Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 4: Governance Codes, Managerial Remuneration and Disciplining in the UK: A History of Governance Reform Failure?
Luc Renneboog and Grzegorz Trojanowski 1 INTRODUCTION Over the 1990s, the UK corporate governance regime experienced a series of sweeping governance reforms initiated by the Code of Best Practice (so-called Cadbury report) in 1992 (and incorporated in the listing rules of the London Stock Exchange in July 1993) and then followed by the Greenbury report in 1995, the Hampel report in 1998, and, finally enshrined in the Combined Code of Corporate Governance in 1998. While some evidence exists of the effects of the earlier reforms, in particular of the Cadbury report (see e.g. Dahya et al., 2002, and Girma et al., 2007 for the effects of the Code introduction on CEO dismissal and executive compensation, respectively), this chapter provides a comprehensive examination of managerial remuneration and disciplining in the UK in both the pre-reform period (i.e. before 1993) and in the post-reform period (i.e. as of 1999). It allows us to assess the efficiency of the governance changes and relate to the critics claiming that the recommendations of the British governance committees did not have sufficient clout to curb the excesses in managerial compensation. Numerous calls for further improvements of practice in the area and for stronger shareholder involvement in the pay-setting process followed the dispute over the pay of GlaxoSmithKline’s CEO Jean-Paul Garnier in 2003 and the ensuing shareholder revolt against corporate ‘fat cats’. Needless to say, the recent financial crisis put the issue into the spotlight again and resulted in yet another set of governance recommendations (Walker, 2009)...
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