Financial Strategy, Second Edition

Section 6

Governance and Ethics

SECTION OVERVIEW

Janette Rutterford

In this, the last section of Financial Strategy, we attempt to take a step back from the issues of adding value or measuring performance, and ask some more general questions, including: Is shareholder value maximisation the right goal? How can shareholder value be reconciled with the problems of using managers as agents for shareholders? And, what about other stakeholders such as employees and pensioners? Have they been forgotten at the expense of manager and shareholder greed? What role should ethics play in corporate governance? And, what is the best system of corporate governance? We also try to link a number of the themes discussed in earlier sections of the book.

These issues have become all the more urgent with the large number of company collapses from the last stock market boom. Commentators have begun to ask whether managers simply forgot to be ethical in their pursuit of gain for themselves or for their shareholders. And yet, the shareholder emphasis had already been brought into question by Will Hutton in his book, The State We're In, published as early as 1995. The stock market boom of the late 1990s had appeared to prove him wrong.

The US has perhaps suffered the greatest shock, with the apparent sophistication of accounting rules, of regulation and of investment analysts not being sufficiently on the ball to spot creative accounting or, indeed, fraud. The first article in this section, “It's Time ...