A Political Perspective on Business Elites and Institutional Embeddedness in the UK Code‐Issuing Process

• Author: Hans Ees,Ilir Haxhi,Arndt Sorge
• Date: 01 November 2013
• DOI: http://doi.org/10.1111/corg.12036
• Published date: 01 November 2013

A Political Perspective on Business Elites and

Institutional Embeddedness in the UK

Code-Issuing Process

Ilir Haxhi*, Hans van Ees, and Arndt Sorge

ABSTRACT

Manuscript Type: Perspective

Research Question/Issue: What is the role of institutional actors and business elites in the development of UK corporate

governance codes? In the current paper, we explore the UK code-issuing process by focusing on the UK actors, their power

and interplay.

Research Findings/Insights: Our f‌indings indicate, f‌irst, that the comply-or-explain principle, intertwined with the rich

issuance of codes, ref‌lects the diversity and permissiveness of British society and its ability to absorb contested corporate

practices in a way that manages to preserve the status quo. Second, the UK business elites preserve their position in the

corporate arena by using the principle of good governance, including the possibility to deviate from best practices, as an

instrument of neutralizing institutional change. Third, the UK institutional and societal embeddedness gives carte blanche to

elites to use corporate governance practices to serve their own interest.

Theoretical/Academic Implications: By emphasizing the strategic behavior of business elites embedded in the UK insti-

tutional conf‌iguration, we offer a political perspective on the national contextuality of the code-issuing process. The

worldwide diffusion of codes should not dissimulate their cross-national contested nature. Codes ref‌lect potential redistri-

bution of power among institutional actors and business elites as well as the struggle over corporate resources between

corporate actors (i.e., shareholders and managers) in maintaining their status quo.

Practitioner/Policy Implications: Practitioners should perceive codes as having different meanings depending on national

contexts and national political constituencies. Codes ref‌lect constellations of actors such as managers, shareholders, regu-

lators and others, whose approach to codes and strategic interests are at least as important to know and understand as the

verbatim content of codes.

Keywords: Corporate Governance, Corporate Governance Codes, Institutional Embeddedness, Business Elites, United

Kingdom

INTRODUCTION

The last two decades of corporate scandals such as

Ahold, BCCI, Enron, Mannesmann, Parmalat and

Vivendi (Taylor, 2003; Truell & Gurwin, 1992) have stirred

extensive academic, business, and public debate on how

listed f‌irms are directed and controlled. The actions and

omissions of top executives have both moral and legal rami-

f‌ications; the former related to the damaged reputations of

the individuals or institutions involved, the latter to the

type of legal sanctions and actions imposed. In the United

Kingdom (UK), corporate failures of Polly Peck and Maxwell

in the early 1990s had a major impact on the UK investment

community,but also on the reputation and inf‌luence of busi-

ness elites (Greenslade, 1992). As a direct response, corpo-

rate governance (CG) codes (hereafter “codes”) emerged as

sets of best practices regarding the role and composition of

the board of directors, relationships with shareholders and

top management, auditing and information disclosure, and

the remuneration and dismissal of directors (Haxhi &

Aguilera, 2012).

Codes of good governance promote eff‌iciency and legiti-

macy (Aguilera & Cuervo-Cazurra, 2004; Zattoni & Cuomo,

2008), even though this may also entail costly practices at the

*Address for correspondence: Ilir Haxhi, Amsterdam Business School, University of

Amsterdam, Plantage Muidergracht 12, 1018 TV Amsterdam, The Netherlands. Tel:

+31 20 525 5460; E-mail: i.haxhi@uva.nl

535

Corporate Governance: An International Review, 2013, 21(6): 535–546

© 2013 John Wiley & Sons Ltd

doi:10.1111/corg.12036