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Corporate Governance: An International Review, 2009, 17(3): ••–••

1 Codes of Good Governance

2

3 Ruth V. Aguilera and Alvaro Cuervo-Cazurra*

4

5 ABSTRACT

6 Manuscript type: Conceptual/review special issue on corporate governance

7 Research Question/Issue: We review the recent developments in the area of codes of good governance, a set of best practice
8 recommendations regarding the behavior and structure of the board of directors.
9 Research Findings/Results: Our review of the literature on codes of good governance highlights the rapid spread of codes
10 of good governance around the world and how academic research has lagged behind in analyzing this topic. Despite the
11 criticism that the codes’ voluntary nature limits their ability to improve governance practices, codes of good governance
12 appear to have generally improved the governance of countries that have adopted them, although there is need for
13 additional reforms.
14 Theoretical Implications: Unfortunately, research on codes of good governance has been studied in insolation with little
15 cross-fertilization across the different disciplines. We propose a multi-level framework to discuss three main topics that have
16 emerged within the codes literature: the motivations behind the diffusion of codes across countries and its implications for
17 convergence of corporate governance practices; the content of the codes and their “comply or explain” dimension; and the
18 relationship between code compliance and firm performance. We conclude by proposing four areas of future research.
19 Practitical Implications: Code development, adoption, and compliance are directly related to issues surrounding the
20 governance of the firm, and in particular to all the interactions that a director has inside and outside the firm. Codes are
21 regulations that emerge from policy-making negotiations between the different stakeholders, such as the state (via the stock
22 market regulators) and the investors.

23 Key words: Codes of good governance, corporate governance

24

25 INTRODUCTION Kingdom’s Cadbury Report was issued (Cuervo-Cazurra 46

and Aguilera, 2004). By mid 2008, 64 countries had issued 47
26
27
28
W e review the state of information on the topic of codes
of good governance. An important debate in the inter-
national corporate governance world is whether countries
196 distinct codes of good governance. Additionally, there is
a large variety of issuers of codes, which include not only
stock markets or its regulators, but also investor associa-
48
49
50
29 should develop hard laws, such as the United States with the tions, employer associations, professional associations, and 51
30 Sarbanes-Oxley Act 2002, or whether soft regulation, such even governments. 52
31 as codes of good governance, are sufficiently effective to The explosion in the issuance of codes of good governance 53
32 improve existing corporate governance practices across has been accompanied by an increase in the number of 54
33 countries, as well as to address the pressing issues of corpo- articles in academic publications. For example, since 1997, 55
34 rate accountability and disclosure. Corporate Governance: An International Review has published 56
35 Codes of good governance are a set of best practice rec- 14 papers that explicitly discuss the nature of codes in a 57
36 ommendations regarding the behavior and structure of the given country and 59 papers that have the phrase “gover- 58
37 board of directors. Although the first country to issue a code nance code” in their abstract. Obviously, this shows that the 59
38 was the United States in 1978 and the second country was topic of codes of good governance is central to the field and 60
39 Hong Kong in 1989, the pace of issuance has gathered that there is plenty to take stock from. 61
40 speed ever since, particularly after 1992 when the United However, there is little systematic analysis of how codes 62
41
of good governance have affected how corporations are 63
structured or how managers behave across different corpo- 64
42 *Address for correspondence: Sonoco International Business Department, University rate governance systems. For instance, a recent review of the 65
43 of South Carolina, Moore School of Business, 1705 College Street, Room 557, Colum-
44 bia, South Carolina 29208 USA. Tel.: 1-803-777-0314; Fax: 1-803-777-3609; E-mail: literature on corporate governance published in the Hand- 66
45 acuervo@moore.sc.edu book of the Economics of Finance (Becht, Bolton and Roell, 2003: 67

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2 CORPORATE GOVERNANCE

1 49) briefly discusses codes of good governance and high- governance practices, explicitly or implicitly: 1) a balance of 60
2 lights how the existence of a “striking schism between firmly executive and non-executive directors, such as indepen- 61
3 held beliefs of business people and academic research calls dent non-executive directors; 2) a clear division of respon- 62
4 for an explanation.” sibilities between the chairman and the chief executive 63
5 Despite the importance and increasing interest in codes officer; 3) the need for timely and quality information pro- 64
6 of good governance, there are no reviews of what we know vided to the board; 4) formal and transparent procedures 65
7 and do not know about this topic, which is central to for the appointment of new directors; 5) balanced and 66
8 international corporate governance. In fact, the existing lit- understandable financial reporting; and 6) maintenance of 67
9 erature seems to have moved in two directions. One tends a sound system of internal control. Furthermore, detailed 68
10 to focus on the influence that a particular code has on firms descriptions, as well as systematic summaries, of the 69
11 in a given country and the other tends to describe the content of codes have appeared in Gregory (1998, 1999), 70
12 existence and content of codes in multiple countries. who reviewed the content of codes in developed and 71
13 However, the current state of knowledge appears to be at developing countries, and in Van den Berghe and de 72
14 an impasse as there is some conflicting evidence on the Ridder (1999). Later, Gregory and Simmelkjaer (2002) inte- 73
15 effectiveness of codes of good governance, and there are grated these studies on the content of codes in a report on 74
16 few analytical, rather than descriptive, studies of codes codes of good governance that served as the base for the 75
17 across countries. All this is resulting in an apparent diver- European Union’s recommendation on codes of good gov- 76
18 gence in development between the real world, where codes ernance for its member states. 77
19 continue to be developed and revised, and the academic To better understand the importance and worldwide 78
20 world, where there is limited theoretical advancement on diffusion of codes of good governance, we compiled a 79
21 the topic. database with all unique codes of good governance issued 80
22 Therefore, this paper takes stock of where we stand until the middle of 2008. We include in the database all 81
23 regarding codes of good governance, identifying what we unique documents that have been issued that propose a set 82
24 currently know about the topic, the theoretical and empiri- of best practices for the behavior of the board of directors 83
25 cal debates that are raging, but have not been settled, and and the better functioning of corporate governance in 84
26 the areas of research that have not been explored yet. Such firms. 85
27 a review will help researchers better understand the We exclude three sets of corporate governance documents 86
28 current state of knowledge and direct attention and effort to from this database. First, we exclude laws that have been 87
29 those areas of research that are more promising in terms of issued by governments, because these are legal require- 88
30 impact. ments to operate in the country rather than a set of voluntary 89
31 To do this, we first empirically describe the worldwide best practices like codes; all countries except those that 90
32 diffusion of codes up to the middle of 2008. We then system- follow a communist economic system (e.g., North Korea) 91
33 atically review the existing research on how effective codes have laws that define private firms and the corporate gover- 92
34 have been in different countries and how the variance is nance mechanisms that these firms have to implement. 93
35 explained. We conclude with a critical analysis of what needs However, we do include codes issued by governments 94
36 to be done next in this area of research. when the codes are voluntary in nature and do not have the 95
force of law; in this case, the issuer is not only the govern- 96
37
ment, but also tends to include the stock exchange, employer 97
38 CODES OF GOOD GOVERNANCE association, and director association as part of a national 98
39 WORLDWIDE commission to improve national governance. Second, we 99
exclude codes of good governance developed by a firm that 100
40 Codes of good governance have risen to prominence in the only apply to the firm in question, because they are not best 101
41 last decade as they have spread around the world. In the 30 practices for firms in the country, but only address the needs 102
42 years since the first code was issued in the US and the of one specific firm. Third, we include only one version of 103
43 middle of 2008, codes of good governance have been created each code in the count, excluding initial drafts and updates 104
44 in 64 developed, transitional, and developing countries. of codes to avoid double-counting codes that provide in 105
45 Although it was not until 1989 that a second country issued essence the same set of recommendations. Many codes of 106
46 a code of good governance, in the 1990s codes were quickly good governance are first circulated in draft form to receive 107
47 developed in many countries, partly inspired by the comments and are later issued in a final version. When this 108
48 Cadbury Code that had been created in the United Kingdom is the case, we only include the final version in the count of 109
49 in 1992. The spread of codes of good governance around the codes. Additionally, some codes have been issued multiple 110
50 world was aided by the push from international entities, times to update certain recommendations. When this is the 111
51 such as the World Bank and the Organization for Economic case, we only include the initial version in the count of 112
52 Cooperation and Development (OECD), which started high- codes.1 113
53 lighting the need to improve institutions in general and We identified the codes using the database of codes of 114
54 corporate governance in particular to help countries grow good governance that was analyzed in Aguilera and Cuervo- 115
55 and develop. Cazurra (2004) and Cuervo-Cazurra and Aguilera (2004), 116
56 Codes of good governance have some key universal and updated it with information from the European Corpo- 117
57 principles for effective corporate governance that are rate Governance Institute (ECGI, 2008), as well as did 118
58 common to most countries. O’Shea (2005) shows that most searches of the academic literature and financial press using 119
59 codes have some recommendations on the following six Lexis/Nexis, Econlit, and BusinessSourcePremier. 120

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CODES OF GOOD GOVERNANCE 3

1 FIGURE 1
2 Worldwide Creation of Codes of Good Governance by Cuntries, 1978-Middle of 2008
200

180

160

140

120
Number

100

80

3 60

40

20

0
78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08
19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20
Year

New codes, cummulative New countries, cummulative

4 Worldwide Diffusion of Codes of Good first code, very few new codes were created and very few 34
5 Governance new countries issued codes. However, the Cadbury Report 35
of 1992 accelerated the worldwide diffusion of codes, with a 36
6 The first code of good governance was issued in 1978 in the rapid number of new codes and new countries issuing codes 37
7 United States, but it was not until 1989 that a second country after the mid-1990s and continuing into the 2000s. 38
8 code of good governance appeared in another country, Codes have also been created by transnational institutions 39
9 Hong Kong. Ireland was the third country to issue a code, in to address the need for better corporate governance of mul- 40
10 1991, and the United Kingdom was the fourth, in 1992, with tiple countries, not just the needs of a country in particular, 41
11 the influential Cadbury Report. This teport sparked a debate as is generally the case with national codes of good gover- 42
12 on good governance that resulted in the rapid introduction nance. These codes of good governance issued by transna- 43
13 of codes in other countries. Additionally, the spread of codes tional institutions are important for two reasons. First, they 44
14 around the world was encouraged by transnational organi- signal the importance of corporate governance and help 45
15 zations, such as the World Bank and the OECD. In the mid- establish sets of best practices that address common corpo- 46
16 1990s, these transnational entities started to look at good rate governance problems of firms around the world. 47
17 governance as a condition necessary for the development of Second, they serve, in some cases, as the basis for the cre- 48
18 countries and suggested to their member countries to adopt ation of codes of good governance in individual countries. 49
19 best governance practices; these included not only good gov- Figure 2 illustrates the development of such transnational 50
20 ernance at the country level, in the form of control of cor- codes over time. They started in 1996 and were rapidly 51
21 ruption and efficient state bureaucracies (e.g., Cuervo- developed in the late 1990s, but slowed in the 2000s with no 52
22 Cazurra, 2008), but also good governance at the firm level in new codes being issued after 2005. 53
23 the form of best practices for publicly traded firms. As a
24 result, by the middle of 2008, 64 countries have issued at 54
25 least one code of good governance.
26 Figure 1 illustrates the number of codes and countries that
Creation of Codes by Country 55
27 have issued codes. Some countries have had more than one The worldwide diffusion of codes is impressive, but a more 56
28 code of good governance created since the first one, most detailed explanation of the creation of codes in each country 57
29 notable are the United Kingdom and the United States with shows the wide differences across countries. Table 1 sum- 58
30 25 codes each, while in others only one code has been issued, marizes the number of codes created by country; there are 59
31 like in Argentina or Austria. The figure highlights the impor- two differences worth noting. First, as we mentioned before, 60
32 tance of the phenomenon, and how the creation of codes countries vary in the year in which the first code was created. 61
33 took some time to gain momentum. After the creation of the The United States was the country with the first code, fol- 62

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4 CORPORATE GOVERNANCE

1 FIGURE 2
2 Worldwide Creation of Codes of Good Governance by Transnational Institutions, 1995-Middle of 2008
16

14

12

10
Number

6
3

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

New codes, cummulative New institutions, cummulative

4 lowed by Hong Kong, Ireland, the United Kingdom, and Creation of Codes by Transnational Entities 36
5 Canada. All these countries share in common a common-
6 law, or English-based, legal system. This legal system, in Codes of good governance by transnational entities also 37
7 contrast to the civil-law system, has a more flexible legisla- vary. Table 2 summarizes the codes created by transnational 38
8 tion, with common practices and previous judicial interpre- entities. These codes are designed to improve corporate 39
9 tations of laws having applicability in disputes. In the governance of multiple countries and as such are more 40
10 civil-law system, of which there are three types (French, general than the codes developed in each country, which 41
11 Scandinavian, and Germanic), laws are issued by the focus only on issues that need to be addressed there. Tran- 42
12 national parliaments and assemblies and applied by judges, snational entities started issuing codes of good governance 43
13 with limited enforceability of accepted practices. It was not in 1996. Among them, the International Corporate Gover- 44
14 until 1994 that a country with a civil-law legal system, nance Network has become a repository of the texts 45
15 Sweden, created a code of good governance. This same year, of codes of good governance worldwide. Its website 46
16 the first developing country, South Africa, created a code of (www.icgn.org) contains a list of recent codes of good gov- 47
17 good governance. However, it was not until 1997 that other ernance. The OECD, on its part, issued its highly influential 48
18 developing countries (e.g., Brazil, Thailand) and transitional Principles of Corporate Governance in 1999, which has 49
19 countries (e.g., Kyrgyz Republic) created codes. become the basis not only for the evaluation of corporate 50
20 Second, countries vary significantly in the number of governance practices in developing countries by the World 51
21 codes that have been created. At one extreme are the United Bank, but also for the development of codes of good gov- 52
22 States and United Kingdom, where 25 distinct codes have ernance by countries. 53
23 been issued. After these two, the countries with the next In addition to these transnational entities, the World Bank 54
24 most codes are Hong Kong with nine; Belgium and France has taken an active role in promoting good corporate gov- 55
25 with eight each; Canada with seven; Australia, Spain, and ernance around the world, helping developing and transi- 56
26 Sweden with six each; and Denmark, Germany, Italy, Neth- tional countries evaluate their current corporate governance 57
27 erlands, and Portugal with five each. The rest of the coun- practices and upgrade them to international levels. In col- 58
28 tries have four or fewer codes. There appears to be a laboration with the International Monetary Fund on some 59
29 connection between the development of capital markets and occasions, the World Bank has issued a Corporate Gover- 60
30 the number of codes issued. Countries with not only larger, nance Country Assessment or a Report on the Observance 61
31 but also deeper, capital markets have more codes of good of Standards and Codes (ROSC) for 44 countries.2 These 62
32 governance; the need for good governance increases as the reports evaluate the corporate governance practices prevail- 63
33 number of public firms grows because agency problems ing in the country against the benchmark of the OECD Prin- 64
34 between disperse owners and managers, or between major- ciples for Corporate Governance. However, the reports are 65
35 ity and minority shareholders emerge. not codes of good governance per se. 66

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CODES OF GOOD GOVERNANCE 5

1 TABLE 1
2 Creation of Codes of Good Governance by Countries

3 Country Year of Number of unique Country Year of Number of unique

4 first code codes until the first code codes until the
5 middle of 2008 middle of 2008

6 Argentina 2004 1 Luxembourg 2006 1

7 Australia 1995 6 Macedonia 2003 1
8 Austria 2002 1 Malaysia 2000 1
9 Bangladesh 2004 1 Malta 2001 1
10 Belgium 1995 8 Mexico 1999 2
11 Brazil 1997 2 Morocco 2008 1
12 Bulgaria 2007 1 Netherlands 1996 5
13 Canada 1993 7 New Zealand 2003 2
14 China 2001 2 Nigeria 2006 1
15 Cyprus 2002 1 Norway 2004 1
16 Czech Republic 2001 2 Pakistan 2002 1
17 Denmark 2000 5 Peru 2001 2
18 Estonia 2006 1 Philippines 2000 1
19 Finland 2003 2 Poland 2002 2
20 France 1995 8 Portugal 1999 5
21 Germany 1996 5 Romania 2000 1
22 Greece 1999 2 Russia 2002 1
23 Hong Kong 1989 9 Singapore 1998 3
24 Hungary 2002 1 Slovakia 2002 1
25 Iceland 2004 1 Slovenia 2004 1
26 India 1998 2 South Africa 1994 1
27 Indonesia 2000 1 Spain 1996 6
28 Ireland 1991 3 Sri Lanka 2006 1
29 Italy 1999 5 Sweden 1994 6
30 Jamaica 2005 1 Switzerland 2002 2
31 Japan 1997 4 Taiwan 2002 1
32 Kenya 2002 1 Thailand 1997 4
33 Korea 1999 1 Trinidad and Tobago 2006 1
34 Kyrgyz Republic 1997 1 Turkey 2003 1
35 Latvia 2005 1 UK 1992 25
36 Lebanon 2006 1 Ukraine 2003 1
37 Lithuania 2003 1 USA 1978 25
38

39

40 EXISTING LITERATURE ON CODES OF tions on the structure of the board, but also on the relation- 55
41 GOOD GOVERNANCE3 ship of the board with executives in the firm and directors 56
from other firms. 57
42 The literature on codes of good governance has expanded a In this section, we review and discuss three main topics 58
43 great deal since the issuance of the UK Cadbury Report in that have emerged within the codes literature: the motiva- 59
44 1992, and particularly since the early 2000s. Codes have also tions behind the diffusion of codes across countries and its 60
45 become more relevant and have moved to the center stage of implications for convergence of corporate governance prac- 61
46 policy and business strategy. Companies, as well as coun- tices; the content of the codes and their “comply or explain” 62
47 tries, seek to make their corporate governance practices dimension; and the relationship between code compliance 63
48 more effective, in part as a consequence of corporate gover- and firm performance. 64
49 nance scandals, but also to attract investors. Even though 65
50 codes of good governance refer to the behavior and structure Cross-Country Level: Diffusion of Codes and 66
51 of the board of directors, the area of study is broader,
52 because directors are at the core of the firm and inevitably
Governance Convergence 67

53 interact with other actors inside and outside the firm. Hence, The emergence of codes of good governance around the 68
54 codes of good governance include not only recommenda- world and by transnational organizations is noticeable, as 69

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6 CORPORATE GOVERNANCE

1 TABLE 2 ambiguous recommendations. Finally, Enrione, Mazza, and 57

2 Creation of codes of good governance by Zerboni (2006) have looked at the stages of diffusion in the 58
3 transnational entities context of the institutionalization process. They study 150 59
codes in 78 countries from 1978 to 2004 and relate the rate of 60
4 International issuer Year of Number of code adoption to firm organizational structure. They discuss 61
5 first code unique codes and empirically demonstrate the institutional life-cycle of 62
6 until the codes from adoption to fully institutionalized (i.e., taken for 63
granted) practices. For example, they show that the initial 64
7 middle of 2008
codes emerged as a reaction to the 1980s organizational shift 65
from conglomerate strategies to core strategies in firms. 66
8 Commonwealth Association 1999 1 A critical debate in the diverse capitalism literature, as 67
9 for Corporate Governance well as more generally in comparative political economy, is 68
10 European Association of 1996 2 to what degree corporate governance systems and business 69
11 Securities Dealers (now systems in general are converging toward the Anglo-Saxon 70
12 APCIMS-EADS) model of corporate governance, or the so called shareholder- 71
13 European Bank for 1997 1 value model (Aguilera and Jackson, 2003; Hall and Soskice; 72
14 Reconstruction and 2001; Morgan, Whitley, and Moen, 2005; Yoshikawa, Tsui- 73
15 Development (EBRD) Auch, and McGuire, 2007). This question arises also in the 74
16 European Shareholders 2000 1 context of codes, because, despite a high level of difference 75
in the adoption of corporate governance codes across 76
17 Group (Euroshareholders)
countries, both Cuervo (2002) and Reid (2003) note that 77
18 ICGN 1996 3 increasing external forces, such as globalization, market lib- 78
19 OECD 1999 2 eralization, emergence of powerful foreign investors, and 79
20 The Latin American Corporate 2003 1 recommendations on global best practices by transnational 80
21 Governance Roundtable organizations, such as the World Bank, appear to facilitate 81
22 increasing confluence. 82
23 Note: This list does not include the Corporate Governance The second question in the convergence debate is to what 83
24 Country Assessment or the Report on the Observance of Standards degree codes of good governance are enabling mechanisms 84
25 and Codes (ROSC) that the World Bank and International Monetary to facilitate further governance convergence across coun- 85
26 Fund have created for 44 countries because these are evaluations of tries, or whether, on the contrary, codes are mechanisms to 86
27 corporate governance in the country against the OECD Principles highlight and reinforce the unique national governance char- 87
28 of Corporate Governance rather than distinct codes.
acteristics. Collier and Zaman’s (2005) study of codes of 88
29 good governance in 20 European countries address this 89
question as to whether codes push convergence towards the 90
30 we have seen in the above section. Most codes are clearly Anglo-Saxon model in corporate governance systems. This 91
31 modeled after the Cadbury report. In addition to when convergence in governance practices is particularly salient, 92
32 codes emerge, it is also important to study the patternd of they find, in areas such as the audit committee, which is a 93
33 diffusion across countries and the reasons for such patterns. strategic governance practice in the Anglo-Saxon corporate 94
34 Aguilera and Cuervo-Cazurra (2004) was probably the first governance systems, but was rather uncommon within 95
35 empirical study to examine the determinants of the diffusion Europe before the early 1990s (Birkett, 1986; Collier, 1996). 96
36 of codes of good governance across countries. They argue Convergence of governance practices is certainly encour- 97
37 that a combination of efficiency and legitimacy reasons aged by transnational governance institutions that seek to 98
38 trigger countries to issue codes of good governance. Their regulate markets and protect investors. Two illustrative 99
39 analysis of the adoption of codes of good governance in 49 examples are the European Commission (EC) and the 100
40 countries reveals that codes are more likely to emerge in OECD. The European unification has been an important 101
41 countries with a common-law legal system, a lack of strong trigger forgovernance convergence (Reid, 2003; Hermes, 102
42 shareholders’ protection rights, high government liberaliza- Postma, and Zivkov, 2007), particularly through their Com- 103
43 tion, and a strong presence of foreign institutional investors. munication 284 (COM-284) report in 2003. This is an EC 104
44 Cuervo-Cazurra and Aguilera (2004) also explored the report that discusses how to enhance corporate governance 105
45 speed of adoption of the codes, finding that codes are more in the European Union and provides specific governance 106
46 likely to develop faster in countries with greater foreign recommendations, such as reinforcement of shareholder’s 107
47 investment exposure. Zattoni and Cuomo (2008) in a rights, greater disclosure and accountability, and moderniza- 108
48 follow-up article examine the main drivers, such as effi- tion of the board of directors. There is some research evi- 109
49 ciency and legitimacy, behind code adoption in different dence to suggest that the European-level governance 110
50 countries’ legal systems. Using a sample of 60 countries, guidelines are highly aligned with country codes (Cromme, 111
51 they conduct a comparative analysis of scope, coverage, 2005). Part of the explanation is that, in general, issues such as 112
52 and strictness of recommendations of codes in civil- and stakeholder rights and responsibilities are taken more seri- 113
53 common-law systems. Their findings show that, for the most ously across Europe, as their former weak capital markets are 114
54 part, civil-law countries, such as France, issue codes of good strengthened and institutional investors become more asser- 115
55 governance later than common-law countries (such as the tive in promoting more effective governance measures, such 116
56 UK or the US), issue fewer codes, and state more lenient and as higher accountability and better disclosure. 117

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CODES OF GOOD GOVERNANCE 7

1 There have also been significant efforts by transnational existing literature, we think that the outcomes are not as 62
2 institutions, such as the World Bank or the OECD, to encour- straightforward as one might think and hence it is important 63
3 age the adoption of global standards of governance prac- to move the debate beyond the convergence/divergence 64
4 tices, which are generally drafted more in line with the dichotomy and pay more attention to the dynamics of how 65
5 Anglo-Saxon model (Roberts, 2004). In particular, the firms apply certain aspects of the codes and not others, or 66
6 attempts have been prominent in developing countries, as how issuers follow the transnational code for one dimension 67
7 their firms are being privatized and seek to attract and retain of the specific practice, but not fully adopt the entire re- 68
8 foreign capital investments. To help developing economies commendation. For example, Yoshikawa, Tsui-Auch, and 69
9 to create and adopt codes of good governance, the OECD McGuire (2007) conducted a study using a sample of Japa- 70
10 developed in 1999 the “OECD Principles of Corporate Gov- nese firms and discovered intriguing results of the diffusion 71
11 ernance,” which has been serving as a guiding rule for much of governance innovation. According to their findings, 72
12 of the corporate governance reforms (Coombes and Watson, Japan’s corporate governance system neither fully converges 73
13 2001; Krambia-Kapardis and Psaros, 2006). For example, the to, nor completely diverges from the Anglo-Saxon model. 74
14 new Russian code of good governance issued in 2002 is seen Instead they argue that pressure from foreign capital and 75
15 as an attempt to impose an Anglo-Saxon model of gover- product markets may not always lead to convergence to 76
16 nance on Russian domestic businesses by emphasizing the international standards. It seems that when innovating gov- 77
17 principle of shareholder protection (Roberts, 2004). Like- ernance practices, Japanese companies decoupled from the 78
18 wise, Krambia-Kapardis and Psaros (2006) argue that the original context and customized their governance practices 79
19 code of good corporate governance in Cyprus, an emerging to their particular circumstances. Thus, well-governed firms 80
20 economy, largely draws on Anglo-Saxon principles of corpo- exposed to foreign product and capital markets, such as 81
21 rate governance. But even, Germany, a well-established Toyota, Honda, and Canon, rejected the straight forward 82
22 country within the stakeholder model of corporate gover- adoption of the Anglo-Saxon model, and eventually the gov- 83
23 nance, has also included some governance practices in its ernment was forced to revise the Commercial code to adjust 84
24 codes that are more typical of the Anglo-Saxon corporate to the Japanese reality and local demands. In this instance, 85
25 governance system, such as disclosure of individual execu- the firm-level interaction with the code issuers and enforcers 86
26 tive compensation which was controversial given the two- is a dimension that should not be overlooked. According to 87
27 tier system board system and co-determination legislation Yoshikawa, Tsui-Auch, and McGuire (2007), firm financial 88
28 (Cromme, 2005; Chizema, 2008). performance, positioning in the business community and 89
29 There is another side to this debate that argues that organizational culture play important roles in shaping cor- 90
30 country characteristics are the main drivers of code adop- porate governance reforms. In sum, as codes diffuse around 91
31 tion, as well as code content. For example, using the contents the world it is important to understand why and how they 92
32 of codes in seven Eastern European countries, Hermes, fit in the overall corporate governance system, as well as 93
33 Postma, and Zivkov (2007) assess whether external forces institutional environment. 94
34 are the main drivers of the content of codes in these coun-
35 tries relative to the recommendations of the EC principles. 95
36 Their findings show that Eastern European codes of good Country-Level: Implementation of Codes of 96
37 governance cover only about half of the recommendations of
38 the EC principles. Hungary and Poland especially have
Good Governance 97
1 39 1 greatly deviated form the EC recommendations. Hermesm, We now turn to the question that has been asked in the 98
40 Postma, and Zivkov. (2007)’s study shows the influence of literature of how codes get implemented once they are 99
41 domestic forces in shaping the contents of codes of good developed and adopted as a guiding governance principle. 100
42 governance. In fact, there are strong views among corporate There are two mechanisms for code implementation – 101
43 governance scholars that “the one rule fits all” is flawed and mandatory or voluntary regulation. The classic examples of 102
44 that consequently a wide diversity of approaches to corpo- the two alternative approaches to implement codes are leg- 103
45 rate governance should be expected due to the very different islation (e.g., the U.S. Sarbanes-Oxley Act of 2002) and a 104
46 national contexts where firms are embedded (Sargent, 1997; “comply or explain” approach (e.g., the U.K. Combined 105
47 Cuervo, 2002; Reid 2003; Okike, 2007; Reaz and Hossain, Code of 2003) as suggested by Balgobin (2008). 106
48 2007; Balgobin, 2008). From this perspective, Reaz and One mechanism to implement codes is through the devel- 107
49 Hossain (2007) argue that more careful attention should be opment of stringent corporate legislation. However, such a 108
50 paid to the developing and transitional economies, as they compulsory approach is rarely found in codes of good gov- 109
51 are less advanced in areas of corporate governance, Western ernance and is more commonly associated with laws and 110
52 models are difficult to implement by the letter, and instead regulations. The most well known example is the 2002 111
53 some translation into a hybrid model is necessary. In sum, Sarbanes-Oxley Act (SOX). After several accounting scan- 112
54 this perspective claims that for a code of good governance to dals rocked financial markets in the US, the Accounting 113
55 be effective it must capture the socio-political and economic Industry Reform Act of 2002, known as the Sarbanes-Oxley 114
56 environment in which firms operate (Cuervo, 2002; Roberts, Act was enacted to prevent further corporate failure 115
57 2004; Okike, 2007; Reaz and Hossain, 2007). (Maassen, van den Bosch, and Volberda, 2004). The federal 116
58 In sum, the dramatic diffusion of codes of good gover- SOX in 2002 and new listing requirements have a form of 117
59 nance has generated a heated debate on its effects on the mandatory rules, and companies have no other alternative 118
60 convergence of corporate governance systems, mostly than to comply with them (MacNeil and Li, 2006). Under the 119
61 towards the shareholder-oriented model. Examining the New York Stock Exchange (NYSE) rules, Chief Executive 120

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1 Officers (CEOs) and Chief Financial Officers (CFOs) are compensate for deficiencies in the legal system, rather than 62
2 required to certify quarterly and annual reports for their developing codes of good governance. 63
3 legal compliance (O’Shea, 2005; Balgobin, 2008). The under- In sum, although most codes of good governance share 64
4 lying philosophy of SOX is that corporate governance similar issues, the specific content of the codes of good gov- 65
5 practices need to be mandated, rather than be left to self- ernance does vary significantly across countries, capturing 66
6 regulation of companies and markets, to prevent devastating the different needs across corporate governance systems. 67
7 corporate governance failures such as Enron (Taylor, 2003; The implementation of the codes has increased over time, 68
8 MacNeil and Li, 2006). with country-level studies showing that firms tend to 69
9 Voluntary firm compliance is the other mechanism used to increasingly adopt a higher percentage of code recommen- 70
10 implement the codes, as it was originally done in the dations despite their voluntary nature. This voluntary nature 71
11 Cadbury Report. It is based on the rule of “comply or and the associated “comply or explain” principle has given 72
12 explain,” where it is not required for listed companies to rise to a heated debate as to whether codes are an effective 73
13 comply with all code recommendations, but companies are governance tool, or whether more stringent governance 74
14 required to state how they have applied the principles in the rules with mandatory implementation are needed to 75
15 code and in the cases of non-compliance, they must explain increase compliance, especially in countries that have weak 76
16 the reasons. According to MacNeil and Li (2006), this institutions and underdeveloped governance systems. 77
17 approach has two underlying considerations– flexibility to 78
18 adjust the characteristics of different firms and an assump-
19 tion that the capital markets will monitor and assess value to
Firm-Level: Compliance and Effectiveness 79

20 compliance. Maassen, van den Bosch, and Volberda (2004) Although codes of good governance have been developed 80
21 claim that the voluntary self-regulation principle has had a around the world for more than a decade, the degree to 81
22 significant impact on the development of corporate gover- which firms adopt codes varies across countries, and the 82
23 nance codes around the globe. They note that codes have decision to adopt a given code does not automatically guar- 83
24 been favored by most international financial markets in antees effective corporate governance. In this section, we 84
25 adjusting to modern corporate governance standards. discuss the literature on code compliance and then review 85
26 There have however been some changes in the “comply the relationship with firm performance. 86
27 or explain” principle over time. Although the “comply or The level of compliance with codes has varied signifi- 87
28 explain” principle is based on self-regulation, O’Shea (2005) cantly across countries. For example, in the UK, Conyon and 88
29 argues that as codes get revised, the requirements have Mallin (1997) and Weir and Laing (2000) show that British 89
30 become more prescriptive and stringent. Dewing and firms listed in the London Stock Exchange (LSE) to a large 90
31 Russell (2004) show that code self-regulation had a charac- extent complied with the Cadbury Report’s recommenda- 91
32 teristic of informal self-regulation during 1990s, but more tions. MacNeil and Li (2006) note that the scale of compli- 92
33 recently the implementation of codes has progressed to ance with the UK Combined code has increased over time. 93
34 formal and direct self-regulation in response to public con- Similarly, in terms of increasing compliance over time, 94
35 cerns. For example, while the previous UK Cadbury report O’Shea (2005) reports that only two-thirds of the top 100 UK 95
36 in 1992 recommends the separation of the role of Chairman listed companies had audit committees in 1992, prior to the 96
37 and CEO, the revised Combined Code in 2003 requires that Cadbury report, while by June 1995, every single FTSE 100 97
38 the CEO should not become Chairman of the same company (the 100 most capitalized firms in the LSE) had an 98
39 company. audit committee and almost 98 per cent of mid 250 UK 99
40 Despite the greater specificity of the governance recom- companies also be counted with them. However, there is 100
41 mendations in the codes, the debate on the need for regula- also evidence in the codes research for the other side of the 101
42 tion of corporate governance is still very much alive. story. For example, MacNeil and Li (2006) find significant 102
43 Dewing and Russell (2004), MacNeil and Li (2006), and evidence of non-compliance. They show that compliance is 103
44 Maassen, van den Bosch, and Volberda (2004) note that some not properly monitored and argue that investors’ tolerance 104
45 scholars and organizations have expressed their concerns of non-compliance is related to a great degree to superior 105
46 about weak monitoring and enforcement mechanisms of financial performance. Investors seem to rely on financial 106
47 corporate governance codes. As a monitor for effective vol- performance as a proxy for non-compliance rather than 107
48 untary disclosure, MacNeil and Li (2006) argue that the engaging in the tedious task of evaluating merits of corpo- 108
49 market does not seem to play its role. Originally, the market rate provisions. MacNeil and Li (2006)’s study clearly claims 109
50 is supposed to penalize unjustified non-compliance with a that financial performance has influence over excusing non- 110
51 lower share price. However, as indicated by the MacNeil compliance in reverse. 111
52 and Li (2006) study, financial performance appears to excuse There is also a fair amount of research around compliance 112
53 non-compliance, casting a doubt that compliance does not surrounding the German code of good governance. This 113
54 necessarily lead to positive financial performance. As a con- finds, for example, that company size is positively associated 114
55 tribution to this debate on formal versus informal self- with a relatively higher level of compliance (Werder, Talau- 115
56 regulation, Dewing and Russell (2004) suggest that an licar, and Kolat, 2005; Bebenroth, 2005), but assessments on 116
57 appropriate structure of regulations of corporate governance the degree of compliance are mixed. On the one hand, 117
58 may be better based on regulation of financial services. In Pellens, Hillebrandt, and Ulmer (2001) survey companies in 118
59 addition, Cuervo (2002) proposes that, for countries charac- the DAX100 and find that 95.6 per cent of the firms comply 119
60 terized by a large shareholder-oriented system, it is neces- with the provisions in the German code of good governance 120
61 sary to expand formal market control mechanisms to and 48.5 per cent have already fully implemented the 121

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1 German code as a company guideline. More recently, mittee are related to lower levels of earnings management. 62
2 2 2 Werder, Telaulicar, and Kolat (2005) examined the overall Using a sample of the top 300 Australian firms, they find that 63
3 acceptance of the code recommendations, including critical a higher proportion of independent directors on the board 64
4 recommendations that generated non-compliance. They and in the audit committee is associated with reduced levels 65
5 nevertheless identify a high degree of acceptance of the code of earnings management. Their finding is consistent with 66
6 as well as willingness to comply in the future. On the other those of previous US and UK research that illustrate the 67
7 hand, the literature also reveals that the German code of critical monitoring role of independent directors in corpo- 68
8 good governance includes some controversial, and not so rate governance practices (Weir and Laing, 2000). Finally, 69
9 popular, recommendations that are not followed by the based on a variety of earnings quality characteristics of 70
10 majority of companies and which will also be rejected in the Mexican firms, such as income smoothing, timely loss rec- 71
11 future by more than 10 per cent of listed companies, such as ognition, and abnormal accruals, Machuga and Teitel (2007) 72
12 personal liability and compensation of the management show the quality of earnings improve after implementation 73
13 and/or supervisory board (Bebenroth, 2005). It seems like of the codes. 74
14 German firms have not made up their minds yet on whether Other studies find positive associations between codes of 75
15 all code recommendations are helpful for firms. good governance and more traditional measures of perfor- 76
16 The institutional environment and, in particular, the mance, such as returns and market value. For example, 77
17 development of the stock market determines a great deal the Fernández-Rodríguez, Gómez-Ansón, and Cuervo-García 78
18 degree of monitoring of code compliance, even if it is simply (2004) find abnormal positive returns associated with 79
19 informal and for legitimization purposes. As it is to be Spanish firms’ announcements of compliance with the 80
20 expected, in developing countries, compliance with codes is Olivencia Code; Del Brio, Maia-Ramires, and Perote (2006) 81
21 scarce. For example, research on the Cyprus code of good demonstrate that the degree of compliance increases 82
22 governance by Krambia-Kapardis and Psaros (2006) finds a Spanish firms’ value; and Alves and Mendes (2004) also 83
23 low level of compliance with all significant aspects of the uncover a positive relationship with equity returns among 84
24 code. This is in the context of Cyprus, which not only has Portuguese firms. Moreover, codes of good governance also 85
25 weak capital markets and legal support, but also a low affect other performance variables more broadly defined. For 86
26 degree of free market controls, with highly concentrated example, Dahya, McConnell, and Travlos (2002) illustrate 87
27 ownership, and unreliable information flow. Their findings that the adoption of the Cadbury report in 1992 increased 88
28 suggest that corporate governance codes in other develop- CEO turnover in the UK, triggered by the need for the sepa- 89
29 ing economies might need to be strengthened by explicit ration of Chairman and CEO positions. At the same time, 90
30 institutional initiatives. this UK code recommendation also heightened the sensitiv- 91
31 In sum, the “comply or explain” approach allows for the ity of the CEO turnover to poor performance. 92
32 possibility of non-compliance, with examples of market tol- However, many other studies show either an inconsistent 93
33 erance on non-compliance and of institutional resistance. or negative relationship between the code compliance and 94
34 Regarding non-compliance, it seems critical as research firm performance. For example, Park and Shin (2001) did not 95
35 moves forward to study the link between a firm’s gover- find that compliance with the Toronto Stock Exchange’s Cor- 96
36 nance structures and firm performance, mostly because porate Governance Guidelines is associated with reductions 97
37 research shows that financial performance can justify non- in accruals management, and Nowak, Rott, and Mahr (2004) 98
38 compliance. In emerging economies, on the other hand, it find no association with the impact on the German capital 99
39 appears to be important that complementary institutions are market performance. There are also other studies that show, 100
40 strengthened in order to increase the effectiveness of codes. at a more general level, that universal code recommenda- 101
41 Since compliance with codes of good governance entails tions, such as board independence, is not systematically 102
42 significant implementation costs (Aguilera, Filatotchev, linked to financial performance (Dalton, Daily, Ellstrand, and 103
43 Gospel, and Jackson, 2008), it is reasonable for companies to Johnson, 1998; Bhagat and Black (2002). 104
44 expect benefits from compliance in the form of improved Several factors might account for the mixed and inconclu- 105
45 firm performance and eventually positive market reactions. sive findings. First, other factors related to governance and 106
46 Hence, we now turn to discussing the literature examining broader than governance may affect the relationship 107
47 the relationship between codes of good governance and firm between code compliance and firm performance. In other 108
48 performance. Once again, it shows for the most part incon- words, as pointed out by Mura (2007), many studies failed to 109
49 clusive results, suggesting the need for additional research. control for the endogeneity of the explanatory variables due 110
50 Thus a key puzzle that needs to be resolved in research on to unobserved firm heterogeneity. It indicates that if the 111
51 codes of good governance is whether they do have an impact studies have not controlled for this condition, the results 112
52 on firm performance, or whether they merely serve to may generate biased and inconsistent estimates. Second, 113
53 assuage investors’ complaints. firm-specific characteristics are very likely to influence this 114
54 The first step in reviewing the relationship between code relationship. For example, Fernández-Rodríguez, Gómez- 3
3 115
55 compliance and firm performance is to differentiate how Ansón, and Cuervo-Garcí (2004) find that the wealth effects 116
56 scholars conceptualize and measure performance. Below we are greater for firms with lower leverage rates and where 117
57 describe the existing studies clustered by performance mea- managers dominate the board. Along similar lines, Benkel, 118
58 sures. The first group of studies reveals a positive relation- Mather, and Ramsay (2006) also show that reduced levels of 119
59 ship between code compliance and earnings management. earnings management through the monitoring role of inde- 120
60 For example, Benkel, Mather, and Ramsay (2006) analyze pendent directors are mostly associated with large firms, but 121
61 whether independent directors on the board and audit com- rarely with small firms. They suggest that it may be the result 122

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1 from higher public scrutiny of large firms that provide inde- countries and codes that have been created, points to the 60
2 pendent directors with more incentives to better monitor need for a more careful examination of what each code con- 61
3 and from more resources to recruit more experience and tains to ensure their comparability and soundness of the 62
4 knowledgeable directors. These results illustrate that rela- conclusions derived. Since the codes issued in different 63
5 tive benefits and costs of compliance may rest on companies’ countries do in fact have different recommendations, the 64
6 pre-governance structures and firm-level characteristics. comparison of their adoption and effectiveness in improving 65
7 Third, an important issue is the concept of independent corporate governance across countries faces serious limita- 66
8 directors. Although most corporate governance codes tions because the standards used differ. 67
9 underscore the independence of boards of directors, Second, studies have identified that the nature of the 68
10 Maassen, van den Bosch, and Volberda (2004) question issuer of the codes can differ significantly, with codes being 69
11 whether independent directors are truly independent issued by the country’s stock exchange, director associa- 70
12 enough to be effective monitors. This is particularly the case tions, employer associations, investors and investors 71
13 because the definition of director independence varies across associations, professional associations, or the government. 72
14 countries and even firms. Moreover, depending on their However, the literature has not systematically studied how 73
15 expertise, experience, and given incentives, some boards the nature of the issuer affects not only the code content, but 74
16 may be more motivated to be more effective monitors. In also its enforceability. These different types of issuers have 75
17 sum, although investors value positively firm’s compliance different objectives and as a result the codes they create will 76
18 with recommendations on board structure, there has been have distinct aims. As a result, recommendations on what 77
19 mixed results of the codes’ impact on firm performance. are considered best practices regarding the behavior of the 78
20 Other factors and firm characteristics seem to affect the rela- board of directors are highly contingent on the issuer. 79
21 tionship, requiring more careful analyses to distill the value However, once again, existing research has treated all codes 80
22 of codes of good governance on firms. as having similar underlying objectives, which a rigorous 81
analysis by issuer may reveal as being a wrong assumption 82
23
to hold. Additionally, the enforceability of the codes of good 83
24 AREAS FOR FUTURE RESEARCH ON governance varies dramatically across issuers, speaking 84
25 CODES OF GOOD GOVERNANCE directly to the debate between the effectiveness of soft regu- 85
lation versus hard legislation. The government and stock 86
26 Our review of the worldwide diffusion of codes of good exchanges have the power to impose practices and penalties 87
27 governance and of the codes literature highlights the impor- for non-compliance on all firms in the case of the former and 88
28 tance of and interest in this governance topic. Codes of good publicly traded firms in the case of the latter. In contrast, 89
29 governance have become a central issue in policy and in investors and investor association only have the power of 90
30 academia. Rather than a fad that would disappear as new impose practices through activism in shareholder meetings, 91
31 ideas come along, codes of good governance have increased while the other issuers – director associations, professional 92
32 in relevance and continue spreading throughout the world. associations, and employer associations – have a limited 93
33 This importance of the topic is highlighted in the growing ability to persuade firms to follow the recommendations of 94
34 academic literature, but there is still an apparent lag between the codes. Although some studies touch upon the nature of 95
35 advances in the creation of codes and the studies analyzing the issuers, they do not analyze differences in the codes each 96
36 them. Much progress has been made on our understanding creates. 97
37 of the diffusion of codes around the world, on the adoption Third, the importance of transnational entities in the cre- 98
38 of codes by firms, and on the impact of the codes on perfor- ation and diffusion of codes of good governance has not 99
39 mance. However, our review also reveals large lacunae in been analyzed properly. Transnational entities like the World 100
40 our understanding of the topic. Four areas are noticeable in Bank and OECD have been actively promoting good gover- 101
41 terms of the lack of research being done – the systematic nance, helping developing countries understand how to 102
42 analysis of the content of codes of good governance and the improve their corporate governance practices. However, 103
43 issuers of the codes, a better understanding of the conse- studies on codes of good governance have focused on the 104
44 quences of codes issued by transnational entities, and finally codes issued in each country rather than on codes issued by 105
45 the evolution in the recommendations of codes. transnational entities that have a wider applicability and 106
46 First, many studies take the codes as a black box and focus speak to the important debate of global governance. These 107
47 on the diffusion of codes or the impact of codes on perfor- transnational issuers, by promoting a common set of prac- 108
48 mance. These analyses assume that codes are equivalent tices regardless of country characteristics, may indirectly be 109
49 across countries and therefore can be analyzed as one contributing to the convergence of codes across national 110
50 common dependent variable or as a comparable indepen- governance practices. In other words, they are not moving 111
51 dent variable. Although most of the codes tend to agree in corporate governance toward a particular model (e.g., 112
52 the mechanisms that support more effective governance, Anglo-Saxon or Continental), but toward a more general 113
53 such as a board of directors with independent members or global governance model. This is a topic that has been rarely 114
54 the creation of committees, there are significant cross- addressed in the academic literature of codes of good gov- 115
55 national differences. For example, codes vary significantly ernance, despite its importance for understanding the 116
56 because they are developed to address corporate governance drivers of the diffusion process. 117
57 issues that are specific to a given country. Moreover, the Fourth, the recommendations contained in codes of good 118
58 divergence in what is classified as a code across different governance have evolved over time as some corporate gov- 119
59 studies, with some studies proposing different numbers of ernance problems are solved and others emerge, but there is 120

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1 limited research analyzing how codes change over time. This Republic, Egypt, FYR of Macedonia, Georgia, Ghana, Hong 60
2 evolution in the issues that codes tackle has been dealt with Kong, Hungary, India, Indonesia, Jordan, Korea, Latvia, Lithua- 61
3 revisions of previous codes and with new codes that address nia, Malaysia, Mauritius, Mexico, Moldova, Morocco, Nepal, 62
4 new and different governance problems. Hence, there is Pakistan, Philippines, Panama, Peru, Poland, Romania, Senegal, 63
Slovakia, Slovenia, South Africa, Thailand, Turkey, Ukraine, 64
5 need for a better understanding of how corporate gover-
Uruguay, Vietnam, and Zimbabwe. 65
6 nance problems co-evolve over time with best governance 3. A more detailed assessment of the literature appears in Aguil- 66
7 practices and how codes are developed to tackle these era, Cuervo-Cazurra, and Kim (2009). 67
8 rapidly changing issues. This evolution in corporate gover-
9 nance issues and the content of codes highlights another 68
10 source of differences across countries and the codes devel-
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55 critique of the situation in Cyprus, Corporate Governance: An Inter- Responsibility for Business and Society at the University of 120
56 national Review, 14: 126–139. Illinois at Urbana-Champaign. She received her Masters and 121
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58 importance of disclosure in corporate governance self-regulation interests fall at the intersection of economic sociology and 123
59 across Europe: A review of the Winter Report and the EU Action international business, specifically in the fields of compara- 124
60 Plan, International Journal of Disclosure and Governance, 1: 146– tive corporate governance and corporate social responsibil- 125
61 59. ity. She has co-edited a book with Prof. Federowicz entitled 126
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63 rate governance code on quality of earnings and its components, Environment. (Palgrave McMillan, 2004) and published 128
64 Journal of International Accounting Research, 6: 37–55.
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66 pline and non-compliance with the combined code, Corporate Review, Journal of International Business Studies, and Organi- 130
67 Governance: An International Review, 14: 486–96. zation Science. 131

Volume 17 Number 3 May 2009 © 2009 Blackwell Publishing Ltd

JOBNAME: No Job Name PAGE: 13 SESS: 29 OUTPUT: Mon Apr 27 16:59:23 2009
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CODES OF GOOD GOVERNANCE 13

1 Alvaro Cuervo-Cazurra (Ph.D., Massachusetts Institute of emergence and growth of developing-country multinational 7
2 Technology; Ph.D., Universidad de Salamanca) studies how firms. Before joining the Sonoco International Business 8
3 firms become internationally competitive and how then they Department at the University of South Carolina, he was on 9
4 become multinational enterprises. He also analyzes gover- the faculty at the University of Minnesota and was a visiting 10
5 nance issues, in particular codes of good governance and scholar at Cornell University. He can be contacted at 11
6 corruption. He has started a long-term project analyzing the acuervo@moore.sc.edu. 12

© 2009 Blackwell Publishing Ltd Volume 17 Number 3 May 2009

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AUTHOR QUERY FORM

Dear Author,
During the preparation of your manuscript for publication, the questions listed below have arisen. Please
attend to these matters and return this form with your proof.
Many thanks for your assistance.

Query Query Remark

References
q1 AUTHOR: To match the reference list, should Hermesm, Postma, and Zivkov,
2007 be changed to Hermes, Postma, and Zivkov, 2007? Please advise
q2 AUTHOR: To match the reference list, should Werder, Telaulicar, and Kolat,
2005 be changed to Werder, Talaulicar, and Kolat, 2005? Please advise
q3 AUTHOR: To match the reference list, should Fernández-Rodríguez,
Gómez-Ansón, and Cuervo-Garcí, 2004 be changed to Fernández-Rodríguez,
Gómez-Ansón, and Cuervo-García, 2004? Please advise
q4 AUTHOR: Corporate Governance Report: The CalPERS corporate governance
guidelines, 1999 has not been cited in the text. Please indicate where it should
be cited; or delete from the Reference List.
q5 AUTHOR: Jackson, 2001 has not been cited in the text. Please indicate where it
should be cited; or delete from the Reference List.