There are three different aspects of difference in corporate governance of the US and UK. Firstly the US 1998 Weisbach Reports shows a closer relation of performance where the board is dominated by non executive directors, to the CEO’s turnover in the firm.
Also Kaplan and Reshuis (1990) and Gilson (1990) find that poorly performing companies find it hard to seek replacement for their non executive directors. In UK, you will see no evidence of disciplining by the non executive directors, this relations is indeed negative in proportion between non executives and board turn over. The separation between the CEO turnover and the positions of Chairman are strongly associated, playing an important role in the CEO turnover.
Secondly, in UK, hostile takeover and takeover markets are not related to poor corporate performance. Further there is no relation between disciplining management and share blocks held by individual families, financial institutions and non executive directors. The only exception is when industrial investors purchase share blocks which yield higher board turnover even with poor performance. In contrast, in US there is strong evidence that hostile takeovers are related to poor performance. A study on active investors’ show that they purchase share block targeting poorly performing companies, which is as per Bethel et al (1998). According to Holderness and Sheehan (1988), they have observed that when majority of the blocks trade, it results in increase of stock prices and even management turnover. It is important to note that the definition and size of active investors in US is broader than in UK and in both countries when active investors bring changes in share blocks then this leads to perform a disciplinary function.
Thirdly as per studies conducted in UK, the new financing and financial structures are very significant influences on the board’s turnover. There is however little or no study available of such a reported relation for US.
An important characteristic difference in corporate governance functions in US and UK is:
In UK, a weak role is played in corporate governance by the board, wherein non executive directors do not generally run the disciplinary function .
In US, The Board of directors and non executive directors play an important role in disciplining the management.
In case that a company does not have enough funds to pay their employees, an exclusive insolvency agreement is made according to the Insolvency Act 1986. Basically, the law deals with the insolvency of individuals and companies in the
