 7.1 Domestic Market Capitalization 2000-2008

[pic]

| |30,956 |26,595 |22,833 |

|WFE total | | | |

|(USD bn) | | | |

| |1985 |2002 | |1985 |2002 |

|Gross Domestic Product GDP | | | | | |

|China and India |558.5 |1922.4 |3.4 fold increase |4.4 |6 |

|Low income countries exc. India |579.3 |634.7 |1.1 fold increase |4.5 |2 |

|Middle income countries excl. China |2234.1 |3702.9 | |17.5 |11.5 |

| | | |1.7 fold increase | | |

|High income countries |9393 |25867 |2.8 fold increase |73.6 |80.5 |

|World |12765.2 |32127 |2.5 fold increase |100 |100 |

| | | | | | |

|Exports of Goods and Services | | | | |

|China and India |79.1 |685.1 |8.7 fold increase |3.4 |8.7 |

|Low income countries exc. India |82.5 |215.2 |2.6 fold increase |3.6 |2.7 |

|Middle income countries excl. China |433.9 |1227.2 | |18.7 |15.6 |

| | | |2.8 fold increase | | |

|High income countries |1718 |5732.6 |3.3 fold increase |74.3 |72.9 |

|World |2314 |7860.2 |3.4 fold increase |100 |100 |

| | | | | | |

|Inflows of Foreign Direct Investment | | | | |

|China and India |1.7 |62 |37.4 fold increase |2.9 |9.8 |

|Low income countries exc. India |1.9 |7.1 |3.7 fold increase |3.3 |1.1 |

|Middle income countries excl. China |9.7 |79.1 | |16.8 |12.5 |

| | | |8.1 fold increase | | |

|High income countries |44.7 |484.3 |10.8 fold increase |77.1 |76.6 |

|World |58 |632.6 |10.9 fold increase |100 |100 |

| | | | | | |

|Inflows of Total Portfolio Investment | | | | |

|China and India |2.3 |49.8 |22 fold increase |1.7 |6.9 |

|Low income countries exc. India |0.05 |0.07 |1.3 fold increase |0.038 |0 |

|Middle income countries excl. China |9.1 |30 | |6.7 |4.2 |

| | | |3.3 fold increase | | |

|High income countries |123.8 |639.9 |5.2 fold increase |91.6 |88.9 |

|World |135.2 |719.8 |5.3 fold increase |100 |100 |

Source: Gunter B., and Hoeven R. (2004); “The Social Dimension of Globalisation: A Review of the Literature”, Working Paper No. 24. Policy Integration Department, World Commission on the Social Dimension of Globalisation, International Labour Office; Geneva: ILO. June 2004. p.3

Table 7.3 Largest Stock Exchanges in Market Capitalization Year-End 2008

|  |Exchange |USD bn |USD bn |% Change |% Change |

| | |end-2008 |end-2007 |In USD |In local currency |

|1 |NYSE Euronext (US) |9,209 |15,651 |-41.2% |-41.2% |

|2 |Tokyo Stock Exchange Group |3,116 |4,331 |-28.1% |-41.4% |

|3 |NASDAQ OMX |2,396 |4,014 |-40.3% |-40.3% |

|4 |NYSE Euronext (Europe) |2,102 |4,223 |-50.2% |-47.8% |

|5 |London Stock Exchange |1,868 |3,852 |-51.5% |-33.4% |

|6 |Shanghai Stock Exchange |1,425 |3,694 |-61.4% |-64.0% |

|7 |Hong Kong Exchanges |1,329 |2,654 |-49.9% |-50.2% |

|8 |Deutsche Börse |1,111 |2,105 |-47.2% |-44.6% |

|9 |TMX Group |1,033 |2,187 |-52.7% |-41.8% |

|10|BME Spanish Exchanges |948 |1,781 |-46.8% |-44.1% |

Source: World Federation of Exchanges Statistics 2009

Figure 7.4 Largest Exchanges in Share Trading Value 2008

|  |Exchange |USD bn |USD bn |% Change |% Change |

| | |2008 |2007 |In USD |In local currency |

|1 |NASDAQ OMX |36,446 |28,116 |29.6% |29.6% |

|2 |NYSE Euronext (US) |33,639 |29,114 |15.5% |15.5% |

|3 |London Stock Exchange |6,272 |10,334 |-39.3% |-33.0% |

|4 |Tokyo Stock Exchange Group |5,607 |6,413 |-12.6% |-23.4% |

|5 |Deutsche Börse |4,679 |4,324 |8.2% |2.1% |

|6 |NYSE Euronext (Europe) |4,411 |5,640 |-21.8% |-26.2% |

|7 |Shanghai Stock Exchange |2,600 |4,029 |-35.5% |-41.0% |

|8 |BME Spanish Exchanges |2,410 |2,970 |-18.8% |-23.4% |

|9 |TMX Group |1,716 |1,635 |5.0% |5.6% |

|10 |Hong Kong Exchanges |1,630 |2,134 |-23.6% |-23.8% |

Source: World Federation of Exchanges Statistics 2009

Table 7.5 Market Capitalization of NYSE Listed Companies 1996-2005

[pic]

Source: World Federation of Exchanges Statistics 2009

Table 7.6 Global Comparison of Market Capitalization of Domestic Listed Companies (1990 – 2005)

( US $ millions)

|Exchange|End 1990 |

|1 Conventional Costs |

| |Includes the costs of direct raw materials, utilities, labour, |

| |supplies, capital equipment and related depreciation |

|2 Hidden Costs |

| |Includes the up front environmental costs, such as search |

| |costs relating to environmentally conscious suppliers, initial |

| |design costs of environmentally preferable products, regulatory |

| |costs which are often obscured in overhead costs, future |

| |decommissioning or remediation costs |

|3 Contingent |

| |Defined in probabilistic terms and includes fines for breaching |

| |environmental requirements, clean up costs, law suits relating |

| |to unsound products |

|4 Relationship and Image Costs |

| |These costs are difficult to determine and would seldom be |

| |separately identified within an accounting system. However |

| |they could be expected to have some influence on the value |

| |of some intangible assets, such as goodwill, brand-names |

| |and so forth. The sum of the costs in Tiers 1 to 4 can be |

| |referred to as private costs and they can directly impact on |

| |an organization’s reported profit |

|5 Societal Costs |

| | These costs are often referred to as externalities and represent costs |

| |that an organization imposes upon others as a result of their operations |

| |but which are typically ignored by the organization. They could include |

| |environmental damage caused by the organization for which they are not |

| |held accountable or adverse health effects caused by organization- |

| |generated emissions for which the organization is not held responsible. |

| |It is difficult and sometimes controversial to put a cost on these effects |

| |and with the exception of a few organizations worldwide, most entities |

| |ignore these costs when calculating profits. However, physical measures |

| |can be developed, and related KPIs can be used to assess performance. |

Source: Van Berkel R. (2003)

Full Source: Van Berkel R. (2003). Managing for Sustainable Development. CPA Congress 2003pp 1-18. Table 4, p. 9

Table 8.2 KPMG CSR Surveys 1993-2005 (KPMG)

[pic]

Source: KPMG CSR Surveys 1993-2005. KPMG International Surveys of Corporate Responsibility Reporting 2005, KPMG International.

Table 8.3 Drivers for Corporate Social Responsibility (KPMG)

[pic]

Source: KPMG CSR Surveys 1993-2005. KPMG International Surveys of Corporate Responsibility Reporting 2005, KPMG International.

Table 8.4 US Shareholder Actions Planned for 2003-2004 Including Key Resolutions

| |Proposed |Withdrawn |Voted On |Average Vote % |

|Type |2003 |2004 |2003 |2004 |2003 |

|of | | | | | |

|Propo| | | | | |

|sal | | | | | |

|1 |Coca-Cola Company |Review AIDS pandemic’s impact on company |2004 |No |97.9 |

| |Proponent: ASC Investment | | | |

|2 |JC Penney Co., Inc. |Adopts |2003 |No |

| | |sexual | | |

| | |orientatio| | |

| | |n and | | |

| | |anti-bias | | |

| | |policy | | |

|3 |Tyco International Ltd. |Review and reduce toxic emissions |2004 |No |92.2 |

| |Proponents: Christian Bros, Investment Service (CBIS) | | | |

|4 |Cintas Corp |Review/rep|2004 |No |

| | |ort on | | |

| | |vendor | | |

| | |standards | | |

|5 |Fifth Third Bancorp |Adopt sexual orientation and anti-bias |2004 |No |62.8 |

| | |policy | | | |

| |Proponent: NorthStar Asset Management | | | |

|6 |Plum Creek Timber Co., Inc |Report on |2005 |No |

| | |political | | |

| | |donations | | |

| | |and policy| | |

|7 |Cooper Industries |Issue sustainability report |2003 |Yes |44.3 |

| |Proponents: Benedictine Sisters, Domini Social Investments, St. Joseph Health | | | |

|8 |Dover |Adopt |2003 |Yes |

| | |sexual | | |

| | |orientatio| | |

| | |n | | |

| | |anti-bias | | |

| | |policy | | |

|9 |Ryland Group Inc |Report using GRI guidelines |2004 |Yes |42.2 |

| |Proponent: Calvert | | | |

|10 |Gentex |Commit |2003 |Yes |

| | |to/report | | |

| | |on board | | |

| | |diversity | | |

|11 |Yum! Brands, Inc. |Issue sustainability report |2005 |Yes |39.1 |

| |Proponents: CREA, Trillium, Christus Health, ELCA | | | |

|12 |Yum! Brands, Inc. |Issue |2003 |Yes |

| | |sustainabi| | |

| | |lity | | |

| | |report | | |

|13 |Emerson Electric Co |Adopt sexual orientation anti-bias policy |2005 |Yes |38.9 |

| |Proponents: Domini, NorthStar, Pride Foundation | | | |

|14 |AGCO Corp |Report |2004 |Yes |

| | |using GRI | | |

| | |guidelines| | |

|15 |Apache Corp |Report on/reduce greenhouse gas emissions |2004 |Yes |37.1 |

| |Proponent: Boston Common Asset Management | | | |

|16 |Advance Auto Parts Inc. |Adopt |2005 |Yes |

| | |sexual | | |

| | |orientatio| | |

| | |n | | |

| | |anti-bias | | |

| | |policy | | |

|17 |Yum! Brands, Inc. |Issue sustainability report |2004 |Yes |32.9 |

| |Proponent: CREA | | | |

|18 |CenterPoint Energy |Adopt |2003 |Yes |

| | |sexual | | |

| | |orientatio| | |

| | |n | | |

| | |anti-bias | | |

| | |policy | | |

|19 |Gilead Sciences, Inc. |Review AIDS pandemic’s impact on company |2005 |Yes |31.7 |

| |Proponents: Camilla Madden Trust, Catholic Healthcare West | | | |

|20 |Triquent Semiconductor |Report on |2003 |Yes |

| | |involvemen| | |

| | |t in | | |

| | |ballistic | | |

| | |missile | | |

| | |defence | | |

|21 |Anadarko Petroleum Corp |Report on/reduce greenhouse gas emissions |2004 |Yes |31.4 |

| |Proponent: Trillium | | | |

|22 |Cooper Cameron Corp |Report |2004 |Yes |

| | |using GRI | | |

| | |guidelines| | |

|23 |Delphi |Review/report on global standards |2003 |Yes |30.1 |

| |Proponents: Gen. Board of Pensions of United Methodist Church, Mercy Consolidated | | | |

| |Asset Management, Benedictine Sisters | | | |

|24 |Home Depot Inc |Report on |2005 |Yes |

| | |EEO | | |

|25 |Exxon Mobil Corp. |Adopt sexual orientation anti-bias policy |2005 |Yes |29.5 |

| |Proponents: NYCERS, Trillium, NorthStar, F&C Asset Management | | | |

Source: SIF (2006).” 2005 Report on Socially Responsible Investing Trends in the United States- 10 Year Review”, Washington DC: Social Investment Forum.

Full source: SIF (2006). “2005 Report on Socially Responsible Investing Trends in the United States- 10 Year Review”, Washington DC: Social Investment Forum. Figure 4.5:25 Highest Votes on Social Policy Resolution, p.23.

Text Box 8.1 Extract from Universities Superannuation Scheme

|[pic] |

|Universities Superannuation Scheme |

| |

|The Universities Superannuation Scheme (USS) is a global pension fund principally for academic and senior administrative staff in |

|UK universities and other higher education and research institutions. As an institutional investor that takes seriously its |

|fiduciary obligations to its beneficial and institutional members, USS aims to be an active and responsible long-term shareholder |

|of companies and markets in which it invests. The Fund has a commitment to encourage responsible corporate behaviour which is based|

|upon |

|the view that management of such issues is good for long term corporate performance and |

|a duty to protect and enhance the value of the fund's investments. This approach is indeed widely recognised as one that greatly |

|increases the likelihood of long-term value delivery and therefore to be in the long-term interests of pension fund beneficiaries. |

| |

|As a fund that seeks to be a patient and long-term provider of capital, USS takes seriously its responsibilities to companies in |

|which it invests and seeks to engage in constructive communication and dialogue as a basis upon which it is appropriate to discuss |

|and question management behaviour. |

|… |

|USS therefore seeks to pay appropriate regard to relevant corporate governance, social, ethical and environmental considerations in|

|the selection, retention and realisation of all fund investments. USS focuses its efforts on engagement, and thus seeks to use its |

|influence as a major institutional investor to promote good practice by investee companies and by markets to which the fund is |

|particularly exposed. USS sees engagement as a necessary and important part of responsible ownership. |

|… |

|USS will engage with companies in which it invests on occasions when it thinks it is in members’ long–term interests and will |

|endeavour to identify problems at an early stage to minimize any loss of shareholder value. This approach may be adopted |

|irrespective of whether the company is held in an active or passive fund or whether USS is underweight or not. |

| |

|Instances when USS may intervene include when we have concerns about: |

|• The company’s strategy |

|• The company’s operational performance |

|• The company’s acquisition/disposal strategy |

|• Independent directors failing to hold executive management to account |

|• Internal controls failing |

|• Inadequate succession planning |

|• An unjustifiable failure to comply with the Combined Code |

|• Inappropriate remuneration levels/incentive packages/severance packages |

|• The company’s approach to corporate responsibility |

| |

|Source: Extract taken from pp.1-3 of USS (2004) Voting and Engagement Policy. London: USS. |

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Source: Monks, Miller and Cook (2004)

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