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Vrije Universiteit Amsterdam The Amsterdam Research Centre for Corporate Governance
Regulation
DIGITAL NEWSLETTER
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2004, No. 1 September 1, 2004 |
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CONTENTS OF
NEWSLETTER - Foreword - Description of our research programme - Editorial : Accounting Standards and Barclays Missing Billion UPCOMING EVENTS
INVOLVING OUR RESEARCHERS -
The Hague Programme (9-11
September 2004) - Granada Joint Sessions (14-19 April 2005) SUBSCRIPTION: please send an email to hw.overbeek@fsw.vu.nl if you wish to be added to or removed from the mailing list. |
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NEWSLETTER 1
Welcome to
the first edition of the digital newsletter published by the Amsterdam Research
Centre for Corporate Governance Regulation (www.arccgor.nl), situated at the
Vrije Universiteit Amsterdam. The newsletter provides you with information on our
Research Centre, on the research projects in progress and events taking
place. It also contains an editorial and may include articles as well. The
newsletter is distributed electronically to academics and practitioners
active in corporate governance (regulation) and to interested individuals. We look forward to your comments and suggestions! |
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FOREWORD The many corporate scandals of the past few years,
starting with BICC and then Enron, Worldcom, Ahold, Parmalat, Shell and undoubtedly
many others to follow, have put the accountability of corporate managers at
the top of the agenda. Management has abused, or so the story goes, its
privileged position (in terms of information) to wrest control over the firm
and to award itself extravagant payments – more often than not legitimated by
fraudulently inflated sales, ‘proven’ reserves, and ‘expected’ future
profits. Invariably, the issue is presented as one of forcing corporate
management to be more responsive to the owners of the corporation, i.e. the
shareholders. The power balance between management and shareholders is thus
put at the heart of the current corporate governance debate. And yet,
however much criminal behaviour of numerous corporate managers has been and
continues to be a reality, we must seriously question the proposition that
the problems can be reduced to just that: the irresponsible acts of
individuals in pursuit of their personal wealth. In our view, corporate governance refers to
the ways in which enterprises are governed, i.e. the ways in which the
relations between the various parties involved (‘stakeholders’) – owners,
managers, employees, creditors, public authorities, consumers – are defined
and implemented. Underneath the surface there are a host of more fundamental
developments that have pushed issues of corporate governance thus understood
into the forefront of political struggle, nationally, at the European level,
and in various transatlantic and global forums. Many of these developments have been induced by, or
are integral moments of, the process of global restructuring, as it has been
unleashed from the late 1970s onward. The liberalisation of international
capital markets, the intensification of the internationalisation of
production, the moves toward de- (and re-) regulation and privatisation, the
demise of centrally-planned economies, the informalisation of the management
of the global political economy through public-private partnerships and
governance networks, forums, processes etc.: all of these transformations
have affected the conditions for global capital accumulation, the role of
corporations in the global economy, and the balance of power between various
social forces at the global, the European, the national as well as at the
firm level. This ongoing multi-layered political struggle
between conflicting social forces, it is our conviction, shape the boundaries
within which corporate governance regulation is currently shaped. The
regulation of corporate governance is an inherently political issue,
and the specific modes of regulation as well as the specific content of the
regulation reflect the current balance of forces in the global political
economy. With the ARCCGOR Research Programme on the Transnational Political
Economy of Corporate Governance Regulation we have the ambition to shed light
on these issues. In contrast with much of the literature on corporate
governance, which is highly normative in the sense that its mission is to
identify the optimal forms of corporate governance (optimal in relation to
whichever standard the authors in question choose to adopt), we may say that it
is the ambition of this programme to explain why the ‘best’ standards of
corporate governance are not necessarily the ones that are actually adopted
and implemented. Henk Overbeek (ARCCGOR’s programme leader) |
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DESCRIPTION OF OUR RESEARCH
PROGRAMME
‘The Transnational
Political Economy of Corporate Governance Regulation’ Since the
1990s, ‘corporate governance’ has gained tremendous popularity among the
global business community, and corporate scandals like the Enron, Ahold and
Parmalat debacles have ensured that it will remain so for some time to come.
Although there is a growing literature on this topic, the bulk of it is
either highly normative or focused on corporate governance practices
at the level of the firm. In contrast, our aim is to explain the
current transformation of corporate governance regulation. Whereas
this regulation used to be a distinctly national affair, it is now
increasingly an area subject to both public and private (self-) regulation in multiple arenas.
The three most important arenas, outlined below, form the empirical focus of
our programme and are each examined as a distinct PhD research project
(link).
By researching these arenas, we seek to answer
the following central research question: what explains the transformation
of corporate governance regulation at different levels, and through varying
modes, of governance? Our research programme employs the transnational political economy approach as well as the institutionalist approach to transnational policy networks and multi-level governance. We hope to combine the latter’s strong empirical focus on institutional forms with the former’s strong explanatory potential in terms of structural forces and power relations.
Finally, given the timely social relevance of issues pertaining to
corporate governance regulation, we strive to involve a wide range of social
actors in our programme and disseminate our research results to a wider
public through our website, newsletter and advisory board, which is currently
being established. This
programme, which will run to May 2008 at the least, is funded by the Netherlands Organisation for
Scientific Research’s Shifts in Governance
research programme. Henk Overbeek (hw.overbeek@fsw.vu.nl) Associate Professor in International Relations Programme leader Henk Overbeek (1949) gained his Master’s degree
(with distinction) in international relations at the University of Amsterdam
(1976) and his PhD in social sciences at the same institution (1988). He was
previously Senior Lecturer at the University of Amsterdam before joining the Vrije
Universiteit in 1999, where he is currently Associate Professor in
International Relations and a member of the Department Management Team. He is
also Adjunct Professor at Webster University, Leiden. Overbeek’s research interests are in international
political economy; he currently works on issues of governance in a
globalising world, international relations theory and European integration.
As leader of the research programme, he is responsible for the overall
coherence of the programme and for the supervision of the PhD projects. Bastiaan van
Apeldoorn (eb.van.apeldoorn@fsw.vu.nl) Assistant Professor in International Relations Programme co-ordinator Bastiaan van Apeldoorn (1970) gained his Master’s
degree (with distinction) in political science and international relations at
the Universiteit van Amsterdam (UvA). In 1999 he received (with
distinction) his doctorate from the European University Institute in
Florence. After having worked as postdoctoral fellow at the Max Plank
Institute for the Study of Societies in Cologne, he joined the Department of
Political Science of the Vrije Universiteit in 2001. Research interests: Van Apeldoorn's principal research interests concern processes of transnationalisation and global capitalist restructuring, in particular as they affect the political economy of European integration. Within the research programme of ARCCGOR, Van Apeldoorn focuses on the transformation of corporate governance regulation in the European Union. Andreas Nölke (a.nolke@fsw.vu.nl)
Assistant Professor in International Relations Dr.
Andreas Nölke (1963) obtained his Master's degree in Public Administration at
the University of Konstanz (1988), and he earned his doctorate in Political
Science (with distinction) at the same university (1993). He has taught
International Relations and Development Studies at the universities of
Konstanz and Leipzig, before joining the Department of Political Science at
the Vrije Universiteit in 2001. Research Interests: Nölke’s research
interests cover diverse areas of International Relations, such as transnational
politics, international organizations, international political economy,
security policy (particularly the fight against terrorism), European Union
politics and development studies. His research interest regarding corporate
governance regulation will focus on the political economy of standard-setting
by private actors. Laura Horn (l.horn@fsw.vu.nl)
Doctoral Researcher Laura Horn (1980) obtained her Master's
degree in International Political Economy (with distinction) at the
University of Newcastle (2003). Research interests: Horn’s main research
interest is the transformation of governance and related questions of
legitimacy and resistance in the International Political Economy. Within the
ARCCGR programme, her research focus is on the transformation of corporate
governance regulation in the European Union, in particular the advance of a
European market for corporate control. James Perry (J.Perry@fsw.vu.nl) Doctoral
Researcher James Perry
(1972) studied economics at The University of Hull (BA) and Central European
University, Budapest (MA), and political economy at The University of Sussex
(MA). He has previously worked in finance for an international medical aid
charity, and also held short-term posts in financial journalism and auditing. Research
Interests: Perry’s broad research interest is the political economy of global
finance. His project at ARCCGR will seek to explain the evolution of private
authority in corporate governance regulation, with specific reference to
international accounting standards. Arjan Vliegenthart (a.vliegenthart@fsw.vu.nl) Doctoral
Researcher Arjan Vliegenthart
(1978) studied political science at the Vrije Universiteit where he obtained
his Master's degree in 2003. Research
interests: Arjan Vliegenthart is foremost interested in the role
of political structures and agents in the international economy. Within the
ARCCGR he will focus on the political dimension of the developments in
corporate governance regulation in Central and Eastern Europe, i.e. the
former Visegrád group. Angela Wigger (a.wigger@fsw.vu.nl) Doctoral Researcher Angela Wigger, MA studied Political Science at the Universität
Bern, Switzerland and at the Vrije Universiteit Amsterdam, where
she obtained her Master’s degree in March 2003 (cum laude). Since
April 2003 she is employed as a doctoral student at the Department of
Political Science, Vrije Universiteit Amsterdam. She writes her
doctoral thesis on the regulatory convergence of global competition
governance. Research Interests: Competition policy, European and
Global Governance in general and competition governance in particular, Policy
Networks, International Organization. EDITORIAL : ACCOUNTING STANDARDS AND BARCLAYS’ MISSING BILLION Each newsletter contains an editorial written by one
of the researchers. The view does not necessarily reflect that of the Vrije
Universiteit or the other researchers and is usually based on current events
and/or a personal experience. By James
Perry Accounting standards and Barclays’ missing billion Barclays Bank - one of Britain’s biggest - recently
announced annual profits for 2003 amounting to GBP 2.7bn (EUR 4bn). That was
in London. Meanwhile, over in New York, where Barclays’ shares are also
listed, a billion pounds seems to have gone missing. The same bank,
describing the same business activities for the same year, now says it made
only GBP 1.7bn. The missing billion pounds relates to changes in the
market value of derivatives contracts held by the bank. Under US accounting
standards these changes must be reflected in the company’s profit and loss
statement. Under most European accounting standards this is not the case -
yet. It soon will be, and the continent’s bankers are squealing loudly at the
prospect. They claim that such a rule will add false volatility to their
profits because derivatives will have to be marked to market even when they
are held for long-term hedging purposes rather than speculation. On closer
inspection, such an argument falls down almost immediately since there is
nothing in the rules to prevent the banks marking both the derivatives and
the hedged asset to market. If they did this, and if the original hedge was a
good one, there would of course be no extra volatility. There is clearly
something other than pure technical efficiency behind their objections;
understanding such motivations is one of our goals at The Amsterdam Research
Centre for Corporate Governance Regulation. The so-called ‘marking to market’ of derivatives
liabilities is just one aspect of the broader debate in the accounting arena
over historic cost versus ‘fair value’ (i.e. market value). International
Accounting Standards (IAS), which become mandatory across the EU from 2005,
will emphasise the latter – a position justified on the basis that market
values provide the most transparent picture of a company’s health. If only it were so simple. Accountants often find
marking to market quite problematic. In the case of financial instruments
(IAS39), the complexity of positions bundled together by traders can be
almost impossible to make sense of. Even when unravelled, some derivatives,
in the words of Barclays’ 2003 report ‘contain significant valuation inputs
not currently evidenced by observable market inputs’. In other words, nobody
is really sure what they are worth. Besides IAS39, the other standard generating the
most heat is IAS19 which requires companies to mark their pension funds to
market, and then show the resulting deficits (or surpluses) on their balance
sheets. UK accounting standards already include a variant of IAS19 which has
caused much pain in British boardrooms as the country’s most prestigious
companies have been forced to admit the scale of their neglect to their
employee’s pension funds during the late 1990s. When City analysts refer to
British Airways (BA) as a ‘large hedge fund with a small airline attached’
they are only half joking: BA’s pension fund is three times its stock market
capitalisation and its pension deficit is more than 20 times the firm’s
average profits for the past five years. As with derivates, in pension fund accounting there
is scope for significant disagreement over the size of a particular discrepancy
- for instance, what assumption has the company made about expected returns
on its pension fund’s assets? The accountants, frightened by litigation and
faced with tightened auditing standards (e.g. Sarbanes Oxley), will
henceforth feel compelled to highlight such uncertainty when signing-off
their clients’ accounts. The long-term consequence of the IASB’s emphasis on
fair value might therefore be to destroy the myth that a company’s annual
profits, assets and liabilities are based on verifiable facts which can be
objectively measured by experts. As The Economist has recently
suggested, profits may come to be stated as a range of figures, each of them
arrived at using different accounting assumptions. Such a change could upset some of today’s most entrenched
political-economic arrangements. In recent decades, more and more of
society’s most important resource allocation decisions, previously mediated
socially, have become driven by market discipline. This was originally
justified to us on the basis that markets provide de-politicised, objective
signals on how society should invest for its future. The market was supposed
to sort out what worked from what didn’t, and channel resources accordingly.
Asset prices, particularly financial ones, are key variables in this system
and depend heavily on accounting information. Questioning the accuracy of the
latter would raise serious doubts about the legitimacy of the whole setup. In many ways IAS39 and IAS19 serve as a perfect
introduction to one aspect of the work at our research centre. Here are
accounting standards being set by a private authority network (centred on the
IASB), given legitimacy by a public institution (the EU), and over which
there is an intense political struggle. Bankers are busily calling their
lobbyists and political contacts at the highest level. Business federations
in Europe and Japan are forming unlikely coalitions. Companies everywhere are
using mark-to-market as an excuse to re-define (i.e. lower) their employee’s
benefits packages, shifting risk from firm to worker wherever possible. Our
task as researchers is to both explain and understand what is going on. It is
not only a question of standards, but also the standard-setting process. We
should not simply ask what works and what doesn’t, but for whose benefit, and
why? RECENT PUBLICATIONS ON CORPORATE GOVERNANCE Nölke, Andreas (2004) “'Transnational Private
Authority and Corporate Governance”, in New Rules
for Global Markets: Public and Private Governance in the World Economy,
Stefan A. Schirm ed. Palgrave Macmillan: Houndmills. Within our working paper series Studies in the
Transnational Political Economy of Corporate Governance, the following
titles have been recently published: Apeldoorn, van Bastiaan, Andreas Nölke and Henk
Overbeek (2004) “The
Transnational Political Economy of Corporate Governance Regulation: A
Research Outline”. Nölke, Andreas (2004) “Private International Norms in Global Economic Governance: Coordination Service Firms and Corporate Governance”. ARJAN’S ARTICLE So far, questions of corporate
governance regulation have mainly been discussed in a highly technical
jargon, mostly within the specialist business and legal communities. But
these questions are of immediate relevance to a wider public, particularly
employees in publicly listed companies and small private investors. One
purpose of our programme is to close this gap; therefore, we will regularly
include articles written in non-technical language. The first of these
articles, written by Arjan
Vliegenthart and David Hollanders, places recent corporate scandals in a
wider context. This article was originally
published in Dutch in De Groene
Amsterdammer (Vol. 128, no. 28, July 2004). The authors’ views do not necessarily reflect those of the Vrije Universiteit or those of the other researchers. |
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GO TO Foreword Our biographies Description of our research programme Accounting standards and Barclays’ missing billion Recent publications |
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THE AMSTERDAN RESEARCH CENTER FOR
CORPORATE GOVERNANCE REGULATION Vrije Universiteit
Amsterdam Postal Address Visiting
Address De Boelelaan 1081c Buitenveldertselaan 3 1081 HV Amsterdam
1082 VA Amsterdam The Netherlands Telephone: +31 20 444 6894/6852 Fax:
+31 20 444 6820 Email: hw.overbeek@fsw.vu.nl |
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