Characterizing the corporate governance of UK listed construction companies

Abstract

In response to the emergence of scandals involving many high-profile companies during the 1990s, corporate governance is considered as an area requiring immediate reform. The government of the United Kingdom has conducted a series of reviews on corporate governance and incorporated the recommendations of these reports into regulatory codes. Compliance with these codes can be considered to indicate the implementation of best corporate practice. A question of interest is how UK construction companies perform in corporate governance. The answer can be revealed by comparing construction companies with the top 50 companies listed in the UK, based on the provisions of corporate governance codes. Construction companies are found to (1) disclose less corporate governance information; (2) display lower levels of structural board independence in terms of separate roles of chairman and chief executive officer (CEO) and percentage of independent directors; (3) rely less on external consultant advice in assisting the decision making of three board committees. Research thus should be conducted on whether these disparities cause adverse effects on construction company performance.Corporate governance, best practice, performance, construction companies,

The Corporate Governance of Australian Listed Construction Companies

“…This supports the fi ndings of Chang et al (2006) in the UK. The implications of these fi ndings are important given that higher compliance is generally desirable, given these guidelines are designed to instil confi dence in the international investment community about the monitoring of risk management and strategy: a critical issue in the recent credit constrained environment with uncertainties revolving around extreme market volatility.…”

“…The companies' compliance with the recommendations was recorded, as in Chang et al (2006), using a system of "0" representing non-compliance and "1" meaning compliance. An average was then taken across the entire sample to get an overall mean score.…”

“…In particular, the increasing trend for procurement of public services via public-private partnerships that place the delivery and management of critical public infrastructure and services in private company hands, has brought issues of sound corporate governance to the fore (PPP Forum, 2008). PPP projects such as the Sydney airport rail link, Sydney Harbour Tunnel and the recent $900m redevelopment of the Royal Children's Hospital in Melbourne demonstrate the public signifi cance of the projects being undertaken and the potential implications of poor governance (Chang et al, 2006). Given the above, it is surprising that the issue of corporate governance in the construction industry has received little attention.…”

“…Given the above, it is surprising that the issue of corporate governance in the construction industry has received little attention. One notable exception is the work of Chang et al (2006) who investigated the relative compliance of UK listed construction companies with the disclosure requirements of the UK Combined Code compared with the top 50 companies listed in the UK. Their research determined that UK listed construction companies: (1) demonstrated lower levels of disclosure of corporate governance information than the top 50 group, (2) had lower levels of board independence based on the separation of the CEO and chairperson position and independence of directors, and (3) made less use of external consulting services for advice.…”

The change in board independence in the presence of firm risk and regulation

“…As a result, the non-executive ratio becomes one of the criteria for investors to monitor and evaluate the supervisory board 's transparency and reliability (Chang et al, 2006). Hence, companies tend to increase this ratio properly to bring confidence to investors, lenders, and shareholders, especially for high-risk companies.…”