Privatisation and Deregulation: corporate governance consequences in a global economy

Corporate governance practices in the privatised British electricity utilities are analysed in this paper. It is shown that external governance did not put enough pressure on the managers of the companies. Soft price regulation, the lack of product market competition in distribution, low financial leverage and the deactivated takeover market created a stable environment. Moreover, diffused ownership was not an adequate stimulus either. Although board structures complied with best practices and executive incentives were in place, these two devices were unable to successfully restrict managerial discretion. Therefore, it is suggested that global competition in the market for corporate control could play an important role in bringing in the appropriate incentives. The evidence indicates that allowing American electric firms to bid for their UK counterparts brought to light inadequate corporate behaviour.