The following report aims to compare and contrast the development of the principles effectiveness and remuneration in the UK and Germany. Firstly, characteristic factors of the two principles are worked out, their development in the UK is analysed and underlined by a critical evaluation of the role and responsibilities of ED and NEDs in Barclays.
In a second step, the development of the carved factors in Germany is assessed and underlined by a critical analysis of the board’s role and responsibilities in Deutsche Bank. At last a brief conclusion is given.
Table of Contents
1. Introduction
2. Development of the two main principles in the UK
2.1 Principle development
2.2 Assessment after the financial crisis
2.3 Critical evaluation of Barclay’s board of directors
3. Development of the two main principles in Germany
3.1 Principle development
3.2 Assessment after the financial crisis
3.3 Critical evaluation of Deutsche Bank’s board
4. Conclusion
Objectives and Core Topics
The primary objective of this report is to analyze and compare the development of corporate governance principles regarding board effectiveness and executive remuneration within the UK and Germany. It examines how these regulatory standards evolved, particularly in response to the 2008 financial crisis, and evaluates their practical implementation through case studies of Barclays and Deutsche Bank.
- Evolution of corporate governance codes in the UK and Germany.
- Key principles of board effectiveness and director remuneration.
- Impact of the 2008 financial crisis on governance regulations.
- Comparative analysis of unitary board (UK) vs. two-tier board (Germany) structures.
- Critique of board roles and responsibilities in major financial institutions.
Excerpt from the Book
2.2 Assessment after the financial crisis
Although numerous principles had been developed, the attention paid to CG was still minor and only the global financial crisis caught real attention on the weaknesses of boards (Solomon, 2013, p. 77-78). The codes were still rather seen as a practical guide and light-hearted approach to define the key characteristics of board’s effectiveness (Carey, 2004). According to Walker (2009) deficiencies in NED role contributed to the global financial crisis which coincides with a survey published by Pugliese et al. (2009) showing that there is little consensus how boards contribute to corporate strategy. The ACCA published a report, sharing the idea of the Walker Review (2009), that companies’ boards need both ED and NEDs (ACCA, 2008, principle 5) to achieve effectiveness. In addition, a number of studies on women in boards has been conducted and showed that board diversity improves the company’s effectiveness (Cater et al., 2007; McKinsey & Company, 2007). Wilson and Altanlar (2009) underline these findings and argue that it is due to their higher risk aversion.
In 2008, more specific reports addressing R&E of CG in large UK financial institutions (such as banks) have been published. E.g. Walker defined a clear commitment of at least 30-36 days of directors. Moreover, shareholders have demonstrated their discontent with excessive remuneration (Cookson and O'Doherty, 2009) since it could be linked with “bad” CG (Core et al., 1999; Lambert et al., 1993). The ACCA published a report demanding not to create wrong incentives to board members through excessive remuneration (ACCA, 2008, Principle 8). The Turner Review (2009) highlighted the crucial need to establish effective remuneration structures, which do not over-incentivise risk-taking (Ashby and Waite, 2009). The necessity for further regulation was also picked up by the High Pay Commission (2011), setting the requirement for more diverse remuneration committees and a link of performance related payment to the long-term success of companies.
Summary of Chapters
1. Introduction: This chapter introduces the development of corporate governance in the UK and Germany over the last three decades and outlines the five main principles of the UK Corporate Governance Code.
2. Development of the two main principles in the UK: This chapter details the evolution of governance standards in the UK, assesses the impact of the financial crisis, and provides a critical evaluation of board performance at Barclays.
3. Development of the two main principles in Germany: This chapter examines the historical development of German governance legislation, specifically the KonTraG and VorstOG, and analyzes the board structure and remuneration challenges at Deutsche Bank.
4. Conclusion: The concluding chapter summarizes that while both nations have made significant governance strides, there remains a need for further alignment between executive remuneration and long-term shareholder and company goals.
Keywords
Corporate Governance, Board Effectiveness, Executive Remuneration, UK Corporate Governance Code, German Corporate Governance Code, Financial Crisis, Barclays, Deutsche Bank, NED, Agency Theory, Stakeholder Value, Shareholder Rights, Board Composition, Transparency, Compliance.
Frequently Asked Questions
What is the primary focus of this study?
The study focuses on the comparative analysis of corporate governance standards in the UK and Germany, specifically looking at how board effectiveness and executive remuneration principles have evolved and been implemented in large banks.
What are the central thematic fields covered?
The central themes include regulatory developments, the impact of board structure on company performance, the link between executive pay and performance, and the influence of the 2008 financial crisis on governance codes.
What is the research objective?
The objective is to contrast the development of effectiveness and remuneration principles in both countries and assess whether these principles lead to more sustainable management and successful outcomes for shareholders.
Which scientific methodology is applied?
The report utilizes a qualitative analytical approach, reviewing academic literature and corporate governance reports, supported by an empirical case study analysis of two specific financial institutions: Barclays and Deutsche Bank.
What topics are discussed in the main body?
The main body covers the history of UK and German governance reforms, the role of unitary vs. two-tier boards, the definition of remuneration policies, and critical evaluations of current governance practices at Barclays and Deutsche Bank.
Which keywords best characterize the work?
Key terms include Corporate Governance, Board Effectiveness, Remuneration, Barclays, Deutsche Bank, Financial Crisis, Agency Theory, and Regulatory Compliance.
How does the UK and German board structure differ according to the report?
The UK operates on a unitary board structure where non-executive and executive directors act as a group, whereas Germany employs a two-tier system, separating the Management Board from the Supervisory Board.
What is the significance of the "comply or explain" approach?
This approach, highlighted as a trademark of the UK code, allows firms flexibility in governance as long as they provide justification for their chosen practices, serving as a basis for the "principles-based" governance system.
How is executive remuneration linked to company performance in the studied banks?
The report finds that while there is an increasing trend to link pay to performance, there is ongoing criticism that executive remuneration remains high and sometimes fails to reflect long-term company success or risk mitigation.
- Citation du texte
- Marvin Müller (Auteur), 2016, The Effectiveness and Remuneration of the Board of Directors. A Critical Analysis of the Corporate Governance Codes in the UK and Germany, Munich, GRIN Verlag, https://www.grin.com/document/318402
