Reform and Repercussion

As has already been highlighted, efforts to reform corporate governance began in the USA in the 1970s, as a challenge to self-interested directors who regularly neglected minority shareholder interests (Lauren, 1999). Such reform resulted in a string of hostile take-overs, the dismissal of many directors, and the emergence of various publications exemplifying the Principles of Corporate Governance by the American Law Institute, in order to instruct directors on proper management techniques. Moreover, since 1988, investor activism has gained momentum, publicly attacking inefficient companies. As a consequence, investors have become a recognized social force, but their initiative has moved progressively from public criticism to private dialogue, which has led to a new criticism of an overly ‘chummy relationship’ between the corporation and institutional investors. The trend of intimacy spread to the UK where, on the eve of corporate scandals involving purported false financial reporting in the company Polly Peck, Robert Maxwell’s embezzlement from his own pension fund, BCCI and other companies’ wrongdoings, a nineteen-point code of best practice for improving corporate governance was published, intended for adoption by those companies listed on the London Stock Exchange (Cadbury, 1992).