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Centre for Business Research (CBR) news from 2002

The Cambridge Seminar on Financial Regulation

25-27 September 2002

The seminar brought together senior bank regulators from South East Asia to discuss the role played by financial regulation and the theory and practice of prudential regulation in an international context. Participants came from Indonesia, Malaysia, the Philippines, Thailand and Vietnam. Other guests included representatives of the World Trade Organisation, the UK Financial Services Authority, and the Bank of England.

Seminar presentations stressed the importance of the practice of financial regulation for economic policy and the links between micro risk, macro contagion and economic performance. The presentations also emphasized the importance of institutional context focusing, in particular, on the latest international developments.

Lord Eatwell opened the seminar with a keynote speech on the purposes of financial regulation and the relationship between regulatory institutions and formation of macroeconomic policy. His presentation focused on the threats to systemic stability and the need for an international response to the regulatory challenge posed by internationalized financial markets. These points were reinforced in the subsequent presentation by Kern Alexander, who gave a critical evaluation of how the international framework for financial regulation has evolved so far, emphasizing how norms developed for and by the G10 are being increasingly imposed on emerging economies.

Avinash Persaud, Managing Research Director at State Street Bank, spoke on liquidity and how it is being threatened by regulatory convergence because diversity, not size, is the key to maintaining liquidity. This holds out hope for the development of local stock exchanges in emerging markets. The latter point was underlined in a presentation by Amanda Dickins, part of the international financial regulation project. Recognizing the particular importance of external financing for firms in emerging markets, her presentation focused on the importance of “financial deepening” or the development of capital markets in these economies and the challenges that this presents in the context of globalization.

The final sessions of the workshop concentrated on recent developments in the international institutional framework for financial regulation. Kern Alexander, along with Juan Marchetti of the WTO, gave presentations on the potential impact of the World Trade Organisation’s General Agreement on Trade in Services on financial services regulation. Jonathan Ward, formerly of the UK’s Financial Services Authority and currently also part of the financial regulation group, presented a critique of the new Basel Accord for banking regulation, emphasizing the particular difficulties faced by regulators in emerging markets and offering some alternative approaches that adapt elements of the Basel approach to provide a suitable framework for banking regulation in emerging economies.

The seminar was made possible by generous support from the Ford Foundation and the Rockefeller Foundation.

Put small business first, Trade Secretary tells 3CL/CBR conference

5 July 2002

The Government’s forthcoming reform of Company Law will put small businesses first, Trade Secretary Patricia Hewitt has told a conference jointly organised by Cambridge University’s Centre for Corporate and Commercial Law and the Centre for Business Research.

Ms Hewitt was giving the keynote speech at the event in Cambridge entitled “Using Law to Promote Competitiveness and Enterprise: Will Corporate Law Reform Deliver?” on 5 July 2002. Researchers from both the Centre for Corporate and Commercial Law (3CL) and the Centre for Business Research (CBR) have contributed to the Company Law Review that is paving the way for new legislation in this area.

The Trade Secretary told her audience – of corporate law practitioners, academics and policy-makers – that the Company Law Review had taken the motto “Think small first” as its starting point. She said that when, very shortly, the Government published the White Paper and draft legislation resulting from the Review, it would aim both to promote responsible business, and to cut some of the burden of red tape on small firms.

“My aim, in drawing the line between enterprise and society, will be to ensure that we only have necessary regulation essential to promoting market confidence – making it as easy as possible for businesses to start and grow,” said Ms Hewitt. “Our starting point must be the small firm – “think small first” – with additional or different provisions for larger companies where necessary,” she added.

“Small firms are the engine of our economy. They employ 12 million people in the UK – that’s around 55 per cent of the private sector workforce, and three times as many as the FTSE 500. And the cost of bad company legislation can have a huge impact on small and medium-sized enterprises (SMEs) and the wider economy. An unnecessary burden of £100 per company per year costs our business sector £150 million a year. So we need to look rigorously at regulation – and ensure we only keep that regulation which is vital to market confidence,” she said. Examples of regulations currently under review, she revealed, include the rules on setting up businesses, which may be made easier, and the rules currently requiring even small firms to have company secretaries.

The conference was a two-day event on 4-5 July 2002. CBR speakers at the conference included assistant director Professor Simon Deakin, project leader Professor Ajit Singh, and project researcher Dr Simon Learmount.

Professor Deakin leads the CBR’s programme of research on corporate governance, contracts and incentives, and gave a paper on “The Future Trajectory of UK Corporate Governance”. Professor Singh leads a CBR research project on Corporate Governance, Corporate Finance and Economic Performance in Emerging Markets. He gave a paper about “New Issues on the Development Agenda”. And Dr Learmount, who is researching a project on the evolution of corporate governance arrangements, gave a paper on “The Role of Employees in the Japanese System of Corporate Governance”. A book about his research on this subject is due to be published by Oxford University Press in September 2002.

Tackling the work-life balance

17 June 2002

Firms could, and should, be doing more to help their employees tackle the work-life balance, researchers from the Centre for Business Research and the Massachusetts Institute of Technology (MIT) have told a conference in London.

At the event, organised by the Cambridge-MIT Institute (CMI), speakers argued that the failure of businesses to keep pace with the changing nature of work and the workforce is holding back their ability to innovate and compete – and having a negative impact on society.

Too many jobs, they said, still seem designed for men who are the sole breadwinners in their family. But there has been a great increase in the last 30 years in the numbers of working women – and families where earners also have to care for children or elderly relatives. So the need for employers to work in partnership with their staff, and for working hours and practices to be much more flexible, is paramount.

At the conference, on Monday 17 June at the TUC Congress Centre in London, Professor Tom Kochan from the Massachusetts Institute of Technology (MIT), and Professor Susan Eaton of Harvard University, presented new case studies of US businesses that have introduced family-friendly policies – including on-site crèches, staff canteens where families are encouraged to eat together, and ‘concierge services’ (like on-site doctors and dentists). They have done so in order to lower staff turnover and prevent staff ‘burn-out’, and thus improve their productivity and competitiveness.

Speakers from the Centre for Business Research and the Faculty of Economics and Politics at the University of Cambridge then discussed similar initiatives in the UK and across Europe. In his paper, Professor Simon Deakin, who is leading the CMI research project on this subject at the CBR, traced the increasing (national and international) government and industry interest in ‘corporate social responsibility’. This includes debate about ways in which employers who help create a better working environment, for example by addressing issues of workforce diversity, and work-life balance, can benefit from a more committed and productive staff.

Professor Kochan, the George M Bunker Professor of Management at MIT’s Sloan School of Management, said: “The institutions governing work and employment are based on models of the past. We still have an ‘industrial’ model of the economy, a ‘male breadwinner’ model of the labour force and family structure, and an outmoded conception of shareholder value in corporate governance.

“As a result, we currently suffer from a serious mismatch between who works, how they do it, and how work fits into a global economy – and into other key institutions in society, such as the family, education and the social welfare system. This mismatch has created, and is sustaining, an unacceptable gap between the winners and losers in today’s labour markets.”

Professor Deakin, Assistant Director of the Centre for Business Research, and Robert Monks Professor of Corporate Governance at the Judge Institute of Management, added: “At our conference, we will be trying to move the debate forward and look at the initiatives that have been introduced in the UK and throughout Europe to improve the work-life balance. This debate is vital: a new architecture for employment relations is beginning to emerge – but its outcome cannot yet be guaranteed.

“Corporate governance is part of this debate because shareholders can play a role in promoting an agenda of corporate social responsibility. This has already started happening over the last two to three years as a result of the growing interest in company reporting on social, ethical and environmental issues.”

The conference was sponsored by the Cambridge-MIT Institute – the joint venture between Cambridge and MIT set up with UK government and industry support to carry out education and research designed to improve competitiveness, productivity and entrepreneurship in the UK.

How does law matter for venture capital finance?

8 March 2002

This was the question posed at a seminar in March, jointly organised by the Centre for Business Research, along with two fellow University of Cambridge organisations – the Cambridge Entrepreneurship Centre, and the Centre for Corporate and Commercial Law.

Sponsored by the law firm SJ Berwin, and with Dr Hermann Hauser of Amadeus Capital Partners as the keynote speaker, the aim of the round-table event was to bring together academics, policy-makers and practitioners involved in the financing of entrepreneurial firms in the UK.

The CBR’s John Armour explained: “As researchers, we want to identify ways in which the legal regime makes a difference to the supply of, and demand for, venture capital finance. But as academics, we operate at one stage removed from the practice. Hence this event, at which we hope to learn from key players in the market, and they can have an influence on our research.”

John Armour then gave a paper reviewing the six areas of law considered crucial by policy-makers: tax and subsidies; the regulation of banks and pension funds; rules of stock markets; corporate organisational laws; employment laws; and insolvency law. He was followed by Professor Ed Rock from the University of Pennsylvania Law School who revealed the way that changes to the rules about how foreign companies can achieve a US stock market listing has encouraged a significant increase in ‘corporate emigration’ to the US by young foreign high-tech firms.

The keynote speaker was Hermann Hauser, who talked about the differences in attitudes and approach between UK and US East Coast and West Coast venture capital firms. He also argued that it would help save some innovative small firms from collapse if, instead of the process of administration, the UK adopted the US Chapter 11 bankruptcy process.

The book is a study of the corporate governance practices of 14 Japanese companies, was published in Autumn 2002 by Oxford University Press. Since December, it has been featured on HBS’s Working Knowledge website as a recommended book. The reviewer says, “Learmount believes that the Japanese perspective, which owes a great deal to mutual trust and reciprocal obligations, may help other executives sift through the many thorny issues of corporate governance.” He adds, “readers may come away with some food for thought.”

Dr Learmount’s research interests include the Japanese corporate system and corporate governance in Japan. His work for the CBR has included one project – on the Evolution of Governance Arrangements in the Family Firm – funded by the Daiwa Anglo-Japanese Foundation, which drew case studies from both the UK and Japan. He is currently working on another CBR project, funded by the Cambridge-MIT Institute, on “The Globalising Behaviour of UK firms in a Comparative Context”. This will analyse and compare the ways in which UK, US, German and Japanese firms in industries ranging from publishing to pharmaceuticals are reorganizing themselves and their value chains in order to compete in an increasingly global economy.