Appendices
Appendix A: code book
Variables and attributes measuring the relationship between corporate governance and innovation are explained here below.
Variables Content Measurement
Ownership structure Showing who the owners of the company in question are.
Interval;
X indicating the proper owners (hip).
Innovation type What is innovative? Product, process, organisation,
transaction, etc.
(Jacobs ,2006)
Nominal and interval;
Naming the type of
innovation and x indicating the innovation on the radical versus incremental range.
Role of the board Showing the different roles boards play within the companies. (Filatotchev and Bishop, 2002)
Interval;
X indicating the different roles.
Size of the board Amount of the board members. (Hessels and Hooge, 2006)
Interval and attributes
Size of the company Amount of the employees working at the company.
Interval
Type of the board Mentioning whether the board is present and showing what type of boards these are if present. Executive versus non-executive. One-tier or two-tier system being applied. (Mallin, 2004)
Nominal
Management team Indicating diversity through differences in gender, size, education level, function, experience and background.
(Aug and Menguc, 2005)
Nominal and interval;
Strategy Showing the strategic
responsibilities of the involved parties.
Attributes yes and no; and nominal by mentioning the cases with the appropriate letters in the right boxes in the strategy table.
Relationship corporate governance and innovation
Showing the relationship between corporate
governance in the form of boards present within the companies and the relationship of this
phenomenon with innovation present or applied by the companies. (Zahra, 1996;
Hoskinsson et al., 2002;
Kraft and Ravix, 2005; and Zahra et a., 2000)
Interval
Appendix B: interview questions corporate governance and innovation
Inleiding: dit onderzoek betreft een onderzoek naar de relatie tussen *corporate governance (ondernemingsbestuur) en innovatie. In hoeverre wordt innovatie in een onderneming als de uwe gestimuleerd of gehinderd door factoren direct gerelateerd aan het bestuur, de Raad van Commissarissen (als die er is), aandeelhouders, en het Management Team. Wat zijn faal- en succesfactoren in deze. Het betreft vragen als heeft de aanwezigheid, het aandelenbezit van een of meerdere eigenaren de samenstelling ervan invloed op innovatie.
*De discussie over corporate governance in Nederland vindt de laatste 2 jaar vooral plaats aan de hand van de aanbevelingen zoals genoemd in de Code Tabaksblat. Voor beursgenoteerde ondernemingen betekent dit dat zij moeten aangeven in hoeverre zij voldoen aan de aanbevelingen in de Code, als zij er niet aan voldoen moeten ze aangeven waarom niet.
Bestuur:
1) a Hebt u gehoord van de Code Tabaksblat en wordt deze toegepast in uw onderneming?
b. Is er bij u sprake van:
- Bestuur
- Een raad van commissarissen (RvC) (zo ja hoeveel personen?)
- Aandeelhouders (zo ja, zitten die in de RvC, in het MT; is het een familieonderneming)
- Management team/directie (welke functies, hoeveel personen)
2) Wie zitten er in het bestuur en/of de RvC? Wat is hun achtergrond (familie, venture kapitalist (=innovatie investeerder), bank, investeringsmaatschappij, etc.). Hebben zij ook aandelen en zo ja hoeveel (ongeveer)?
3) Hoe vaak komt het bestuur bijeen? Een bestuur heeft meerdere taken/rollen. Welke zijn de belangrijkste taken van de raad in uw bedrijf? (Controle, verlenen van diensten, netwerken, lobbyen, meedenken met de strategiebepaling, enz.) En hoe voert het bestuur deze taken uit?
4) Hoe worden de leden van het bestuur raad geselecteerd? En hoe vaak worden zij vervangen? Op welke wijze gebeurt dit?
5) Is onafhankelijkheid van de RvC belangrijk? Hoe voorziet de raad in zijn onafhankelijkheid? En hoe vindt de samenwerking plaats binnen de raad en met andere delen van de organisatie (m.n. MT)?
6) Wat zijn de belangrijkste onderwerpen van het bestuur? Wie neemt initiatieven tot nieuwe strategische beslissingen/projecten?
Aandeelhouders en maatschappij:
7) Wie zijn uw hoofdaandeelhouders? Hoe groot is hun aandelenbezit? Hoe vaak komen zij bijeen? Wat is hun verhouding tegenover het bestuur en het management team?
8) Wie zijn de andere prominente belanghebbenden (stakeholders)? En hoe is de verhouding met hen?
Management team:
9) Wat is de samenstelling van de top management team(MT): hun leeftijd, geslacht, onderwijs, functie en ervaring?
10) Ziet u verschillende managementstijlen binnen MT van uw bedrijf? Hebben zij, verschillende stijlen, in betrekking tot ondernemingsbestuur en innovatie enige invloed?
11)Wat zijn de belangrijkste onderwerpen binnen MT? Hoe vaak komt het team bijeen? Wie is verantwoordelijk voor product/dienst vernieuwing en innovatie projecten/portefeuille?
12) Hoe vaak vinden er veranderingen plaats in het MT? Wie stelt het MT samen, aandeelhouders, bestuur, of nog iemand anders?
Relaties tussen het bestuur, aandeelhouders, maatschappij en management in corporate governance. setting:
13) Wat wordt beslist/op de jaarlijkse vergaderingen besproken? Hoe machtig zijn de aandeelhouders? En hoe ontwikkelen de vergaderingen zich? Wie stelt de jaarrekening vast:
MT, aandeelhouders, bestuur?
14) Hoe vindt de strategische besluitvorming plaats? In welke vorm implementeren de raad,
management team, aandeelhouders en belanghebbenden de bedrijfsstrategieën?
Wie neemt er initiatief? Wie voert de plannen uit? Is er middel management bij betrokken?
15) Hoe worden de prestaties (en de vergoeding) van bestuur, MT, bestuur gemeten en geëvalueerd?
Innovatie en ondernemingsbestuur:
16) Heeft u een R&D - afdeling, of anderszins afdelingen of personen die verantwoordelijk zijn voor innovatie, business of product onwikkeling? Of andere verwante functies binnen uw onderneming?
17a) Op welke gebieden bent u innovatief; wie neemt het initiatief tot innovatie?
17b) Hoe zou u innovatie(s) binnen uw bedrijf classificeren: radicaal tegenover incrementeel (toenemend/stijgend of afnemend/dalend) & proces, product, of organisatorisch? En hoe vaak introduceert u nieuwe producten of diensten: proactieve of reactieve benadering (mede in vergelijking tot uw concurrenten)?
18) Werkt u met andere bedrijven, overheid, instellingen (als de universiteiten, TNO of hogescholen) samen op het gebied van innovatie of R&D? Zo ja met wie en hoe intensief/frequent?
19) Is het bestuur betrokken bij innovatie; zo ja, hoe? Zijn de aandeelhouders betrokken bij innovatie en zo ja hoe? Wat doet het MT aan innovatie?
20) Met betrekking tot innovatie, wie neemt de investeringsbesluiten? Welke soorten investeringen zijn dit en hoe worden de winsten van (deze) investeringen verdeeld?
21) Zijn er nog andere punten van belang voor dit gesprek die we nog niet besproken hebben?
Zo ja, welke?
Appendix C: Additional theoretical background
C.1 Agency theory
In order to understand the reasons for existence and the purpose of boards in firms we must look at the theory behind the boards. The following text explains in detail the “internal” part of figure 3 on page 23.
Agency theory identifies the agency relationship where one party, the principal, delegates work to another party, the agent (Mallin, 2004). Jensen and Meckling (1976), Fama and Jensen (1983), Rappaport (1986) and many others have described this problem. In the corporate governance world owners / stockholders are seen as principals and managers as the agents, the principals have imperfect control over the agents.
Before going deeper into the subject of agency theory one should know the reasons behind the separation of ownership and control. Already during the British industrial revolution Adam Smith, political economist and moral philosopher, identified separation of ownership and control and its potential agency problems in British companies. According to Rappaport (1986) it is import to recognise that managers can act in their self-interest and that these interests may not match with the interests of the owners or the company. Another related issue that has been identified by Mallin (2004) is information asymmetry whereby the principal and the agent have access to different levels of information, most of the times this means that agents have more access to better / richer information compared with principals. Blair (1996 in Mallin, 2004) states that managers are supposed to be the agents of a corporation’s owners, and therefore they must be monitored by means of institutional arrangements in order to make sure that they perform their duties well. In the context of corporate governance the board of directors is being seen as a solution to the agency problem.
While the agency theory presents problems in the relationship between the agents / managers and the principals / owners, one should not think that there are only negative effects accompanying separation of ownership and control. Rappaport states that there are factors, which persuade managers to act and behave in the best interests of the owners / shareholders.
These factors derive from the fundamental premise that the greater the expected unfavourable consequences to the manager who decreases the wealth of the shareholders, the less likely it is that the manager will, in fact, act against the interests of shareholders (Rappaport, 1986). He provides four main reasons for managers indicating how to comply with the interests of the owners: 1) a relatively large ownership position (by management) as this might make them
share the same interests with other shareholders; 2) compensation (to management) tied to shareholder return performance; 3) threat of take-over by another organisation where the latter often replace the current management team; and 4) competitive labour market for corporate executives, which functions as a motivating factor for the incumbent managers to perform well and in the interest of the owners in order to get a better position and / or not to be replaced by both external or internal candidates from the same position. In the light of the agency theory let us now have a closer look at shareholder versus stakeholder views and boards.
C.2 Shareholder and stakeholder views
The discussion on agency theory in the previous section leads us to another distinction existing between the Anglo-Saxon and European or Continental approaches not only with respect to corporate governance but management of businesses in general, and not only among the scholars but in practice as well. Agency theory explains the relationship between agents and principals but it does not tell us that this relationship can be viewed through two different approaches by the actual managers of the companies. This can be done by looking at shareholder and stakeholder theories.
Shareholder view:
Business strategies should be judged by the economic returns they generate for shareholders, as measured by dividends plus the increase in the company’s share price (Rappaport, 1986).
In other words the main purpose of the company is or should be to maximise the shareholder value. According to this theory assets of the company are the property of the shareholders, and managers and boards of directors are viewed as agents of shareholders, with all the difficulties of enforcement associated with the agency relationshipships, but without legal obligation to any other stakeholder (Clarke 1998, in Clarke 2005). Property ownership refers to the full and absolute discretionary power of an owner over an external object which the title identifies (MacPherson, 1973 and 1978; and Singer, 1988, in Engelen, 2002), which in our case are the companies. Implicit in this assumption is the moral argument that shareholders deserve their earnings and hence their controlling rights because they contribute crucial production factors (Engelen, 2002). The reason why management should pursue this objective, of maximising the shareholder value, is comparatively straightforward according to
Rappaport (1986), as management is balancing the interests of different corporate constituencies such as employees, customers, suppliers, debt holders, and stockholders. The main difference with the stakeholder view here is the focus on purely financial relationshipships with each of these: employees, customers, suppliers, debt holders, and stockholders. If the company does not satisfy the financial claims of its constituents, it will cease to be a valuable organisation and employees, customers, and suppliers will simply withdraw their support (Rappaport, 1986).
Stakeholder view:
Already Henry Ford (de Wit and Meyer, 2004), as one of the most prominent American industrialists, noticed that there is more than solely creating value for the shareholders by stating that a business that makes nothing but money is a poor kind of business. In compliance with the idea of Henry Ford, Edith Penrose (1959, in Clarke, 2005) defined the concept of the company as a bundle of human assets and relationship.
According to Freeman and Reed (1982) the stakeholder notion is indeed a deceptively simple one. It says that there are other groups to whom the corporation is responsible in addition to shareholders / stockholders: those groups who have a stake in the actions of the corporation (Freeman and Reed, 1982). Therefore stakeholder theory defines organisations as multilateral agreements between the enterprise and its multiple stakeholders. The relationship between the company and its internal stakeholders (employees, managers, owners) is framed by formal and informal rules developed through the history of the relationship. This institutional setting constrains and creates the strategic possibilities for the company (Clarke, 2005). While management may receive finance from shareholders, they depend upon employees to fulfil the productive purpose and strategic intentions of the company. External stakeholders (customers, suppliers, competitors, special interest groups and the community) are equally important, and also are constrained by formal and informal rules that businesses must respect (Clarke, 2005).
Freeman and Reed (1982) found that groups of stakeholders both internal as well as external do not always have to be friendly and might even be hostile towards the organisation in question.
Therefore stakeholder management is a practical response to the fact that corporations cannot afford to ignore or downplay the interests of the claimants (de Wit and Meyer, 2004). While executives are willing to recognise that employees, suppliers, and customers have a stake in the corporation, many resist the inclusion of adversary groups (Freeman and Reed, 1982). But according to Freeman and Reed (1982), from the standpoint of corporate strategy,
stakeholders must be understood in the wide sense: strategies need to account for those groups who can affect the achievement of the firm’s objectives.
Shareholder versus stakeholder view:
The proponents of the shareholder view are, according to de Wit and Meyer (2004) lobbying for more receptiveness to the interests of the shareholders on the part of boards, to increase top management accountability and to curb perceived executive self-enrichment at the expense of shareholders. On the other hand the supporters of the stakeholder view would like to see a corporate governance system being more receptive to the interests of stakeholders; to ensure that firms do not become myopically “bottom line” oriented (de Wit and Meyer, 2004).
And this situation presents a paradox not only of governance but also of profitability and responsibility.
Countries with Anglo-Saxon background or applying the Anglo-Saxon laws and corporate governance approach tend to share the shareholder view while the European countries tend apply more a stakeholder view. The Netherlands is a good example of a European country where the stakeholder view prevails over the shareholder view. Though according to Yoshimori (1995), most managers in Germany and France exhibit a dualistic concept of the company, in which shareholder and employee interests are both taken into consideration (de Wit and Meyer, 2004) while the Asian countries, Japan in particular, attain a pluralistic (or pure stakeholder) concept of the company. Yoshimori (1995) suggests the ultimate division between the shareholder and stakeholder views is due to their vision of the organisation ownership. Clarke (2005) states that the growing emphasis on employee relationships, customer relationships, supplier relationships, and investor relationships is an indication that managers have to grapple with the imperative to satisfy the interests or more complex constituencies that agency theory or shareholder value would suggest. He also supports Yoshimori`s idea by stating that the conception of the company as a set of relationships rather than a series of transactions, in which managers adopt an inclusive concern for all stakeholders, is much closer to established European and Asian business values, and has been apparent in the behaviour of many leading US and UK companies (Clarke, 2005).
The users / supporters of both shareholder and stakeholder views influence corporate governance in order to make sure that their rights are represented within the applied corporate governance. Different countries have different preferences toward one of the two views depending on their law system, cultural background (for example Anglo-Saxon versus Japanese cultures) and ownership structure of the companies.
C.3 The board
One of the main differences can be found between the countries applying the one-tier board system, the countries applying the two-tier board system, and the countries which allow its companies and organisations to choose between the two systems. See figure 6 here below for the simplified graphic representation of the possible board systems.
Figure 6: One-tier versus two-tier board system (applied from de Wit and Meyer, 2004)
In a two-tier system, applied for example in Austria, Denmark, and Germany (Gregory and Simmelkjaer, 2002 and Mallin, 2004), there is a formal division of power, with a management board made up of the top executives and a distinct supervisory board made up of non-executives with the task of monitoring and steering the management board. In a one-tier board (or unitary) system, applied for example in the UK, Spain, Ireland, and Sweden (Gregory and Simmelkjaer, 2002 and Mallin, 2004), executives and non-executives (outside directors) sit together on one board (de Wit and Meyer, 2004). Yet other countries allow their companies to choose between the two systems / structures, for example the Netherlands, Belgium, Finland, and France (Gregory and Simmelkjer, 2002 and Mallin, 2004). De Wit and
Two-tier One-tier
Board Board
Non- Executives
Executives
Outside/ non- executive directors Board of directors (Headed by Chairperson) CEO & other executive directors Supervisory board
(Headed by Chairperson)
Management board (Headed by CEO)
Meyer (2004) as well as Tricker (1994) mention that the size and composition of boards of directors / their membership form a particular importance to the company’s corporate governance structure and can show extreme differences among countries and even among companies within the same country.
The board's role is a focal point in corporate governance (Daily, Dalton and Canella, 2003; in van Ees and Postma, 2004). Boards play a very important role in corporate governance as they are there to monitor and control the performance of the management team on behalf of the share- and stakeholders, as has been described in the research design chapter. Van Ees and Postma (2004) found evidence in the literature that boards have additional strategy and service roles, such as tying firms to external resources (Pfeffer and Salancik, 1978; in van Ees and Postma, 2004) or offering strategic advice (McNulty and Pettigrew, 1999; in van Ees and Postma, 2004). Another important role of the boards is to participate in the strategic decision- making process, come up with initiatives and new policies. Both agency and upper echelon research indicate that the ability of executives to formulate and implement strategic initiatives which capitalise on environmental opportunities is vital to organisational success (Geletkanucz and Hambrick, 1997; Hambrick and Mason, 1984; Shivdasani, 1993; Tosi, Katz and Gomez-Mejia, 1997; in Filatotchev and Bishop, 2002). Further on, board activities shape the relationshipship between the firm's shareholders and top management (van Ees and Postma, 2004) and in this role a board can hire, fire, and compensate managers or management teams; in addition to offering strategic advice and consultancy (van Ees and Postma, 2004). The authors also suggest that the board can be a way to align a company to its critical resources in the environment and vice versa.
C.4 Corporate governance codes
Codes of corporate governance reflect best practices with respect to a large number of issues such as the governance of firms, including board membership and board composition, board practices, selection of board members, remuneration and dismissal of management, auditing and information disclosure, and relationship with shareholders. Next to a board managing all of the above described tasks it is possible to use corporate governance codes, which are designed to fill a perceived gap in corporate governance systems of countries (Hermes et al., 2006) and can help implement corporate governance. Recently, one could see new corporate governance codes being developed, and old ones combined or revised in many different
countries. Although countries have different economical, political, cultural, legal, etc.
backgrounds, due to the increased international political and economical integration some standards in corporate governance codes are being set.
The codes of European Union countries apply the “comply-or-explain” principle. In this case, codes provide a list of best practices of what firms should do (Hermes et al., 2006) and how they should behave. A company has to comply fully with the code or explain why it has not complied fully with the code. The USA applies a different approach, since the Sarbanes- Oxley Act (the USA corporate governance code) takes a “one-rule-fits-all” approach; it reduces the flexibility of firms in their attempts to cope with governance problems (Aguilera, 2005 in Hermes et al. (2006)). Note: in USA there are also many different codes in different states, just like in European Union where codes differ from member state to member state.
“Whilst one can argue that a single model of corporate governance is not suitable for all countries – and certainly the stage of development of the country, its cultural traditions, legal structure, and ownership structure make it unlikely that one model would be appropriate for all countries at any given time – we have seen that there are common core principles that have been influential in the setting of codes across the globe” (Mallin, 2004).
Appendix D: Dutch corporate governance structures (according to ABN AMRO Bank)
Corporate governance starts with the law. The Dutch “burgelijk wetboek” civil law and statute book includes laws, which regulate and make it possible to supervise the ventures.
Next to the law one has choice from the following forms of corporate governance:
Contractuele afspraken en codes (Contractual appointments and codes)
Besides legal provisions; agreements and appointments between the largest interested parties determine an important component of corporate governance structures. In the study conducted by the ABN AMRO Bank around 60% of all companies had a shareholder agreement.
Persoonlijke adviseur (Personal consultant)
In nearly every company key players regularly exchange ideas with a confidant. It can concern conversations with the company consultant, accountant, bank, notary, in-house lawyer or a fiscal advisor. According to the research of the ABN AMRO Bank 23% of the examined ventures consider approaching of their personal consultants as the most important form of corporate governance.
Raad van advies (Council of recommendation)
A council of recommendation is established in a structured manner in order to obtain specialist knowledge, which is not present within the company. Moreover a council of recommendation is frequently established as a preamble of a supervisory board. In the research conducted by the ABN AMRO Bank 8% of the examined ventures had a council of recommendation.
Raad van commissarissen (Supervisory board)
Formally a supervisory board serves the interests of a company through the supervision of an executive board. Also a supervisory board has an advisor’s function for an executive board.
The four most important reasons for introducing this form of governance are: strategy, continuity, emotion and financing. Within the examined companies ABN AMRO Bank found that 54% of them have a supervisory board with on average 2,8 members.
Stichting administratie kantoor (STAK) (Foundation administration office)
A STAK is a governance form where certified shares are placed in a separate foundation.
There can be a fiscal / tax reason to proceed with the certification of shares, but more often it is the aim to regulate the right of control within a company. From the research of the ABN AMRO Bank it became clear that 32% of the companies under study applied STAK as a form of corporate governance.
Familieraad (Family council)
Large family owned companies in which several generations are working together, sometimes have a family council, which functions by means of rules that have been established in a family statute, regulations or a protocol. Of the examined companies the ABN AMRO Bank found that 5% had a family council as their form of corporate governance.
Algemene vergadering van aandeelhouders (General meeting of shareholders)
Holding an annual general meeting of shareholders is legally obliged for a private company. It can happen that this form exists only on paper due to legal reasons. For example, if all shareholders sit in an executive board and in take all decisions. The research of the ABN AMRO Bank shows that 45% of the examined companies count their general meetings of shareholders (more than 1 meeting per year) as a form of corporate governance structure.
