Corporate Governance and Social Enterprise A Work in Progress by Ian Snaith

Outline Theories and Questions Legal Rules and Self Regulation Reality on the Ground? What It all Means

Theories and Questions Berle and Means (1932): Can Democracy Work? Agency Costs and Shirking – Fama & Jensen (1983) Exit vs Voice – Hirschman (1970)

Theories and Questions “Political” Path Dependency – Roe(1994) and Cheffins (2002) The “Market” in Corporate Structures and Market-based Reasons for Mutuality – Hansmann (1996) and Cook et al (2001)

Theories and Questions Answers for Co-ops? – Holstrom (1999) Structures and Values – Steen Thomsen (2004)

Theories and Questions Tenants in Housing Association Governance – McDermont (2007) Agency conflicts in Co-ops International Development Implications – Global Corporate Governance Forum (2007)

Legal Background Companies Act background rules on director self dealing e.g. Substantial property transactions Common Law (now codified) directors’ fiduciary duties Accounting Requirements

Legal Background CIC Regulator or FSA (for I & P’s) and whistle blowers I & P no specific self dealing rules in legislation Accounting rules and Common Law fiduciary duties for I & P’s

Self Regulation Combined Code - UKLA Stock Market and Institutional Investors Co-operativesUK (2005), Building Societies Association (2006), ACEVO et al (2005), Credit Unions – FSA hands on regulation under FSMA 2000

Self Regulation Autocracy of Chair/CEO? Clear Board /Executive Division of Functions Able and Confident Counterbalance to executives – NED’s? “Apathy” and Information Members have?

Self Regulation Audit and Audit Committee Executive Pay Nomination Committee and Elections Participation only at Meetings/by mail/by proxies thresholds for agenda etc?

Credit Unions: The FSA Corporate Governance Research 30 Credit Unions across 3 size bands; 429 Questionnaires to “approved persons” responses (37.5%) “Key findings report” - FSA 2006

Credit Unions: Problem Areas Lack of Board involvement in setting remit of audit committee, no clear terms of reference or plan for audit committee General Manager’s work not regularly reviewed General manager and audit Committee members voting in board when not members

Credit Unions: Problem Areas Dominance of Board by one or more individuals, over dependence on skills of individuals Potential new members discouraged or not actively encouraged

Credit Unions: Problem Areas Unclear division of responsibility between board and staff running business day to day Poor understanding of roles by staff and failure to review training needs

What It All Means Does Size Matter? “Small is Beautiful”? Credit unions not big Does Geographical Dispersion Matter? Credit unions not serving wide areas Does Intensity of Membership Link Matter? Workers most involved and consumers least involved? Credit unions?

What It All Means Do Codes “arm” members or just provide check lists? Does it matter whether executives are Board members? Not in most credit unions but unclear to many on ground Do the checks and balances of Audit committees, Remuneration Committees etc. work?

What It All Means Does the hands on concern of regulators in housing, financial services and charities(?) help or hinder? We have FSA research due to this. Do member owned and controlled social enterprises offer more hope than the “altruistic” model?

What It All Means Is the clarity of a single stakeholder enterprise an aid to good governance? How can multi-stakeholder, altruistic and hybrid models work best?

Bibliography ACEVO et al, (2005), Good Governance: A Code for the Voluntary and Community Sector, NCVO, London 2005 Berle and Means (1932), The Modern Corporation and Private Property, New York. Building Societies Association (2006), The Combined Code on Corporate Governance, June 2006, Cheffins (2002), Brian R Cheffins, “Putting Britain on the Roe Map: The Emergence of the Berle-Means Corporation in the United Kingdom” in McCahery, Moerland,Raaijmakers & Renneboog (Eds) Corporate Governance Regimes OUP, Oxford, Cook et al (2001), Cook, Deakin, and Hughes, “Mutuality and Corporate Governance: The Evolution of UK Building Societies following Deregulation” Working paper 205 ESRC Centre for Business Research, Cambridge, June Co-operativesUK (2005), Code of Best practice for Consumer Co-operative Societies, May Fama & Jensen (1983), “Agency Problems and Residual Claims” 26 Journal of Law and Economics, FSA 2006, Corporate Governance in credit unions: Key Findings Report, FSA, January Global Corporate Governance Forum (2007), Corporate Governance and Co-operatives, Peer Review Workshop, Proceedings Report, February Hansmann (1996), H. Hansmann, The Ownership of Enterprise, Bellknap Press, Cambridge, MA, 1996 Hirschman (1970), A Hirschman, Exit, Voice and Loyalty, Harvard University Press, Cambridge MA, Holstrom (1999), B Holstrom, “Future of Co-operatives: A Corporate Perspective” (1999)The Finnish Journal of Business Economics p McDermont (2007), M McDermont, “Mixed Messages: Housing Associations and Corporate Governance” (2007) 16 Social Legal Studies p71 Roe(1994), M Roe, Strong Managers, Weak Owners, Princeton University press, Princeton, Steen Thomsen (2004), S Thomsen, “Corporate Values and Corporate Governance” (2004) 4 Corporate Governance pp UKLA 2003, United Kingdom Listing Authority, The Combined Code on Corporate Governance, July