Processes of Governance Across Multiple Stakeholders - Performance, Control and Innovation - An Introduction : Performance, Control and Innovation 9781846637438, 9781846637421

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ISSN 0309-0558

Volume 49 Number 5/6 2007

Managerial Law The International Journal of Law and Management Processes of governance across multiple stakeholders: performance, control and innovation: an introduction Guest Editors: Clive Smallman, Suzanne Benn and Stephen T.T Teo

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Managerial Law

ISSN 0309-0558 Volume 49 Number 5/6 2007

Processes of governance across multiple stakeholders: performance, control and innovation: an introduction Guest Editors Clive Smallman, Suzanne Benn and Stephen T.T Teo

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Editorial advisory board___________________________

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Introduction ______________________________________

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Guest editorial ___________________________________

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New processes of governance: cases for deliberative decision-making? Suzanne Benn _________________________________________________

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Dynamic evolution in public-private partnerships: the role of key actors in managing multiple stakeholders Kate Joyner ___________________________________________________

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Multinational oil companies’ CSR initiatives in Nigeria: the scepticism of stakeholders in host communities Gabriel Eweje _________________________________________________

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CONTENTS

CONTENTS

The process of governance: through a practice lens Clive Smallman ________________________________________________

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continued

Modeling the Chinese family firm and minority shareholder protection: the Hong Kong experience 1980-1995 Philip Lawton _________________________________________________

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Book reviews _____________________________________

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Call for papers ___________________________________

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EDITORIAL ADVISORY BOARD Professor John Birds Manchester University, UK Professor Chris Gale Bradford University, UK Professor Michelle Kelly-Louw University of South Africa, South Africa Professor Steve Letza Liverpool John Moores University, UK

Professor David Milman Lancaster University, UK Professor Abimbola A. Olowofoyeku Brunel University, UK Professor Clive Smallman Lincoln University, New Zealand

Introduction We are delighted to introduce this special issue of the journal. This issue began at the Academy of Management meeting in Atlanta in 2006 when concerns over the adequacy or otherwise of corporate governance controls post-Enron resulted in a wide range of opinion and response. The dangers of over-regulating and interfering with the enterprise of corporate leadership were strong and were being felt within the USA and in parts of Europe. There was also the growing fear of the inhibition on capital investment and risk. Perhaps in the spirit of seeking to understand and control the international competitive position, particularly for finance and for initial public offerings, the USA and the UK began to hold joint symposia on the conflict between rules-based and principles-based approaches and the need to, perhaps, adopt a common approach. The UK even went as far, through the Department of Trade and Industry, to establish and appoint to an ‘‘ideas factory’’ in this area. Nevertheless agreement and change has been slow, piecemeal and has not halted the loss to the public markets and PLC’s of enterprise and board skills, and even finance. The private company markets have grown in finance and acknowledged directorial skills, often encouraged by private equity risk and rewards and the more favourable (often because of their absence) or less restrictive governance controls. But what was happening elsewhere? Does an approach to the legislative and regulatory regime exist that is less reactionary and more grounded in the reality of corporate acts and behaviour? It is precisely a response to those questions that caused the debate and consideration of the meeting in Atlanta in 2006. A different approach, or at least an appreciation and interpretation of the regulatory approach, was growing in Australasia. This developed through debate and through a ‘‘processual’’ view of the corporate world and its regulation. Professor Clive Smallman and Suzanne Benn and Stephen Teo took up the challenge to seek to articulate and evidence that perspective. They have responded admirably and the papers in this issue of the journal reflect the journey thus far. In the true nature of a processual approach it is only a point on the journey but a very important marker. We hope the reader agrees.

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James Kirkbride and Geraint Howells

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Guest editorial Processes of governance across multiple stakeholders: performance, control and innovation: an introduction This special issue explores governance as process – a trend emerging in response to the need to control and coordinate inter-organizational forms around a shared purpose. The increasing prevalence of organizational forms such as inter–organizational networks, alliances and public–private partnerships is increasingly challenging the practice of governance to move away from a traditional focus on structure. Given the often temporary and highly flexible nature of these relationships, it is not likely that governance by compliance to government regulation is suitable, particularly as many of these arrangements involve multinational enterprises. As a result, governments, NGOs and community groups are developing process-based governance arrangements to control corporate activities that relate to specific social or environmental contexts or projects. A major benefit of such relationships can be the production of new knowledge. The question is how to design governance to ensure such an outcome? The contributions in this special issue explore the challenges, benefits and limitations associated with implementing governance as processes, with a particular focus on the role of social forms of governance such as networks containing government and non-governmental organizations in enabling high performance. We draw from both case and survey-based research in developing economies. In this issue, Suzanne Benn draws on case-based research on public–private partnerships and Community Consultative Committees to explore innovative forms of decision-making that can lead to a common understanding and agreement on what is, and what is not acceptable in terms of corporate standards. She explores the role of process-based governance in addressing the issue of power differences between stakeholders, a crucial factor in achieving positive outcomes from multiple stakeholder arrangements. Kate Joyner’s case material focuses on the role of strategic leadership as a process of governance in public–private partnerships, arguing that flexibility and dealing with ambiguity are key factors for successful partnerships and alliances. Gabriel Eweje will explore the development issues associated with multinational oil companies’ corporate social responsibility initiatives in Nigeria. His focus on governance process concerns the role of sceptical stakeholders in the producing communities about the long-term effect and the beneficiaries of the companies’ CSR initiatives/community development initiatives. Finally, Clive Smallman moves from the more detailed case and survey-based research to an overall perspective on the research direction for governance as a process in order to deliver new knowledge outcomes. His argument is that governance as process can lead to the development of a deeper understanding of stakeholder knowledge, experience and skills. Each of these pieces are based upon contributions to a Symposium held at the 2006 Annual Meeting of the Academy of Management, Atlanta GA, USA. We are delighted to complement these papers with an article by Philip Lawton which explores the extent to which the legal experience of minority shareholder actions in Hong Kong supports the sociological model of the Chinese family firm as developed by Wong Su-lun and reports some preliminary findings for the period 1980-1995.

Acknowledgments The Guest Editors are grateful for feedback received from colleagues who attended the Processes of Governance Across Multiple Stakeholders: Performance, Control and Innovation Symposium held at the 2006 Annual Meeting of the Academy of Management, Atlanta GA, USA. The Symposium was supported by the Profit NonProfit, Social Issues in Management and Critical Management Studies Divisions of the Academy of Management. We thank our fellow authors for their contributions. We also thank James Kirkbride and Geraint Howells for encouraging us to develop this special issue. Clive Smallman Suzanne Benn and Stephen T.T. Teo Guest Editors

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0558.htm

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New processes of governance: cases for deliberative decision-making? Suzanne Benn

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University of Technology, Sydney, Australia Abstract Purpose – The purpose of this paper is to explore the new forms of governance that are emerging to facilitate corporate sustainability. Design/methodology/approach – The research methodology draws on multiple case study research, examining the research question through the lens of two case examples: a government/ industry partner program, itself comprising multiple cases, and an industry consultative committee. Findings – While these cases involve different motivations for collaborative decision-making, they each involve inter-organisational decision-making. Such decision-making requires the establishment of new processes of governance. Research limitations/implications – More case examples need to be explored and subjected to more detailed discourse analysis. Practical implications – Suggestions for new decision-making models that could be usefully taken up by governments and corporations to address stakeholder disputes. Originality/value – The paper makes suggestions for appropriate forms of governance by process if sustainability outcomes are to be achieved that are acceptable to a range of corporate stakeholders. Keywords Governance, Economic sustainability, Stakeholders analysis Paper type Research paper

Introduction: governance for corporate responsibility This paper focuses on the new forms of governance that are emerging to facilitate corporate sustainability. I define corporate sustainability as the firm going beyond compliance and shareholder value to address the needs of stakeholders such as employees, suppliers, customers, the wider community and the natural environment (Dunphy et al., 2007; Waddock and Bodwell, 2007). Numerous researchers have argued issues of corporate responsibility and sustainability are domain problems, theorised through the stakeholder view of the firm (Freeman, 1984) and best addressed through inter-organisational and inter-sectoral collaboration (e.g. Hall and Vredenburg, 2003). This paper explores forms of governance that can lead to a shared understanding between corporate stakeholders on what is appropriate corporate behaviour concerning sustainability responsibilities. The paper concludes with suggestions on the role of process-based governance in addressing the issue of the many possible differences between stakeholders, which may revolve around organisational factors including cultural, structural or power-related characteristics.

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The challenge of inter-organisational domains Inter-organisational collaboration between public and private sectors is widely seen to allow the sharing of risks and resources and as a form of governance that can deliver benefits to both sectors: efficiency, entrepreneurship and accountability (e.g. Goldsmith and Eggers, 2004; Kochan, 2003; Svendsen, 1998; Wheeler et al., 2003). Regulators in particular are seeking to replace command and control relations with partnerships, seeing collaboration as a more effective way of minimising the social and

environmental impacts of corporate activity (Bergkamp, 2002), while enhancing corporate learning. Although most commonly initiated by governments with the aim of progressing sustainability, these partnerships typically become inter-organisational domains and networks involving many stakeholders and constituencies, such as supply chain, local government and non-government organisations (Dunphy et al., 2007; Goldsmith and Eggers, 2004; Stewart and Jones, 2003). Other examples of new inter-organisational domains include citizens or community consultative committees, task forces, working parties and a wide range of alliances between corporations, government at all levels and community. These new organisational forms are ‘‘sub-political’’ (Beck, 1992). They are usually local, decentralised, often temporary and multiple stakeholder forms of decision-making which operate to some extent outside the representative arena. Such arrangements have the potential to exert symbolic power with significant influence on both individual organisations and the industry macroculture (Harris and Crane, 2003; Tsoukas, 1999). In relation to the role of government in such arrangements, it has been argued that they represent the shift away from command and control governance towards a more dynamic and networked-based approach, offering flexibility, innovative capacity, increased reach and a number of other advantages (Goldsmith and Eggers, 2004). However, governance at this level of the inter-organisational domain is faced with the challenge of complex interdependencies between the organisations, themselves increasingly complex and adaptive systems (Bertels and Vredenburg, 2004). As well as transparency and accountability requirements, governance systems must ensure collaboration between a range of organisational types (Daboub and Calton, 2002). Often, the governance relations defining the behaviours, decision-making, and values of such relationships are ambiguous (Benn and Dunphy, 2007). Governance of domains built around abstract, values-laden and highly politicised concepts, such as sustainability (Dryzek, 2005), must control and coordinate particular tensions: indeterminacy, vagueness, difficulty in reaching a balance between ‘‘business’’ and ‘‘ecological’’ interpretations of sustainability, differing accountability expectations, particularly in relation to moving the industry partner away from a compliance-based perspective (Orlitsky et al., 2003; Rey and Nguyen, 2005; Rondinelli and Berry, 2000). A key problem is how to ensure accountability yet promote the innovative response necessary for the development of more strategic, rather than compliance-based, perspective on sustainability (Dunphy et al., 2007). Suggested forms of governance for inter-organisational domains The research reported in this paper flows from my earlier work challenging the pluralist assumptions of stakeholder theory and showing the need for forms of governance of inter-organisational domains that recognise stakeholder disparities in knowledge, skills and other resources (references removed for author anonymity). Scholars have also shown that attempts to implement overarching forms of control and coordination of the domain can limit creative solutions (Bertels and Vredenburg, 2004). Yet problems identified in governance of public–private partnerships that have to do with diffusion of power, vague goal setting and lack of clarity in objectives, high costs and low levels of motivation, and tensions that derive from different frameworks of responsibility and accountability between public and private sectors (Edwards et al., 2003; Langford and Edwards, 2002), all highlight the need for clear frameworks of control.

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Other researchers have demonstrated the success of cluster-based, networked, selforganising models of governance when multiple stakeholders are involved (Potapchuk et al., 1999) and propose that these models deliver best practice governance of publicpartner relationships. However, it is not clear how such models of governance may apply to the inter-organisational arena typified by corporate relations concerning complex sustainability issues such as environmental risks. Approach In this paper, I address the research questions: How can a system of governance deliver sustainability outcomes from an inter-organisational relationship? The overall research methodology draws on multiple case study research. Yin (2003) identifies case studies as the preferred strategy when ‘‘how’’ or ‘‘why’’ questions are being posed, when the investigator has little or no control over events, and when the focus is on a contemporary phenomenon within some real life context. All of these conditions apply in the case of this research. A recognised problem with this approach is that it can yield theory that is overly complex, narrow or idiosyncratic. In order to curb such limitations, ‘‘grand’’ theory building requires multiple studies – an accumulation of both theory building and theory testing empirical studies (Eisenhardt, 1989). In multiple case study research (Stake, 1994; Yin, 2003) multiple cases are jointly studied to inquire into a specific phenomenon – such as governance models for interorganisational relationships concerning sustainability. As Yin (2003) points out, the term ‘‘multiple’’ in case study research cases can refer to two case examples. The paper examines the research question through the lens of two case examples: a government/ industry partner program (IPP), itself comprising multiple cases, and an industry consultative committee. While these cases involve different motivations for collaborative decision-making they each involve inter-organisational decision-making requiring the establishment of new processes of governance. Case A: industry partner program The IPP, under study here is a major provider of support and funding to industry from an Australian government department whose prime responsibility is environmental sustainability. It involves more than 400 existing partnerships, including with industry clusters, SMEs, local government and industry associations. A further eight sustainability compacts, or formal negotiated voluntary agreements, are currently being implemented with leading Australian firms from different sectors, breaking new ground in Australia and representing a major government commitment. This case is highly relevant to the research question set out above as the key challenge for governance in the IPP is to ensure accountability yet allow the partnering organisations the flexibility needed for innovation – essential if environmental sustainability as well as increased productivity is to be achieved (Hart et al., 2003). Orsato (2004) has shown that the firm’s environmental initiatives are contingent upon sectoral characteristics and their relationships with other stakeholders in the sectoral domain, as well as their own change capabilities. In order to understand the dynamics present within Case A, I use a sectorally based case study approach. Suitable case studies of organisations in the IPP and compact programme were selected using quota, snowball and deviant case selection techniques (Babbie, 1995) to target a crosssection of 8-10 of the available studies to enable representation from different sectors, stages in partnership, organisational types and size. The case studies selected are all leading business organisations targeted by the IPP. Interviews were conducted with at

least two representatives within each organisation involved in the relationship. All interviews, followed a semi-structured question format, were taped and then transcribed. NVivo was used to develop key themes and to suggest relationships between themes. The analysis reported on below refers to the research question set out at the beginning of this section, and not on the wider aims of the full case study of the IPP, which also addressed other questions. In analysing the data in relation to the question of how can a system of governance deliver innovative sustainability outcomes from an inter-organisational relationship, two key themes emerged: firstly around reputation as a driver for the relationship and secondly, the complexity of the relationship. For firms with many but relatively low-level environmental risks associated with their operations, the IPP did not seem to offer much beyond reputation and the ‘‘right to operate’’. For example, according to one respondent from a firm in the building sector: there was not much in it for us other than perhaps good corporate image and certainly there were not any so called economic benefits. Some respondents perceived that it is not just the potential polluter who needs reputation to be bolstered but the government organisation itself. As one said: My personal opinion is that no I don’t think much has changed. My personal point of view is that really the compact makes the [government] look good, the public arena saying that ‘‘look we’ve signed up this major organization and you know we as an organization are trying to drive the State towards a more sustainable initiative and operation and so on. So that’s my personal view although corporately we are going to continue down the road cause I guess then the brand image and corporate social responsibility image is very important to us as a brand and so we are going to continue down this relationship down the path.

A number of the respondents considered that they already had much in the way of technical expertise concerning sustainability and did not depend on the IPP for new expertise to foster sustainable product or process innovation. For many of the respondents, however, the IPP offers a new way of connecting into the burgeoning professional networks of sustainability consultants, who could provide expertise on topics as diverse as sustainable architectural design and the application of environmental management planning onto manufacturing processes. In effect this is a social innovation – a new method of establishing sustainability outcomes through the network. The IPP delivers networking and the entry into a complex new world of sustainability contacts. On the negative side, this complexity also means ambiguity in terms of the dual role that government now plays in the eyes of many company managers. It seems difficult for them to divorce the two arms of the government department: the regulatory and the IPP arm. Rather than stimulate innovation, the complexity of the relationship is seen to constrain it. So we have a government department saying we’re trying to encourage the re-use of solid waste by diverting solid waste from landfills. And then of course you’ve got another arm of the government the ETA saying ‘‘no you can’t use this waste’’ so to me it’s the cliche´ saying they’re operating in silos. They could be living across each other. . ..across each other along a corridor but they don’t talk ok, so on one arm of the government encouraging us to do the right thing, another arm of the government is preventing us from doing it and therefore it kills innovation.

As well, in one interview, with an Environment Manager, the challenge of implementing governance across the complexity of a diverse firm with numerous sites

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and potentially environmentally damaging plants according to either voluntary or regulated codes is evident: Now if you understand XXX [the firm] at least in a corporate point of view we are really trying to push our divisions to be more sustainable, more pro-active and so on but then of course we have so many divisions, so many different managers you always I think are going to get one or two recalcitrants.

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The perceived need to manage this complexity through a clarification of the distinction between governance as compliance and the governance associated with voluntary inter-organisational arrangements is demonstrated in the following quote from an Environment Manager: . . . the sustainable compact is about the positive things and so on that’s what XXX [the firm] is doing and then of course when the compliance unit. . . I don’t know what their internal communications are in discussions and so on, the compliance unit raised a few sort of remarks and it came back to our GM at that time which was XXX and there were a few negative things said about XXX (the firm)l.

The informant then discusses the fact that the ‘‘fence was mended’’ by a range of high level meetings. In other words, communication processes act as a mechanism of governance in the absence of compliance-based rules. In general, interviewees view communication through project coordination and steering committees at higher levels as necessary processes of governance in IPPs. There is a particular perceived need for such coordinating processes of governance where the government department has a dual role, involving both regulatory and IPP relationships with firms, and thus complex relationships with a number of managers at different sites. With some IPPs, while there may be little contact between the firm and the government partner except through a role such as Sustainability Manager of the firm, complexity arises in the interactions between the firm and the consultancy networks accessed through the government department. Structures, policies and procedures that enable the establishment of appropriate communication processes are again seen as the key to governance of the IPP. Other processes enabling governance of the relationship include the implementation of processes of continuous improvement. In effect, embracing these operational processes can facilitate progress towards environmental sustainability and thus control of the relationship outcomes: So if we’re on a wheel of climbing up a hill to continually improve, agreements like this, voluntary agreements like this, in my point of view, its like a wedge to stop the wheel from falling backwards so as we continue to improve, the continuous improvement philosophy within our company its that change you make further up the hill these agreements stop us from falling backwards.

Case B: community participation and review committee (CPRC) for Hexachlorbenzenes (HCBs) scheduled waste Material for this case was collected from secondary data including government reports, interviews with corporate and community members of the CPRC, with Orica senior management, with the Chair of the CPRC and by attendance as an observer at CPRC meetings. Research was undertaken over the period 2001-2006. Orica, originally imperial chemical industries (ICI) Australia, is Australia’s leading chemicals company. The problem facing Orica is 10,000 tonnes of hexachlorbenzene,

the largest stockpile of this highly toxic organochlorine chemical in the world, produced in the manufacture of solvents more than two decades ago. It has remained there to this day, stored in 60,000 drums in a specially built shed and under the car park at its Botany plant. The 1992 decision by the government not to proceed with a national High Temperature Incinerator in Australia prompted alternative national management plans for the treatment of wastes such as polychlorinated biphenyls (PCBs), HCBs and organochlorine pesticides (OCPs). These plans implied a decentralised national effort, harmonised across state boundaries and involving relatively small scale technologies. In order to achieve this, government decided to implement a National Strategy to manage Australia’s ‘‘scheduled wastes’’, the so-called intractables, which included PCBs, waste OCPs as well as the HCB waste. The Strategy carefully defined the scheduled wastes in question and required the development of an elaborate and prescribed National Protocol for Community Consultation. This process was commenced by the establishment of a multi-stakeholder National Advisory Body (NAB) in order to provide interest group advice to government. The Australian National HCB Waste Management Plan was developed in 1996 to address the disposal of the toxic waste stored at Botany. Orica has responsibility for the HCB and its site manager has been named as Custodian of the Waste. However, responsibility to implement the HCB Plan rests with the NAB. Both forms of waste remain stored at Botany in the anticipation of approval of a suitable destruction methodology. According to the Waste Management Plan the HCB stored at the Botany site is to be destroyed by 2006. The final Plan, drawn up after a three-phase development process which included public consultations, submissions or forums at each phase, included provision for the CPRC. The role of this Committee is stipulated to facilitate communications between the community, the NSW Environment Protection Agency and Orica and to advise them on relevant proposals, including the monitoring and evaluation of the management plan for the destruction of the wastes. It is required to include representatives of local government, relevant independent experts, individual members of the community and representatives of environmental and local community groups as well as Orica management (Lloyd-Smith, 2007). An HCB Community Information System was also developed in association with an activist support group, with the aim of increasing the capacity of the local community to access, use and disseminate knowledge concerning HCB (Lloyd-Smith, 2007). The stakeholder relations of the CPRC as they have played out over the last decade reflect growing lack of trust between members of the CPRC. Although established by government, the government agencies since then have been largely unwilling to intervene in support of more collaborative decision-making. Orica’s recommendation to destroy the waste on site was strongly disputed by local community members of the CPRC in particular and opposed by local government as well as other stakeholders, such as Greenpeace and other manufacturers in the area. The result is a stalemate: after two decades of storing the waste, an EIS to destroy on site, A Commission of Inquiry and a Report from an Independent Expert Panel, the issue of what to do with this waste is unresolved. The case research shows that government agencies have been unwilling to intervene in support of more collaborative decision-making. A major factor in the souring of the relations between local community representatives on the CPRC and both the government and Orica is government refusal to fund an independent expert to

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advise the CPRC. Despite the apparent capacity of the community to enter into the scientific discourse of the debate, unbiased scientific expertise remains highly soughtafter and elusive, playing a large part in the conflict within the CPRC. In 2007, three to four decades after the waste was produced, as Orica embarks on a major round of consultation with key stakeholders, and after failed attempts to either identify a site appropriate to destroy the waste in Australia and to move the waste to Germany for disposal there, the conclusion has to be drawn that the CPRC has not been successful as a decision-making body. It was not given the power to implement rulesbased governance. Nor did its communication or coordination processes facilitate the governance required to deliver agreed upon outcomes. Yet the intractability of the dispute also calls to question the various forms of rules-based governance with implications for the case. These include the National Waste Management Plan as well as the Basel convention on the control of transboundary movements of hazardous waste and their disposal 1989 and the Stockholm convention on persistent organic pollutants (POPs) 2001. Respectively, these conventions can prevent signatory governments moving such toxic wastes across national borders and require them to establish capacity building and information systems to assist in the prevention of the manufacture of POPs. Analysis of the case leads to the suggestion that the communication processes associated with the CPRC are the key source of its failure in providing appropriate governance. While the HCB Information System developed the capacity of the local community and theoretically enabled better communication between the various stakeholders concerning the risks of HCB disposal on site, it only served to accentuate the not in my backyard (NIMBY) syndrome. As well, neither government nor Orica were effective in communicating to their different stakeholders. Orica initially showed a tendency to ignore their stakeholders, then tended to focus on those where they could ‘‘speak the same language’’, i.e. where there was a discursive overlap (Benn and Jones, 2007). Only in the last year or so have Orica moved to develop their community consultation and communication skills and processes, employing professional consultants to do so. A key point in the lack of resolution of this dispute is not just that these voices are in conflict but that they represent the bounded rationality and identity of the various stakeholder groups as they interact in the complexity of the inter-organisational domain. It is this complexity that processes of communication must address. As Orica itself now acknowledges, this complexity sees the company reforming its public consultation and community engagement techniques and policies, as a precondition for decision-making. Discussion The two cases highlight the complexity of the inter-organisational domain that is increasingly a feature of the corporate sustainability agenda. Corporations such as Orica or the various firms involved in the IPPs are being required to become involved in negotiated arrangements in this domain as a form of risk management. The cases each show the importance of communication and some operational processes as a form of governance. They also highlight some of the challenges associated with communication as a governance process when it is understood as negotiation. The inter-organisational domain involved in each of our case examples is simply too complex for negotiation to be satisfactory as a means of governance. Each case also highlights the additional complexity faced by the members of the domain when there is a combination of governance as compliance and governance by processes

associated with voluntary agreements. The CPRC illustrates the point that governance by rule – such as the establishment of the CPRC – must be complemented by appropriate governance by process if sustainability outcomes are to be achieved that are acceptable to all stakeholders, including the corporation. Processes of communication and information were put in place but were not adequate to overcome perceptions of inequity concerning access to various types of resources, such as independent scientific expertise, or to break down the preconceptions and fixed understandings of the various stakeholders and their relationships with each other. The question for further analysis is how to improve on these processes of communication. Would, for instance, the principles of deliberative decision-making (Miller, 1993), if applied within these inter-organisational arrangements, benefit the governance arrangements by increasing dialogue across corporate boundaries and encouraging both diversity of communication and a shared framing of the issues? Theorists of deliberative decision-making argue for the benefit of decision-making based on full information, citizen participation and the creation of the open discursive space (Carson, 2007; Fung and Williamson, 2004; Fung and Wright, 2003; Gastil and Levine, 2005). Would this enable the model for responsible governance to be implemented in the inter-organisational domain where the corporation is conceived as a community embedded within a community, one where the various risks and goods at stake in stakeholder claims are seen as integrated with each other – open to a ‘‘noncompromising reconciliation as a means of overcoming conflicts between them’’ Blattberg’s view (Blattberg, 2000, p. 183)? Rather than processes of governance as negotiation, the model for governance would facilitate processes of governance as conversation. References Babbie, E. (1995), The Practice of Social Research, Wadsworth Publishing Co., Belmont, CA. Beck, U. (1992), The Risk Society, Sage, London. Benn, S. and Dunphy, D. (2007), ‘‘New forms of governance: changing relationships between corporates, government and community’’, in Benn, S. and Dunphy, D. (Eds), Corporate Governance and Sustainability, Routledge, London, pp. 9-35. Benn, S. and Jones, R. (2007), Journal of Environmental Management (in press). Bergkamp, L. (2002), ‘‘Corporate governance and social responsibility: a new sustainability paradigm’’, European Environmental Law Review, Vol. 11, May, pp. 136-52. Bertels, S. and Vredenburg, H. (2004), ‘‘Broadening the notion of governance from the organisation to the domain: a study of municipal water systems in Canada’’, Journal of Corporate Citizenship, Vol. 15, pp. 33-47 (special issue, ‘‘Towards better governance and accountability: exploring the relationships between the public, private and the community’’). Blattberg, C. (2000), From Pluralist to Patriotic Politics: Putting Practice First, Oxford University Press, Oxford and New York, NY. Carson, L. (2007), ‘‘Deliberative democracy and hexachlorbenzene stockpiles’’, Journal of Environmental Management (in press). Daboub, A. and Calton, J. (2002), ‘‘Stakeholder learning dialogues: how to preserve ethical responsibility in networks’’, Journal of Business Ethics, Vol. 41 Nos. 1-2, pp. 85-99. Dryzek, J. (2005), Politics of the Earth: Environmental Discourses, 2nd ed., Oxford University Press, Oxford.

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Dunphy, D., Griffiths, A. and Benn, S. (2007), Organizational Change for Corporate Sustainability, 2nd ed., Routledge, London. Edwards, M., Nicoll, G. and Seth-Purdie, R. (2003), Conflicts and Tensions in Commonwealth Public Sector Boards, report on research conducted by the National Institute for Governance, Canberra, April. Eisenhardt, K. (1989), ‘‘Building theories from case study research’’, Academy of Management Review, Vol. 14 No. 4, p. 532-50. Freeman, R. (1984), Strategic Planning: A Stakeholder Approach, Pitman Publishing, London. Fung, A. and Williamson, A. (2004), ‘‘Public deliberation: where we are where can we go?’’, National Civic Review, Vol. 93 No. 4, Winter, pp. 3-15. Fung, A. and Wright, E.O. (Eds) (2003), ‘‘Deepening democracy: institutional innovations in empowered participatory governance’’, The Real Utopias Project, Verso, London and New York, NY. Gastil, J. and Levine, P. (2005), The Deliberative Democracy Handbook: Strategies for Effective Civic Engagement in the 21st Century, Jossey Bass, San Francisco, CA. Goldsmith, S. and Eggers, W. (2004), Governing by Network, Brookings Institution Press, Washington, DC. Hall, J. and Vredenburg, H. (2003), ‘‘The challenges of innovating for sustainable development’’, MIT Sloan Management Review, Vol. 45, pp. 61-9. Harris, L. and Crane, A. (2003), ‘‘The greening of organizational culture’’, Journal of Organizational Change Management, Vol. 15, pp. 214-34. Hart, S., Milstein, M. and Caggiano, L. (2003), ‘‘Creating sustainable value’’, Academy of Management Executive, Vol. 17, pp. 56-70. Kochan, T. (2003), ‘‘Restoring trust in American corporations: addressing the root cause’’, Journal of Management and Governance, Vol. 7, pp. 223-31. Langford, J. and Edwards, M. (2002), ‘‘Boundary spanning and public sector reform in Australia and Canada’’, In Optimum Online: The Journal of Public Sector Management, Vol. 332, pp. 13-21. Lloyd-Smith, M. (2007), ‘‘Information, power and environmental justice in Botany: the role of community information systems’’, Journal of Environmental Management, (in press). Miller, D. (1993), ‘‘Deliberative democracy and social choice’’, in Held, D. (Ed.), Prospects for Democracy, Polity Press, Cambridge, pp. 74-92. Orlitsky, M. Schmidt, F. and Rynes, S. (2003), ‘‘Corporate social and financial performance: a meta analysis’’, Organisation Studies, Vol. 24 No. 3, pp. 403-41. Orsato, R.J. (2004), ‘‘The ecological modernization of organizational fields’’, in Sharma, S. and Starik, M. (Eds), New Perspectives in Research on Corporate Sustainability: Stakeholders, Environment and Society, Edward Elgar, London, pp. 270-306. Potapchuk, W., Crocker, J. and Schechter, W. (1999), ‘‘The transformative power of governance’’, National Civic Review, Vol. 88 No. 3, pp. 217-48. Rey, M. and Nguyen, T. (2005), ‘‘Financial payback from environmental and social factors in Australia’’, paper prepared for AMP Capital Investors, Sydney, 29 March. Rondinelli, D.A. and Berry, M.A. (2000), ‘‘Corporate environmental management and public policy: bridging the gap’’, American Behavioral Scientist, Vol. 44 No. 2, pp. 168-87 Stake, R. (1994), ‘‘Case studies’’, in Denzin, N.K. and Lincoln, Y.S. (Eds), Strategies of Inquiry, Sage, Thousand Oaks, CA. Stewart, J. and Jones, G. (2003), Renegotiating the Environment, The Federation Press, Annandale.

Svendsen, A.C. (1998), The Stakeholder Strategy: Profiting from Collaborative Business Relationships, Berrett-Koehler, San Francisco, CA. Tsoukas, H. (1999), ‘‘David and Goliath in the risk society: making sense of the conflict between shell and greenpeace in the north sea’’, Organization, Vol. 6, pp. 499-528. Waddock, S. and Bodwell, C. (2007), Total Responsibility Management: The Manual, Greenleaf Publishing, Sheffield. Wheeler, D., Colbert, B. and Freeman, R.E. (2003), ‘‘Focusing on value: reconciling corporate social responsibility, sustainability and a stakeholder approach in a network world’’, Journal of General Management, Vol. 28, pp. 1-28. Yin, R.K. (2003), Case Study Research: Design and Methods, 3rd ed., Sage, Thousand Oaks, CA. Further reading Rondinelli, D. and London, T. (2003), ‘‘How corporations and environmental groups collaborate: assessing cross-sector alliances and collaborations’’, Academy of Management Executive, Vol. 17 No. 1, pp. 61-76. Starik, M. and Rands, G. (1995), ‘‘Weaving an integrated web: multilevel and multisystem perspectives in ecological sustainability organizations’’, Academy of Management Review, Vol. 20, pp. 908-35. Waddock, S., Bodwell, C. and Graves, S. (2002), ‘‘Responsibility: the new business imperative’’, Academy of Management Executive, Vol. 16, pp. 132-49. Corresponding author Suzanne Benn can be contacted at: [email protected]

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Kate Joyner Kate Joyner Consulting, Brisbane, Australia Abstract Purpose – This paper seeks to examine the insights that the individual agency perspective offers to the study of public-private partnerships (P3s). It extends prior research, which has primarily adopted an economic and structural perspective, by considering the ways by which individual actors involved in these complex arrangements can shape their evolutionary path. Design/methodology/approach – This conceptual paper identifies the key research issues and questions in the P3 literature and highlights how these concerns can be further illuminated by the insights offered through the individual agency perspective. Findings – The paper identifies four key issues in the P3 literature questions as the antecedents of P3s, pre-formation processes, governance models and mechanisms, and evolution and adaptation. Introduction of the individual agency perspective to these research concerns highlights additional potentially explanatory factors for P3 formation and successful adaptation. The paper demonstrates that considering this perspective alongside current explanations can extend our current thinking and usefully add depth, breadth and linkage to P3 research. Practical implications – This research challenges the current conceptions of P3 governance as one of choosing the appropriate structural option. It offers agency considerations at each stage in the sequence of P3 process and argues that individual capability and action can influence the success and effectiveness of these arrangements. Originality/value – This research introduces a managerial perspective to the study of P3s and reframes the current thinking around governance of these forms. This contrasts with the more economic and structural agendas of public policy research. Keywords Private sector organisations, Partnership, Public sector organisations, Contracts, Governance Paper type Conceptual paper

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Introduction Public-private partnerships (P3s) are now a commonly adopted strategy for the delivery of public infrastructure and service, particularly by government in developed economies. Proponents of these forms of ‘‘new public management’’ (e.g. Hood, 1995) promise improved efficiency by the joint commitment of both the private and public sectors to delivery and through sharing of risk. This phenomenon has been studied predominantly in the public administration literature, where researchers have explored the promise, described examples in practice and debated the relative efficacy and utility of these arrangements. Research has emphasised economic considerations, with governance being framed as the choice among structural options for the partnership arrangement. That is, the literature speaks of governance models rather than governance practice or process. In order to order an advance research that illuminates the process aspects of the complex phenomenon of P3s, this paper introduces an individual agency perspective of P3 governance. The paper argues that, as complex social forms, current explanations for the phenomenon of P3 formation, evolution and

performance can be usefully extended by consideration of the attributes, motivations and individual processes of the key actors involved. I adopt the inclusive definition of Fourie and Burger (2001, p. 694) for P3s, being ‘‘an institutional and contractual partnership arrangement between government and a private sector operator to deliver a good or service to the public, with as distinctive elements (a) a true partnership relationship and (b) a sufficient amount of risk transfer to the private operator’’. By using this definition, the paper acknowledges a broad spectrum of forms labelled in the literature as P3s. These include arrangements characterised by either public or private payments for the public goods or services, but excluding arrangements where all risk is carried by either the public or private sector partner. The purpose of the paper is to link the theories of individual agency and practice with the current body of economic and public policy research in order to advance our understanding of the P3 phenomenon. I argue that the potential of these forms to deliver public benefit rests not only in its effective structuring, but in the decisions and actions of key actors at each stage of the life the arrangement. Informed by the overview of the alliance literature of Gulati (1998), I order this prior research firstly by the generic sequence of events in inter-organisational arrangements, being the decision to seek private sector involvement, the pre-contract processes and the dynamics of post-formation adaptation. This sequence gives rise to the following research questions: (1) which imperatives lead public agencies to private funding?, (2) which factors determine effectiveness and efficiency in the negotiation process?, (3) which factors influence the choice of P3 governance structures and control mechanisms? and (4) which factors lead to change and adaptation in the partnership over time? This paper addresses these critical questions by discussing current P3 research which focuses the economic, structural and institutional perspective, and identifying where the individual agency perspective can illuminate additional potentially explanatory factors. This analysis can enable an understanding of P3s as social as well as economic phenomena, and P3 governance as an ongoing process of sensemaking, social exchange and action rather than a discrete choice at a single point in time among structuring options. At this point, to avoid confusion, I will make a necessary distinction between agency theory and theories of agency. The former is popular in both the economics and public policy literature and speaks to the problem arising from the misalignment of goals or interests of a principal and a hired agent, and mechanisms to bring these into alignment. Theories of agency are most closely associated with the strategic choice literature (Child, 1972, 1997) and are those explanations which focus on the power of organisational actors to initiate, shape and direct adaptations resulting from a changing environment. A brief critique of P3 research Research to date on P3s has led to insights on why governments seek the involvement of the public sector and how these arrangements are structured. The research has also explored and vigorously debated the claims to efficacy of these forms relative to purely public or private models of financing and/or delivery. In the context of the argument of this paper, two observations may be made of this body of research. Firstly, while research on inter-organisational forms more generally is a large and growing strand of the management and strategy literature, research on P3s as a

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particular type of inter-organisational form is treated predominantly in the public policy literature. Given that the domain of management journals is the study of marketfacing organisations, this may be understandable. The hybrid nature of P3 arrangements, being creatures of public sector organisations and private firms, seems to make them problematic to the management researcher. However, as a result, the range of theoretical perspectives applied to P3s has been more limited than the vast spectrum applied to the alliance phenomenon. While understanding P3s as public policy instruments, we lose a detailed understanding of the particular social dynamics which arise from the coming together of the private and public sector. As Noble and Jones (2006) observe, P3s are a unique form of inter-organisational cooperation, presenting particular challenges to both public and private sector managers as a result of differing cultures, institutional norms and rules. A second and related observation is that a reading of the P3 literature would suggest that the major governance and public policy challenge these forms present are that of choosing the appropriate risk allocation model. This act is seen as being strongly determining of subsequent performance of the arrangement and perceptions of efficacy. A strong bias toward economic and structural perspectives is a feature of the P3 literature, and the alliance literature more generally, however the latter has recently responded to calls for more socialised accounts. In summary, it could be argued that the P3 literature has been ‘‘standing too far away’’, providing only understandings of P3s as economic phenomena. Taking up the argument of De Rond (2003) I assert that the literature would be enhanced by theories which help to explain the particular as well as the general. This would embrace the view that there are structural constraints of individual action, that these are social as well as economic, however that this constraint is not inevitable. How actors work within and transform these structures is a rich vein with the potential to add depth and texture to a somewhat sterile field. Individual agency and process evolution An individual agency analyst would explain the sequence of events and outcomes of a P3 as resulting from the sensemaking and change enacting practices of individuals within the partnership. According to the definition of Reed (1988, p. 43) agency theorists would view this evolution ‘‘in terms of the social practices through which human agents transform the situational contexts in which they act’’. In doing so, agency theorists assume the ‘‘causal efficacy’’ (Archer, 2003) of human capabilities and actions to enact social change. This perspective has its modern roots in social theory and organisational analysis. Central to this theorising has been an ongoing and ‘‘moral preoccupation’’ (Reed, 1988, p. 34) with the inherent tensions between the power of human action in the face of constraining environmental forces. This tension has been played out in various ways in the writings of such sociological ‘‘greats’’ such as Habermas et al. (1988) and Giddens (1979, 1984). The work of Child (1972, 1997) represents this perspective in the field of strategy and organisational studies. Strategic choice theory (Child, 1997) meets Reed’s (1988) challenge of ensuring ‘‘dialogue’’ between agency and structure, but perhaps argues more forcefully for the transformative power of organisational actors, noting that actions taken in the name of organisations are driven by individuals. ‘‘Knowledgeable actors’’, in Child’s (1997) view, have a role in initiating, shaping and directing strategic re-orientations towards the environment. Strategic choice theory then, in Child’s (1997)

view, is a political process bringing agency and structure into tension, and setting up a mutuality of action and constraint. In the growing strategy-as-practice field (Johnson et al., 2003) scholars are addressing themselves to the potential of theories of social action and agency to move the field of strategy forward. Under the ‘‘Strategy as Practice’’, label researchers have recently been re-conceptualising strategy as a social activity: strategy is not something an organisation has, but something that its members do (Seidl et al., 2006). Researchers in the field promote an activity-based view, proposing that in the 21st century value lies more in the micro-activities of managers and staff in organisation than in the traditional macro-focus of the strategy literature. The activity-based view is concerned with the details of organisational work and practice (Whittington, 1988). These details include the nature and location of strategic actors in the firm, their engagement with the strategy process, how these actors make sense of and use the tools of strategic infrastructure, and the nature of the competence and learning of a strategic practitioner. The volume of studies in networks has grown exponentially in the last decade reflecting a movement toward more systemic and contextual understandings of social forms. Borgatti and Foster (2003) in reviewing the topology of the field, notes the strength of the structuralist heritage (e.g. Blau, 1977; Mayhew, 1980), which has favoured studies of the consequences of networks on actors. Networks are seen as determining an actor’s possibilities for action. However, the growing literature on the causes or antecedents of networks explain network formation in terms of agential properties (Macy and Willer, 2002). This emerging paradigm in network research emphasises possibilities rather than constraints on action through network involvement. Similar to network research, P3 research has grown in a strongly structuralist tradition. Similar to research on alliances more generally, this has lead to an under socialised account of their evolutionary processes from pre-formation to termination (Faulkner and De Rond, 2000). P3 research could be enriched by considerations of how key actors make sense of their complex social context within P3s, and influence other actors in the P3 network at each stage of the process. Thus the determining nature of the choice of P3 structure or risk allocation model could be assessed against competing, or perhaps complementary, social action explanations for the evolution and outcomes of these partnerships. The general propositions from this perspective are that: .

the agential power of individuals is a motor of process evolution;

.

actors shape social structures, acting on organisational constraints and enablements;

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actors do this through their agential motivations, processes and attributes.

Four issues in P3 research This section is structured around four key issues in P3 research. For each, I overview recent research in the economic and structural tradition, and discuss how the individual agency perspective could enlarge our range of explanations for outcomes at each stage. Antecedents and motivations for P3s Prior research has addressed the antecedents to P3 formation. A review of this literature reveals two distinct questions. Firstly, ‘‘What drives the public sector to seek private sector involvement?’’ and secondly, ‘‘Why a partnership arrangement, rather than contracting out or full private ownership and delivery?’’

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The literature points to both pragmatic and ideological drivers behind the motivation to engage with the private sector. Demand for infrastructure and services is increasing, particularly in developing countries such as China (Adams et al., 2006). Also in the rapidly expanding regions of Australia and the USA, private sector capital and expertise is sought to supply the range of infrastructure required by a burgeoning population (Skotnicki, 2005). This demand is outstripping the capacity and capability of the public sector to deliver. The public sector looks to the private sector for its capital, skills and risk-bearing capabilities (Al-Jayyousi, 2003). A study by Domberger and Fernandez (1999) on P3 arrangements in Australia found that saving money is not the main reason the public sector is attracted to these arrangements. Access to market skills and expertise was seen as the main attractor, followed by improved quality and accountability. The authors comment that the increased pace of technological change as well as functional and technical specialisation in industry make public provision of services increasingly more difficult. More than seeking just the economics of exchange, the public sector must re-focus on its core capability and look outside its walls for expert skills and innovation. A final pragmatic motivation for private sector partnering is the speed by which the public sector can meet its capital needs (Domberger and Fernandez, 1999; Gallay, 2006). These arrangements may not in all cases be less expensive than traditional public sector financing, but faster acquisition can provide net benefits. Motivations for private sector involvement can move beyond the rational and into the ideological and political realm. Private partnerships are widely viewed as an extension of ‘‘new public management’’, with its attractive proposition that more market orientation in the public sector will lead to greater financial efficiency for governments. As Fourie and Burger (2001) observe, the P3 debate cannot escape the broader debate on the role of government in the economy and in society, and the choice to engage the private sector is likely to be influenced by strongly held ideological positions on larger or smaller roles for government in delivery. However, this seems to transcend traditional party lines: it has been observed that P3s are being adopted by both right and left-wing governments as a means of delivering large-scale infrastructure projects (Siemiatycki, 2006). Having chosen to engage the private sector, public sector organisations have a spectrum of possible options to structure the arrangement, from ‘‘hard’’ contracting through to private sector ownership and operation. Researchers have addressed why the somewhat ‘‘messy’’ (Fourie and Burger, 2001) middle path of partnership is seen as desirable. Experience has shown that attempts to eliminate the role of the state in the delivery of public service, particularly in large capital projects, have been misguided and often stumble. ‘‘The shadow of public policy looms over private actors’’ with public authority reasserting itself by renegotiating private contracts (Jerzy Henisz, 2006, p. 537). Additionally, as Fourie and Burger (2001, p. 722) observe, ‘‘for some services neither government alone nor the private sector alone can deliver services effectively OR efficiently. This is due to, inter alia, the ‘public’ nature of the product, the bureaucratic nature of government, and the profit-orientated nature of the private sector. Therefore, one must consider a partnership model (i.e. a P3s)’’. There is scope to consider the role of actors in the decision-making which surrounds both the choice to engage the private sector, and by what method. If we accept, with Larkin (1994), that careful analysis of each local situation must precede any decision to partner with the private sector, we must focus our attention on who is doing the analysis and what they bring to that task, given that, as we have seen, managerial

rationality is not the only force at play. Theories of ‘‘sensemaking’’ (Weick, 1995) would suggest that analysts and decision-makers are being forced to interpret a situation that involves an unknown way of doing business, often outside their normal routines and with an unpredictable outcome. In these situations, these key actors (policy analysts, senior bureaucrats, politicians) ‘‘comprehend, explain, attribute, extrapolate and predict’’ (Starbuck and Milliken, 1988, p. 51) using pre-existing schemas or worldviews. This process could be seen to have two types of potential risk. One type is that ideology or political viewpoints (cognitive schemas) drive the choice of P3 where it is not the optimal choice. Hodge (2004) would argue that the City Link project in Victoria, Australia, represented just such a case. Here the choice of P3 arrangement was seen to symbolise a driving, ‘‘crash through’’ image of the leaders of government of the day, rather than being based on careful and patient analysis and consultation. The other type of risk is that institutional factors inhibit the choice of P3 where it may have clear merit. Noble and Jones (2006) point to three ‘‘gaps’’ or distances which represent cognitive schemas that can inhibit a public sector actor from embracing a P3 arrangement, particular where these actors lack previous experience. An autonomy gap sees an actor disagree with the need to go outside the boundaries of the organisation. Cultural distance suggests that actors will be reluctant to seek out a partner from a sector they mistrust. Fourie and Burger (2001) also point to this imbedded mistrust, with public sector managers holding stereotyped views of their private sector counterparts. Thirdly, cautionary distance refers to the natural hesitation of working with any partner who is unproven, in terms of credibility and competence. Thus the challenge for the competent or ‘‘knowledgeable actor’’ (Child, 1997) is to interpret and work within these institutional and political dynamics to ensuring public value is delivered. This is achieved by recognising ideological distortions, or assisting in reframing inhibiting factors, to ensure that balanced analysis of opportunities takes place. Formation processes for P3s Research suggests that the capabilities of both public sector and private sector organisations can influence both the effectiveness and the efficiency of the formation process. It is in the interest of both parties to ensure that a robust and sustainable structure is produced as a result of the initial engagement activities, and that these processes are not overly time-consuming. Holmes et al. (2006, p. 566) suggest that the mismatch between the public and private sector can often result in a sub-optimal design. The bidding process can often be characterised by ‘‘an unequal struggle between large consortia and inexperienced clients.’’ Goldsmith and Eggers (2004) also point to the problem of lack of capability of the public sector to manage these formation processes effectively, generally requiring that additional consulting strength is procured to assist with the process of bidding, evaluation and negotiation. Ensuring a balance of skills and knowledge in the pre-contract activities is seen to be vital in ensuring the efficacy of P3 arrangements. Relative skills and capabilities also influence the efficiency of the contracting process. Ahadzi and Bowles (2004) report that this stage of the P3 process can often be characterised by unduly high bidding costs and time overruns as the process becomes bogged down in negotiations. This research identifies that these issues can be overcome to the extent that each side understands the other on issues of risk tolerance and the effect of public opinion.

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The role of key actors is often overlooked in attempts to understand this vital stage. As Noble and Jones (2006, p. 912) maintain, progress in negotiations is not usually achieved in a large meeting, but often by a small group of one or two individuals who work through the issues outside the formal process. ‘‘Common ground is found through the actions of individuals’’. These actors have been shown to demonstrate the ability to transform challenging situations through the ability to interpret issues on several levels simultaneously: within parent organisations, across the parent and the partner organisation and within a potential partnership (Spekman et al., 2000). Governance models and mechanisms in P3s Research addressing the choice of governance structures to regulate the partnership converges on the question of risk allocation. As with the initial choice to engage the private sector, the question of the sharing and bearing of risk seems to be both ideological and pragmatic. Some analysts advocate that there is an objective ‘‘right’’ level of risk for the public sector, appropriate in all contexts regardless of type of good or service being delivered. Some believe that the private sector should bear more of the risk (Grimsey and Lewis, 2002) or that the public sector should not shoulder a disproportionate share of the financial risk (Ewing, 2007). Becker and Patterson (2005) advocate a balanced model, arguing that where a model deviates from balanced risk allocation, decision-makers have a responsibility to justify the choice by demonstrating an overriding social purpose. More pragmatic analysis suggests that different models of risk allocation are appropriate under different conditions. For example, different functions of government (e.g. health and human services) can have different balances between public and private among financial returns, financial risk and roles of the partners (Becker and Patterson, 2005). Also it may be appropriate to allocate different kinds of risk to the public and private sectors. For example, Shen et al. (2006) argue that in a construction P3, site acquisition, legal and policy risks are better allocated to the public sector, while design and construct, operations and industrial action are better allocated to the private sector. The tolerance for risk of various types is perhaps one of the most defining elements which encode institutions, and one which differs fundamentally between the public and private sector. For example, commercial risk could be considered uppermost for the private sector, where in the public sector this is moderated by governance risks and the public interest. The ability to ‘‘span the boundaries’’ (Noble and Jones, 2006) between these institutional norms to find a workable and sustainable model requires particular skill of the knowledgeable actor working in inter-organisational forms. Importantly, they must be able to recognise the reality of mutual interdependence (Larson, 1992) as they design the allocation of risk. In P3 reality, there are risks to both parties through failure of their partner, as many expensive, problematic infrastructure projects will attest. Again, it could be argued that P3s will be an effective strategy to the extent that key actors can challenge ideological or political positions to find the optimal working model. Dynamic evolution and adaptation of P3s Consistent with findings on alliances more generally, P3s have a high probability of post-formation adaptation (Jerzy Henisz, 2006). This adaptation can range through simple and mutual renegotiation of contract terms, ongoing tension and instability, termination or catastrophic public policy failure. Post-formation instability can have its genesis in pre-formation choices, including an inappropriate risk allocation model that cannot withstand the realities of implementation and unforeseen contingencies.

Economic/structural perspective

Individual agency perspective

Which imperatives lead the public sector to private funding? Which factors are considered in choosing a P3 model?

Ideological and environmental drivers leading the public sector to consider private delivery models (e.g.Domberger and Fernandez, 1999; Al-Jayyousi, 2003) Balancing the capabilities and interests of the sectors (e.g. Fourrie, 2000; Jerzy Henisz, 2006)

Individual agency factors promoting and constraining the choice to engage in a P3 arrangement (e.g. Noble and Jones, 2006)

Formation processes of P3s

Which factors influence the effectiveness and efficiency of P3 formation process?

Technical and organisational capability asymmetries between the sectors influencing efficiency and effectiveness (e.g. Goldsmith and Eggers, 2004; Holmes et al., 2006) Factors which each party consider important in the negotiation process (e.g. Ahadzi and Bowles, 2004)

Sensemaking capabilities and transformational actions of individuals progressing the relationship through difficult stages (e.g. Spekman et al., 2000)

Governance structures and mechanisms of P3s

Which factors influence the choice of governance mechanisms

Ideological and structural factors driving choice of risk allocation mechanism (e.g. Becker and Patterson, 2005; Ewing, 2007)

Sensemaking capabilities and transformational actions of individuals ensuring sustainable risk allocation models are applied (e.g. Noble and Jones, 2006)

Dynamic evolution and adaptation of P3s

Which factors promote P3 stability?

Environmental and structural factors leading to renegotiation or termination (e.g. El-Goahary et al., 2006; Hodge, 2004)

Sensemaking and interpretation capabilities and transformational actions of key actors mitigating the risk of derailment (e.g. Arino and de la Torre, 1998)

Research issue

Empirical questions

Antecedents and motivations for P3s

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Table I. Structure and agency perspectives on key issues in P3 research

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However, more generally it has been noted P3s are a complex form, representing multiple, simultaneous and often conflicting interests (Trailer et al., 2004). Cultural and institutional differences between the public and private domain represent a serious and ongoing threat to success. Also, unforeseen change events result from the complex and shifting political, social and economic environment in which these projects are being implemented, and are often not within the control of the alliance parties. Among these more general explanations of instability, researchers have pointed to some specific potential ‘‘derailers’’ in the post-formation stage. Firstly, P3 arrangements must be able to capture and manage stakeholder inputs. Stakeholder involvement, particularly citizens is seen to be crucially important (El-Gohary et al., 2006; Shen et al., 2006). For example, Hodge (2004) points to a failure to engage the public as being a serious destabilising element in the City Link project. Secondly, and relatedly, P3s give rise to ongoing governance risks in the course of their implementation. The partnership must ensure that accountability is maintained at all stages, and that the need for cooperation and consultation does not cross a line into collusion (Leitch and Motion, 2003). P3s must take into account the needs and interests of all stakeholders and not become a ‘‘two-way’’ arrangement designed to suit the interests of only government and business (Hodge, 2004). In the face of this pluralism and complexity, the attributes and practices of the key actors can be seen to influence the path of the partnership at critical junctures. Key actors, often project managers and directors during the implementation phase, must be capable of dealing successfully with a multiplicity of interests arising from community consultation processes. The manager must also, almost inevitably, persuade senior bureaucrats and politicians to a difficult course of action in situations where external events bring constraints and potential ‘‘derailers’’ to the path of the project. Technical competence needs to be complemented by a capability to ‘‘make sense’’ of the change events of the partnership. This ensures that different stakeholder groups are each engaged in the possibilities for action in a way that resonates with their particular interests and mindsets. Conclusion Collaborations of all kinds are an intellectually challenging phenomenon for researchers, given the many complexities to which they give rise, and the wide range of theoretical perspectives from which they can be viewed. P3s, as a particular inter-organisational form, have their own distinctive characteristics and dynamics. However, this paper argues that our understanding of this phenomenon has been constrained by the limited range of theoretical perspectives that have been applied to their study. The individual agency perspective can contribute to a broadening of approaches to the study of P3s. If we accept the complexity of these forms we may need to think analytically about a ‘‘larger chunk’’ of the phenomenon by considering a wider range of explanatory factors. The framework presented in this paper may be a step toward an integration of the economic and social perspectives, providing a systematic way to consider alternative perspectives on the questions of P3 formation and evolution. Table I provides a summary of the comparisons I draw between these two perspectives. The table identifies four key issues in P3 research, corresponding to key activities in their sequence of development, and the questions that have been addressed in prior research. The table demonstrates how consideration of individual agency factors can enlarge our inquiry, considering P3s in their social context.

Introducing this perspective to the study of P3s can provide new insights for researchers and practitioners. Firstly, it would assist in rethinking the nature of collaborative capability. While strongly informing research, economic and structural thinking has also dominated practice. Alliance studies find that the majority of time invested in a collaboration is spent on the design of the arrangement (Doz and Hamel, 1998). My own field experience suggests this is also true of P3 development. If individual agency thinking were encouraged, we would consider the possibility that the locus of successful P3s, including structuring and adaptation, may be with individual actors. This would make us think in a different way about P3 capability, what it is, where it resides and how it can be developed. It may also lead us to consider carefully the staffing of significant or complex P3s, ensuring that actors who are capable of a high level of reflexivity were represented. Secondly, including the individual agency perspective contributes to the call for ‘‘depth, texture and linkage’’ in the organisational studies and strategy literature. Hambrick (2004, p. 93) has called for more coherence, arguing that ‘‘strategic management scholars seem . . . especially unaware of the distinct possibility that the big insights, the big breakthroughs, may only arise if and when multiple perspectives are reconciled or integrated’’. By inviting consideration of agency in parallel with traditional economic theories, we potentially build a bridge between the micro and macro-traditions. This enlargement of the field of inquiry has the benefit of ‘‘reintroducing the human element’’ which Hambrick (2004, p. 94) has called for in his assessment of what is lacking in the field of organisation studies and strategy. References Adams, J., Young, A. and Zhihong, W. (2006), ‘‘Public private partnerships in China’’, International Journal of Public Sector Management, Vol. 19 No. 4, pp. 384-96. Ahadzi, M. and Bowles, G. (2004), ‘‘Public-private partnerships and contract negotiations: an empirical study’’, Construction Management and Economics, Vol. 22 No. 9, pp. 967-78. Al-Jayyousi, O.R. (2003), ‘‘Scenarios for public-private partnerships in water management: a case study from Jordan’’, International Journal of Water Resources Development, Vol. 19 No. 2, p. 185. Archer, M.S. (2003), Structure, Agency and the Internal Conversation, Cambridge University Press, Cambridge. Arino, A. and de la Torre, J. (1998), ‘‘Learning from failure: towards and evolutionary model of collaborative ventures’’, Organization Science, Vol. 9, pp. 306-25. Becker, F. and Patterson, V. (2005), ‘‘Public-private partnerships: balancing financial returns, risks, and roles of the partners’’, Public Performance and Management Review, Vol. 29 No. 2, pp. 125-44. Blau, P. (1977), Inequality and Heterogeneity, Free Press, New York, NY. Borgatti, S.P. and Foster, P.C. (2003), ‘‘The network paradigm in organizational research: a review and typology’’, Journal of Management, Vol. 29 No. 6, pp. 991-1013. Child, J. (1972), ‘‘Organizational structure, environment and performance: the role of strategic choice’’, Sociology, Vol. 6, pp. 1-22. Child, J. (1997), ‘‘Strategic choice in the analysis of action, structure, organizations and environment: retrospect and prospect’’, Organization Studies, Vol. 18 No. 1, pp. 43-76. De Rond, M. (2003), Strategic Alliances as Social Facts. Business, Biotechnology & Intellectual History, Cambridge University Press, Cambridge.

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Domberger, S. and Fernandez, P. (1999), ‘‘Public-private partnerships for service delivery’’, Business Strategy Review, Vol. 10 No. 4, p. 29. Doz, Y. and Hamel, G. (1998), Alliance Advantage: The Art of Creating Value Through Partnering, Harvard Business School Press, Boston, MA. El-Gohary, N.M., Osman, H. and El-Diraby, T.E. (2006), ‘‘Stakeholder management for public private partnerships’’, International Journal of Project Management, Vol. 24 No. 7, pp. 595604. Ewing, R. (2007), ‘‘Finding happiness in public-private partnerships’’, Planning, Vol. 73 No. 1, p. 53. Faulkner, D.O. and De Rond, M. (2000), ‘‘Concluding thoughts and future directions’’, in Faulkner, D.O. and De Rond, M. (Eds), Cooperative Strategy, Oxford University Press, New York, NY. Fourie, F.C.v.N. and Burger, P. (2000), ‘‘An economic analysis and assessment of public-private partnerships’’, South African Journal of Economics, Vol. 68 No. 4, p. 693. Fourie, F.C.v.N. and Burger, P. (2001), ‘‘Fiscal implications of public-private partnerships (PPPs)’’, South African Journal of Economics, Vol. 69 No. 1, p. 147. Gallay, D.R. (2006), ‘‘Public-private partnerships for financing federal capital: useful or chimerical?’’, Public Works Management and Policy, Vol. 11 No. 2, pp. 139-51. Giddens, A. (1979), Central Problems in Social Theory: Action, Structure and Contradiction in Social Analysis, Macmillan, London. Giddens, A. (1984), The Constitution of Society: Outline of the Theory of Structuration, Polity Press in association with Basil Blackwell, Cambridge. Goldsmith, S. and Eggers, W.D. (2004), Governing by Network: The New Shape of the Public Sector, Brookings Institution Press, Washington, DC. Grimsey, D. and Lewis, M.K. (2002), ‘‘Accounting for public private partnerships’’, Accounting Forum, Vol. 26 Nos. 3-4, pp. 245-70. Gulati, R. (1998), ‘‘Alliances and networks’’, Strategic Management Journal, Vol. 19, pp. 293-317. Habermas, J., Nicholsen, S.W. and Stark, J.A. (1988), On the Logic of the Social Sciences, Polity Press, Cambridge. Hambrick, D.C. (2004), ‘‘The disintegration of strategic management: it’s time to consolidate our gains’’, Strategic Organization, Vol. 2 No. 1, pp. 91-8. Hodge, G.A. (2004), ‘‘The risky business of public private partnerships’’, Australian Journal of Public Administration, Vol. 63 No. 4, pp. 37-49. Holmes, J., Capper, G. and Hudson, G. (2006), ‘‘Public private partnerships in the provision of health care premises in the UK’’, International Journal of Project Management, Vol. 24 No. 7, pp. 566-72. Hood, C. (1995), ‘‘The ‘New Public Management’ in the 1980s: variations on a theme’’, Accounting Organizations and Society, Vol. 20 Nos. 2-3, pp. 93-109. Jerzy Henisz, W.V. (2006), ‘‘Governance issues in public private partnerships’’, International Journal of Project Management, Vol. 24, pp. 537-8. Johnson, G., Melin, L. and Whittington, R. (2003), ‘‘Guest editors’ introduction: micro strategy and strategizing: towards an activity-based view’’, Journal of Management Studies, Vol. 40 No. 1, pp. 3-22. Larkin, G.R. (1994), ‘‘Public-private partnerships in economic development: a review of theory and practice’’, Economic Development Review, Vol. 12 No. 1, p. 7. Larson, A. (1992), ‘‘Network dyads in entrepreneurial setting: a study of the governance of exchange relationships’’, Administrative Science Quarterly, Vol. 37 No. 1, pp. 76-105.

Leitch, S. and Motion, J. (2003), ‘‘Public-private partnerships: consultation, cooperation and collusion’’, Journal of Public Affairs, Vol. 3 No. 3, pp. 273-8. Macy, M.W. and Willer, R. (2002), ‘‘From factors to actors: computational sociology and agentbased modeling’’, Annual Review of Sociology, Vol. 28, pp. 143-66. Mayhew, B. (1980), ‘‘Structuralism versus individualism. Part 1: shadowboxing in the dark’’, Social Forces, Vol. 80, pp. 335-65. Noble, G. and Jones, R. (2006), ‘‘The role of boundary-spanning managers in the establishment of public-private partnerships’’, Public Administration, Vol. 84 No. 4, pp. 891-917. Reed, M. (1988), ‘‘The problem of human agency in organizational analysis’’, Organization Studies, Vol. 9, pp. 33-46. Seidl, D., Chia, R. and MacLean, D. (2006), ‘‘Strategy as practice: new theoretical approaches’’, Paper presented at the EURAM, Oslo. Shen, L.-Y., Platten, A. and Deng, X.P. (2006), ‘‘Role of public private partnerships to manage risks in public sector projects in Hong Kong’’, International Journal of Project Management, Vol. 24 No. 7, pp. 587-94. Siemiatycki, M. (2006), ‘‘Implications of private-public partnerships on the development of urban public transit infrastructure: the case of Vancouver, Canada’’, Journal of Planning Education and Research, Vol. 26 No. 2, p. 137. Skotnicki, T. (2005), ‘‘Partners in assets’’, Business Review Weekly, 3-8 November, p. 17. Spekman, R.E., Isabella, L.A. and MacAvoy, T.C. (2000), Alliance Competence: Maximizing the Value of Your Partnerships, Wiley, New York, NY. Starbuck, W.H. and Milliken, F.J. (1988), ‘‘Executives’ perceptual filters: what they notice and they make sense’’, in Hamerick, D.C. (Ed.), The Executive Effect: Concepts and Methods for Studying Top Executives, JAI, Greenwich, CT, pp. 35-65. Trailer, J.W., Rechner, P.L. and Hill, R.C. (2004), ‘‘A compounded agency problem: an empirical examination of public-private partnerships’’, Journal of American Academy of Business, Cambridge, Vol. 5 Nos. 1-2, pp. 308-15. Weick, K.E. (1995), Sensemaking in Organizations, Sage, Thousand Oaks, CA. Whittington, R. (1988), ‘‘Environmental structure and theories of strategic choice’’, Journal of Management Studies, Vol. 25, p. 521. Corresponding author Kate Joyner can be contacted at: [email protected]

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Multinational oil companies’ CSR initiatives in Nigeria The scepticism of stakeholders in host communities Gabriel Eweje Department of Management and International Business, College of Business, Massey University, Auckland, New Zealand Abstract Purpose – The purpose of this paper is to critically examine the multinational oil companies’ (MOCs) corporate social responsibility (CSR) initiatives in Nigeria. Its special focus is to investigate the scepticism of stakeholders in the producing communities about the long-term effect and the beneficiaries of the oil companies’ CSR/community development initiatives. Design/methodology/approach – This paper employs a qualitative methodology, drawing on semi-structured interviews conducted in Nigeria and London. The field work was carried out in Nigeria (Abuja, Lagos and Port-Harcourt) and in London, UK. Visits were made to the head offices of the MOCs; Ministry of Petroleum and the Nigeria National Petroleum Commission; and the office of The Movement for the Survival of the Ogoni People in the Niger Delta. In London, Shell International Office was visited. Findings – The study found that expectations of host communities in the Niger Delta for CSR/ community development initiatives are greater. The communities above all want social development projects that provide hope of a stable and prosperous future. The companies, on the other hand, have embraced development initiatives primarily in order to demonstrate that they are socially responsible. Practical implications – If the host communities do not feel that the CSR projects will create a sustainable economic development, they will keep agitating for change and create an hostile environment for multinational enterprises (MNEs). Originality/value – This research adds to the literature on MNEs’ CSR initiatives in developing countries and rationale for demands for social projects by host communities. It concludes that business has an obligation to help in solving problems of public concern. Keywords Economic development, Multinational companies, Nigeria, Communities, Oil industry, Corporate social responsibility Paper type Research paper

Managerial Law Vol. 49 No. 5/6, 2007 pp. 218-235 # Emerald Group Publishing Limited 0309-0558 DOI 10.1108/03090550710841340

Introduction There have been increasing demands on multinational enterprises (MNEs) to provide community development programmes and assistance to their host communities, in particular, in developing countries (Amaewhule, 1997). In other words, meeting locally defined social and economic goals. This is mainly because developmental projects and other social infrastructures are lacking in most of these countries and most of the time they are not provided by the government. For example, oil companies, particularly, those operating in developing countries are now constantly under pressure to be more open and accountable for a wide range of actions, and to report publicly on their performance in the social and environmental arenas. And because of their impact on politics, economics and society in host nations, they must be more attentive than others in demonstrating social responsibility through initiatives to reduce their negative impact (Warhurst and Mitchell, 2000). It has been argued that MNEs need to take account of the ‘‘social, ethical and environmental perceptions’’ of their operations and

how these are likely to shape the future attitudes and actions of stakeholders (Zadek, 1998). Following this argument, Frynas (2005) asserts that oil companies attach greater importance to their social and environmental impact and they engage more with local communities than they used to do in the past. Various community and environmental initiatives may be seen as a response to the threat of stakeholder sanctions. Yet the cries of unethical and immoral behaviour from host communities and nations have continued to grow louder in recent times (Eweje, 2001, 2006). The clamour has led many MNEs to engage in purposeful soul searching to find a deeper and more convincing approach to ethical systems (Payne et al., 1997). Furthermore, MNEs alleged double standard, corporate scandals, decline in economic and social development in host communities due to neglect and lack of development initiatives from host governments, has fanned the world-wide debate about the social responsibility of corporations. According to Frooman (1997), stakeholders increasingly are looking to the private sector for help with a myriad of complex and pressing social and economic issues. Similarly, it has been argued that it is good business to actively engage all stakeholders in the development of sustainable strategies that reflect both economic and socially responsible outcomes (Maignan et al., 2005). This discussion[1] is based upon the development issues associated with multinational oil companies’ (MOCs) corporate social responsibility (CSR) initiatives in Nigeria. Its special focus is to investigate the scepticism of host communities in the oilproducing Niger Delta of Nigeria. In other words, this paper will examine the rationale behind the criticism of MOCs’ CSR projects, bearing in mind that, if well executed, these projects can improve the socio-economic-environment development of the region. Specifically, I will examine the scepticism that trails the oil companies’ CSR initiatives and community development projects. The fundamental question is: are the host communities benefiting from the CSR initiatives/projects when at the same time their region is alleged to be environmentally devastated as a direct result of oil exploitation and exploration? Study background In Nigeria today, the most critical issue that affects the oil and gas industry is the Niger Delta (oil-producing region) question, which requires stability in the oil and gas sector. There has been enormous pressure on both the Nigerian government and the MOCs to double their efforts and develop the region that contributes more than 80 per cent of Nigeria foreign earnings. Widespread community demands for relevant, direct and sustained benefits from oil/gas and mineral wealth are a relatively recent phenomenon. So frequently neither government institutions nor companies or communities themselves have been properly equipped to respond to them (Culverwell et al., 2003). In developing countries, MNEs are expected to provide some social services and welfare programmes in addition to their normal economic activities. Considerable attention has been asked to be devoted to community development programmes. For example, MOCs ‘‘provide education, scholarships, and build roads in Nigeria’’[2]. Similarly, Frynas (2005) argues that oil companies have initiated, funded and implemented significant community development schemes. He further asserts that ‘‘global spending by oil, gas and mining companies on community development programmes in 2001 was over US$500 million’’ (p. 581). In economic terms, these are not the functions of businesses, but in less developed countries (LDCs) these roles, or rather duties, are expected from MNEs.

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Indeed, there have been times when local people in oil-producing regions have turned against MNEs precisely because they feel, as Mitte, the president of Movement for the Survival of the Ogoni People – one of the communities in the Niger Delta put it: ‘‘they were not getting enough social and economic infrastructures/assistance from the MNEs that operate in their communities’’. Regrettably, the lack of visible and positive impact of CSR initiatives in oil-producing communities has been questioned. Evidence suggests that there is a gap between the MOCs stated CSR objectives and the actual results on the ground. What follows is the criticism of the community development initiatives of the companies because the host communities believe that MOCs CSR initiatives are not addressing both the social and environmental problems they are intended to resolve. This assertion is somewhat similar to the argument of Blowfield and Frynas (2005) who suggest that numerous claims have been made about the contribution CSR can make to poverty alleviation and other development goals. They further argue that ‘‘contributors to this issue have reached the conclusion that current CSR approaches do not warrant such claims’’ (p. 499). MOCs CSR initiatives in the Niger Delta have many aspects which include employment issues, environmental issues and local community issues. The region wants employment for their youths; reduction in environmental damage of their farmlands which directly affects their livelihood; and economic and social development of the entire region. A good example is the Ogoni case in Nigeria. Royal/Dutch Shell began operations in Ogoniland in 1958 in a joint venture with the Nigerian government. Shell is Nigeria’s largest oil producer and generates more than ten per cent of Shell’s total exploration and production profits. $30 billion worth of oil has been taken from Ogoniland so far (Banfield, 1998). However, due to a world-wide campaign against MOCs by the Ogoni people, in 1995 the World Council of Churches sent observers to the region who found ‘‘no piped water supplies, no good roads, no electricity, no telephones and no proper health care facilities’’. Trends such as these raise serious questions about the behaviour of MNEs and have ‘‘contributed to mounting pressures on business to demonstrate its social accountability, especially those multinationals which operate in politically and environmentally sensitive regions of the world, or which have supply chains that extend into those regions’’ (World Business Council for Sustainable Development, 1998). It is pertinent to state here that there has not been much improvement to this date. It should also be noted that the instability and lack of law and order in the Niger Delta is mainly due to the lack of basic infrastructures. This directly contributes largely to sabotage and kidnapping of oil and oil-related companies’ personnel and presently a major problem in the region. Concern about this development has led to calls from the international community that MOCs and the Nigeria nation should do more to improve the living standard of the host communities in the Niger Delta. The environmental crises in Ogoniland are indicative of the problems experienced by other host communities in the Niger Delta. The argument is: MNEs have a moral responsibility to protect the physical environment and society in which they carry out their operations. As this study has shown, when corporations violate this ‘‘responsibility’’ and behave in an unacceptable ethical manner there is tendency for the host community to protest or demonstrate against them. This is consistent with the definition of an unethical situation defined by Eweje (2001, 2005) as: A situation wherein the actions of a multinational enterprise are commonly perceived to have had a detrimental impact on the host community [and other stakeholders], arousing powerful emotions which express themselves variously through such things as strikes, demonstrations, press campaigns, legal actions, financial sanctions and sabotage.

It is similar to Eweje’s definition in the sense that the actions of large multinational companies involved was called unethical and there were widespread press campaigns, sabotage and legal actions as a direct result of the companies’ behaviour. The host communities in this case have alleged that the MOCs had failed in their obligation to provide necessary infrastructures, safe environment to live and minimise the environmental impact of their operations which directly affect their livelihood. The continued interest of corporations in community and development initiatives has also contributed to the World Business Council for Sustainable Development[3] (WBCSD) definition of social/community involvement (issues) as: A broad range of activities, including community assistance programs; supporting educational needs; fostering a shared vision of a corporation’s role in the community; ensuring community health and safety; sponsorship; enabling employees to do voluntary work in the community; philanthropic giving.

The World Bank also acknowledged the importance of corporate social involvement/ investment issues when it stated in its 1995 annual report that: Evidence that human capital development is critical for overall economic and social development is not new. What is new is that the awareness of its importance has gone beyond the confines of academic scholars and social reformers and has entered into thinking of mainstream decision-makers (Nelson, 1996).

The argument goes further that MNEs have role in global development not only through capital investment, but more importantly, by investing in human capital and providing local people with the tools to drive their own economic development (Nelson, 1996). Socially responsible practice in business has generated debates that are central to management practice and decision-making. For example, some scholars have argued that managers should conduct business purely in the interests of the shareholders, and that applying the organisation’s resources to the social good undermines the market mechanism, jeopardises organisational survival and places management in the role of non-elected policy-makers (Carson, 1993; Friedman, 1970). Others, in contrast, argue that business has a responsibility, indeed an obligation, to help in solving problems of public concern (Monsen, 1974; Quinn and Jones, 1995). Davis (1973) and Velasque (1996) support this view, suggesting that it is a matter of enlightened self-interest for organisations to be socially responsible, since ethical behaviour is more profitable and more rational than unethical behaviour, and crucial for organisational effectiveness. Against this background, social responsibility has been argued to involve two major participants: business and society. According to Ojala (1994), social responsibility has three major facets: legal (complying with the law); setting and abiding by moral and ethical standards; and philanthropic giving. Simply defined, social responsibility is the obligation of both business and society to take proper legal, moral-ethical and philanthropic actions that will protect and improve the welfare of both society and business as a whole, all of which must be accomplished within the economic structures and capabilities of parties involved. However, ambiguity remains because the social responsibility of business is whatever society decides that it is. In her work, Ojala asserts that in recent years: Society has been exceptionally ambivalent . . . Communities at different times and in different places establish different constraints within which business is expected to fulfil this purpose . . . In the United States business activity has reflected a particular situation at a particular

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time, and as that situation changes so do the constraints on business. It is the change that raises the issues of social responsibility.

Some studies have also proven empirically that good corporate citizenship suggests MNEs have an obligation to act as responsible members of the societies which grant them legal standing (Etheredge, 1999; Miles et al., 2006). According to Etheredge, its application to good corporate conduct generally implies responsibilities that go beyond meeting minimum legal requirements. Thus social responsibility involves notions of voluntary corporate conduct that are both acceptable and beneficial to various social constituencies that surround business enterprises. By their nature, MNEs operate simultaneously in often dissimilar societies around the world where values, standards and expectations of corporate conduct may differ quite radically. This great diversity in cultures, attitudes and systems makes it more difficult than in a relatively homogeneous national business setting to determine common standards for desirable corporate conduct. In exceptional circumstances, MNEs may be called upon to assume added responsibilities where other actors, including governments, do not or cannot carry out critical duties, as in Nigeria. In this respect, the role of MNE social responsibility may be broadest in LDCs and transitional economies where free market regulating mechanisms are not yet fully formed or effective. In these circumstances, MNE’s have a distinct challenge and a special opportunity in addressing social responsibility issues (as in the Niger Delta), especially where prospective host countries lack the legal framework, societal infrastructure or established traditions and experience of a market economy. The Niger Delta The Niger Delta is a relatively small area in the Southeast of Nigeria, with over six million people living in the region (Dappa-Biriye et al., 1992). The region has vast oil reserves but remains poor, underdeveloped and torn apart with conflict. It is the centre of oil exploration, exploitation and production in Nigeria since 1958. Nigeria is rich in oil mineral resources, with proven reserves of 35 billion barrels of oil. It ranks as the world’s sixth largest oil-producing nation. In fact, oil plays a fundamental role in the nation’s economy, accounting for over 90 per cent of export earnings (Pepple, 1999). Oil production in Nigeria is mainly through joint ventures between the government and a number of MOCs. These include Shell (normally called Shell Petroleum Development Company – SPDC), Mobil, Chevron, Texaco, Elf and Agip (called Nigeria Agip Oil Company). Between them, they produce an average of two million barrels of oil daily. The area is one of the world’s largest wetlands, and the largest in Africa: it encompasses over 20,000 square kilometres. It is a vast floodplain built up by the accumulation of centuries of silt washed down the Niger and Benue Rivers, composed of four main ecological zones – coastal barrier islands, mangroves, fresh water swamp forests and lowland rainforests – whose boundaries vary according to the patterns of seasonal flooding. The mangrove forest of Nigeria is the third largest in the world and the largest in Africa; over 60 per cent of this mangrove, or 6,000 square kilometres, is found in the Niger Delta (Human Rights Watch, 1999). The region has a high biodiversity characteristic consisting of extensive swamp and forest areas, with many unique species of plants and animals (The World Bank, 1995; Moffat and Linden, 1995). The Niger Delta provides more than ‘‘80 per cent of Nigeria’s income, 8 per cent of US oil imports and 22 million tons of oil a year to the European Union [EU]’’((The) Guardian, 1999). The area faces crisis as violence flares and

resentment builds up against multinational oil companies which extract oil worth an estimated ‘‘£94 billion a year’’((The) Guardian, 1999). The oil companies, human rights activists and environmental organisations report a rapidly disintegrating society plagued by summary executions, shoot-outs, inter-ethnic violence, pollution, riots, occupations of oil facilities and demonstrations ((The) Guardian, 1999, 2006). The host communities in the Niger Delta region have experienced negative environmental consequences and have seen their livelihoods destroyed because of environmental degradation of farmlands from consequence of oil exploitation. The MNEs which operate in LDCs have been accused of environmental degradation and pollution by the host communities and countries, especially those with prominent oil operations[4]. Indeed this issue has led to many conflicts, as in the case of Nigeria Niger Delta where the producing communities have been in near constant conflict with the MOCs. Swanson and Barbier (1992) have reported that within the past two centuries, the rise of industrialism has transformed the planet in ways natural processes and previous civilisations would have taken millennia to achieve. They argue that in a short time, ‘‘we have wrought dramatic changes in the environment, the most farreaching being ‘‘our’’ effect on the chemistry of the atmosphere and the genetic diversity of the planet’’. These changes, they claim, have given rise to a ‘‘shift from exploitative industrialism to something called ‘‘sustainable’’ development’’. On environmental degradation, Swanson et al. posit that, ‘‘. . . there is no ‘‘natural habitat’’, in the sense of a terrestrial ecosystem having evolved without the presence of a human element. There is only the choice between different methods and forms of human involvement in the habitat’’. It has also been shown that ‘‘our rivers and lakes are dirty, and our air is unclean. Lush forests are disappearing, and with them countless species of plants and animals’’. The above postulation reflects the present environmental situation in the Niger Delta. MNEs have a moral obligation to societies in which they operate, including the protection of the environment. This includes obligations to refrain from polluting rivers, lakes and seas; to preserve the rain forests; to keep the ozone layer from depleting; to consume natural resources only in a sustainable fashion; to refrain from harming people and their source of livelihood such as farmlands. It is argued in this paper that corporations have an obligation to protect the environment over and above what is required by environmental law and that they should co-operate and interact with governments in establishing environmental regulations. It is worth posing at this point the question raised by Beauchamp and Bowie (1997): what is the proper rationale for responsible business action towards the environment? They argue that a ‘‘minimalist principle is to refrain from causing unwarranted harm, because failure to do so would violate certain moral rights not to be harmed’’. Bowie (1990), for example, uses the harm principle, but contends that business does not violate it as long as it obeys environmental law. Frederick (1990), on the other hand, convincingly argues that the ‘‘harm principle morally requires business to find ways to prevent certain harm it causes even if such harm violates no environmental law’’. Similarly, many observers believe that business should be responsible for environmental cleanup because business is responsible for causing many of the problems in the first place (Des Jardins and McCall, 2000). Business has an ethical responsibility to become a more active partner in dealing with social concerns. Research carried out by other scholars has led to the conclusion that:

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Business must creatively find ways to become part of solutions, rather than being a part of problems . . . Corporations can and must develop a conscience . . .and this includes an environmental conscience . . . Corporations should not isolate themselves from participation in solving our environmental problems, leaving it up to others to find the answers and to tell them what not to do (Goodpaster, 1990).

An important question to answer is, why did the host communities accuse the oil companies of environmental degradation and what led to such intense disputes and conflicts against the MOCs? It must be borne in mind that: Corporations have special knowledge, expertise, and resources which are invaluable in dealing with the environmental crisis. Society needs the ethical vision and co-operation of all its players to solve its most urgent problems, especially one that involves the very survival of the planet itself. Business must work with government to find appropriate solutions. It should lobby for good environmental legislation and lobby against bad legislation, rather than isolating itself from the legislative process (Hoffman, 1991).

Research in Nigeria[5] led to the conclusion that the Nigerian government wished to maximise its return from MNEs oil revenues as petroleum is Nigeria’s main export and source of foreign earnings. However, the activities of MOCs and their environmental activities in the oil-producing areas of Niger Delta have attracted condemnation from within Nigeria and supra-national organisations, foreign governments and international environmental organisations. During fieldwork for this paper in Nigeria, the author found that if stability in the Niger Delta is assured, then Nigeria can be looking into the issue of increasing her national assets in terms of oil and gas reserves. MOCs CSR initiatives in the Niger Delta In Nigeria, oil company operations have been dogged by ‘‘local unrest and criticism from the communities within the oil-producing areas, and drawn increasing condemnation from abroad’’(GREENPEACE Report, n.d.). Charges of unethical behaviour include: ‘‘Total neglect of the Niger Delta (oil-producing areas in Nigeria) and lack of educational facilities such as classrooms, teachers, and scholarships which will enhance the literacy development of the indigenes of the communities’’[4]. Over the years, the oil exploration and producing companies have borne the brunt of ‘‘endless communal agitation, as the host communities have looked up to them for support and assistance in the provision of social and economic infrastructure and employment’’(The Nigerian Petroleum News, 1998). The people of the Niger Delta ‘‘who now live in a polluted environment, have received precious little in return for living with the oil companies and dispute both the quantity and quality of community assistance’’[4]. Mitee also points out that: ‘‘People have grown to realise that the oil companies are taking from their communities and are not putting anything back. The poorest parts of Nigeria are where these oil companies are, and this has heightened conflict’’. The case study of Shell and the Ogoni by Hummels (1998) reveals that host communities have continued to agitate for more and more support from the oil companies. In addition, the level of the demands and the methods adopted to achieve these have changed, with violence appearing to be the key weapon. Recourse to violence has resulted in a lot of damage to property, and casualties on both sides. In some instances, it has resulted in the withdrawal of operations by oil companies from some locations, while planned seismic and drilling activities have been abandoned in others.

In the past, the oil companies’ approach was to help or appease the communities whenever the need arose. More recently, however, they have established a more proactive and thoughtful approach to community assistance. This has resulted in the ‘‘emergence of a fully developed community relations department in each of the companies, solely set up to anticipate and plan the needs of the communities’’(The Nigerian Petroleum News, 1998), who understand better their own real needs and future aspirations. During interviews with senior managers of oil companies in Nigeria, it was confirmed that community relations departments were created solely to meet local needs and situational politics[6]. The argument here supports the theoretical position of Nasi et al. (1997) who argue that corporations tend to listen to the demand of powerful stakeholder groups. In this case, the MOCs listen carefully to the demands of host communities and changed their approach towards them. The issue of community development, for example, has compelled Shell in Nigeria to speak about its community initiatives when once it believes that ‘‘silence is golden’’ (Akpan, 1999). A SPDC of Nigeria executive stated that not many Nigerians were aware that ‘‘since the mid-1950s, SPDC has assisted more than 1,500 host communities in its areas of operation through an ever-widening range of services covering education, agriculture, health and water supply’’[7]. Educational initiatives include the provision of teachers paid directly by the companies and the building of classrooms. There are also situations where companies pay ‘‘special rates to teachers’’ to encourage them to go and teach in rural areas where the governments are inactive. This is because teachers refuse to teach in some rural areas due to the remote nature of such villages as stated by both Shell and other oil in Nigeria. To show their commitment to the communities where they operate, policies for educational developments are incorporated into the companies’ credos. For example, Shell Oil Company wrote in Article 7 of their Statement of General Business Principles: The most important contribution that companies can make to the social and material progress of the countries in which we operate is in performing their basic activities as effectively as possible. In addition Shell companies take constructive interest in societal matters which may not be directly related to the business. . . . For example through community, educational or donations programmes . . .(The Royal Dutcth/Shell Group of Companies, 1997)

The host communities also demand social welfare projects from the MOCs. In many developing countries, national and local governments have taken a more ‘‘hands-off approach’’ to regulating business due to such things as changing policies, the globalisation of commerce and shrinking resources. Against this background, companies are relying less on government for guidance, and instead they are pursuing their own policies with regard to such matters as environmental performance, working conditions and ethical marketing practices. This approach can be problematic. The secretary of the chief’s council of the oil-producing village of Bonny in the Niger Delta accused the oil companies of: Apartheid in its residential areas where all the state of the art welfare facilities including good water, constant electricity, good roads, super markets, schools with high-tech equipment, swimming pools and other facilities were in existence while the people of Bonny, the host community suffer absolute squalor and neglect (The Nigerian Guardian, 1999).

This is one example of a charge of double standard brought against multinationals in developing countries. The host communities believe they should have the same

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facilities that are on offer to the companies’ workers since the bulk of profits of the MNEs come from their land. As one observer pointed out: Communities in the Delta area in particular, where most of the exploration and production activities take place, feel generally ill-treated in the entire process of oil prospecting and production and consider themselves as being at the end of only the adverse effects of these activities. They believe that they have not received an equitable share of the tremendous oil revenues which are being derived from their land and territories, especially in the light of disruptive consequences on their health and sources of livelihood. Nor have they been recognised as the inhabitants of oil-producing areas who should benefit from the natural resource that abounds in their ancestral lands (Nnadozie, 1998).

According to Nnadozie, due to inadequate social amenities and infrastructure and the loss of farmland, bearing in mind that farming is their way of life, the Bonny community’s demands from the oil companies include ‘‘payment of N500 million (naira) to fishermen and farmers for the disruption of their livelihood; and provision of potable water and electricity to every home on the island’’. The demands of host communities are numerous, and MNEs are desperately trying to provide them whenever possible. This is because some host communities in Nigeria, have barred the MOCs from operating in their communities until their demands are met. There have been circumstances whereby the MOCs kept operating in some host communities and the youths of the community went and kidnapped the companies’ workers, leading in some cases led to loss of lives. It is frequently the case that oil companies are blamed for inactivity by government. A beyond petroleum (BP) engineer who visited an oil town in Nigeria in 1990 remarked: ‘‘I have explored for oil in Venezuela, I have explored for oil in Kuwait, I have never seen an oil-rich town as completely impoverished as Oloibiri’’(GREENPEACE Report, n.d.). The Nigerian government is supposed to direct 3 per cent of its oil revenue to develop communities where the oil is produced. However, as a community leader states: Little, if any, of that money has reached those in need of it. Even Shell has admitted as much but maintains that it is beyond the scope of its business activities. The Ogoni see it differently. They see Shell as a multinational, supported by the federal government of Nigeria, which was influential enough to persuade the government to increase the oil revenue royalty from 1.5 per cent to 3 per cent in 1982, but unwilling to ensure that the money is made of effective use[4].

The host communities argue that the wealth being generated should also be used for community development. Wealth creation is central to the economic role of business but society determines the extent to which this wealth can be enjoyed and the value systems which surround enterprises. This view is summarised by the comments of two of the most successful entrepreneurs of their day: There is but one right mode of using enormous fortunes – namely, that the possessors from time to time during their own lives should so administer these as to promote the permanent good of the communities from which they were gathered . . . Business only contributes fully to a society if it is efficient, profitable and socially responsible (Cannon, 1992).

A manager of a multinational oil company interviewed further suggest that MNEs in LDCs find themselves in paradoxical situations because: For quite a long time people in LDCs have seen MNEs to be very large, very powerful and very important because of their economic contribution to countries. That they are too bad and too big and unaccountable and people tend to lump all companies together in that sort of umbrella. Now at the same time though, very often in developing countries, governments are

either incapable because they are too poor or unwillingly, because they are too corrupt, to solve a lot of problems which are inherent within the social fabric of that country and then these same people who accuse companies of having all this power then almost torturously turn round and say the only people who can actually fix this are those very same companies that we so dislike . . .[8].

The alleged unethical behaviour that has prompted host communities to demand from MOCs infrastructure improvements and small business training schemes is similar to that discussed earlier. On the issue of electrification of the communities, the companies are accused of neglecting the areas where they work by only ‘‘providing electricity to their installations. The communities do not benefit from the same developments that the companies undertake for their installations and workers’’[4]. This accusation could equally be directed at government departments responsible for rural development[9]. Due to the complexity of working in LDCs and the spotlight that comes with it, the MNEs, under intense public scrutiny, are now expected, even required, to carry out the duty of developing the rural areas where they work. Companies are often accused of ‘‘damaging roads due to the impact of their operations and their locations sometimes denied the producing areas from setting up market stalls where their farm produce would be bought’’[4]. These practices, the host communities argue, deny them access to good roads and market place to sell their crops. Hence, the MNEs have to provide the necessary infrastructure and services. An oil company executive argued that companies are ‘‘providing these services because they want their host communities to benefit from the success of their operations from their communities and lands’’[6]. This view was generally shared by all the senior managers interviewed. The host communities, on the other hand, still argue that the companies ‘‘do not do what they say they did’’. For example, a community leader asserted that ‘‘most of these developments are only reflected on their books, not on the ground and even then it is not based on the priorities set by the communities but what suits their public relation image of the company’’[4]. He cited a situation when he was a chairman of a development committee in 1994 and Shell offered to buy them some hospital equipment. The committee gave Shell a list of what it wanted because at the time they thought the ‘‘list was a significant thing to our community centre which we built’’. They were disappointed when the company sent them different items from those on the list. The items were rejected and returned to the company. He went on to add that ‘‘to them what we requested is not important. What is important is what suits their image and that is what they want to do’’. Such reports call into question the level of MNE commitment to CSR. Some scholars such as Hummels have argued that MNE social investments amount to little more than good public relations (PR). On the other hand, the companies assert that ‘‘corporate social investments are not a public relation thing but serious and solid investments in the host communities and for the host communities’’[10]. The non-renewable nature of oil and mining operations and high degree of dependency of the host communities on such operations has brought to the fore the issue of small business training schemes. Whenever employees are made redundant, companies are accused of not preparing workers for skills in other industries. This led to the introduction of small business training schemes in the host communities and has become an intense ethical issue when dealing with the producing communities. This study confirms that oil companies in Nigeria such as Shell have numerous small business training initiatives, however, like other projects, the communities still feel the

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projects are to improve the corporate image abroad. For example, Shell has a Women’s Programme in the Niger Delta[6, 7]. The programme provides training for women of all ages (particularly teenage mothers and adolescents who left school early) focusing on soap and pomade making, sewing, hairdressing and catering. Other small business initiatives by the company include micro-credit and business development. Due to lack of access to finance, which is a key inhibitor to business development and selfemployment in the rural parts of Nigeria, including most of the host communities, micro-credit and business development programmes have been established within the development portfolio. The aim is to help revive the economy of the host areas by promoting self-help enterprise development. As Omuku and Pepple aptly put it, a key objective is ‘‘to build up local capacity to operate and manage micro-credit schemes’’. The unrest in the Niger Delta There are evidence that suggest that MOCs have contributed to economic development in Nigeria; petroleum still accounts for more than 80 per cent of Nigeria exports. However, the fieldwork for this study suggests that the social and environmental cost of oil exploitation in the Niger Delta is starkly visible; the continued violent, chronic underdevelopment of the region which is home to the MOCs and environmental degradation. What is also evident on a weekly basis is the ‘‘kidnapping and release’’ of foreign oil workers by militants and youths from the Niger Delta who are agitating for the development and equal sharing of proceeds from oil exports. The social and environmental problems coupled with the lack of development have led to the scepticism and constant violent. Notably, Des Jardins (1999) has suggested that business has a responsibility not to intentionally or negligently cause harm to others. When such harms do occur, business has a responsibility to compensate individuals who are harmed by its intentional or neglect acts. It should be stressed that the hostage – taking and frequent conflict in the region has reduced the daily oil production in Nigeria and some foreign countries have asked their nationals not to work in the Niger Delta. The Nigerian government has also noted with concern and regret the incidence of hostage taking. According to Ite (2004) the lack of national macro-economic planning and management, backed by equitable resource allocation, and an enabling environment, have significant implications for the overall performance of CSR initiatives by MOCs. He further asserts that, if the macro-economy is underperforming due to government failure, there is a likehood that the contributions of MOCs to social issues could fail to achieve the desired outcome. ‘‘Good governance in all its dimensions is therefore an important component of the CSR agenda’’ (Ite, 2004, p. 1). Trust and discontent issue It is argued in this paper that the issue of ‘‘trust’’ plays a significant role in the relationship between the host communities in the Niger Delta and the MOCs. The past behaviour of MOCs for unfulfilling promises to the host communities has created a negative perception and mistrust. Hence, any CSR initiative no matter how laudable it is, does not always receive positive reaction in host communities. According to Wicks et al. (1999), managers can find a wealth of benefits from trust, including cost savings and enhanced organisational capacities. According to these researchers, what is evident is that the willingness of managers to create mutually trusting relationships is a matter of strategic choice. In other words, managers can, through their behaviour, help determines levels of trust in relationships between their firm and its various

stakeholders. Trust is thus define as ‘‘an integral part of the strategy formulation process’’ (Wicks et al., 1999, p. 99). Figure 1 below shows the major stakeholders in the Nigeria oil industry and summarises the issues at stake with all the stakeholders. This figure suggests that the Nigerian government rakes billions of US dollars in form of revenue from the oil industry. However, the host communities in the Niger Delta are neglected; corruption and mismanagement is rife amongst officials hence some projects earmarked for the development of the region are never completed. The oil companies on the hand do make huge profits from the oil sales; contribute to the development of the Nigeria economy but also create environmental degradation of the region. Unfortunately, the CSR projects have not reduced the social and environmental costs of oil exploitation. According to Wicks and Berman (2004), the conditions for trust arise when parties have something at risk. Trust provides a morally compelling and economically efficient way to address a number of cooperation problems where parties have something at risk. Figure 2 shows that the level of trust amongst the stakeholders in the oil industry is not balanced. The Nigeria government and the oil companies have to work together and trust each other in order to achieve their financial objectives as shown in Figure 1. However, the host communities do not trust the government and the MOCs because of many failed promises. This relationship has led to the scepticism amongst the host communities. Thus, I argue in this paper that the level of trust between the MOCs and host communities is very low and this is prompted because of unfulfilled promises by the oil companies. This has degenerated to continued attack and conflict on MOCs facilities and personnel. Frynas (2005) argues that from the perspective of oil companies, the benefit of social initiatives may be to bring managers closer to political decision-makers, while appearing to be socially responsible. From the perspective of broader society, a crucial pitfall of using social initiatives as a competitive weapon is that development priorities pursued by oil companies may be those of specific government officials and not necessarily those of the people for whose benefit the initiatives are ostensibly undertaken. This argument reflects the present situation and mistrust between the MOCs and the host communities who have always argue that the MOCs do not take

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Figure 1. Major stakeholders in the Nigeria oil industry

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Figure 2. The issue of trust amongst the major stakeholders in the Nigeria oil industry

their needs into consideration. Following this assertion, it could be argued that CSR projects that are initiated in order to buy a short spell of peace are unlikely to resolve the problem with the host communities and in the long time will intensify the existing conflict. Scepticism of MOCs initiatives In the Niger Delta of Nigeria, MOCs are expected to provide some social services and welfare programmes in addition to their normal economic activities. Considerable attention has been asked to be devoted to community development programmes. For example, as discussed earlier, MOCs ‘‘provide education, scholarships, and build roads; build clinics and provide drugs, and also provide medication and vaccination for malaria in the Niger Delta’’. Indeed, as formerly stated, there have been times when local people in oil-producing regions have turned against MOCs precisely because they feel they were not getting enough social and economic infrastructures/assistance from the MOCs that operate in their communities. Due to complexity of working in developing countries and the spotlights that come with it, the MNEs, under intense public scrutiny, are now expected, even required, to carry out the duty of developing the rural areas where they work such as the Niger Delta. The argument goes further that MNEs have role in global development not only through capital investment, but more importantly, by investing in human capital and providing local people with the tools to drive their own economic development (Nelson, 1996). MOCs operations have been dogged by ‘‘local unrest and criticism from the communities within the oil-producing areas, and drawn increasing condemnation from abroad’’. Charges of unethical behaviour include: ‘‘Total neglect of the Niger Delta and lack of educational facilities such as classrooms, teachers, and scholarships which will enhance the literacy development of the indigenes of the communities’’. Over the years, the oil exploration and producing companies have borne the brunt of ‘‘endless communal agitation, as the host communities have looked up to them for support and assistance in the provision of social and economic infrastructure and employment’’. The host communities believe they should have the same facilities that are on offer to the companies’ workers since the bulk of profits of the MNEs come from their land. On the issue of electrification of the communities, the companies are accused of neglecting the areas where they work by only ‘‘providing electricity to their installations. The communities do not benefit from the same developments that the companies undertake for their installations and workers’’. The host communities further argue that the companies ‘‘do not do what they say they did’’. For example, a community leader asserts that ‘‘most of these developments are only reflected on their books, not on the ground and even then it is not based on the priorities set by the communities but what

suits their public relation image of the company’’. He cited a situation when Shell offered to buy them some hospital equipment. A committee from the producing regions gave Shell a list of what it wanted because at the time they thought the ‘‘list was a significant thing to our community centre which we built’’. They were disappointed when the company sent them different items from those on the list. The items were rejected and returned to the company. He went on to add that ‘‘to them what we requested is not important. What is important is what suits their image and that is what they want to do’’. This raises the question of ‘‘who actually benefits from corporate community development initiatives’’. The tension that exist between companies and communities have resonances in the developed world but with lesser intensity. This discussion has demonstrated that community development initiatives/ investment is vital for the establishment of a cordial relationship between MNEs and their host communities. One of the issues raised is that of host community expectations and trust on the part of MOCs. The communities above all want social development projects that provide hope of a stable and prosperous future. The companies, on the other hand, have embraced development initiatives primarily in order to demonstrate that they are socially responsible. This is done by providing services such as scholarships, classrooms and teachers for local communities. A fundamental question that might be raised from the above concerns the extent to which business can legitimately be asked to respond to the interests, values and demands of individuals and groups affected by large scale operations. Is it right to blame MNEs for the failure of governments’ in developing countries? Based on the above analysis, it is evident from the research carried out in Nigeria that pressures from stakeholders and negligent business behaviour has resulted in a growing requirement on business to fulfil their social responsibility by committing to delivering benefits to the host communities in which they seek their legitimacy to operate. The MOCs are now moving forward by forming partnerships based on dialogue, consultation and collaboration with the host government, host communities and the NGOs. Such partnerships are increasingly important and can be effective vehicles for sustaining a cordial relationship with the various stakeholders including the host communities and, ultimately sustainable business practice. .

Conclusion This study has demonstrated that community development initiatives/investment is vital for the establishment of a cordial relationship between MNEs and their host communities in the Niger Delta. One of the issues raised is that of host community expectations. The communities above all want social development projects that provide hope of a stable and prosperous future. The companies, on the other hand, have embraced development initiatives primarily in order to demonstrate that they are socially responsible. This is done by providing services such as scholarships, classrooms and teachers for local communities. The situation here conforms with the work of Monsen (1974) who examines the role of multinationals in society and concludes that business has an obligation to help in solving problems of public concern. This paper concludes that no matter how laudable the CSR initiatives are – if the host communities do not feel that the projects will create a sustainable economic, social and environmental development the conflict and unrest in the Niger Delta will continue. Moreover, the MOCs CSR initiatives can only contribute significant development to the region when the government creates an enabling environment and

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the macroeconomic management is improved and supported by institutional governance. Notes 1. Part of this paper was originally presented at the 2006 Annual Meeting of the Academy of Management, Atlanta GA, USA, in a symposium session ‘‘Processes of Governance Across Multiple Stakeholders: Performance, Control and Innovation’’. Primary data relating to material used for this symposium were gathered in Nigeria from archival sources and through fieldwork interviews with personnel from multinational oil companies, government departments, petroleum trade union and host community representatives over the period of 1999-2004. Some of this research has been published or in press (Eweje, 2001, 2005, 2006). 2. Evidence collected from the interviews with Mr P. Omuku, former Manager, Corporate External Relations, Shell Nigeria Limited, Lagos, Nigeria, 7 April, 1999. 3. A coalition of more than 120 international companies united by a shared commitment to the environment and to the principles of sustainable development. 4. Interview with the President of the Ogonis’ of Niger Delta of Nigeria – Mr Mitee, 15 April, 1999, Port-Harcout, Nigeria. 5. Interview carried out in Nigeria with managers of multinational oil companies, government and union leaders in April – May 1999. 6. Interview with Mr P. Omuku, Manager, Corporate External Relations, Shell Nigeria Limited, Lagos, Nigeria, 7 April 1999. 7. Interview with Mr Noble Pepple, Corporate Advice, Shell International Limited, March 25, 1999. 8. Interview with Dr Mark Wade, Senior Corporate Advisor, Social Accountability Team, Shell International Limited, London, 8 March 1999. 9. There have been some studies criticising the governments of LDCs for not developing their mineral and oil communities. i.e. Khan (1994, 1997). 10. Interview with Mrs Keeton, CEO, Tshikululu Social Investments (Community Development Foundation of Anglo-American Corporation), South Africa, 25 August, 1999. References Akpan, M. (1999), ‘‘Shell comes out of shell’’, Nigerian Newswatch, 14 June, p. 52. Amaewhule, W. (1997), ‘‘Oil companies, communities, and social responsibility’’, Training and Development, Vol. 51 No. 7, pp. 53-4. Banfield, J. (1998), ‘‘The corporate responsibility debate’’, African Business, November, pp. 30-1. Beauchamp, T.L. and Bowie, N.E. (1997), Ethical Theory and Business, 5th ed., Prentice-Hall, Englewood Cliffs, NJ. Blowfield, M. and Frynas, J. (2005), ‘‘Setting new agendas: critical perspectives on corporate social responsibility in the developing world’’, International Affairs, Vol. 81 No. 3, pp. 499513. Bowie, N. (1990), Business Ethics, and the Environment: The Public Policy Debate, Quorum Books, New York, NY. Cannon, T. (1992), Corporate Social Responsibility, Financial Times/Pitman Publishing, London. Carson, T. (1993), ‘‘Friedman’s theory of corporate social responsibility’’, Business and Ethics Journal, Vol. 12, pp. 2-32. Culverwell, M., Lee, B. and Koziell, I. (2003), Towards an Improved Governance Agenda for the Extractive Sector, The Royal Institute of International Affairs, London.

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World Business Council for Sustainable Development (1998), Meeting Changing Expectations: Corporate Social Responsibility, World Business Council for Sustainable Development, Netherlands, p. 1-31. Zadek, S. (1998), ‘‘Balancing performance, ethics, and accountability’’, Journal of Business Ethics, Vol. 17 No. 13, pp. 1421-41. Further reading Loza, J. (2004), ‘‘Business-community partnerships: the case for community organisation capacity building’’, Journal of Business Ethics, Vol. 53 No. 3, pp. 297-311. Manakkalathil, J.R. (1995), ‘‘Corporate social responsibility in a globalizing market’’, S.A.M. Advanced Management Journal, Vol. 60 No. 1, pp. 29-35. Mullen, J. (1997), ‘‘Performance-based corporate philanthropy: how giving smart can further corporate goals’’, Public Relations Quarterly, Vol. 42 No. 2, pp. 42-8. About the author Gabriel Eweje is a senior lecturer in Management and International Business at College of Business, Massey University, Auckland Campus, New Zealand. Previously, he worked as a Research Fellow at the United Nations University, Institute of Advanced Studies (UNU/IAS), Tokyo, Japan, and taught at Royal Holloway University of London, England. His PhD from University of London focused on corporate social responsibility and activities of multinational oil and mining companies in developing countries. He also worked as a Research Fellow with International Institute for Environment and Development (IIED), London on a project on how mining and minerals can contribute to sustainable development (MMSD). Gabriel was recently a visiting professor at Meiji University, Tokyo, Japan. His research interest lies around the issues of business ethics, corporate social responsibility and sustainability-related disciplines. He has published widely in these areas in the Journal of Business Ethics, Business and Society, and Sustainable Development Journal. Gabriel Eweje can be contacted at: [email protected]

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Lincoln University, Canterbury, New Zealand Abstract Purpose – The paper’s purpose is to identify the inappropriateness of the current model of regulation of corporate governance, which applies worldwide; and inherent paradoxes in the five areas of best practice in corporate governance. Design/methodology/approach – This is a review paper building new conceptualization for research into governance. The paper identifies the origins of the issues with weaknesses in the ontological and epistemological base for theorizing about corporate governance and its regulation. It suggests an alternative theoretical basis, identifying ways forward for developing theoretically aligned best practice along with regulation that properly reflects the complexity of the post-modern business world. Findings – The paper calls for a fresh approach to governance theorizing for regulation and bestpractice through considering governance praxis rather than structure and the reconceptualization of governance as a process of systematically balancing out tensions in order to effect good governance. Practical implications – Governance research and regulation requires reframing so that good theory can improve practice. Originality/value – The paper goes against the conventional wisdom in governance research, falling in with more advanced thinking for practice-based studies of organising. Keywords Corporate governance, Regulation Paper type

Introduction As presented in the introduction to this special issue, the context for the first draft of this article was a symposium at the 2006 Academy of Management Conference. The theme of that conference was Knowledge, Action and the Public Concern. That theme is arguably nowhere more apposite than in the area of corporate governance, given the almost cliche´d and depressingly familiar litany of operational risk management failures (Smallman, 2000c) leading to business fraud and corporate collapse. Yet, the cyclical pattern of business failures is well-established in the literature (Stead and Smallman, 1999), and the operational risks that are the root causes of many failures too have received considerable attention, through litigation and legislation (e.g. Sarbanes-Oxley Act, 2002) was largely a response to great public concern (Elliott et al., 2000; Smallman, 2000b, c). Moreover, considerable effort has been put in to the development of best practice worldwide. This has of course included a whole series of inquiries (e.g. US House of Representatives, 2001, 2002) and reports (e.g. AFEP and MEDEF, 2003; AMEX, 2003; ASX Corporate Governance Council, 2003; Cadbury, 1992; Higgs, 2003; Peters, 1997) on various elements of corporate governance ‘‘best’’ practice. In summary, these best practices are focused around (Carter and Lorsch, 2004, pp. 17-18; Leblanc and Gillies, 2005, 22, pp. 83-105): .

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the need for boards to have a majority of independent directors; the need for a board leader who is not the Chief Executive Officer (CEO); the need independent directors, rather than the CEO, to control the process of directors appointment and recommendation to the shareholders;

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the requirement for boards to have a least three core committees – audit, compensation, and corporate governance (or nomination) – the members of which should all the independent directors;

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the need to independent directors to meet periodically alone without the CEO or other executive directors;

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the need for boards to be a small as is feasible;

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the expectation that boards will carry out certain activities that are scheduled into their annual agenda, which provide a clear signal that the board is in charge of overseeing the CEO and the company’s management; and

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the need for directors to be compensated through means that motivate them to focus upon maximising shareholder value.

However, it seems that whatever the action another fraud or failure is just around the corner somewhere in the world. For example, legislation and the encouragement to follow best practice failed to prevent the recent sub-prime mortgage market debacle, the effects of which rippled out from the USA to world lending markets. It is arguable that this is a consequence of capitalism, but often as not these proponents of market forces are in a position of relative wealth and security. Those impacted by fraud or failure are often not so privileged, and feel the loss of their pension or investments very keenly indeed. It is not possible to say how many boards worldwide have adopted these practices. However, it is apparent that in most firms in most countries there is an agreement amongst owners and regulators that the board should have the power to oversee the CEO and the management. It is also apparent that in Anglo-Saxon countries at the least a majority of directors are compensated in some way or another with shares or options to own shares in the future. Of the best practices that are less widely adopted, an increasing number of boards are adopting at least some of them, largely including those that are either a regulatory or legislative requirement. The inclusion of these practices in corporate governance ranking schemes (developed again largely in AngloSaxon countries) has also had an effect on the uptake of these practices. However even those boards that have adopted the wide range of these practices continue to find the realities of carrying out their duties very difficult indeed (Carter and Lorsch, 2004, pp. 17-8). This is borne out by early findings of research that I am currently undertaking with colleagues (Smallman et al., 2007). It seems that there is a gap between best practice theory and implementation. It may be that whilst board empowerment and independent action as well as aligning directors’ interests with those of owners is important, this principled stance simply does not translate into practice (a genuine case of the principal agent problem). There is also an issue with the expectation of what boards are to accomplish and the knowledge and time available to board members to do their work. Undoubtedly the job of postmodern directors has become increasingly difficult if not impossible to carry out in the nominal time that directors have allocated to their job. The pressurised (mainly by investors and regulators), fast-paced and complex business context exacerbates this issue and many directors struggle to keep up with their duties. At least part of the problem with the adoption of best practices is that boards generally speaking do not have sufficient time or an independent perspective in order to think about the detail of implementation (Carter and Lorsch, 2004, pp. 18-20).

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So what is it that the legislation is missing and why is it that the deployment of best practice continues to fall short resulting in major failures in governance? Could it be that ‘‘bad [governance] theories are destroying good [governance] practice’’ (Ghosal, 2005)? More fundamentally, could it be that we simply do not understand how boards operate (Leblanc and Gillies, 2005, pp. 5-29).

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Conventional corporate governance regulation Whilst there have been initiatives worldwide to improve the regulation corporate governance, broadly speaking much of current government’s legislation is grounded in one of two homoeostatic approaches that are concerned with setting targets. Where regulation results from pressure from some interested party (and this may include the government when they observed performance that is not in line with their targets) it is identified with what has been termed a conspiracy model of regulation (Hood, 1994). This allows dominant groups to profit from regulation at the expense of other smaller groups. For example, large financial services organisations may push for increasingly stringent regulation in products where they are far more easily able to support the required training investment than small ones. This is a feedback model of control (see Figure 1) where deviant performance is any action that runs against the interests of some dominant group, whilst congruent performance is any action that works in their favour. This of course is a grossly simplified model of the market mechanism, which is the form of regulation that is generally advocated by financial theorists and practitioners, who claim that board and managerial behaviour may be highly constrained by the pressures of capital and factor markets. They further insist that the current corporate governance mechanisms should be allowed to operate freely and that any interference with the market governance mechanisms is irrational and is likely to have a distorting effect (Hart, 1995). However despite this very influential theoretical argument which supports governance control solely through the market mechanism, both empirical and anecdotal evidence (including the collapse of large

Figure 1. The conspiracy model of regulation

corporations such as Enron and WorldCom) support the contention that additional corporate governance control measures are required, specifically through government intervention (Kirkbride and Letza, 2004). Hence, the calamity model relates to changed or new regulation that follows in the wake of one or a series of crises or catastrophes (Hood, 1994). This is a feed forward model of control (see Figure 2). A typical example of this type of regulation is the Sarbanes-Oxley Act (2002). This approach to regulation is almost exclusively within the purview of governments and regulatory agencies. The use of the word calamity in typifying this approach is perhaps unfortunate. It is important to note that formalised institutions, regulatory bodies, government bodies, collective organisations and professional associations play an important role in progressing norms, practices and conventions that govern performance standards, often as a reaction to performance shortfalls. It has been suggested that the importance of such institutionalisation is not the weight of regulation that is produced, but rather the effectiveness of the links between the various bodies involved in regulation (Kirkbride and Letza, 2004), that is the efficiency and effectiveness of the regulatory system, and a common complaint amongst directors is that they have too many regulators to which they must respond. It is arguable that much of the research on corporate governance fails to acknowledge that corporations operate in a complex market that requires complex, but flexible, governance regulation. The chief characteristic of this market and its regulation is the highly complex interplay between the commercial players (represented by their boards of directors), investors, regulators, legislators and professional bodies. The complexity of exchange between these actors cannot be properly reflected in the over-simplistic models that I have previously presented. Neither the calamity nor the conspiracy model is entirely suited to the development of governance regulation for post-modern business. Instead we need a model of governance regulation that adequately reflects the complexity of balancing out the interests of all interconnected parties involved in the governance of an organisation.

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Figure 2. The calamity model of regulation

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Paradoxes in corporate governance best practice The best practices I described earlier, despite their limited uptake are common currency across western corporations. They have had considerable impact upon the composition of boards, the approach of directors to their duties, and upon the compensation of board members. It is arguable that the impact of these practices has been largely positive, especially in terms of the attitudes of directors to their work. Indeed, it is arguable that this has led to the ‘‘professionalisation’’ of directors, which was one of the implicit outcomes sought by regulators, legislators and investors. However, it is arguable that each of the core principles (independence, financial alignment with shareholders, vigorous management performance monitoring, the need to be generalists and the focus on shareholder value generation) also have significant flaws (Carter and Lorsch, 2004, p. 42). There is little or no evidence to support the general contention that a ‘‘split’’ CEO and chair role makes much difference to ‘‘corporate’’ performance. Indeed: . . . many if not most of the highest profile corporate scandals in the USA and Europe involved firms that had separated the CEO and chairman role, but the split hardly prevented subsequent scandals. Accordingly there is no research has established a link between the split leadership roles and firm performance (Sonnenfeld, 2004, p. 109).

Independent directors who have no other relationship with the firm are not likely to know much about its business, will have very little time to learn the necessary level of detail, and as such, usually through no fault of their own, will struggle to make competent decisions (Leblanc and Gillies, 2005, pp. 67-75). Director independence is an issue that is fraught with difficulties, not least since it is a subject that polarises opinion, but most tellingly: . . . nearly two decades of research finds little evidence that board independent enhances board effectiveness. Some studies, however find a negative effect (Westphal, 2002, p. 6).

Moreover, in accessing business knowledge independent directors may become overly reliant upon the management that they are required to supervise. Exacerbating this reliance upon other people’s knowledge is the limited amount of time available to generalist directors, who as a consequence of unlikely to have a substantial understanding of business operations. Making directors shareholders’ explicitly erodes the direct their independence and clarity of thought in decision-making. This is the only area of corporate governance theory and practice to which agency theory is truly relevant and offers at least partial explanations of current behaviours in that directors who own shares may well think about what is in their own interests to shareholders, ignoring the broader interests of all shareholders. In discharging their fiduciary responsibility to shareholders, directors are expected to deal mainly in developing corporate strategy. However, in developing strategy it is necessary to discuss with management the nature of some elements of implementation of the strategy (Leblanc and Gillies, 2005, pp. 62-6). This means that they effectively participate in key managerial decisions, but at a later stage they must also pass judgement upon the efficacy of those decisions and the performance of management in implementing them. This is perhaps the most difficult element of corporate governance, where the working relationship between directors and managers is marked by a very fine line of accountabilities. Finally, the focus on shareholder value is all too often a rather simplistic description of a highly complex corporate issue. Different shareholders will have

different investment objectives and will require that those objectives are met over differing timescales. Furthermore, meeting the varied objectives requires directors to implicitly and explicitly meet the requirements of many other stakeholders who have an indirect or direct influence upon company performance (Carter and Lorsch, 2004, pp. 42-3). Many of these issues are paradoxical in that they resist easy resolution. Simply, boards must make a choice about each of these elements and strike a balance in each. However, and this is where much of the is advice inherent in governance theory falls short, it is not simply a question of striking a balance in each individually; it is a matter of striking a balance within and across the gamut of these issues, since they are interwoven and interdependent. Each of these elements affects each other element; to focus upon one to the detriment of another will affect the quality of corporate governance in any given organisation. The acceptance of the interdependence of these various practices is vital if we are to develop good corporate governance theory in pursuit of good governance practice. In addition to these paradoxes, there is a further flaw with the majority of the socalled best practices: five of the eight I summarised earlier relate to board structure; the remaining three relate to procedure; none relate to function. In other words the so-called ‘‘practices’’ have little to do with the governance praxis (particularly eupraxia – good praxis (Aristotle, 1976)) and have thus far failed to demonstrate any significant impact on board effectiveness (Leblanc and Gillies, 2005, p. 134). Simply speaking the vast majority of the literature on corporate governance simply fails to accommodate perhaps its most important element: ‘‘the human dynamics of boards and social systems’’ (Sonnenfeld, 2004, p. 112). Issues with governance theorizing Along with colleagues I have previously argued that our ontological base for theorizing about governance and its regulation is stale. Furthermore by the judgment of two notable management thinkers the status quo in governance theorizing is somewhat of a paradox: . . . [any explanation of] organizational behaviour solely in terms of agency . . . [which] ignore[s] key organizational mechanisms like authority, identification and coordination . . . [is] . . . seriously incomplete (Simon, 1991, p. 30). . . . it is most curious that despite the lack of both face validity and empirical support, agency theory continues to dominate academic research on corporate governance (Ghosal, 2005, p. 81).

Much of extant governance theory is derived from the traditional ‘‘variance approach’’ to social science (Mohr, 1982). This approach focuses on studying fixed entities with varying attributes (which have a single meaning over time), and which only ‘‘synopsizes’’ reality (Tsoukas and Chia, 2002). Explanations are based upon necessary and sufficient causality, and upon efficient causality. The generality of theory derived from this approach depends upon uniformity across contexts. Time ordering among independent variables is not relevant and the emphasis of such work is on immediate causation. This approach to theory development does not accommodate all types of forces that influence the process of governance, and the research strategies used focus upon deterministic causation (Van de Ven and Poole, 2005). This approach cannot explain phenomena that

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encompass continuous and discontinuous causation, critical incidents, contextual effects, and the effects of formative patterns (Poole et al., 2000, p. 4).

Any number of studies of corporate governance apply the variance method (usually to theoretical base that includes agency theory). Probably the most common type of variance study treats corporate governance as a variable such as the quality of governance (there is an example of such work in this special issue) the goal of these studies is to explain or predict the clearance and magnitude of governance or the effects of governance on other variables the methodologies employed generally speaking econometric in nature. They may use sophisticated time series analysis or event history models. Some studies treat governance as the context of the other causal processes they do not study governance per se, but instead take governance in the frame within which other phenomena are clear the objective of these studies is to develop and test cause or effect relationships within a changing context or to test series of reactions to governance. Variance methods remains the dominant approach in studies of corporate governance and they still have an important role to play in studying governance, but Whilst the variance approach offers good explanations of . . . [corporate governance] . . . driven by deterministic causation, this is a very limited way to conceptualise . . . [ corporate governance]. It overlooks many critical and interesting aspects of . . . [corporate governance]. However because most organisational scholars have been taught a version of social science that depends on variance methods, and because methods for [other forms of research] are not well developed, research is tend to conceptualise . . . [ corporate governance] . . . problems in variance terms. One can see the ‘‘law of the hammer’’ in operation here: give a child a hammer, and everything seems to be hit; give a social scientist variables and the general linear model and everything seems to be made to be factored, regressed, and fit (Poole et al., 2000, p. 29)

It is perhaps no surprise that this positivist approach to governance theorizing has reinforced the conventional homoeostatic approach to corporate governance regulation. Process-based theorizing about corporate governance and its regulation Research in corporate governance requires an approach that will clarify similarities and differences among theories, in order to facilitate theoretical integration, and to generate a comprehensive understanding of governance. This requires a rigorous epistemological base, built upon an ontology that is more in keeping with understanding governing processes. I argue that the requirement is for an approach that accommodates a ‘‘fluxful’’, changeable and emergent post-modern world, emphasizing reality as inclusively processual. A processual approach acknowledges that corporate governance practice around the world developed and continues to develop in a variety of unique cultural, historical and social circumstances. Hence, I recognize the ontological primacy of process in which processes temporarily ‘‘concresce’’ as snapshots of a continuously evolving reality, and which are intricately intertwined, and complexly and mutually interconnected (Merleau-Ponty, 2002; Whitehead, 1929/1978). In this way we may be able to adopt a markedly different approach to the study of governing as process (Dibben and Smallman, 2005), that is as something more than the consequent evolution of stable states. In this approach, explanations of events would be based on necessary causality, as well as final (goal), formal (structure) and efficient causality, which means that explanations would be layered and incorporate both proximal and distal causation.

This is because such explanations recognize that change and interconnectedness are predominant characteristics of nature. Generality depends on versatility across cases and time, and time ordering is paramount. What emerges from such an approach is a process study narrating the emergence of the social construction of governance (Van de Ven and Poole, 2005). Well specified though they may be, many of the ‘‘variance theoretical’’ papers are based upon an analysis of corporate financial data. Consequently, we need more evidence from acts of governing rather than the output from such acts. If we are to develop a deeper understanding of governance, then we need to understand directors as well as the artefacts that they produce. In other words our research designs must capture data about the process of corporate direction over time (Ancona et al., 2001). Capturing time-oriented action leads to a focus on events, which represent a temporarily stable picture of individual and collective actions or experience, and which inevitably change the context in which processes occur. Developing process studies of governance requires researchers to intimately observe the actions and interactions of organisation members in the real-time instantiation of governing processes, through deploying ethnographic and participant observer methods in order to access and generate data (Boden, 1990). Such methods enable the researcher to identify events; characterize process sequences and their properties over time; test for temporal dependencies in process sequences; evaluate hypotheses of formal and final causality; recognize coherent patterns that integrate narratives; and evaluate development models (Poole et al., 2000, p. 92). However, the data produced by such approaches is more complex than the norm, requiring that we employ different approaches to its analysis, if we are to discover patterns in governing processes, and to develop grounded explanations of these processes (Poole et al., 2000, p. 5). Perhaps the major issue in corporate governance research stems from our limited understanding of what really goes on in directors’ minds and inside boardrooms – the fields, symbolic capital and habitus that comprise corporate governance praxis (Bourdieu, 1984): . . . indeed, it is truly astonishing, given the enormous amount of work on corporate governance since the 1990s . . . how little has actually been learned about how boards actually function – what makes some more effective than others. And yet learning how boards work could have tremendous practical significance of the governance of corporations (Leblanc and Gillies, 2005, p. 134).

Current theories focus upon external impacts based around a static view of the corporate entity. Conventional models do not look at the process of governing as the evolving sum of experiences of those who govern. Related to this is a research issue that focuses upon developing a deeper understanding of directors’ knowledge, experience and skills, and the effects of these upon behaviour, particularly in decisionmaking processes. Some of this type of research has occurred, but its findings whilst valuable are limited by methodology focused on variance analysis, and as such are far from definitive or significant. Such research is also important if we are to build a picture of the state and nature of the ‘‘talent pool’’. Also we must recognize in all of this that governance does not take place in a vacuum; context is critical, and our accounts of governing must in turn account for the influence of politics, polity, culture, economics and the natural environment. These related issues reflect a renewed interest in the ‘‘practice turn’’ in organisation and management studies (Schatzki et al., 2001), particularly in what key organisation

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Figure 3. Collibration and regulation

members do to realise strategy. An approach that focuses upon strategic practice will allow the research community to fully and properly understand the complexities of governing, and to assess the implementation of best practice or deep causation in decision-making. Where we have a more detailed understanding of practice we will be able to construct more sophisticated models of governance and the effects of regulation or legislation upon governance. What such models will do is to more profoundly represent the fundamental nature of governance as the balancing of tensions through mixed feedback and feed-forward (see Figure 3) between different corporate stakeholders. This is a marked departure from conventional homeostatic (calamity or conspiracy) models of governance and regulation. Instead what will develop, as intimated by colleagues (Kirkbride and Letza, 2004) building upon ideas first applied in the regulation of risk (Hood, 1996; Hood and Jones, 1996; Smallman, 1996, 2000a), is a much more holistic approach, turning upon the political science notion of collibration (Dunsire, 1990, 1993a, b). The aim of collibration is to use the social energy created by the tension between two or more opposed social groupings to achieve an objective. More usually applied in political governance, it is used to describe the process of government intervention that recognizes a balance and to tip that balance or to tip the scales in the market to achieve government policy and objectives. It is a process of intervention and altering of the rules of engagement. It involves making laws or regulations as well as other interventions through the support of many different actors. It easily accommodates the whole process of industry by self-regulation, enforced regulation and the need to change codes of conduct in response to corporate governance events. In the context of corporate governance there is a need to strike a

balance between the pressures of internal and external stakeholders interest and the wake of state-based as well as market-based regulation. Homoeostatic regulation models that rely upon feedback or feed forward corrections in the wake of failures to manage operational risk cannot possibly cope with the complexity of resolving the interplay between so many groups and processes; such regulatory approaches must and do fail. In almost all corporate governance contexts the circumstances that allow collibration exist (Kirkbride and Letza, 2004). It may be achieved through the use of one or more techniques (Dunsire, 1993a): ‘‘canalizing’’ is the alteration of the rules of the social processes in play (e.g. the government might impose minimum standards of behaviour below which criminal proceedings will ensue); ‘‘biasing’’ is the manipulation of the existing social dynamics (e.g. the Government discloses information to only one of the actors involved in the market); and ‘‘formalising’’ is the creation of discourse (such as when the government brings together two parties to discuss common problems or differences of opinion). Through such mechanisms collibration allows the reconciliation of tensions between both stakeholders and shareholders, as well as allowing free impurities within markets. What collibration offers even more realistic model of what occurs in imperfect markets. Whichever of the interventions a government might use, its purpose is to maintain a dynamic equilibrium between different parties that the variously accommodates different requirements. As colleagues have previously indicated . . . [collibration] provide[s] a cheap non-committing an unobtrusive form of intervention it offers an alternative to the hands off survival-of-the-yet fittest approach has been perceived by many to have failed over the past decade. Collibration is definitely interventionist and positively so, not merely to establish a level playing field for corporate actors, but also to shift the goalposts if that is necessary to discharge government’s wider responsibilities . . . Part of its attractiveness is that it is a technique not obviously repugnant ideologically . . . In an emerging political culture, where governments of all colours are committed to replace the level of deregulation, a technique of Government intervention, built upon the encouragement and maintenance of social self policing, self-regulation would seem to have a great future. Any debate on the positioning of the boundaries of regulation in corporate governance should accede to the dominance of collibration (Kirkbride and Letza, 2004, p. 91).

However, the potential for collibration does not end at the regulation of governance. Collibration also offers a more realistic nascent practice-oriented theory for governance research. Much of the current research takes what might be termed a view of governance as enlightened engineering, that is management by strategic objectives through positive or negative feedback. However I contend that it is a more realistic to view management and governance as processes of resolving tensions between different parties in pursuit of corporate effectiveness leading to corporate governance. Collibration is the key to governance. Conclusion Our current knowledge of corporate governance is limited, mainly because of ideological posturing in favour of shareholder or stakeholder primacy that goes back to the 1930s and beyond. As a consequence, action in pursuit of improved governance in response to public concern is similarly often ideologically limited, and bad theory is very definitely destroying good practice. Carter and Lorsch (2004) seek a return to the ‘‘drawing board’’ for corporate governance in order that practice reflects the complex world, and Leblanc and Gillies (2005) show the way. Reflecting complexity requires

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that we understand the practice of governance and the processes that comprise this practice. This in turn requires that researchers too must return to the drawing board seeking deeper and more meaningful evidence from which to inform and improve practice, based upon a theoretical framework that reflects the genuine complexity of post-modern corporate governance and its regulation.

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References AFEP and MEDEF (2003), The Corporate Governance of Listed Corporations: Principles for Corporate Governance Based on Consolidation of the 1995, 1999 and 2002 AFEP and MEDEF’s Reports, Association Franc¸aise des Entreprises Prive´es and Mouvement des Entreprises de France, Paris. AMEX (2003), Enhanced Corporate Governance Rules (SR-Amex-2003-65), American Stock Exchange, New York, NY. Ancona, D.G., Okhuysen, G.A. and Perlow, L.A. (2001), ‘‘Taking time to integrate temporal research’’, Academy of Management Review, Vol. 26 No. 4, p. 512. Aristotle (1976), The Nicomachean Ethics ( J.A.K. Thomson, Trans.), Penguin, London. ASX Corporate Governance Council (2003), Principles of Good Corporate Governance and Best Practice Recommendations, Australian Stock Exchange, Sydney. Boden, D. (1990), ‘‘The world as it happens: ethnomethodology and conversation analysis’’, in Ritzer, G. (Ed.), Frontiers of Social Theory: A New Synthesis, Columbia University Press, New York, NY. Bourdieu, P.-F. (1984), Distinction: a Social Critique of the Judgement of Taste, Routledge, London. Cadbury (1992), Report of the Committee on the Financial Aspects of Corporate Governance, Gee, London. Carter, C.B. and Lorsch, J.W. (2004), Back to the Drawing Board: Designing Corporate Boards for a Complex World, Harvard Business School Press, Cambridge, MA. Dibben, M.R. and Smallman, C. (2005), ‘‘Ignoring convention? Reframing process thinking in organizational analysis’’, paper presented at the First Organization Studies Summer Workshop on ‘‘Theorizing Process in Organizational Research’’, Santorini. Dunsire, A. (1990), ‘‘Holistic governance’’, Public Policy and Administration, Vol. 5 No. 1, pp. 4-19. Dunsire, A. (1993a), Manipulating Social Tensions: Collibration as an Alternative Mode of Government Intervention, Max-Plank-Institut fu¨r Gesellschaftsforschung, Cologne. Dunsire, A. (1993b), ‘‘Modes of governance’’, in Kooiman, J. (Ed.), Modern Governance: New Government-Society Interactions, Sage, London. Elliott, D., Letza, S.R. and McGuinness, M. (2000), ‘‘Governance, control and operational risk: the Turnbull effect’’, Risk Management: An International Journal, Vol. 2 No. 3, pp. 47-59. Ghosal, S. (2005), ‘‘Bad management theories are destroying good management practices’’, Academy of Management Learning & Education, Vol. 4 No. 1, pp. 75-91. Hart, O. (1995), ‘‘Corporate governance: some theory and implications’’, The Economic Journal, Vol. 105, pp. 678-89. Higgs, D. (2003), Review of the Role and Effectiveness of Non-Executive Directors, Department of Trade and Industry, London. Hood, C.C. (1994), ‘‘Calamity, conspiracy and chaos: the origins of risk management’’, paper presented at the The Hazards Forum Symposium on Risks to the Public: the Rules, the Rulers and the Ruled, London. Hood, C.C. (1996), ‘‘Where extremes meet: ‘‘SPRAT’’ versus ‘‘SHARK’’ in public risk management’’, in Hood, C.C. and Jones, D.K.C. (Eds), Accident and Design. Contemporary Debates in Risk Management, UCL Press, London, pp. 208-28.

Hood, C.C. and Jones, D.K.C. (1996), ‘‘Homeostatic versus colibrationist approaches to risk management’’, in Hood, C.C. and Jones, D.K.C. (Eds), Accident and Design. Contemporary Debates in Risk Management, UCL Press, London, pp. 205-7. Kirkbride, J. and Letza, S. (2004), ‘‘Regulation, governance and regulatory collibration: achieving an ‘holistic’ approach’’, Corporate Governance, Vol. 12 No. 1, pp. 85-92. Leblanc, R. and Gillies, J. (2005), Inside the Boardroom. How Boards Really Work and the Coming Revolution in Corporate Governance, James Wiley & Sons Canada, Ltd., Mississauga. Merleau-Ponty, M. (2002), Phenomenology of Perception, 2nd ed., Routledge, London. Mohr, L. (1982), Explaining Organizational Behavior, Jossey-Bass, San Francisco, CA. Peters (1997), Corporate Governance in the Netherlands: Forty Recommendations (the ‘Peters Report’), Committee on Corporate Governance, Amsterdam. Poole, M.S., Van de Ven, A.H., Dooley, K. and Holmes, M. (2000), Organisational Change and Innovation Processes: Theory and Methods for Research, Oxford University Press, New York, NY. Reason, J., Parker, D., Lawton, R. and Pollock, C. (1995), ‘‘Organisational controls and the varieties of rule-related behaviour’’, paper presented at the Economic and Social Research Council (ESRC) Conference on Risk in Organizational Settings, London. Sarbanes-Oxley Act (2002), PL 107-204, 116 Stat 745. Schatzki, T.R., Knorr-Cetina, K. and von Savigny, E. (Eds) (2001), The Practice Turn in Contemporary Theory, Routledge, London. Simon, H.A. (1991), ‘‘Organizations and markets’’, Journal of Economic Perspectives, Vol. 5 No. 2, pp. 25-44. Smallman, C. (1996), ‘‘Challenging the orthodoxy in risk management’’, Safety Science, Vol. 22 Nos. 1-3, pp. 245-62. Smallman, C. (2000a), ‘‘Challenging the orthodoxy in risk management’’, in Coles, E., Smith, D. and Tombs, S. (Eds), Risk Management and Society, Kluwer Academic Publishers, London, pp. 53-79. Smallman, C. (2000b), ‘‘Epilogue: some closing thoughts on operational risk’’, Risk Management: An International Journal, Vol. 2 No. 3, pp. 79-80. Smallman, C. (2000c), ‘‘What is operational risk and why is it important?’’, Risk Management: An International Journal, Vol. 2 No. 3, pp. 7-14. Smallman, C., Radford, J. and Addison, R. (2008), ‘‘The process and practice of corporate governance in New Zealand’’, Agribusiness and Economic Research Unit, Research Report. Lincoln, Lincoln University, Canterbury (forthcoming). Sonnenfeld, J.A. (2004), ‘‘Good governance and the misleading myths of bad metrics’’, Academy of Management Executive, Vol. 18 No. 1, pp. 108-13. Stead, E. and Smallman, C. (1999), ‘‘Understanding financial fraud: learning and unlearning lessons from industrial crises’’, Journal of Contingencies and Crisis Management, Vol. 7 No. 1, pp. 1-18. Tsoukas, H. and Chia, R. (2002), ‘‘On organizational becoming – rethinking organizational change’’, Organization Science, Vol. 13, pp. 567-82. US House of Representatives (2001), ‘‘The Enron collapse: impact on investors and financial markets. Joint hearing before the subcommittee on capital markets, insurance, and government sponsored enterprises and the subcommittee on oversight and investigations of the committee on financial services’’, US House of Representatives, 107th Congress First Session, US Government Printing Office, Washington, DC. US House of Representatives (2002), ‘‘The Enron collapse: impact on investors and financial markets. Joint hearing before the subcommittee on capital markets, insurance, and

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government sponsored enterprises and the subcommittee on oversight and investigations of the committee on financial services’’, US House of Representatives, 107th Congress Second Session, US Government Printing Office, Washington, DC. Van de Ven, A.H. and Poole, M.S. (2005), ‘‘Alternative approaches for studying organisational change’’, Organisation Studies, Vol. 26 No. 9, pp. 1377-404. Westphal, J.D. (2002), ‘‘Second thoughts on board independence: why do so many demand board independence when it does so little good?’’, The Corporate Board, Vol. 23 No. 136, pp. 6-10. Whitehead, A.N. (1929/1978), Process and Reality, Cambridge University Press, Cambridge. Corresponding author Clive Smallman can be contacted at: [email protected]

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Modeling the Chinese family firm and minority shareholder protection The Hong Kong experience 1980-1995

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Philip Lawton School of Law, University of Lancaster, Lancaster, UK Abstract Purpose – The paper aims to explore the extent to which the legal experience of minority shareholder actions in Hong Kong supports the sociological model of the Chinese family firm as developed by Wong Siu-lun and reports some preliminary findings for the period 1980-1995. Design/methodology/approach – This paper is based upon the analysis of 275 minority shareholder petitions in the High Court of Hong Kong between the years 1980 and 1995 inclusive. It also draws upon material from a questionnaire sent to law firms involved in those petitions and interviews with members of the Hong Kong judiciary with experience of hearing minority shareholder cases, members of the legal profession and accounting and company secretarial professions directly or indirectly involved in the administration of companies in Hong Kong and regulators. Findings – The findings indicate that the problematic early, emergent stage of the model as described by Wong Siu-lun is quite accurate. Whilst there is considerable support for some aspects of the model of the Chinese family firm, the experience indicates a number of complex dynamics at play, some of which the model does not take into account. However, the findings, at least by implication, do point to the cohesive strength of the Chinese family firm with occasional fault lines resulting in some ‘‘disputes’’ of earthquake proportions which may rumble on in some cases for years. Practical implications – The findings demonstrate the usefulness of lifecycle modeling of the family and other type of corporate firm. It also demonstrates some of the complex subtleties at play. The findings also have implications for the law matters thesis of La Porta et al. Originality/value – This is one of the first studies to actually examine the legal experience of minority shareholder protection in a particular jurisdiction (Hong Kong) by examining the petitions and writs actually filed and relating them to a sociological model of the Chinese Family firm. Keywords Stakeholder analysis, Family firms, China, Hong Kong Paper type Research paper

Confucianism had become a dead hand on Chinese society by the time the European seafaring powers arrived in strength in the first half of the nineteenth century (Bonavia, 1982).

The model Wong Siu-lun’s model of the Chinese family firm has rightly been described as a classic of its time (Wong, 1985). His seminal article is concerned with the aspect of family ownership and the prevalence of family owned firms among privately owned Chinese commercial and industrial enterprises. His argument is that because they tend to behave differently at various stages of their development cycle, these firms are not necessarily small, impermanent and conservative. The many large privately held but publicly listed companies on the Hong Kong Stock Exchange would tend to support this view. Wong Siu-lun’s model identifies four phases of development, namely the emergent, centralized, segmented and disintegrative stages. Briefly, the emergent stage is often begun in conjunction with other partners (a term used in a sense much more broadly than the UK legal definition of a partnership)[1]. Rivalry and jostling for

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position within the firm (on a relationship basis that could not by any stretch of the imagination be described as based on mutual trust and confidence or the greatest good faith) will often, though not always, result in one party and his family unit or jia gaining control through an asymmetrical development of control and power within the firm. At this point the second centralized stage referred to as that of the Founder Entrepreneur (FE) is reached under which the business is usually nurtured and expanded. One of the key points towards the end of this stage is the often the reluctance of the FE to let go of the reins of control and pass the baton to the next generation, the classic problem of succession. The third stage is one where a tendency towards equal inheritance and the nature of the business and its assets generally militate against the splintering of the estate of the family firm as it is more advantageous for inheritors to keep their shares with the promise of steady future income. Indeed, a firm may move back to the centralized stage if one brother is able to take the reigns and help his siblings to establish their own firms. This may happen over several generations leading to a stable longevity for the family business. The fourth disintegrative cycle is often potentially more fractious because of the weaker loyalties and disparate agendas of cousins. Of course, these stages resemble other models of family business lifecycles familiar in Western contexts. The case law relating to many shareholder disputes in the UK and elsewhere would also echo and resonate with many of the stages in the Siu-lun model. For example Re Yenidje Tobacco Co[2] and Ebrahimi v Westbourne Galleries Ltd[3] offer instances of disputes between ‘‘partners’’ in the relatively early stages of a corporate business. These early stages may comprise a number of combinations of factors with varying degrees of complexity as the recent case of Irvine v Irvine (No 1)[4] demonstrates in that the original ‘‘partners’’ were brothers and the dispute arose between the surviving brother and the widow and family of his deceased brother some years after the latter’s death. Re Cuthbert Cooper & Sons Ltd[5], Clemens v Clemens Bros Ltd[6] and Brady v Brady[7] all offer examples of disputes between inheritors of corporate businesses and there are many more. Mindful of these examples, the research on which this article is based sought, inter alia, to examine the extent to which, if any, the proceedings for minority shareholder protection in the High Court of Hong Kong in the period 1980-1995 would have similar resonance with Siu-lun’s model and offer further insights into the workings of the Chinese family firm in corporate form. This period is used partly because it covers a sufficiently lengthy time span of 15 years which coincides with the publication of the model in the mid-1980s and a decade thereafter and partly because the data was gathered from two related projects in the mid–late 1990s. The law and the legal experience Hong Kong’s corporate law is largely based on earlier UK Companies Acts occasionally adapted to local circumstances[8]. The main remedies for shareholders are just and equitable winding up, unfairly prejudicial conduct and exceptions to the rule in Foss v Harbottle[9]. The first question which had to be answered in deciding where to focus the research was which type of action would produce the most relevant data. Most of the interlocutory and decided cases concerned actions for just and equitable winding up under s 177 (1) (f) of the Companies Ordinance (Cap 32) or for unfairly prejudicial conduct under s 168A. There were very few cases based on exceptions to the rule in Foss v Harbottle, particularly representative derivative actions. There were in excess of

200,000 actions issued in the High Court during the period 1990-1995 alone. However, by focusing on certain categories as classified by the High Court it was possible to identify that circa 5,749 winding up actions were filed during the period 1980-1995. In the period 1990-1995 there were also in excess of 10,000 miscellaneous proceedings actions. Given that the majority of unreported minority shareholder actions were of the type of action mentioned above and many were pleaded in the alternative it was decided to review the winding up petitions from 1980 to 1995 and cross check against the miscellaneous proceedings actions for 1990-1995. The latter proved rather barren. This yielded a total of 277 relevant actions for the period 1980-1995 two of which were incomplete and therefore deleted from the sample. I consider that these represent in excess of 90 per cent of the total minority shareholder actions issued in the High Court (now Court of First Instance) of Hong Kong during the relevant period. There were only a very small number of cases pleaded as exceptions to Foss v Harbottle and these were excluded from the analysis[10] leaving cases pleaded as unfairly prejudicial conduct and just and equitable winding up or both which was quite common during the relevant period. Companies Ordinance Section upon which the sample petitions are based: The number of petitions based on Section 168A (unfairly prejudicial conduct) and Section 177 (1) (f) (just and equitable winding up) is shown in Table I. The following analysis is largely based on the data derived from those petitions.

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Business activity The business activities of the companies involved in the petitions show a fairly representative cross-section of Hong Kong’s economy during the period 1980-1995. The largest numbers were of companies involved in the services, property, import and export, textiles and management services sectors of the economy. The business activities of the companies involved are summarized in Table II. The capital details of the companies involved in the petitions were collated but due to a large standard deviation in both the figures for the authorized share capital and issued capital these variables were unsuitable for much further analysis. The average amount of issued share capital in the sample is HK$17,131,850. However, the graphs below show the amounts of authorized and issued share capital for each business sector indicating that the property sector had by far the greatest amount of authorized and issued share capital followed, after a considerable differential, by the miscellaneous service sector. This has the effect of raising the average capital across the board to a level much higher than one would normally expect for many small businesses in Hong Kong during the relevant period (Figures 1 and 2). Whilst further analysis of the capital variable would probably not yield much more useful information, the data does show that a wide range of companies are involved in minority shareholder petitions in terms of both the business sector and amount of issued capital. What can be derived from the data is the petitioner’s percentage of the

Section 177 Section 168A Both

n

%

135 24 116

49.1 8.7 42.2

Table I. Types of action in the sample

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Table II. Business sectors

Figure 1. Average issued capital by business activity

issued share capital. The average percentage for the sample is 34 per cent with a standard deviation of 24.7. Some general observations I begin this part of the paper with an anecdotal and considerably simplified story of a ‘‘potential’’ minority shareholder action case upon which I was asked to comment in the early 1990s. The potential petitioner was the second daughter (W2, D2) of a second wife (W2) of a local Hong Kong businessman (FE) involved in the construction industry. Her mother had insisted that her father provide his second wife with her own accommodation. The second wife therefore lived with her children of the union separate from the first wife (W1) and her children of the founder of the business. Before the father died in an accident, he had insisted that shares in the company through which the business operated were transferred into the names of the children including W2, D2, who worked in the business and was a qualified construction engineer. W2, D2 was registered as holder of 14 per cent of the company’s issued share capital.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Restaurant Textiles Various Electrical Property Natural resources Misc. services Import/export Transport Food/beverage Misc. Management

n

%

19 33 23 19 48 3 52 33 10 3 32

6.9 12.0 8.4 6.9 17.5 1.1 18.9 12 3.6 1.1 11.6

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Figure 2. Average authorised capital by business activity

The death of W2 in the early 1980s sparked a legal battle between the eldest son of FE by W1 and the children of W2 over the inheritance of W2s property in that the eldest son (W1, S1) produced a Will by which W2 left the bulk of her estate to him to the exclusion of her own children and contrary to an earlier Will in the latter’s favour. This led to a legal battle spearheaded by the first daughter of W2 (W2, D1) which she lost, resulting in her decision to emigrate. Clearly, any ill feeling which had existed between the two branches of FE’s family had come to a head at this stage. FE had by this time become rather frail in his old age and died a couple of years later in an accident. Over the following five years W1, S1 acquired all of the shares in the family company except for the shares of W2, D2 (despite repeated efforts to do so). W2, D2 had ceased to work in the family business shortly after her father’s demise. W1, S1 then negotiated a sale of the company to a group of overseas Chinese businessmen. W2, D2 was therefore left with a minority shareholding in a private construction company which was no longer controlled by other family members. Shortly thereafter a rights issue of shares which W2, D2 could not possibly afford to take advantage of, resulted in her holding being reduced to less than 7 per cent. After careful consideration she decided on a sale of her shares to the new ‘‘owners’’ of the company rather than pursuing the costly legal route of taking a minority shareholder action. The death of the father entrepreneur (to borrow a term from Wong) gave the eldest son, W1, S1 the opportunity to acquire control of the company from his brothers and sisters by various means and to then try selling the company (which had a government construction work tendering licence of not inconsiderable value) at a time when the construction industry in Hong Kong was booming. His inability to acquire the minority shares of his sister was a cause of considerable irritation and a fly in the ointment of his plans. Nevertheless, he went ahead and W2, D2 found her ‘‘inheritance’’ in the family business considerably devalued in the course of events. This little saga is a useful example of the sort of corporate family dispute which often occurs in Hong Kong and its importance lies in the lessons or at least the questions which may be drawn from it. The classic model of the Chinese family firm

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emphasizes, inter alia, the importance of understanding the stage of development of the firm, identifying four typical stages as the family firm evolves through the generations, namely (according to Wong’s model) the emergent, centralized, segmented and disintegrative stages. Each of these stages, particularly the first and latter two stages presents potential for internal conflict and the possibility of minority shareholder action.

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Some preliminary points The unspoken and increasingly historical relevance of polygamy? The first point is that the model does not deal with one aspect of ‘‘Chinese’’ (and some other Asian and Middle Eastern cultures) namely the impact of polygamy on the dynamics of the family and the corporate firm or firms on which its economic well being depends. The brief case example referred to above is an example of such circumstance. Only one minority shareholder case involving a concubine or second wife as petitioner has gone to full trial and that was an example of an attempt to wind up a solvent company after the demise of the founding FE on the basis of deadlock (a contrived case according to the facts as found) in order to unlock the company’s assets (property), against the wishes of the majority of the family, and allow the petitioner to retire to Australia[11]. There have been several cases involving rival sibling inheritors with different mothers during the first or second generation of successors but most of these cases settled before full trial thus avoiding a washing of family linen in public. In one example, again one which did not reach the stage of full legal action, the FE left the family wealth by will to the children of W2 rather than those of W1 who had largely emigrated to Canada. The children of the second wife were highly educated, mainly resident in Hong Kong and presumably in the opinion of the FE better suited to guard and grow the family wealth. Rather than enter into protracted legal argument with the children of W1 an income stream was created for them out of the family funds and trusts thus avoiding protracted and costly litigation whilst maintaining peace between the two branches of the family[12]. The indications from solicitors’ firms would seem to vary between 1-10 per cent and 30-40 per cent of cases dealt with during the relevant period concerned companies where the founder of the business or any of them (where more than one was involved) had more than one wife or took concubines, with the majority tending to the lower end of the scale. However, as one barrister indicated, often where there is more to go around (in terms of assets and wealth) it is often easier to achieve an acceptable settlement. In other cases where the available assets may not be generous but still significant to the parties concerned, the fighting between firm/ family members may be bitter and protracted. There has been a number of Hong Kong cases involving issues of inheritance and the status of children and concubines (particularly in the context of intestacy or their acting as administratrix of the deceased husband’s will) under both Hong Kong and Chinese Law[13]. However, at least in the context of Hong Kong, the factor of polygamy is increasingly a matter of history since the 1970 changes to the law which ceased to recognize the legal validity of such unions[14]. Although the law may have changed the practice lingers in some quarters and the modern phenomenon of cross border ‘‘mistresses’’ not to mention those in Hong Kong is perceived as causing social problems[15]. But the rapid urbanization of Hong Kong in recent decades coupled with the increased education of women, changes in their expectations and most recently their emancipation in terms of inheritance rights over what was formerly known as ‘‘New Territories’’ land has also lessened their economic dependence on men and perhaps helped more than anything else to encourage the demise of the practice or at

least render it less common in Hong Kong. However, many Hong Kong entrepreneurs still maintain mistresses and second homes across the border, Shenzen being a popular location. The historical impact of polygamy on the dynamics and development of the Chinese family firm (and hence its incorporation into any historical ‘‘model’’) as well as its present continuing effects is a fertile if sensitive field for research[16]. The subject is rather like the practice of foot binding which, as Fairbank commented, was for decades politely not explored by Sinologists[17]. The avoidance of the subject in much if not most of the relevant literature is striking. Nevertheless, interesting snippets occur in other contexts, for example, the problem encountered by the Jesuit missionary Ricci in the late 1590s concerning the reception of one Ch’u T’ai-su into the Roman church (cameron, 1993): There was just one impediment. His wife was dead and he had a concubine ‘‘of low birth’’, whom he refused to marry. Worse, he had no son by his wife or concubine, and it looked as though he would have to take other concubines until one of them bore him an heir to worship at his shrine when he died. For such was the venerable and inescapable necessity of Chinese custom, hallowed by Confucian texts. It was some years before even Ricci could overcome these problems.

Some family codes also warned against the problems encountered by the practice of taking concubines to beget sons, particularly dissensions between half brothers (Ebrey, 1986). This potential brittleness in the relationships between even brothers of the full blood was noted by Wong and exemplified in the disastrously expensive minority shareholder action between two brothers in Re Playmates International Ltd (a toy manufacturer of teenage mutant ninja turtle fame) where the action involved over 50 days in court and involved over 80 letters of discovery and requests for further and better particulars before finally settling after incurring astronomical costs[18]. But such disputes are not confined to Chinese firms and are to be found in other parts of the world. Similarly the effects of serial monogamy in a ‘‘Western’’ context on the disputes in a family company between rival half brother siblings are well document in the Australian context in case studies such as the John Fairfax Group Pty Ltd and its subsidiary companies (Redmond, 1992). There is also evidence that the practice of polygamy was dying out in Hong Kong at different speeds depending upon the regional origins of a particular group and that it persisted or occurred more commonly within recent times, for example among entrepreneurs of Cantonese origin as compared with those of Shanghainese origin. Similarly, in terms of the argument in favour of the ‘‘Chinese’’ cultural explanation of the family firm in the context of the Chinese diaspora one might ask how the practice of polygamy differs, continues or lingers in those countries where it is still practiced by the indigenous population such as Malaysia, Indonesia (and in a different religious context Thailand) and consider the effect this has on the structure of the family firm and associated companies. The point here, as critics such as Hodder have made much of, there is a multidimensional aspect to the experience of the Chinese family firm in different contexts, local circumstances and the accidents of history as much as any repeating pattern (much loved by historical determinism) has a role to play and needs to be understood, for it probably calls into question some of the underlying assumptions in much of the Redding and Wong’s approach to the Chinese family firm (Hodder, 1996). Similarly, as Wang Gungwu has stated, ‘‘it gives us a chance to ask whether the emergence of certain social tendencies and structures amongst the Chinese overseas in modern times are all due to their living among non-Chinese and learning foreign ways,

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or whether intrinsic Chinese norms among traders and landless workers are responsible for the way those external Chinese are adapting to the modern world[19]’’. Hodder has argued that there is no such thing as the ‘‘Chinese’’ company in any theoretical sense. There is no model or conceptual framework for analyzing a company which is the product of the cultural mantle of the ‘‘the Chinese’’. Similarly, he argues that the use of reciprocity (guanxi) and its soft framed institutions is simply one response taken in conjunction with others to the imperatives for extending and institutionalizing trade and are not determined by any formulae or dictate of ‘‘culture’’. Nor is the practice of reciprocity to extend and institutionalize trade peculiar to the Chinese. An accurate assessment probably lies somewhere in between and whilst ‘‘culture’’ is possibly over emphasized by some it would be foolish to ignore it altogether. As one long experienced Hong Kong corporate professional with experience of providing company secretarial and accounting services to hundreds of Hong Kong companies observed in an interview: . . . as businessmen become more successful and wealthy they tend often to return to their traditional roots and in this respect can afford to do so. Many have never read Confucius but they perceive this in terms of becoming emperor of their own business empire and this may involve the taking of more than one mistress (tsip) at the same time and having children, preferably sons, by them[20].

Perhaps this echoes the view of some writers that there is little remaining today beyond lip service to Confucian thought in Chinese behaviour except in hierarchical authority and power (Yee, 1992). and whilst the Chinese Government is currently emphasizing the idea of a ‘‘harmonious society’’ along socialist and Confucian lines there is clearly an element of reinforcing the authority of the ruling communist party. Despite some robust criticism of the cultural dimension particularly the ‘‘software of the mind’’ approach of commentators such as Hofstede other ‘‘cultures’’ or groups of people do exhibit similar traits particularly in terms of ‘‘power distance’’[21]. Ruskola, in particular, has emphasized the underlying norm of Chinese firms as that of kinship rather than, in the ‘‘Western context’’ the norm of contract (Ruskola, 2000). Lifecycle phases of the family firm and the thorny issue of succession The second preliminary point relates to the stages of development identified by Wong. They are common to family businesses in other parts of the world since, for example, human mortality is such that all family businesses have to deal with the difficult and often thorny issue of succession like the CEO succession of listed companies, emperors and kings of imperial/royal dynasties, totalitarian states and political parties generally[22]. According to Nuebauer and Lank the following paraphrased conversation took place between a father (CEO) and his eldest son in the former’s Paris Office: Father:

Son:

My son, I have wonderful news for you. I have decided to retire in four months. You, as I have said so often over the years, are my chosen successor as CEO. Furthermore you will own 75 per cent of the voting shares and will be totally in charge!

With respect, dear father, the proposition is ridiculous. You are now 92 and I am 67. My only goal is to retire with my wife to our country estate in Provence.

According to Neubauer and Lank the sad end to this little tale is that the 75 year old family enterprise was sold to a large multinational. Father and son never spoke to each other again (Neubauer and Lank, 1998).

This problem of the FE unable or reluctant to hand over the reigns of power is one considered in Wong’s model. It is common to many cultures. The inability to forego the authority and prestige which his or her position bestows upon the FE in a social context much wider than the orbit of the firm itself is understandable but problematic in terms of poor succession planning. Indeed there are a number, if not numerous, lifecycle models which are applied to the evolution of the family enterprise in the Western context[23]. Like Wong’s model they draw upon the literature on individual psychology, organization theory and family enterprise development. They are useful as a management and governance tool since they may further an understanding of the current state of the family and its business ownership and may help predict the transitional and subsequent stage challenges that are likely to be faced and may indicate actions which ought to be taken to minimize future disruptions. A related issue is the desire or ability of the family to negotiate this hurdle, for in many cases the successor generation may wish to sell the business and pursue some other means of livelihood or simply retire/relax on the proceeds of sale. Indeed the problem of survival from one generation to another is a thorny issue only recently studied in other parts of the world and the statistical survival rates of family businesses from the first to the third generation are not promising. Relatively little is known of the survival rate in Asia, particularly amongst Singapore, Hong Kong and Taiwanese Chinese family businesses not to mention other elements of the overseas Chinese diaspora, though it is generally assumed to be higher[24]. The construction company case study mentioned earlier is an example of the majority of the second generation opting to sell. There are other examples where some members of the family appear to wage crusades against other family members. A striking and relatively recent example is provided by the series of actions involving Samuel Tak Lee as petitioner. In one of these actions for just and equitable winding up of a family company (Re HY & HT Lee Brothers & Co Ltd)[25], heard in September 1999 and falling just outside of our sample period) the court reviewed the family businesses as a whole. The judgment discloses that as at September 1995, there were some 16 actions then ongoing to which the petitioner and/or his children and/or PEL (another family company) was a party on the one hand and various family members (in the extended family sense) on the other. By the 1995 Settlement, those actions were globally settled and as a consequence, the Petitioner, Samuel, and his family increased their shareholding in PEL from just under 6 per cent to approximately 27 per cent. In the instant case the following extract from the judgment of Justice Le Pichon is indicative of some of the cultural forces at play: C C Lee was the main witness for the Respondents (Samuel’s older brother T Y Lee and his uncle C C Lee). At 86, he was impressively alert and full of stamina. The respondents come from a traditional Chinese family whose values and code of behaviour permeate through to the way a Chinese family company is run. Honour and respect for the senior members of the family is much a way of life. The respondents themselves belong to a generation where such traditions and values still tend to hold sway. By way of contrast, the petitioner who is considerably younger, is of a different mould and, it may fairly be said, generation. He was educated abroad and qualified as a chartered structural engineer and architect. He has since moved into the business and property development world and is the archetypal entrepreneur and deal-maker. He is energetic and, seemingly, very successful in his business endeavours. Temperamentally, he could not be more different from the respondents, being highly excitable, aggressive and abrasive

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The judgment goes on to explain how Samuel was a meticulous man recording and noting all conversations meetings and even telephone conversations with family members. The judge continued: This accounts for the unusually large number of letters, tapes, transcripts of tapes and attendance notes that are in evidence. From these it emerged that for years his elder brother [T Y Lee] had counseled and entreated him ‘‘to reduce conflict rather than blow up in a big fight’’, to avoid ‘‘hard confrontation’’, ‘not to press people too much or to corner them to a dead end’ and ‘‘to let sleeping dogs lie’’ when dealing with members of the extended family’.

The court dismissed Samuel’s petition and a month later dismissed a second petition to wind up another family company M W Lee & Sons Enterprises Ltd[26]. In the latter case the judgment commented on the petitioner’s apparent state of paranoia regarding anything done his brother T. Y. Lee. This difference in outlook and approach was strongly underlined by several company secretaries, who emphasized that the culture and attitudes of different generations could be strongly influenced by the jurisdiction in which they had been educated. One noted that in a major public corporation he had worked for the contrasting management approaches of the older generation who had largely been educated in Hong Kong and the UK with the management style of the younger generation, largely educated in the USA. Alternative means of dispute resolution The third point is that the construction company case is also an example of a dispute which did not reach the stage of a legal minority shareholder action threatened or actual, although the earlier inheritance dispute did reach the stage of legal action. There are alternative methods of dispute resolution both formal and informal. These range from informal mediation to arbitration. In fact, in the context of legal action returns from solicitors’ firms indicated that most disputes are resolved before the issue of a writ and that complainants usually exit from the firm/company by selling their shares. Also, in times of economic prosperity (which would apply to most of the period under consideration) there is less willingness to enter into protracted legal action and more opportunity to invest elsewhere. It will be interesting to observe whether the economic downturn from1997-2003 will have any effect on this trend. One other major factor is the high cost of legal action in Hong Kong where top tier corporate counsel insist on fees as high as HK$10,000-$15,000 per hour, whilst lower tier (and sometimes no less competent) counsel may charge HK$5,000. These costs are in addition to those of the solicitors law firms. This is often a great incentive to negotiate a settlement to any action quite early in the proceedings. In one case in the early 1990s two ‘‘partners’’ who had entered into a dispute decided to settle as amicably as possible on finding that the fees for counsel’s opinion and drafting of the petition/defence for one party were in excess of HK$150,000. There also appears to be a tendency to use the threat and process of litigation as a tactical bargaining ploy. As one accountant with experience in such cases indicated, there is a common practice of using the process to force an account of the company’s financial dealings and eventually settle when satisfied or a bargaining position has been strengthened as a result. It is also important to note that the overwhelming majority of petitions concern private companies very few concern public companies and none in the sample relate to Hong Kong Stock Exchange (HKSE) listed firms. In 1995, the Securities and Futures Commission (SFC) estimated that it cost upwards of HK$10,000,000 of expenditure in legal and related fees to get to the stage of

preparedness for a minority shareholder action in the context of listed companies in Hong Kong at which point costs begin to become really astronomical[27]. The offshore registration of the majority of HK listed companies also adds to the complexity of the picture and has resulted in recent years in amendments to the securities legislation to enable the SFC to bring actions for unfairly prejudicial conduct with the consent of the Secretary for Financial Affairs[28]. There has also been the introduction of a statutory derivative action in 2004[29]. Other means of dispute resolution are also at work. The use of a trusted intermediary to negotiate a settlement is common and in a few cases the services of the Hong Kong Arbitration Centre are utilized. There remain problems in regard to the latter in the absence of a shareholders’ agreement containing an arbitration clause since the traditional case law on the enforcement of the statutory contract in the memorandum and articles remains restricted to issues affecting the member in his or her capacity as a shareholder whilst the ambit of the major minority shareholder remedies is wider where finalized agreements or understandings recognized in equity may be established particularly in relation to cases where removal from management or office as director are a ground of complaint[30]. The representative nature of the corporate form as a business vehicle for family firms The fourth, and not least, preliminary point is the reality that the corporate form of legal business vehicle whilst being the most popular during the relevant period, comprising two-thirds of all business registrations by the end of the period under consideration, is not the only one[31]. The partnership, for example, remains popular and a relatively recent legal action concerning a partnership between relatives related by marriage involving an acrimonious dispute between them was appealed all the way to the Court of Final Appeal[32]. Detailed analysis Introduction The aim of the analysis is to discover patterns in the data which may be used to match the legal perspective on companies in Hong Kong to the political and social models of the Chinese Family Firm, particularly that of Wong. The basis of this model is the stages that a company will go through during its life. It is therefore clear that the length of time between incorporation and the filing of the petition is a most important aspect of the data collected. In particular, the detailed basis for petition and the type of relief sought will be examined against this time. The primary results will be stated in terms of the associations that may exist between these variables. It is also important to analyze these dependent variables with respect to the independent variables, which describe some of the quantifiable aspects of the companies involved. From this analysis it will be possible to indicate other issues which may affect the timing of a petition or the bases and orders sought of the petitions. However, as the analysis shows, these results will not directly address the primary aim of the analysis, but will indicate possible areas for further research. Also the data do allow for more comments and support for the first stage of the model namely, the emergent stage. Although the analysis has been based on all petitions in the survey, the initial analysis has shown that not all of the companies involved may be described as Chinese family firms (CFFs). For this purpose a CFF is taken to be one where the ethnicity is ‘‘All Chinese’’, and the Family Relationship is either ‘‘family Vs family’’ or

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‘‘inter-family’’. This involves 74 of the petitions (26.9.per cent) Key differences between CFFs and the others in the survey are reported in the later analysis.

260

Relationships In this section, I will briefly outline the parties involved in the sample and their relationships. The average number of members in the companies involved in the sample was 4.27, with a standard deviation of three. The vast majority of the companies were private companies. In the majority of cases (209, or 76 per cent) only one petitioner was involved. The average number of petitioners in the sample as a whole was 1.43, with a standard deviation of 1.45 and therefore this variable is heavily skewed. I now turn to the family and ethnic relationships involved in the sample. Family relationships Given that one of the main objectives of the research is to examine the Wong Siu-lun model of the Chinese family firm it is important to determine both the ethnicity and familial relationships of the parties involved in the actions. The following family relationships were found to exist between the members of the companies involved in the petitions (Table III). Chinese ethnicity The ethnicity of the members of the companies involved in the petitions is shown in Table IV. The combination of these two sets of variables gives a clearer picture of the data’s distribution with regard to CFFs. Table V gives the number of instances of types of company, divided by the two criteria.

Table III. Family relationships

Table IV. Ethnicity

Table V. Chinese family firms

1. 2. 3.

1. 2. 3.

No family relationship Family vs family Inter-family

Non-Chinese All Chinese Mixed Chinese

Ethnicity family relationship

1. Non-Chinese n %

1. 2. 3.

141 04 17

No family Family vs family Inter-family

5.1 0 0.4

n

%

191 59 25

69.5 21.5 9

n

%

15 223 37

5.5 81.1 13.4

2. All Chinese n % 1512 515 218

54.9 18.5 7.6

3. Mixed Chinese n % 263 86 39

9.5 2.9 1.1

It would appear that the vast majority of the actions involve no family disputes and when considered in conjunction with the time factors (e.g. length of incorporation at the time of issuing the petition) these details would strongly suggest that the vast majority of cases are brought during the emergent stage of the corporate firm’s development. This could well lend support to Wong Siu-lun’s description of this stage as inherently unstable: In the absence of mutual trust, factions and cliques tend to be rife, with each partner attempting to place his own men inside the firm. If the business manages to take off despite these obstacles, then we see an asymmetrical growth in the distribution of shares

The figures above clearly show that in the majority of the petitions involving all Chinese parties (54.9 per cent) there was no family relationship between Chinese parties indicating that the vast majority of actions are brought at the emergent stage. In effect circa 70 per cent of the petitions have no family relationship indicating that poor choice of a business partner is a common problem. One experienced counsel commented that the first stage of development could usefully distinguish two scenarios: the siblings who form a partnership/company and who see the business as an alter – ego of the family unit; and the business partners (albeit known to each other and trusted on the basis of clan ties) but for whom the business form is never going to be anything beyond a convenient means of pooling their individual talents – the latter share profits, but will be slow to share liabilities when the chips are down. Another element which needs to be born in mind in this respect is that the firm may well have existed in some other form such as sole trader, partnership or joint venture for a number of years prior to incorporation. Similarly, parties who have successfully carried on a professional partnership for many years may incorporate another business, for example, in property or retail and fail completely to agree over its management and direction. The sample petitions contain several examples of this type of background to the dispute. Before incorporation, in 23 (8.4 per cent) companies the members formed a joint venture, in 36 (13.1 per cent) companies the members were partners, and in 216 (78.5 per cent) of the 275 companies the members were neither. However, after incorporation, 125 (45.5 per cent) of the 275 companies were described as joint ventures in the petition, 150 (54.5 per cent) were not. This may simply reflect an increased sophistication in the legal structures used as well as the perceptions of the petitioner (if not those of the respondents). As Wong Siu-lun points out in his model, the Articles of Association of private companies in Hong Kong often have both preemption clauses covering a transfer of shares and a clause giving directors an absolute discretion over the registration of a transferee of shares as a member. Though interestingly, unlike the UK during the relevant period[33], there was no statutory provision allowing for pre-emption rights on an allotment of shares making the asymmetrical growth in the distribution of shares easier without some legal barriers, though interestingly as can be seen from the dependant variables below only 35 petitions (12.7 per cent) complained about a dilution of shareholding. This aspect of the model may also require considerable revision for later periods as the number of incorporations in the early 21st century are on the increase largely fuelled by the growth of one-member companies. Length of incorporation prior to filing petition This dependant variable gives the length of time (in days) between incorporation and the filing of the petition. Two of the petitions do not contain the date of incorporation, and so the sample size has been reduced to 273. The mean for the entire sample is 2,976

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days, with a standard deviation of 2,704. This variable will form the key to subsequent analysis (see next section). The data are shown in the histogram below. Table VI divides the number of days into ‘‘years’’ and shows the number of petitions filed within each time period. Cause of action Companies Ordinance Section upon which petition based. The number of petitions based on Section 168A and Section 177 is shown in Table I. Grounds of complaint Detailed grounds of petition. The grounds of petition may vary depending on the cause of action used, although there are some cases of overlap. For example, oppression and non-payment of dividend may be grounds for both just and equitable winding up and unfairly prejudicial conduct[34]. The petitions containing particular grounds of complaint are shown below. Note that some petitions have more than one basis or grounds of complaint, so that the total grounds of complaint is greater than 275. However, the percentages are based on the 275 petitions (Table VII). Bin

Table VI. Filing of petition and length of company incorporation

Table VII. Grounds of complaint

365 730 1,095 1,460 1,825 2,190 2,555 2,920 3,285 3,650 4,015 4,380 4,745 5,110 5,475 5,840 6,205 More

Exclusion from management Loss of confidence No dividend paid Failure to follow regulations Diversion of funds/assets Dilution of shareholding

Frequency

Cumulative (%)

10 25 34 25 22 25 23 13 12 10 7 7 7 9 5 4 3 32

3.66 12.82 25.27 34.43 42.49 51.65 60.07 64.84 69.23 72.89 75.46 78.02 80.59 83.88 85.71 87.18 88.28 100.00

n

%

201 162 35 141 85 35

73.1 58.9 12.7 51.3 30.1 12.7

Relief sought by petitioners The number of petitions which include requests for orders for particular types of relief, are shown below. Note that some of the petitions (83) did not include any additional requests for relief leaving much to the discretion of the court (Table VIII). Comment. The pleaded relief is unsurprisingly dominated by buyout/sellout orders which would allow the petitioner to realize his or her investment in the company and invest elsewhere. Such orders are typically given by the court and are most common, though they may be subject to arguments concerning valuation of the shares. As we shall see in relation to the analysis of the Chinese family firm, significantly more requests for declarations are made in that category than in non-CFF contexts. However, the stated grounds of complaint in the petitions are in many cases disguising the real truth. For example, diversion of funds is often difficult to prove, but it is always the last straw. As long as ‘‘partners’’ are making money, they will accept/live with exclusion from management or having to go about their duties separately. However, once they realize that their financial interests are being prejudiced or to put it bluntly they realize that they are ‘‘being ripped off’’, they will do something, including the taking of legal action. The stated grounds of complaint may not articulate or particularize this element of complaint but it will be the trigger for action. The analysis also shows difference in the time gap between incorporation and filing of petitions depending on the section applied under. The mean (average) times in days are given in Table IX, for the different sections (the figure in brackets is the number of petitions involved). The differences between each of these groups are statistically significant (at the 5 per cent level). The following significant associations between the detailed bases of petition and the section applied under were revealed by the analysis: .

‘‘Loss of confidence’’ was pleaded in 56 per cent of Section 177 petitions, 7 per cent of Section 168A petitions, and 37 per cent of petitions filed under both. The difference is significant at 5 per cent.

.

‘‘No dividend paid’’ was pleaded in 29 per cent of Section 177 petitions, 14 per cent of Section 168A petitions, and 57 per cent of petitions filed under both. The difference is significant at 5 per cent.

Sell/buy shares Appointment of outside regulator Declaration Accounting Other

n

%

101 13 20 25 38

36.7 4.7 7.3 9.1 13.8

n

%

2,570 3,768 3,283

134 24 115

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Table VIII. Relief sought

Table IX. Section 177 Section 168A Both

Filing of petition and length of incorporation per action used

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.

‘‘Dilution of shareholding’’ was pleaded in 31 per cent of Section 177 petitions, 17 per cent of Section 168A petitions, and 51 per cent of petitions filed under both. The difference is significant at 5 per cent.

The following significant associations between the relief sought and the section applied under were also found:

264

.

‘‘Sell/buy shares’’ was sought in 9 per cent of Section177 petitions, 12 per cent of Section 168A petitions, and 79 per cent of petitions filed under both. The difference is significant at 1 per cent.

.

‘‘Appointment of outside regulator’’ was sought in 31 per cent of Section 168A petitions, 39 per cent of Section 168A petitions, and 31 per cent of petitions filed under both. The difference is significant at 1 per cent.

.

‘‘Declaration’’ was sought in 5 per cent of Section 177 petitions, 20 per cent of Section 168A petitions, and 75 per cent of petitions filed under both. The difference is significant at 1 per cent.

.

‘‘Accounting’’ was sought in 12 per cent of Section 177 petitions, 16 per cent of Section 168A petitions, and 72 per cent of petitions filed under both. The difference is significant at 1 per cent.

Comment. In these cases, the key difference is that many more petitions were filed under both sections for any of the relief’s which was possible during most of the relevant period 1980-1995. The interesting exception is ‘‘Appointment of outside regulator’’, for which significantly more petitions were filed under Section 168A. That loss of confidence was pleaded in the majority of Section 177 petitions is a reflection of the common basis of breakdown of mutual trust and confidence in what is alleged to be a quasi partnership on Ebrahimi principles or where there has been some form of oppressive conduct leading to a similar conclusion on the part of the petitioner. The small percentage pleaded in the Section 168A unfair prejudice context reflects both the broader-range of remedies available under that provision and the need to prove that conduct complained of is both unfair and prejudicial. Whilst case law had established that non-payment of dividends when a company is profitable may amount to grounds for just and equitable winding up the position in relation to unfairly prejudicial conduct was unclear partly due to the wording of section 168A the relevant provision during most of the relevant period since it was thought by some commentators that nonpayment of dividend affected all the members equally and not some part of them including the petitioner until Re Sam Weller & Sons Ltd suggested otherwise in 1989[34]. As to the relief sought, this is fairly typical. What is surprising is the large number of petitions which did not specify particular relief. Perhaps this is a case of too many counsel not being sufficiently thoughtful when drafting petitions. More recently the courts in Hong Kong have insisted on following the UK practice of discouraging the joining of Section 177 and Section 168A actions[35]. This will no doubt encourage a more careful consideration of the appropriate action in the circumstances and will possibly lead to a greater use of the Section 168A unfair prejudice action at the expense of the more extreme remedy of just and equitable winding up under Section 177 (1) (f). I now turn to the question of whether there are any significant differences between the mean (average) time to filing of petitions in relation to the various grounds of complaint. In terms of the primary aim of the research, this is could be an important

question. If there are any differences, it might be possible to link the basis for petition to the stage the company has reached in Wong’s model. The mean times are given in Table X, for each of the detailed bases (the figure in brackets is the number of petitions involved). Unfortunately, this test does not say anything about the mean time for one basis against another. For example, although ‘‘No dividend paid’’ has a higher mean than ‘‘Loss of confidence’’, the difference is not the subject of this test. All I am saying is that petitions that include the basis ‘‘No dividend paid’’ are filed after a longer time that those which do not. In testing for differences between individual bases, the tests proved statistically insignificant. This is due to very high variances within the groups. One problem with using this to apply to Wong’s model is that the stages in the model are given in relative time, not absolute. Thus companies filing petitions in the same stage of the company’s development (by the model), might do so after differing time spans. Nonetheless, there is clearly something going on here, and it may be suggested that the two significant grounds of complaint, namely non-payment of dividend and dilution of shareholding are grounds that are most often pleaded in circumstances where the company has had a longer lifespan in order to become profitable and perhaps need further capital for expansion. A similar question may be asked concerning significant differences between mean times to filing of petitions for different reliefs sought (in addition to winding up). This question might also be used as part of the primary research. If there are any differences, it might be possible to link the types of relief to the stage the company has reached in Wong’s model. The mean times are given in Table XI, for each of the detailed bases (the figure in brackets is the number of petitions involved).

Minority shareholder protection 265

The Chinese family firms data The data from the petitions involving CFFs indicated that they had significantly more members than non-CFFs. Eighteen per cent of CFFs had two or three members, 82 per cent had more; compared with 52 per cent of other companies having two or three members, and only 48 per cent having more (significant at 1 per cent). There was a similar significance in relation to petitioners with a higher percentage of CFFs having more than one petitioner compared to other types of company. Similarly, in relation to issued capital only 54 per cent of CFFs issued less than $1,000,000; compared with 72 n 1. 2. 3. 4. 5. 6.

Exclusion from management Loss of confidence No dividend paid Failure to follow regulations Diversion of funds Dilution of shareholding

3,014 2,947 4,512 2,920 3,341 3,865

% 199 161 35* 139 85 35**

Notes: *Statistically significant (1 per cent). Petitions filed including this basis are filed later than others that do not; **Statistically significant (5 per cent). Petitions filed including this basis are filed later than others that do not. Each of the groups is large enough to be valid in terms of the analysis, although it is clear that the two significant groups are much smaller than the others

Table X. Period of incorporation as per remedy sought (mean times)

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266 Table XI. Mean times

n

%

3,702 4,035 3,900 4,589

101* 13 20 25*

Notes: *Statistically significant (1 per cent). Petitions filed including this order sought are filed later than others that do not. Note that although the first case is lower than the others, the test has been done by comparing those petitions which include that order sought with those that do not. This is the same point as raised in relation to the grounds of petition above. In this case, those that do not seek the order average 2,550 days, which is significantly lower than 3,702

per cent of other companies (significant at 5 per cent). CFFs in our minority shareholder action sample therefore tended to be better capitalized, had more members and when disputes arose which went to law they often have more petitioners than other categories. There are other very significant associations between the time gap for filing petitions and whether the company is a CFF or not. Overall, the association is very significant at 1 per cent the time gap is longer for CFFs than for other companies. Analysing each basis for petition separately, ‘‘Exclusion from Management’’ is significantly longer for CFFs than for other (5 per cent); ‘‘Loss of Confidence’’, ‘‘No Dividend Paid’’, ‘‘Failure to follow Regulations’’ ‘‘Diversion of Funds’’ and ‘‘Dilution of Shareholding’’ are all very significantly longer for CFFs (1 per cent). The average number of days for each of the classifications of family relationship and ethnicity is given in Table XII. Classes indexed 5 and 8 are those which are counted as CFFs. In terms of relief sought by petitioners (in addition to winding up) the only significant association is for ‘‘Declaration’’, where 14 per cent of CFF petitioners sought and 86 per cent did not; compared with only 5 per cent of other petitioners sought and 95 per cent did not (significant at 5 per cent). That is, significantly more CFFs seek declaration. This would make sense in terms of seeking a ‘‘remedy’’ which simply states what a particular legal position or right is, thereby allowing the family parties to adjust or compromise in a face saving manner without the court making an order against one party at the expense of the other. When considering the date of incorporation and the time gap between incorporation and filing of the petition the correlation coefficient is 0.86 indicating a near perfect negative correlation so that the higher the value for the date of incorporation (the newer the company), the lower the value for the time gap. Next repeating this exercise

Table XII. Timing of petition and ethnicity

Ethnicity Family relationship

1. Non-Chinese

2. All Chinese

3. Mixed Chinese

1. No family 2. Family vs family 3. Inter-family

2,6011 —4 —7

2,4122 3,7515 6,3818

2,5183 2,7726 3,5499

Note: —Indicates insufficient data

to explore the correlation between the date of filing the petition and the time gap between incorporation and filing for CFFs we find a more interesting result, as it tells us whether there is any trend in the time gap value over time. The correlation coefficient is 0.04, indicating that there is no correlation. That is, companies filing petitions more recently during the relevant period have not been incorporated longer or shorter than those filing petitions at the beginning of the 15 years period. Other factors with numeric valued variables (only these are suitable for this test) were shown to have no correlation: .

Authorized capital.

.

Issued capital.

.

Issued capital (petitioners share).

.

Number of members in the company.

.

Number of petitioners.

Minority shareholder protection 267

Although the negative results may appear uninteresting, it does mean that these factors do not have any significant influence on the time between incorporation and filing of petition. Nor were there any significant differences in the mean time to filing petition for the different ethnic groups. The average number of days for each of the ethnic groups is given in Table XIII below (the figure in brackets is the number of petitions). However, there appears to be a significant difference in the mean time to filing petition for different family relationships. The average number of days for each of the ‘‘family/nonfamily’’ groups is given in Table XIV (the figure in brackets is the number of petitions). The difference between these values is very significant. The conclusion would seem to be that family relationship holds companies together longer before petitions are filed. The numbers of petitions in some of the groups is low, but still statistically valid. Conclusions It is submitted that the analysis of the minority shareholder experience in Hong Kong between 1980 and 1995 has shown that the vast majority of cases brought are typical of

1. 2. 3.

Non-Chinese All Chinese Mixed Chinese

n

%

2,591 3,053 2,660

15 222 36

Note: The difference between these values is not significant

1. 2. 3.

No family relationship Family vs family Inter-family

Table XIII. Mean time of filing and ethnicity

n

%

2,440 3,462 5,885

189 59 25

Table XIV. Mean time of filing and family groups

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the often fractious and sometimes unstable ‘‘emergent’’ stage of Wong Siu-lun’s model of the Chinese family firm and the all too common problem for entrepreneurs in many parts of the world of finding the right business partners. The cases exhibit a broad correspondence to the range of economic activity in Hong Kong during the relevant period. The overwhelming majority involve smaller private companies, only 26.9 per cent of the sample being classified as CFFs. The fact that the latter are so conspicuously absent from the sample in forming such a small percentage of the total is perhaps indicative of their inherent cohesiveness and as the statistics presented above indicate, even when disputes arise, the corporate Chinese family firm endures longer before dissatisfied members petition for relief. Other factors are also at play, from the economic costs involved in legal action to the strong desire not to wash family linen in public. As T. Y. Lee advised Samuel ‘‘to reduce conflict rather blow up in a big fight’’, ‘‘to avoid hard confrontation’’ ‘‘to let sleeping dogs lie’’; in other words, to prefer face saving harmony rather than open, public and ultimately expensive confrontation. The petitions and the reported case law allow us to glimpse the often complex and subtle forces at play. The issues may be wrapped in legal terminology and bent to its ways but nonetheless the case studies presented offer us useful insights, albeit behind a legal veil, of the inner workings of Chinese businesses and family firms. Unfortunately, models have their limitations, and as indicated above several factors including that of polygamy can complicate the nature of the family firm and the dynamics at play within it. These can impact on various issues including succession as Re Shiu Fook[11] and other examples referred to above indicate. The educational background of a generation and its cultural context may impact on management style and the relationships between members of a family, possibly affecting them in extreme ways as in the Samuel Lee Tak saga. Some commentators like Hodder have attacked the cultural affectations linked to the approach of Wong Siu-lun, others have recognized that they do play a role (sec, for example, Dam, 2006). Whilst changes in cultural norms and practices have been described as glacial, change is surely afoot from legal developments to the emphasis on a harmonious society with resurrected Confucian underpinnings alongside an emphasis on the rule of law. Perhaps most importantly changes in the nature of the family and the expectations that it gives rise to will have more lasting impact. Wong Siu-lun’s model was important for applying the lifecycle approach to the Chinese context and elucidating the particularly Chinese factors at play. That the model did not deal with all potentially relevant factors does not detract from its importance as a leading work. The other implication of the legal experience examined above impact on the law matters thesis of la Porta et al. – but that is another article. Notes 1. The Partnership Act 1890, Section 1, defines a partnership as ‘‘the relationship which exists between persons carrying on a business in common with a view of profit’’. The law regards the partnership as a relationship uberrimae fides (of the greatest good faith). The partners owe each other fiduciary duties in relation to partnership business. The reality in many Chinese contexts (norms aside) as Wong points out is often one of mutual distrust and suspicion. 2. (1916) 2 Ch 426. 3. (1972) 2 WLR 1289, HL. 4. (2007) 1 BCLC 349, ChD. 5. (1937) Ch 392.

6. 7. 8. 9. 10.

11. 12. 13.

14.

15.

16.

17. 18.

19. 20. 21.

22.

23.

(1976) 2 All ER 268, 280. (1989) AC 755, HL. See generally the Companies Ordinance (Cap 32), which has been subject to considerable amendment in recent years. (1843) 2 Hare 461. In 2004, Part IVAA Statutory Derivative Action was added to the Companies Ordinance (Cap 32) and is contained in ss168BA-168BK. See, for example, Anglo Eastern (1985) Ltd v Karl Knutz (1987) HKC 80, CA, discussed at (1988) Vo; 19 HKLJ 306. A deadlock 50 per cent shareholding was held sufficient for the fraud on a minority control test. Cf Barrett v Ducket (1993) BCC 778, HC; (1995) BCC 362, CA. See re Shiu Fook Co Ltd (1989) 2 HKC 342. These examples are based on interviews with counsel and law firms as well as the petitions. See, for example, Re Estate of Kwan Kai Ming, deceased, 30 December 1994, HK MP No 2996 of 1990, unreported; Tsao Chin Lan v Tin Ka Kung, 20 December 1994, HK Action No A7605 of 1991, unreported; Leung Sai Lun Robert v Leung May Ling (1998) 1 HKC 26 CA; Chan Chiu Lam v Yau Yee Ping (1998) 2 HKC 569, CFI; Re Estate of Wong Wong (1998) 3 HKC 405; Re Estate of Lau Wai Chau (1998) 3 HKC 405. Chinese Marriages Ordinance 1971. Cf Marriage Ordinance (Cap 181 relating to Christian marriages or equivalent) Section 39 (1) ‘‘Where 2 persons who have lived together in unlawful concubinage desire to marry and one of them is in articulo mortis, the registrar or any competent minister may celebrate the marriage at any place and at any time . . .’’ See, for example, Ng and Cheung (1994); Chan (1995) – ‘‘. . .it proposes to outlaw married men who set up second families, and is particularly aimed at the growing practice of Hong Kong men having mistresses on the mainland’’; So (1995), Ng (1995), Kwok (1995), Leung (1995), Chiu (1997) – ‘‘Bitter they say, is she who is forced to share a husband. But Vivien Chiu encounters a fiesty old woman who recalls a very different experience’’. Consider the case of former radio chat show hostess and Hong Kong’s most famous agony aunt Pamela Pak. On 24 January1997 ‘‘Pak had a guest on her show called ‘Uncle Eight’ who launched into a detailed description of the sex life enjoyed Cantonese opera singer Tang Wing-cheung, 81 then in the middle of a huge family dispute about money. (He has since died although not at Pak’s behest.) Metro ended the proceedings 20 min early at 12.40 am and the airwaves have observed Pak radio silence ever since’’ (Sunday Morning Post Magazine, 24 August 1997, p. 7). See Fairbank (1992). See further Gates (2001). Whilst this case just falls outside of the relevant period again it provides a relevant example which I was able to discuss in an interview with Le Pichon (as she then was) and Rodgers who were kind enough to offer me their insights on minority shareholder actions in Hong Kong. Wang Gungwu at xii in Wang (1994). Interviews for related HKICS project ‘‘Division of duties and Responsibilities between the Company Secretary and Directors’’. See generally Lawton and Tyler (2001). See Hofstede (1991). For a robust counterview, see Hodder (1996, pp. 131-3). See also Trompenaars and Hampden-Turner (2000) and also very insightful is Nisbett (2003). For a comprehensive review of the literature on succession and a review of the research from 1953 to 1993, see Wendy (1994). See in particular Lansberg (1988), Malone (1989), and Barnes and Hershon (1976). For a consideration of these see Neubauer and Lank (1998, Chapter 2).

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24. See, for example, the figures in Leach (1995). The Stoy figures showed that while 75 per cent of UK companies are family run, only 30 per cent of UK family businesses make it to the second generation and just 14 per cent to the third generation. Recent French figures give an equally bleak picture. 25. Petition No of 1999. 26. See also, Lee Tak Samuel v Lee Tak Yan (1999) 4 HKC 12. For an earlier Privy Council decision see Lee v Chou Wen Hsien (1984) 1 WLR 1202, PC. 27. Minutes of the HKSE sub-committee on Corporate Governance and Directors 1995 of which the author was a member. 28. See now Securities and Futures Ordinance (Cap 571), Section 241. This replaced the earlier provision in Section 37A of the former Securities and Futures Ordinance (Cap 24) and Section 144 of the Securities Ordinance (Cap 333). For examples of the application of these provisions, see Securities and Futures Commission v Chesterfield Ltd (1995) MP No 3504 of 1994 and SFC v Mandarin Resources Corp Ltd (1997) 1 HKC 214. 29. In 2004, Part IVAA Statutory Derivative Action was added to the Companies Ordinance (Cap 32) and is contained in ss168BA-168BK 30. Hickman v Kent and Romney Marsh Sheepbreeders Association (1915) 1 Ch 200; Beattie v E&F Beattie (1938) Ch 708 CA; Re Taiwa Land Investment Co Ltd (1981) HKLR 297; Chaun Wen Sze v Usine Company Ltd (1996) HK, unreported CWU 103 of 1995; Re Forecast Nominees Ltd, KHL Investments v Yeung Wei Sung (1996) 4 HKC 12; O’. Neill v Phillips (1999) 1 WLR 1092, HL. 31. For the statistics on companies and business registrations during the relevant period see Lawton and Tyler (2001). 32. See Leung Tong Fuk v Chan Yuk Kwan (1998) HK, unreported FACV No 4 of 1998. 33. See Companies Act 1985, ss 89-96. 34. Re a Company (No 00370 of 1987), ex parte Glossop (1988) 4 BCC 506, Non-payment or Payment of low dividends when the company is profitable may found a winding up on a just and equitable basis. However the court expressed the view that would not amount to unfairly prejudicial conduct of some part of the members as non-payment of dividend affected all members. However, in Re Sam Weller & Sons Ltd (1990) Ch 682 the different interests of members who did not take an active part in the running of the company as a director manager or employee with those who simply invested was recognised as sufficient reason to treat non-payment as unfairly prejudicial conduct for the latter. Later changes to the wording of unfair prejudice in both the UK and HK confirmed this approach. 35. Re Jan Nam Hong Ltd, CWU no 228 of 1990, unreported, Applied with vigour in Re Wong To Yick Wood Lock Ointment Ltd (2003) 1 HKC 484. The court now demands one petition per company. References Barnes, L.B. and Hershon, S.A. (1976), ‘‘Transferring power in the family business’’, Harvard Business Review, Vol. 54 No. 4, p. 105. Bonavia, D. (1982), The Chinese, Penguin, New York, NY, p. 2. Cameron, N. (1993), Barbarians and Mandarins: Thirteen Centuries of Western Travellers in China, OUP, Hong Kong, pp. 171-2. Chan, Q. (1995), ‘‘Proposal to jail men who keep concubines’’, SCMP, 29 January. Chiu, V. (1997), ‘‘Finding happiness as a concubine’’, SCMP, 5 January. Dam, K.W. (2006), The Law Growth Nexus: The Rule of Law and Economic Development, Brooking Institute Press, Washington, DC, pp. 57-68.

Ebrey, P. (1986), ‘‘Family instructions’’, in Dernberger, R.F., DeWoskin, K.J. et al. (Eds), The Chinese Adapting the Past, Building the Future, The University of Michigan Center for Chinese Studies, Ann Arbor, MI. Fairbank, J.K. (1992), China: A New History, Harvard University Press, Boston, MA, p. 176. Gates, H. (2001), ‘‘Footloose in Fujian: economic correlates of footbinding’’, Comparative Studies in Society and History, Vol. 43 No. 1, pp. 130-48. Hodder, R. (1996), Merchant Princes of the East: Cultural Delusions, Economic Success and the Overseas Chinese in Southeast Asia, John Wiley and Sons (see in particular chapter 4, ‘‘The Chinese company: A nexus of reciprocity’’), Chichester. Hofstede, G. (1991), Culture and Organisations: Software of the Mind, McGraw Hill, London, p. 113. Kwok, S. (1995), ‘‘Call for special concubine unit’’, SCMP, 25 March. Lansberg, I.S. (1988), ‘‘The succession conspiracy’’, Family Business Review, Vol. 1, p. 120. Lawton, P. and Tyler, E.L.G. (2001), Division of Duties and Responsibilities Between Directors and the Company Secretary, HKICS, Hong Kong. Leach, P. (1995), The Family Business, Director Publications (Stoy Centre for Family Business), London. Malone, S.C. (1989), ‘‘Selected correlates of business continuity planning in the family business’’, Family Business Review, Vol. 2, p. 341. Neubauer, F. and Lank, A.G. (1998), The Family Business: Its Governance for Sustainability, Macmillan Press, London, p. 145. Ng, C. (1995), ‘‘Alimony claim for Hong Kong wives’’, SCMP, 25 March. Ng, C. and Cheung, I. (1994), ‘‘Concubine negates registry marriage’’, SCMP, 31 December. Nisbett, R.E. (2003), The Geography of Thought: How Asians and Westerners Think Differently and Why, Nicholas Brealey Publishing, London. Redmond, P. (1992), ‘‘The evolution of corporate firms two case studies’’, in Companies and Securities Law: Commentary and Materials, 2nd ed., LBC, Sydney. Ruskola, T. (2000), ‘‘Conceptualising corporations and kinship: comparative law and development theory in a Chinese perspective’’, Stanford Law Review, Vol. 52, p. 1598. Leung, S. (1995) ‘‘Crackdown on concubine keepers’’, SCMP, 27 March. So, L.F. (1995), ‘‘Plea on concubines’’, SCMP, 30 January. Trompenaars, F. and Hampden-Turner, C. (2000), Riding the Waves of Culture, Nicholas Brealey Publishing, London. Wang, T.P. (1994), The Origins of Chinese Kongsi, Pelanduk Publications, Selangor Drul Ehsan. Wendy, W.C. (1994), ‘‘Succession in family business: a review of the research’’, Family Business Review, Vol. VIII, p. 65. Wong, S.L. (1985), ‘‘The Chinese family firm: a model’’, British Journal of Sociology, Vol. 36 No. 1, pp. 58-72 (reprinted (1993) Family Business Review, Vol. VI No. 3, pp. 327-40). Yee, A.H. (1992), A People Misruled: The Chinese Stepping Stone Syndrome, 2nd ed., Heineman Asia, Singapore, pp. 162-3. Corresponding author Philip Lawton can be contacted at: [email protected]

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Book reviews Guide to the Age Discrimination Regulations 2006 1st edition Edited by John Sprack Tottel Publishing 2006 301 pp. paperback £28 Review DOI 10.1108/03090550710841377 After a lengthy consultation period the Employment Equality (Age) Regulations 2006 were finally enacted on 1st October 2006 thus incorporating those parts of the EU Council Directive 2000/78/EC dealing with age discrimination into national law. John Sprack’s timely Guide to the Age Discrimination Regulations 2006 is a well written and clear handbook which guides the reader through those regulations. The chapters follow logically, firstly setting out what age discrimination actually is and then considering the scope of the protection offered by the regulations. Sprack goes on to consider possible justifications for discrimination based on age and deals with the exceptions provided for within the regulation as well as issues which can arise in recruitment, retirement and in relation to pension schemes. The last two chapters are devoted to enforcement and remedies. Each chapter contains a number of practical examples, helpfully set apart in text boxes. These examples not only brighten up the text but they are presented in a way which illustrates the point being made very well and clarifies the use of the provision under discussion. The book also contains easy to follow diagrams illustrating, for example, claims for direct or indirect age discrimination. In this way Sprack manages to convey a vast amount of complex information in what amounts to about 140 pages (the rest being taken up by the appendices) without overburdening the reader or oversimplifying the complexities of the regulations. Overall it is an easy to read and clearly structured book which would appeal to employers and employees as well as practitioners and students in this area who, I think, will find the diagrams and examples particularly helpful. Readers will find this text accessible and useful and it is strengthened by the inclusion of the full text of the Employment Equality (Age) Regulation 2006, Council Directive 2000/78/EC and ACAS Guidance for Employers on Age and the Workplace in the appendices. By including these, Sprack ensures that the reader has easy and immediate access to both the legislation and the advice published by ACAS and thus allows the reader to decide for themselves how much detail they really want at any given point. If there is a downside to this book it is that, from an academic point of view at least, the book could have been strengthened by including further references to a wider body of literature in this area. The target audience of employers, employees and employment law practitioners should however find this book practically relevant, easy to follow and very useful. Jessica Guth Bradford University Law School, Bradford, UK

Key Employment Cases for 2007 1st edition Edited by Michael Rubenstein Tottel Publishing 2007 40 pp. paperback £24.95 Review DOI 10.1108/03090550710841386 Rubenstein’s Key Employment Cases for 2007 is a strange little book. My initial reaction was ‘‘what’s the point of this book’’ and my opinion has not changed much after reading it. In Part 1 of this book, Rubenstein sets out 70 yet to be decided cases concerned with various issues of employment law. This section is an expanded text of his lecture to the Industrial Law Society meetings in Bristol, London, Leeds and Newcastle in early 2007 and I wonder if the subject matter is indeed better dealt with in a lecture or speech. The cases are listed giving a brief abstract of the issues under consideration by the various courts and are organised thematically into sections on Transfers of undertakings, Trade union rights, Health and Safety issues, Equal Pay and various discrimination issues to name just a few. The issue I have is not with the subject matter of the publication. In fact it is fascinating to contemplate the outcome of a whole collection of cases which were, at the time of writing at least, undecided. The problem lies in the usefulness of the publication as it stands. A lecture series, for example, can take account of decided cases and new cases coming before the courts. A book cannot be updated in the same way. Unfortunately this one was out of date almost the minute it was submitted for publication. All is not lost however. Practitioners and academics alike might find it useful to know which issues the courts are considering and which decisions to look out for. Part 1 of this book makes this easy. Employment law teachers can make use of the cases as ‘‘real life’’ teaching scenarios and the book can be used quite innovatively in teaching sessions. However, all of this could also be achieved through an electronically published (and updatable) transcript of Rubenstein’s lectures. At the time of writing this review many of the cases in the book have in fact been decided and many other issues have come before the court reducing the usefulness of this publication further. Part 2 of this book contains a record of those who have argued cases which have been reported in the Industrial Relations Law Reports and the judges who have decided those cases. It is, in my view, of no real use at all. In fact Rubenstein himself notes that he ‘‘makes no particular claim for its significance, other than it seemed to be an interesting exercise to carry out’’ (at p. 31). At £24.95 this book, little more than a booklet, is certainly overpriced for what it is and I am not at all sure it is worth buying. It is a shame in a way because the idea of providing readers, practitioners, employers, employees and academics alike, with an insight into what the courts are currently considering and what the big issues in employment law are likely to be in the next year is a really good one. A publication of this nature is just the wrong medium for it. Jessica Guth Bradford University Law School, Bradford, UK

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