Privatisation and Deregulation: corporate governance consequences in a global economy

Corporate governance practices in the privatised British electricity utilit ies are analysed in this paper. It is shown that external governance did no t put enough pressure on the managers of the companies. Soft price regulati on, the lack of product market competition in distribution, low financial l everage and the deactivated takeover market created a stable environment. M oreover, diffused ownership was not an adequate stimulus either. Although b oard structures complied with best practices and executive incentives were in place, these two devices were unable to successfully restrict managerial discretion. Therefore, it is suggested that global competition in the mark et for corporate control could play an important role in bringing in the ap propriate incentives. The evidence indicates that allowing American electri c firms to bid for their UK counterparts brought to light inadequate corpor ate behaviour.