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A number of Committees have been set up in recent years to investigate the governance of UK quoted companies. The key one was the Cadbury Committee, which recommended a number of governance structures as examples of best practice. These included the separation of the posts of CEO and chairman, a significant representation of non‐executive directors, the importance of non‐executive director independence and the setting up of board subcommittees. This study finds that there has been widespread adoption of the recommended governance structures. However, there is no clear relationship between governance structures and corporate performance. This raises questions about the most effective type of governance mechanism and whether or not the prescriptive recommendations of Cadbury should be replaced with a more flexible approach.

This paper investigates the extent to which recommendations made by the Cadbury Committee have affected UK company performance. The Committee recommended that certain internal monitoring mechanisms should be adopted by quoted firms because they were more effective than others as a means of promoting shareholder interests. The mechanisms analysed are duality, the number of outside directors on the board and the presence of a remuneration committee. We analyse the relationship between governance structures and performance for two years, 1992 and 1995. Using samples of 200 companies for each of the years, we find that the proportion of firms adopting the governance structures recommended by Cadbury has increased. However there is mixed evidence that the structures are associated with better performance. Depending on the choice of dependent variable, the presence of a remuneration committee has a positive effect on performance and outside director representation has a negative effect. However, there is evidence of a simultaneous relationship between outside director representation and performance, a result consistent with additional outside directors being appointed after a period of poor performance. Complete compliance with the model of governance proposed by the Cadbury Committee does not, however, appear to be associated with performance which is better than that achieved by either partial or non compliance. © 2001 Kluwer Academic Publishers.

The increasing globalisation of markets has generated new debates about the decision‐making role of MNC subsidiaries. Globalisation may be expected to result in greater centralisation of the decision‐making process. This study analyses the extent to which subsidiaries are being given control over a range of decisions. A sample of MNC subsidiaries operating in Scotland was sent questionnaires which dealt with financial, production, employment and research and development decision making. It was found that considerable authority was devolved to subsidiaries in terms of operational decisions. However, strategic decision making remained very much under the control of the parent. This indicates that the control systems being imposed on subsidiaries are selective and that the benefits created for local economies may be not be as great as it initially appears.

ABSTRACTManuscript Type: ReviewResearch Question/Issue: We assess the corporate governance role and the impact of private equity.Research Findings/Results: Private equity firms are heterogeneous in their characteristics and activities. Nevertheless, a corporate governance structure with private equity involvement provides incentives to reduce agency and free cash flow problems. Additionally, private equity enhances the efficacy of the market for corporate control. Private equity investment is associated with performance gains, with such gains not simply being a result of transfers from other stakeholders. In the short term, the benefits appear clear to outgoing owners and to the new owners and management while in the longer term the benefits are less clear. While non‐financial stakeholders argue that other stakeholders suffer in the short and long term, the evidence to support this view is at best mixed.Theoretical Implications: By reviewing a comprehensive selection of theoretical and empirical papers published in refereed academic journals in finance, economics, entrepreneurship, and management as well as publicly available working papers and private equity industry studies, we develop a more complete understanding of private equity investment. Agency theory has shortcomings when applied to the broad sweep of private equity‐backed buyout types, as in some cases pre‐ownership change agency problems were likely low (e.g., family firms), in some cases the exploitation of growth opportunities owes more to the entrepreneurial behavior of managers than to improved incentives, and in some institutional contexts outside Anglo‐Saxon countries traditional agency issues are different and stakeholder interests are more important. There is a need for further theorizing on the heterogeneity of buyout and private equity types and the contexts in which they occur. Particularly useful perspectives seem to be entrepreneurial perspectives (e.g., entrepreneurial cognition, strategic entrepreneurship), stewardship theory, and institutional theory. Stakeholder governance theory (e.g., relating to employee ownership and participation) may also be useful for explaining wider distribution of gains.Practical Implications: Private equity investment is a positive feature of the corporate restructuring landscape. There is a need for managers and their advisors to be aware of the heterogeneity of the opportunities to create value and the expertise of different private equity firms. Policymakers designing mechanisms to regulate private equity need to be aware of the systematic evidence that shows a more positive impact of private equity than some have claimed, but also that there are heterogeneous effects relating to different types of buyouts and private equity firms that need to be taken into account.