Capturing corporate governance: The end of the UK self-regulating system
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Alan Dignam is a Reader in corporate law at the School of Law, Queen Mary, University of London. His major research interests are company law, corporate governance and the application of Constitutional Rights/Human Rights to corporations. He has authored numerous research papers and books in these and other related areas.
ABSTRACT KEYWORDS: financial services regulation, securities regulation, self-regulation, corporate governance, corporate theory, company law reform Until very recently the financial services sector in the UK operated in a unique self-regulated environment. If a problem arose, as it did from time to time, then interested industry bodies such as the London Stock Exchange would be expected and indeed would step in to provide a solution. The system had many critics but a combination of the success of the financial services sector and a cooperative government kept the system in place. Over the past decade, however, the UK’s unique form of self-regulation in the financial services sector has been systematically dismantled. Since 1997 the combination of the election of a Labour government with a less trusting view of the industry and a number of scandals have led to the state taking regulatory control of the area. This paper is both an account of the dismantling of the self-regulatory system where it has affected corporate governance issues and an argument that the self-regulatory system in the UK has played an important role in past British economic success which may have been underestimated in the haste to reform.
International Journal of Disclosure and Governance (2007) 4, 24–41. doi:10.1057/palgrave.jdg.2050046
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INTRODUCTION
Historically, one of the most distinctive features of British economic regulation and in particular its corporate governance regulation has been its self-regulatory nature.1 In the financial services sector up until the year 2000 the regulatory roles were carried out by organisations formed by the industry itself. For corporate governance issues chief among these regulators was the London Stock Exchange (LSE), the Panel on Takeovers and Mergers, and the various bodies representing the accounting and legal professions. That is, however, no longer the case as the past decade has seen the systematic replacement of the self-regulatory bodies with direct state control. What follows in this paper is both an account of this dismantling of the self-regulatory framework in the corporate governance arena and ultimately an argument that the selfregulatory system in the UK has played an important role in British economic success, which may have been underestimated in the haste to reform. CORPORATE GOVERNANCE IN THE UK
The classic Berle and Means corporation with its characteristic dispersed shareholding base and real separation of ownership from control emerged only in the UK in the 1970s.2 Accompanying this change came a concern about unaccountable managers and underperformance, which resulted initially in a focus on industrial democracy as a solution to
International Journal of Di
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