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Title: The structure and role of UK boards of directors
Author: Hahn, Peter D.
ISNI:       0000 0004 2683 0950
Awarding Body: City University
Current Institution: City, University of London
Date of Award: 2008
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The purpose of this study is to analyse the structure and role of boards of directors of large UK companies over the period 1998 to 2004, focussing on the changes through time in their structure, their meeting frequency, the remuneration of the non-executive directors and the determinants of their decision to pay dividends or to retain earnings. Despite a wealth of predominantly US literature on boards of directors, and the various changes in board structure in the UK brought about by differenct codes, there is little evidence about the role, composition and structures of UK boards. There is also relatively little information that can be examined to determine whether board rooms, that perhaps have similar broad numbers of nonexecutive directors and executive directors, make different decisions based upon their unique demographics information. How have the UK's boards of directors recently evolved to meet new challenges? The majority of UK pension funds are invested in shares of UK listed firms and with the FTSE 100 equal to more than 80% of total market capitalisation, the boards of directors of the largest firms are of critical importance to much of the UK public's future livelihood. These large firms, by definition, are leading GDP and export contributors for the UK, most likely to face off with global competitors, and also support large numbers of employees contributing to local communities and tax revenues. I study annual report data, particularly that available in the corporate governance sections, for demographic, compensation and activity based details. I examine the evolution of large UK boards for evidence of changes that occurred endogenously and some of those that were the focus of Higgs (2003) and the Combined Code on Corporate Governance (2003). It is important to note that much of the UK literature on board of directors' details is in cross-sectional form using one year or two year samples (Singh (2004), Lasfer (2004), MORI-Higgs (2003)) which is informative but does not provide significant information on boards' evoluation through time. This study extends the literature on boards by focusing on board details beyond those basic numbers now mandated or indirectly imposed by corporate governance bodies (the Financial Reporting Council, London Stock Exchange, or the SEC and NYSE). It sheds light on trends that are likely to continue and on trends that may have a greater influence on board decisions in years to come. I, particularly, note the dramatic increase in the representation of non-UK nationals and the stable representation of women on UK boards of directors. However, I show that, in both cases, increased representation is largely only among non-executive, not executive, directors. The study also finds that despite more public attention to boards of directors, more foreigners and marginally more women, and quicker turnover, the average age of non-executive directors (58) and executive directors (50.5) remained relatively constant over the sample period. Through various forms of analysis, I found that boards organised their full meetings largely around the number of foreign nationals on the board - more foreign members substantially reduced the frequency of board meetings -a factor that was ever more visible with increased foreign representation on boards. I also find that boards of directors utilised market capitalisation as their major consideration of non-executive directors' remuneration, beyond financial performance. The use of market capitalisation also appears to coordinate with the increased reliance of remuneration consultants - advisors that were most unlikely to be able to evaluate the demands and achievements of boards. These consultants seemingly influenced the pay of non-executive directors to follow measures of market size (when this increases) but not necessarily firm performance implying that board performance and reward were more tied to largesse than shareholder value. Finally, I show that board demographics and remuneration characteristics influence dividend decisions - particularly factors that do not appear to have been studied before in relation to dividends. My empirical evidence suggests that larger boards may exert a restraining influence on dividend changes, older executives may increase dividends in order to reduce firm risk, and that executives may financially benefit from increased dividend payments during poor performance - finding specifically that amongst firms suffering declining earnings performance CEO remuneration changes are positively correlated with dividend increases whilst corporate governance guidelines instruct remuneration to be aligned with firm performance. My study has substantial policy implications for governments and the investment community demonstrating that specific board of directors' characteristics may influence positive or negative corporate finance decisions or economic behaviour thus potentially suggesting to regulators and investors that the board structure of the largest companies in the UK over the sample period was not likely to mitigate the agency conflicts between shareholders and managers.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available