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This chapter analyses recent reforms of the derivative claim in the UK as implemented by the Companies Act 2006. Recent reforms and modernisation of company law is part of a drive to facilitate enterprise and enhance the attractiveness of the UK as a location in which to do business. The reforms of derivative claims are, naturally, part of this wider drive. The chapter focuses on those areas that are particularly relevant to the question of whether the new legal framework relating to derivative claims is likely to promote these goals.

Even though there is neither case law nor policy negating the concept of the maximisation of shareholders' profits, the ‘schizophrenia’ of the legal conception of the corporation (Allen 1992), and the incertitude that stems from this, justify a new definition of the ‘best interests of the corporation’. Doubt is accentuated by the statutes of American companies, called non-shareholder constituency statutes, which refer to ‘best interests’ in the assessment of corporation director duties. Indeed, nearly half of U.S. states have adopted ‘constituency statutes’ which allow the board of directors to take into account the interests of non-shareholders when making decisions (Mitchell, 1992; Orts, 1992).⁷

In the Netherlands, the ‘Tabaksblat Code’ (the Dutch corporate governance code of December) was a semi-private regulation instigated by the Dutch government, the stock exchange and industry associations to restore trust in the public equity markets. The aim was ‘to put the relationship between listed companies and providers of capital under the microscope’ in order to establish a new balance with a larger role for the shareholders (Tabaksblat, 2003, p. 59).

This chapter examines corporate governance–related financial reporting issues in the context of globalization. Over the past few decades, the process of globalization has substantially altered the fields of corporate governance and accounting. More specifically, Anglo-American models of corporate governance and financial reporting have received increasing momentum in emerging economies, including China. However, a review of relevant studies suggests that there is limited research examining the implementation of Anglo-American concepts in various countries regardless of their growing acceptance. This monograph extends the existing literature by comprehensively investigating the adoption of internationally acceptable principles and standards in China, the largest transitional economy that has different institutional context from Anglo-American countries. In addition, the review has a number of implications for developing the theoretical framework, and determining the research methodology for the monograph.

When a board is faced with a choice of aiding the public or government during a crisis, or more generally any corporate social responsibility initiative, well established doctrines of American corporate law can protect directors from legal liability in a shareholder derivative lawsuit. A hallmark trait of the public corporation is a separation of ownership and control (Berle & Means, 1932). Accordingly, managers have great authority over corporate assets. Delaware corporate law provides that “[t]he business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors.”² The board has the authority to manage the “business and affairs” of the corporation, which in the judgment of the board may include corporate social responsibility initiatives and decisions based thereon.

This paper explores the advantages (for large investors) of directly owning productive assets, compared with indirect ownership through stock in corporations. Significant factors are agency costs and recent changes in the tax and regulatory environment. Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. However, the pressures to go private are not entirely new. We trace the legal concept that the corporation is an entity separate and apart from its owners, showing how the legal status of corporations hinders resolution of conflicts among the parties to the enterprise. Thus, there have long been fundamental flaws inherent in the corporation as the form of organization for certain activities. Direct ownership of major assets by investors prevents future expropriation of resources, and is preferable to corporate ownership whenever other alternatives for indemnification or liability limitation are available (such as insurance, limited partnerships, limited liability companies, etc.). Finally, the renewal of direct ownership is not a radical shift, but a return to long-established tradition in the organization of business activities.

This chapter explores the advantages (for large investors) of directly owning productive assets, compared with indirect ownership through stock in corporations. Significant factors are agency costs and recent changes in the tax and regulatory environment. Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. Acquisitions and minority equity positions that allow large corporations to join with smaller companies have also increased. The pressures to go private are not entirely new, however. This chapter, reflecting collaboration by professors of finance and business law, traces the legal concept that the corporation is an entity separate and apart from its owners, showing how the legal status of corporations hinders resolution of conflicts among the parties to the enterprise. Thus, there have long been fundamental flaws inherent in the corporation as the form of organization for certain activities. The current wave of Sarbanes–Oxley restructuring via private equity firms is part of a significant increase in direct ownership of major assets by institutional investors. Direct ownership prevents management expropriation of resources, and is preferable to corporate ownership whenever other alternatives for indemnification or liability limitation are available (such as insurance, limited partnerships, limited liability companies, etc.). Finally, the renewal of direct ownership is not a radical shift, but a return to long-established tradition in the organization of business activities.

The purpose of this general review is to enhance understanding of the importance of a corporation’s whole ethics of governance regime and the connection to governance practices. This connection is often missing from corporate governance discussion. There is need for better business community awareness of a well-developed ethics of governance regime guiding appropriate board structure and composition choices subject to firm age and size, understanding of how these choices evolve as the firm matures and grows, plus the benefits from more emphasis in this area for company director training and development. This paper synthesises the theoretical and empirical insight from the ethics and corporate governance literatures to give guidance on best practice for large, medium size and small stock exchange listed companies. This synthesis of the literature evidences that the preferred Australian Institute of Company Directors agency theory prescription for a corporate board is not always optimal. In terms of practical implications advice is given on sound choices on board composition, director selection, plus director training and development that will give the best probability of effective board decisions and strong firm performance – this is not ‘one size fits all’ corporations advice. Future research should focus on whole ethics of governance regimes and governance practices in place for companies that have succeeded compared with companies that have failed. This will improve understanding in this area. This is a substantial future research agenda item as deeper knowledge of this contrast may add significantly to understanding of corporate success and failure.

The Australia–China business relationship is immensely important for the economic prosperity and living standards of both the countries. There are major differences in business culture between the two countries – Australia from the Global South with Anglo Imperial business traditions and practices, compared with the fast-developing economic might of China, the largest country by population and economic scale in the Far East. China is currently experiencing a crackdown on corruption under President Xi Jinping which started in 2012. Gift giving, guanxi (significant relationships), bribery and corruption are some of the biggest business relationship management issues between Australia and China. Appropriate gift giving and guanxi are distinguished here from bribery and corruption. Guanxi has been associated in the business and academic literature with deterioration in business ethics practices, including bribery and corruption – however, the literature also notes that this does not need to be the case. Following a review of the institutional setting and the literature here, a series of research propositions are developed that provides a framework within the whole ethics of governance regime for a corporation to manage bribery and corruption challenges for corporations. This framework can be used for Australian Stock Exchange, Hong Kong Stock Exchange listed companies which have legal systems parented in the United Kingdom; elements of the model may be useful in the China business setting.