Reassessing the convergence thesis. An analysis of the 2018/2019 Corporate Governance Codes of the United Kingdom and Germany

Table of Contents

A. Introduction

B. Definition of Corporate Governance
1. Broad Definitions in the Corporate Governance Codes
2. Narrow Interpretation by Financial Economists

C. Corporate Governance Framework in the United Kingdom and Germany
1. Evolution of the Corporate Governance Codes
a) The First Corporate Governance Code Originated in the United Kingdom
b) Development of a Corporate Governance Code in Germany
2. Classification of the Corporate Governance Systems
a) The Anglo-American Outsider System
b) The European Insider System
3. Factors Leading to a Divergence of Corporate Governance Systems
a) Law
b) Politics
c) Culture

D. Globalisation and Convergence of Corporate Governance
1. Internationalisation and Institutionalisation of Equity Ownership
2. Convergence of Disclosure Standards

E. A Comparative Analysis of the UKCGC and the GCGC
1. The Obvious Differences
a) Company Purpose and Stakeholder Engagement
b) Board Structure
c) Board-Level Employee Representation and Co-Determination
d) Directors’ Terms of Office
e) Age Limits
f) “Overboarding” and Restriction of Board Mandates
2. Similarities and Signs of Convergence
a) Application of the Codes
b) Structure of the Codes
c) Corporate Governance Reporting and the “Comply or Explain” Principle
d) Governance Tasks of the Boards
e) Board Committees
(i) Audit Committee
(ii) Nomination Committee
(iii) Remuneration Committee
f) Appointment, Composition and Diversity on Boards
g) Board Independence
h) Directors’ Remuneration
(i) Executive and Managing Directors’ Remuneration
(ii) Non-Executive and Supervisory Directors’ Remuneration
i) Related-Party Transactions
j) Self-Assessment of Performance
k) Conflicts of Interest
g) Meetings of Non-Executive and Supervisory Directors

F. Lessons Learned
1. GCGC Restructured as Best Practice Approach
2. Areas in Which the GCGC Has Learned From the UKCGC’s Criticisms
a) Terms of Office of Supervisory Board Members
b) Limitation of Supervisory Board Mandates
3. Convergence of the UKCGC towards the GCGC
a) Enlightened Shareholder Value
b) Board Structure vs Board Practice
c) Employee Directors

G. Conclusion

Bibliography

A. Introduction

The emergence and subsequent reforms of good corporate governance principles have mainly been regulatory responses to corporate scandals, board failures, and dominant self-interested managers.¹ The recent “Dieselgate” emissions scandal involving the German car manufacturer Volkswagen, which designed its diesel vehicles’ software to manipulate emissions tests, may serve as a highly topical illustration.² This scandal had an impact not only on Volkswagen, its subsidiaries (notably Audi and Porsche), and stakeholders, but on the entire automotive industry in Germany and worldwide, not to mention the impact on the society as a whole and on the environment. After the authorities began their investigations and the manipulations became public, the Volkswagen shareholders suffered a massive drop in their share values.³ The former Volkswagen CEO⁴ Martin Winterkorn eventually resigned⁵ and his Audi counterpart Rupert Stadler was dismissed⁶ while they and other executives have been charged with fraud.⁷ On the other side, customers of affected vehicles are confronted with driving bans and heavy losses in value, which they seek to compensate by way of claims for damages against Volkswagen. Governance experts argued that the diesel emissions scandal was ultimately a result of negligent board controls and a patriarchal corporate governance culture with a lack of diversity, expertise, and independence on Volkswagen’s supervisory board.⁸

It is therefore not surprising that the “Government Commission on the German Corporate Governance Code” adopted a new version of the German Corporate Governance Code on 9 May 2019 (hereinafter referred to as “GCGC”), which will come into force simultaneously with the Act for Implementing the Second EU Shareholder Rights Directive⁹ later this year.¹⁰ The reform aimed at increasing the relevance and acceptance of the GCGC among companies and (international) investors.¹¹ Central to the restatements were recommendations on “overboarding”, management board remuneration and specific requirements for the independence of shareholder representatives on the supervisory board.¹² During the public consultation phase, however, commentators expressed strong criticism of the reform proposals. They argued that the GCGC would be restructured as a “best practice” approach based on the Anglo-Saxon system, with a one-sided focus on investor interests, while insufficient consideration would be given to the interests of other stakeholders, such as employees.¹³

In fact, the advancing globalisation, integration into global markets, development of international financial systems, and the emergence of supranational codes and principles of good corporate governance have persuaded some authors – notably US law scholars Hansmann and Kraakman – to believe that corporate governance in developed economies is inevitably converging towards the superior Anglo-American model of shareholder value maximisation.¹⁴ Since then, a lively debate has developed on the convergence and persistence of corporate governance systems.¹⁵

This dissertation takes the adoption of the new GCGC as an opportunity to verify the thesis whether signs of convergence of contrasting corporate governance systems towards a single model are evident. For this purpose, a comparative analysis of the GCGC and the UK Corporate Governance Code 2018¹⁶ (hereinafter referred to as “UKCGC”) is conducted. The UKCGC and the GCGC (the UKCGC and the GCGC are hereinafter jointly referred to as “Corporate Governance Codes” or simply “Codes”) originate from competing corporate governance systems – the UK (enlightened) shareholder value model and the German stakeholder model – so the two Codes are ideally suited for a comparative analysis to verify the convergence thesis.

The dissertation shows that the advancing globalisation has generally contributed to a shift towards an Anglo-American corporate governance pattern in European countries. This is reflected, for instance, in the internationalisation and institutionalisation of equity ownership structures in the United Kingdom and Germany as well as in internationally applicable disclosure and accounting standards. Convergence is also attributable to the harmonisation of national laws through EU legislation, as is the case with the recent Second EU Shareholder Rights Directive. Hence, the comparative analysis of the UKCGC and the GCGC reveals broad signs of convergence with a large number of similar corporate governance mechanisms and provisions. Nevertheless, there are still region-specific differences in the Corporate Governance Codes that can be traced to the underlying corporate governance philosophy. However, board practice demonstrates that the structural differences between the two corporate governance systems in the United Kingdom and Germany are blurring. Finally, the comparative analysis also illustrates that the Corporate Governance Codes are converging from both sides and that the UKCGC provides elements normally found in stakeholder-oriented corporate governance codes such as the GCGC. It is therefore unlikely that Hansmann and Kraakman’s prediction of inevitable convergence towards the superior Anglo-American model will materialise in the near future so that a diversity of corporate governance systems will remain.

The dissertation is structured as follows. Section B first defines what is generally understood by “corporate governance”, a term that apparently originates from the Anglo-Saxon language. Section C then presents the framework for corporate governance in the United Kingdom and Germany. This includes the evolution of the UKCGC and the GCGC and their classification in the respective corporate governance systems. The peculiarities of the Anglo-American outsider system and the European insider system are shown. In addition, the key factors that have shaped the contrasting systems are briefly listed. Subsequently, Section D deals with the globalisation and convergence of corporate governance in general. The main part of the dissertation is section E comprising a comparative analysis of the Corporate Governance Codes in the United Kingdom and Germany. Firstly, the obvious differences are outlined before the similarities and signs of convergence are discussed. The results of the comparative analysis are then compiled in section F and lessons are drawn from the analysis. In particular, it will be discussed where the GCGC could learn from the UKCGC and where the UKCGC shows signs of convergence towards the GCGC. Section G concludes.

B. Definition of Corporate Governance

So far, there is no generally accepted theoretical basis or paradigm for corporate governance.¹⁷ Rather, the development to date has led to a variety of corporate governance approaches that focus on different aspects of the institutions, processes, and mechanisms that in turn determine the distribution, exercise, and monitoring of power within a company. Consequently, no uniform definition of corporate governance exists.¹⁸

1. Broad Definitions in the Corporate Governance Codes

In a broad sense – as adopted by the UKCGC and the GCGC – corporate governance is ‘the system by which companies are directed and controlled’,¹⁹ or ‘the legal and factual regulatory framework for the management and supervision of an enterprise’.²⁰ Similarly, the OECD defines corporate governance as ‘a set of relationships between a company’s management, its board, its shareholders and other stakeholders’ that ‘provides the structure through which the objectives of the company are set, and the means of attaining these objectives and monitoring performance are determined’.²¹

2. Narrow Interpretation by Financial Economists

According to a more narrow interpretation – usually adopted by financial economists – corporate governance focuses on the relations between suppliers of finance (i.e. shareholders) and managers.²² This is based on the assumption that the interests of shareholders, whose influence diminishes with increasing numbers and company size, diverge from those of managers taking control.²³ Wherever a separation of ownership and control occurs and whenever responsibility is delegated by the principals (shareholders) to the agents (managers), the agency dilemma arises.²⁴ Thus, corporate governance primarily seeks to mitigate the shareholder-manager agency conflict, but also conflicts of interests with other stakeholders of the company.²⁵ However, agency theory as the dominant theoretical framework of corporate governance is not without criticism. Critics argue that it is incapable of examining and explaining the full complexity of corporate relationships and wider theoretical perspectives on corporate governance are needed.²⁶

Knowing what is generally meant by corporate governance, the next section is devoted to the framework for corporate governance in the United Kingdom and Germany.

C. Corporate Governance Framework in the United Kingdom and Germany

In both countries, a set of laws (i.e. corporate and labour law defining the relationships between corporate constituencies), regulations (i.e. financial market regulation dealing with financial transparency, disclosure, and insider trading), stock exchange listing requirements and codes of best practice (i.e. corporate governance codes) together provides the basis for corporate governance.²⁷ The focus of this dissertation is on the corporate governance codes.

In the following, the evolution of the Corporate Governance Codes is presented, taking into account the factors that have contributed to the development of the diverging corporate governance systems.

1. Evolution of the Corporate Governance Codes

The term “corporate governance” is relatively new. It appeared not until the 1980s where concerns about the way companies were directed and held accountable were largely relativised by their commercial success.²⁸ Following a series of corporate scandals and collapses around the world, good corporate governance principles started to evolve in the 1990s.

a) The First Corporate Governance Code Originated in the United K ingdom

The first set of principles of good corporate governance was introduced by the “Cadbury Report” 1992 in response to continuing concern about financial reporting standards and the accountability of boards in the United Kingdom, particularly in the light of a series of corporate failures such as the media empire of Maxwell, the textile company Polly Peck, and the Bank of Credit and Commerce International.²⁹ Central to the “Code of Best Practice” was: the separation of the role of the chairman and CEO; boards consisting of independent non-executive directors who serve on audit, nomination, and remuneration committees; and, reporting on the effectiveness of the system of internal control.³⁰ Following the recommendation of the Code, the London Stock Exchange has introduced an ongoing listing requirement whereby all listed companies registered in the United Kingdom should include a statement in their annual report and accounts whether or not they comply with the Code and to give reasons for any areas of non-compliance (“comply or explain”).³¹ Further corporate governance reforms followed the Cadbury Report (focusing on director’s remuneration,³² mandatory disclosure,³³ and the role and effectiveness of non-executive directors³⁴ ) which were consolidated in the Combined Code, the predecessor of the UKCGC.³⁵

The original Cadbury Code of Best Practice has influenced corporate governance thinking across the world and inspired similar corporate governance codes in other countries which experienced corporate collapses akin.³⁶

b) Development of a Corporate Governance Code in Germany

With the bankruptcy of the Philipp Holzmann AG, Europe’s largest construction company, the German government set up the “Government Panel on Corporate Governance” under the chairmanship of Theodor Baums in May 2000 in order to review the German corporate governance system. The Panel’s review took place against the background of the institutionalisation and internationalisation of shareholdings and the globalisation of capital markets, which placed the German corporate law under pressure to adapt to changing market requirements.³⁷ In July 2001, the Panel presented its report with proposals for amendments or changes to German corporate law as well as recommendations for the development of the German corporate governance system in order to maintain its attractiveness for companies and domestic and foreign investors. Foremost, it recommended the development of a “German Code of Corporate Governance” for publicly listed companies. For this purpose, the “Government Commission on the German Corporate Governance Code” chaired by Gerhard Cromme was formed by the Federal Ministry of Justice in September 2001. It presented the German Corporate Governance Code (“Cromme Code”) in February 2002, which contained statutory regulations for the management and supervision of German listed companies as well as (inter)nationally recognised standards for good corporate governance.³⁸ In accordance with the “comply or explain” principle, the rules of the Cromme Code should not be binding, but rather supplement statutory law that can be found in the German Stock Corporation Act³⁹ as the legal basis for corporate governance. Listed companies should only be required to state in their annual reports whether they observe the recommendations of the Code or alternatively give reasons for deviations.⁴⁰ Since then, the original Cromme Code has been regularly reviewed and corporate law has undergone numerous reforms, including improvements on transparency and disclosure, the role and independence of the supervisory board, investor protection, executive remuneration, and diversity on boards.⁴¹

The Corporate Governance Codes are an integral part of wider corporate governance systems in the United Kingdom and Germany, which are classified differently, as described in the next section.

2. Classification of the Corporate Governance Systems

In the historical evolution, the corporate governance regimes in the United Kingdom and Germany developed differently. While corporate governance in the United Kingdom is based on the Anglo-American outsider system, the European insider system prevails in Germany.⁴² These contrasting approaches are largely due to different ownership structures, funding sources, and methods for monitoring and regulating companies.⁴³

a) The Anglo-American Outsider System

The Anglo-American outsider system – also known as market-based or shareholder value system – is characterised by diffuse equity ownership, with a dominant role of institutional investors (e.g. insurance companies, pension funds, and mutual funds) and a clear separation of ownership and control.⁴⁴ Large corporations are managed by professional managers and CEOs. The central issue of corporate governance is therefore the agency conflict between shareholders and managers.

Furthermore, there are active and liquid securities market including a market for corporate control, which performs a certain disciplining function on self-interested managers.⁴⁵ High disclosure standards and market transparency guarantee reliable and appropriate information flows for shareholders to make informed investment decisions. However, disgruntled shareholders regularly respond to poorly managed companies by selling their shares rather than exercising their voting power to discipline management.⁴⁶ Conversely, bank financing plays a subordinate role in corporate finance due to low debt/equity ratios in companies.⁴⁷

Above all, the Anglo-American outsider system is strongly oriented towards shareholders and perceives short-term shareholder value as the primary corporate objective.⁴⁸ In particular, (minority) shareholders enjoy strong protection in securities law and regulation. Other stakeholders are not formally represented. However, the United Kingdom has adopted an “enlightened shareholder value” model whereby directors must promote the long-term success of the company for the benefit of its shareholders as a whole.⁴⁹ When making decisions, the interests of employees, customers, and suppliers as well as the impacts on society and the environment must be taken into account.

Accordingly, a shift away from the pure Anglo-American shareholder value model towards a discretionary pluralism model that approaches the European stakeholder model is discernible in the United Kingdom.⁵⁰

b) The European Insider System

In contrast, the European insider system – also referred to as relationship-based or stakeholder system – is typified by concentrated ownership, with controlling shareholders holding large blocs, such as founding families, banks or other corporations via cross-shareholdings.⁵¹ Central issues of corporate governance are therefore the conflicts between majority and minority shareholders and other stakeholders.

Corporate finance depends more on bank loans than on the equity markets resulting in high enterprise debt/equity ratios.⁵² Due to their close relationships with companies, banks regularly have a governance role, as they are represented on the boards of large corporations among other stakeholders.⁵³ Conversely, securities markets and the market for corporate control are weak with hostile takeovers rarely occurring. Transparency and disclosure standards are therefore rather low.

The central characteristics of the German corporate governance system is its insider nature, which is built on close relationships with a broad spectrum of stakeholders, including employees, creditors, suppliers, and customers.⁵⁴ The corporate objective is to create long-term stakeholder value. Moreover, the interests of various stakeholder groups are represented on the board of directors who monitor the performance of management. In particular, the system of parity co-determination, in which employees are represented on the board of large corporations, coupled with works council co-decision rights provide strong protection for labour interests.⁵⁵ On the other hand, the protection of minority shareholders is rather weak.

The question now arises as to what factors have contributed to the development of different corporate governance systems in the United Kingdom and Germany. The most influencing are briefly discussed below.

3. Factors Leading to a Divergence of Corporate Governance Systems

Some of the key factors that have shaped the different corporate governance systems are the law, politics, and culture which prevail in a country.

a) Law

The advocates of the “law matters” theory see the legal family to which a country belongs as an essential determinant of the ownership structure and the system of corporate finance and governance.⁵⁶ La Porta and others argued that the concentration or dispersion of ownership along corporate governance regimes are a direct consequence of the level of legal protection offered to minority shareholders, which in turn closely correlates with the civil or common law origins of a given jurisdiction.

Civil law countries such as Germany provide weaker protection to minority shareholders, resulting in a concentrated ownership structure with controlling shareholders and enterprises dominated by families and banks.⁵⁷ In contrast, common law countries such as the United Kingdom, where precedents of case law allow flexible responses to new trends, offer stronger guarantees to minority shareholders and promote dispersed ownership.⁵⁸ Concentrated ownership structures facilitate close monitoring of management while reducing the shareholder-manager agency conflict.⁵⁹ However, a different agency problem arises with controlling shareholders who exploit minority shareholders and other stakeholders.

Thus, La Porta and others believe that strict regulations are a precondition for sophisticated capital markets. Conversely, Coffee argued that solid market institutions demanded legal protection for market participants,⁶⁰ and Easterbrook suggested that the law follows markets rather than defining them.⁶¹

b) Politics

Some scholars used political insights as alternative explanation for divergent ownership structures and corporate governance systems.⁶² Gourevitch and Shinn, for example, discussed corporate governance outputs through public policy choices, which are created by the interaction of interest group preferences and political institutions.⁶³ According to Roe’s “path-dependence” thesis, the dispersion of ownership in the United States was the outcome of political forces that prevented the concentration of ownership or ownership via financial institutions.⁶⁴ Finally, Rajan and Zingales argued that diffuse ownership structures are associated with to the development of liquid capital markets and the openness to external investments, while protectionism sealed off European markets from competition, leading to a concentration of ownership.⁶⁵

c) Culture

Other authors examined the relevance of social and cultural norms to corporate governance.⁶⁶ Licht, for instance, described the culture of a nation as the “mother of all path dependencies”.⁶⁷ He argued that a nation’s cultural values influence the development of laws in a country in general and its corporate governance regime in particular. Moreover, the corporate culture (notably in the boardroom), meaning the values, attitudes, and behaviours that a company embodies in its activities and relations with stakeholders, is another important factor that has contributed to different corporate governance styles.⁶⁸

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¹ Robert I (Bob) Tricker, ‘The Evolution of Corporate Governance’ in Thomas Clarke and Douglas M Branson (eds), The SAGE Handbook of Corporate Governance (SAGE Publications 2011) 45; John Armour and others, ‘What is Corporate Law?’ in Reinier Kraakman and others (eds), The Anatomy of Corporate Law: A Comparative and Functional Approach (3rd edn, Oxford University Press 2017) 25; Thomas Clarke, International Corporate Governance: A Comparative Approach (2nd edn, Routledge 2017) 18 and 147.

² Clarke, International Corporate Governance: A Comparative Approach (n 1) 628-631.

³ Ben Chu, ‘Volkswagen Diesel Emissions Scandal: The Toxic Legacy’ The Independent (London, 17 September 2016) <https://www.independent.co.uk/news/business/Leading_business_story/volkswagen-diesel-emissions-scandal-the-toxic-legacy-a7312056.html> accessed 17 June 2019.

⁴ Chief Executive Officer (Vorstandsvorsitzender).

⁵ Sean Farrell and Graham Ruddick, ‘Volkswagen CEO Martin Winterkorn Quits Over Diesel Emissions Scandal’ The Guardian (London, 23 September 2015) <https://www.theguardian.com/business/2015/sep/23/volkswagen-ceo-martin-winterkorn-quits-over-diesel-emissions-scandal> accessed 17 June 2019.

⁶ Patrick McGee, ‘Volkswagen Formally Ousts Audi CEO Rupert Stadler’ The Financial Times (London, 2 October 2018) <https://www.ft.com/content/bff30f42-c64f-11e8-ba8f-ee390057b8c9> accessed 17 June 2019.

⁷ Jack Ewing, ‘Ex-Volkswagen C.E.O. Charged With Fraud Over Diesel Emissions’ The New York Times (New York, 3 May 2018) <https://www.nytimes.com/2018/05/03/business/volkswagen-ceo-diesel-fraud.html> accessed 17 June 2019; Ben Chapman, ‘German Prosecutors Charge Former Volkswagen Boss Martin Winterkorn With Fraud’ The Independent (London, 15 April 2019) <https://www.independent.co.uk/news/business/news/volkswagen-ceo-martin-winterkorn-fraud-charges-germany-a8870541.html> accessed 17 June 2019; Melissa Eddy, ‘Rupert Stadler, Ex-Audi Chief, Is Charged With Fraud in Diesel Scandal’ The New York Times (Berlin, 31 July 2019) <https://www.nytimes.com/2019/07/31/business/audi-diesel-emissions-rupert-stadler.html> accessed 4 August 2019.

⁸ Chris Bryant and Richard Milne, ‘Boardroom Politics at Heart of VW Scandal’ The Financial Times (Frankfurt/Wolfsburg, 4 October 2015) <https://www.ft.com/content/e816cf86-6815-11e5-a57f-21b88f7d973f> accessed 29 July 2019.

⁹ Gesetz zur Umsetzung der Zweiten Aktionärsrechterichtlinie (ARUG II); Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 Amending Directive 2007/36/EC as Regards the Encouragement of Long-term Shareholder Engagement [2017] OJ L132/1 (SRD II).

¹⁰ Government Commission on the German Corporate Governance Code, ‘German Corporate Governance Code’ (2019) (GCGC), General Explanatory Notes s I(7); Government Commission on the German Corporate Governance Code, ‘Press Release: Code Reform 2019 Adopted’ (Frankfurt/Main, 22 May 2019) <https://www.dcgk.de/en/code/code-2019.html> accessed 3 August 2019.

¹¹ GCGC, General Explanatory Notes s I(1)(2); Government Commission on the German Corporate Governance Code, ‘Press Release: Code Reform 2019 – Draft Revised Code Published: Enhanced Relevance, Clearer and More Compact Wording’ (Frankfurt/Main, 6 November 2018) <https://www.dcgk.de/en/consultations/archive/consultation-2019.html> accessed 3 August 2019.

¹² Klaus von der Linden, ‘Deutscher Corporate Governance Kodex 2019 – Alles Neu Macht der Mai’ (2019) DStR Deutsches Steuerrecht 1528.

¹³ Dieter Fockenbrock, ‘BASFAufsichtsratschef Jürgen Hambrecht: Ich Fühle Mich Durch Regulierung Aus Verantwortung Geboxt’ Handelsblatt (Ludwigshafen, 19 July 2018) <https://www.handelsblatt.com/unternehmen/management/basf-aufsichtsratschef-juergen-hambrecht-ich-fuehle-mich-durch-regulierung-aus-der-verantwortung-geboxt-/22817140.html?ticket=ST-1420089-cd3RT3fEMwPbNVStlL3v-ap1> accessed 21 May 2019; Jürgen Flauger and Peter Brors, ‘Interview: Multi-Aufsichtsrat Kley fordert Abschaffung des Corporate-Governance-Kodex’ Handelsblatt (Köln, 20 December 2018) <https://www.handelsblatt.com/unternehmen/industrie/interview-multi-aufsichtsrat-kley-fordert-abschaffung-des-corporate-governance-kodex/23785578.html> accessed 21 May 2019; Reiner Hoffmann (DGB), ‘DGB-Bewertung des Neuen DCGK’ Comments from Stakeholders to the Consultation (Berlin, 11 January 2019) <https://www.dcgk.de/en/consultations/archive/consultation-2019.html> accessed 21 May 2019; Uwe Tschäge (Commerzbank), ‘Bewertung des Neuen DCGK’ Comments from Stakeholders to the Consultation (Düsseldorf, 21 January 2019) <https://www.dcgk.de/en/consultations/archive/consultation-2019.html> accessed 21 May 2019; Dieter Fockenbrock, ‘Der Corporate Governance Kodex Steckt in der Krise: Regelkatalog zu Guter Unternehmensführung soll Reformiert Werden – Das Droht zu Scheitern’ Handelsblatt (Düsseldorf, 19 February 2019) <https://www.handelsblatt.com/unternehmen/management/deutscher-corporate-governance-kodex-regelkatalog-zu-guter-unternehmensfuehrung-soll-reformiert-werden-das-droht-zu-scheitern/24012388.html> accessed 21 May 2019.

¹⁴ Sanford M Jacoby, ‘Corporate Governance in Comparative Perspective: Prospects for Convergence’ (2000) 22[1] Comparative Labor Law and Policy Journal 5, 14; Henry Hansmann and Reinier Kraakman, ‘The End of History for Corporate Law’ (2001) 89[2] Georgetown Law Journal 439; Tricker (n 1) 59; Clarke, International Corporate Governance: A Comparative Approach (n 1) 13 and 15.

¹⁵ Douglas M Branson, ‘The Very Uncertain Prospects of Convergence in Corporate Governance’ (2001) 34[2] Cornell International Law Review 321; Joseph A McCahery and others, Corporate Governance Regimes: Convergence and Diversity (Oxford University Press 2002); Brett H McDonnell, ‘Convergence in Corporate Governance: Possible, But Not Desirable’ (2002) 47[2] Villanova Law Review 341; Jeffrey N Gordon and Mark J Roe, Convergence and Persistence in Corporate Governance (Cambridge University Press 2004); Abdul Rasheed and Toru Yoshikawa, The Convergence of Corporate Governance: Promise and Prospects (Palgrave Macmillan 2012); Clarke, International Corporate Governance: A Comparative Approach (n 1) 143.

¹⁶ Financial Reporting Council (FRC), ‘The UK Corporate Governance Code’ (2018) (UKCGC).

¹⁷ Tricker (n 1) 58-59.

¹⁸ Clarke, International Corporate Governance: A Comparative Approach (n 1) 2.

¹⁹ Adrian Cadbury, ‘Report of the Committee on the Financial Aspects of Corporate Governance’ (1992) para 2.5; UKCGC, Introduction.

²⁰ GCGC, Foreword.

²¹ Organisation for Economic Co-operation and Development (OECD), ‘G20/OECD Principles of Corporate Governance’ (2015) 9.

²² Andrei Shleifer and Robert Vishny, ‘A Survey of Corporate Governance’ (1997) 52[2] The Journal of Finance 737.

²³ Adolf A Berle and Gardiner C Means, The Modern Corporation and Private Property (Macmillan 1932) 8 and 84-89; Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, ‘Corporate Ownership Around the World’ (1999) 54[2] Journal of Finance 471, 492-493; Tricker (n 1) 55; Armour and others, ‘What is Corporate Law?’ (n 1) 25; Clarke, International Corporate Governance: A Comparative Approach (n 1) 6 and 126-127.

²⁴ Berle and Means (n 23) 6 and 121-122; Michael C Jensen and William H Meckling, ‘Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure’ (1976) 3[4] Journal of Financial Economics 305, 308; Eugene F Fama and Michael C Jensen, ‘Separation of Ownership and Control’ (1985) 26[2] Journal of Law and Economics 301; Michael C Jensen, ‘Self-Interest, Altruism, Incentives and Agency Theory’ (1994) 7[2] Journal of Applied Corporate Finance 40; Tricker (n 1) 55-56; Clarke, International Corporate Governance: A Comparative Approach (n 1) 36-38.

²⁵ Tricker (n 1) 55-56; John Armour, Henry Hansmann and Reinier Kraakman, ‘Agency Problems and Legal Strategies’ in Reinier Kraakman and others (eds), The Anatomy of Corporate Law: A Comparative and Functional Approach (3rd edn, Oxford University Press 2017) 29-30; John Armour and others, ‘The Basic Governance Structure: The Interests of Shareholders as a Class’ in Reinier Kraakman and others (eds), The Anatomy of Corporate Law: A Comparative and Functional Approach (3rd edn, Oxford University Press 2017) 49-50; Luca Enriques and others, ‘The Basic Governance Structure: Minority Shareholders and Non-Shareholder Constituencies’ in Reinier Kraakman and others (eds), The Anatomy of Corporate Law: A Comparative and Functional Approach (3rd edn, Oxford University Press 2017) 85, 91 and 101.

²⁶ Catherine M Daily, Dan R Dalton and Alberta A Cannella, ‘Corporate Governance: Decades of Dialogue and Data’ (2003) 28[3] Academy of Management Review 371, 372; Annie Pye and Andrew Pettigrew, ‘Studying Board Context, Process and Dynamics: Some Challenges for the Future’ (2005) 16[1] British Journal of Management 27, 30; Clarke, International Corporate Governance: A Comparative Approach (n 1) 38-39. See for the existing theoretical approaches to corporate governance (e.g. agency, transaction costs, stewardship, resource dependency, stakeholder, managerial and class hegemony theory) Clarke, International Corporate Governance: A Comparative Approach (n 1) 39-44 and Thomas Clarke, Theories of Corporate Governance (Routledge 2004).

²⁷ Michel Aglietta and Antoine Rebèioux, Corporate Governance Adrift: A Critique of Shareholder Value (Edward Elgar 2005) 54; Clarke, International Corporate Governance: A Comparative Approach (n 1) 129.

²⁸ Tricker (n 1) 44-45.

²⁹ Cadbury (n 19); Tricker (n 1) 45; Clarke, International Corporate Governance: A Comparative Approach (n 1) 18, 147 and 199.

³⁰ Cadbury (n 19) paras 4.9, 4.11-4.12, 4.21, 4.30, 4.32, 4.35, 4.42, 5.22 and Code of Best Practice paras 1.2-1.3, 2.2, 3.3, 4.3 and 4.5; Tricker (n 1) 45; Clarke, International Corporate Governance: A Comparative Approach (n 1) 147 and 201.

³¹ Financial Conduct Authority (FCA) Handbook, LR 9.8.6R(5)-(6); Cadbury (n 19) paras 1.3, 3.1 and 3.7; Tricker (n 1) 46; Clarke, International Corporate Governance: A Comparative Approach (n 1) 147 and 201-202.

³² Richard Greenbury, ‘Directors’ Remuneration: Report of a Study Group Chaired by Sir Richard Greenbury (1995).

³³ Ronnie Hampel, ‘Committee on Corporate Governance: Final Report’ (1998).

³⁴ Derek Higgs, ‘Review of the Role and Effectiveness of Non-Executive Directors’ (2003).

³⁵ Tricker (n 1) 46 and 51; Clarke, International Corporate Governance: A Comparative Approach (n 1) 203-204 and 228-230.

³⁶ Tricker(n 1) 46-47; Clarke, International Corporate Governance: A Comparative Approach (n 1) 147 and 201-202.

³⁷ Theodor Baums, Bericht der Regierungskommission Corporate Governance: Unternehmensführung, Unternehmenskontrolle, Modernisierung des Aktienrechts (Otto Schmidt Verlag 2001); Theodor Baums, ‘German Government Panel on Corporate Governance’ (2001) SSRN <https://ssrn.com/abstract=290583> accessed 28 July 2019; Clarke, International Corporate Governance: A Comparative Approach (n 1) 262.

³⁸ Clarke, International Corporate Governance: A Comparative Approach (n 1) 262.

³⁹ Aktiengesetz (AktG).

⁴⁰ German Stock Corporation Act (Aktiengesetz – AktG), s 161.

⁴¹ Act on Control and Transparency in Business 1998 (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich – KonTraG), Act on Further Reform of Stock Corporation and Accounting Law, on Transparency and Publicity 2002 (Gesetz zur weiteren Reform des Aktien- und Bilanzrechts, zu Transparenz und Publizität – TransPuG), Act on Corporate Integrity and Modernisation of the Rescission Right 2005 (Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts – UMAG); Act on the Disclosure of Management Board Remuneration 2005 (Gesetz über die Offenlegung der Vorstandsvergütungen – VorstOG), Act on Implementing the Shareholder Rights Directive 2009 (Gesetz zur Umsetzung der Aktionärsrechterichtlinie – ARUG) and Act on the Appropriateness of Management Board Remuneration 2009 (Gesetz zur Angemessenheit der Vorstandsvergütung – VorstAG); Clarke, International Corporate Governance: A Comparative Approach (n 1) 266-267.

⁴² Jacoby (n 14) 6; Clarke, International Corporate Governance: A Comparative Approach (n 1) 124, 186, 198 and 265.

⁴³ Clarke, International Corporate Governance: A Comparative Approach (n 1) 125.

⁴⁴ La Porta, Lopez-de-Silanes and Shleifer, ‘Corporate Ownership Around the World’ (n 23) 471; Jacoby (n 14) 6; Randall K Morck and Lloyd Steier, ‘The Global History of Corporate Governance: An Introduction’ in Randall K Morck (ed), A History of Corporate Governance Around the World: Family Business Groups to Professional Managers (University of Chicago Press 2006) 5-6 and 25; Armour and others, ‘What is Corporate Law?’ (n 1) 25-26; Armour and others, ‘The Basic Governance Structure: The Interests of Shareholders as a Class’ (n 25) 73; Clarke, International Corporate Governance: A Comparative Approach (n 1) 12, 124, 143 and 186; Enriques and others, ‘The Basic Governance Structure: Minority Shareholders and Non-Shareholder Constituencies’ (n 25) 104.

⁴⁵ Clarke, International Corporate Governance: A Comparative Approach (n 1) 125.

⁴⁶ Jacoby (n 14) 6; Clarke, International Corporate Governance: A Comparative Approach (n 1) 187.

⁴⁷ Clarke, International Corporate Governance: A Comparative Approach (n 1) 187.

⁴⁸ Armour and others, ‘The Basic Governance Structure: The Interests of Shareholders as a Class’ (n 25) 73; Clarke, International Corporate Governance: A Comparative Approach (n 1) 13, 124 and 143.

⁴⁹ UK Companies Act 2006, s 172(1); Clarke International Corporate Governance: A Comparative Approach (n 1) 106.

⁵⁰ Clarke, International Corporate Governance: A Comparative Approach (n 1) 406.

⁵¹ La Porta, Lopez-de-Silanes and Shleifer, ‘Corporate Ownership Around the World’ (n 23) 471; Jacoby (n 14) 6 and 7; Morck and Steier (n 44) 5-6 and 15; Armour and others, ‘What is Corporate Law?’ (n 1) 25-26; Armour and others, ‘The Basic Governance Structure: The Interests of Shareholders as a Class’ (n 25) 74-75; Clarke, International Corporate Governance: A Comparative Approach (n 1) 12, 124 and 143; Enriques and others, ‘The Basic Governance Structure: Minority Shareholders and Non-Shareholder Constituencies’ (n 25) 104.

⁵² Clarke, International Corporate Governance: A Comparative Approach (n 1) 124 and 143.

⁵³ ibid.

⁵⁴ Clarke, International Corporate Governance: A Comparative Approach (n 1) 13, 143, 252 and 265.

⁵⁵ Armour and others, ‘The Basic Governance Structure: The Interests of Shareholders as a Class’ (n 25) 74; Clarke, International Corporate Governance: A Comparative Approach (n 1) 267-268; Enriques and others, ‘The Basic Governance Structure: Minority Shareholders and Non-Shareholder Constituencies’ (n 25) 91.

⁵⁶ Rafael La Porta and others, ‘Law and Finance’ (1998) 106[6] Journal of Political Economy 1113; La Porta, Lopez-de-Silanes and Shleifer, ‘Corporate Ownership Around the World’ (n 23) 471; Rafael La Porta and others, ‘Investor Protection and Corporate Governance’ (2000) 58[1] Journal of Financial Economics 3; Rafael La Porta and others, ‘Investor Protection and Corporate Valuation’ (2002) 57[3] Journal of Finance 1147; Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, ‘The Economic Consequences of Legal Origins’ (2008) 46[2] Journal of Economic Literature 285; Armour and others, ‘What is Corporate Law?’ (n 1) 27.

⁵⁷ La Porta, Lopez-de-Silanes and Shleifer, ‘Corporate Ownership Around the World’ (n 23) 471; Jacoby (n 14) 8; Morck and Steier (n 44) 37-43; Tricker (n 1) 54-55; Clarke, International Corporate Governance: A Comparative Approach (n 1) 132, 267-268 and 398.

⁵⁸ Jacoby (n 14) 8; La Porta and others, ‘Investor Protection and Corporate Governance’ (n 56) 3; Morck and Steier (n 44) 37-43; Tricker (n 1) 54-55; Clarke, International Corporate Governance: A Comparative Approach (n 1) 132 and 398.

⁵⁹ La Porta and others, ‘Investor Protection and Corporate Valuation’ (n 56) 1147.

⁶⁰ John C Coffee, ‘The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control’ (2001) 111[1] The Yale Law Journal 1, 6.

⁶¹ Frank H Easterbrook, ‘International Corporate Differences: Markets or Law?’ (1997) 9[4] Journal of Applied Corporate Finance 23.

⁶² Mark J Roe, ‘Legal Origins, Politics and Modern Stock Markets’ (2006) 120[2] Harvard Law Review 460; Clarke, International Corporate Governance: A Comparative Approach (n 1) 397.

⁶³ Peter A Gourevitch and James Shinn, Political Power and Corporate Control: The New Global Politics of Corporate Governance (Princeton University Press 2007).

⁶⁴ Mark J Roe, Strong Managers, Weak Owners: The Political Roots of American Corporate Finance (Princeton University Press 1994); Marc J Roe, Political Determinants of Corporate Governance (Oxford University Press 2003).

⁶⁵ Raghuram G Rajan and Luigi Zingales, ‘The Great Reversals: The Politics of Financial Development in the Twentieth Century (2003) 69[1] Journal of Financial Economics 5.

⁶⁶ Clarke, International Corporate Governance: A Comparative Approach (n 1) 398-399.

⁶⁷ Amir N Licht, ‘The Mother of All Path Dependencies: Towards a Cross-Cultural Theory of Corporate Governance Systems’ (2001) 26[1] Delaware Journal of Corporate Law 147, 149; Amir N Licht, ‘The Maximands of Corporate Governance: A Theory of Values and Cognitive Style’ (2004) 29[3] Delaware Journal of Corporate Law 649; Amir N Licht, Chanan Goldschmidt and Shalom H Schwartz, ‘Culture, Law, and Corporate Governance’ (2005) 25[2] International Review of Law and Economics 229.

⁶⁸ Financial Reporting Council (FRC), ‘Corporate Culture and the Role of Boards: Report of Observations’ (2006) <https://www.frc.org.uk/directors/the-culture-project> accessed 9 August 2019.