[book-cg] solomon - 2007 - corporate governance and accountability 2nd ed. (2007) john wiley & sons,chichester

findings and theoretical issues. The proposals developed are not beyond controversy and,
therefore, should stimulate further discussions.
Brigitte Eierle
University of Reg ensburg, Germany
Corporate governance and accountability, Jill Solomon, 2nd ed John Wiley & Sons,
Chichester, UK(2007), xvi + 386 pages, £ 30.99, €48.11, $65.00, ISBN 0-470-03451-3
1. Introduction
The dynamic concept of corporate governance and its underlying themes and issues
continue to challenge practitioners and academics alike with its constant review and
reforms, at a national and international level. As the author points out the term corporate
governance is one of the most commonly used phrases in the current global business
vocabulary. The author presents a text which is well written, easily understood and
extremely informative. First published in 2003, this second edition of the book updates the
first and includes new featu res. The author's and colleagues' latest research is also
summarized and referred to within the text. The book will be useful to u ndergraduate and
masters students, as well as practitioners interested in critically thinking about their role
within a corporate-governance framework. It includes the key literature pertaining to
corporate governance, which is extremely useful for those undertaking research.
2. Overview
The book is divided into three parts, with 11 chapters. It provides an overview of corporate
governance. In Part I the author sets out the corporate-governance framework and mechanisms
with a clear U.K. focus before providing a summary of global corporate-governance systems
in Part II. The book concludes in Part III with an extremely interesting examination of the ways
that corporate governance has evolved to include stakeholder concerns as well as shareholder
accountability. The book, which is supported by the author's and colleagues' research,
includes an Enron case study and an analysis of Parmalat, the “European Enron”.Particular
features of the book are the chapter summaries and questions for reflection and discussion,
which are extremely useful, not only for those studying corporate governance but also for
those delivering corporate-governance units at undergraduate and postgraduate level.
The author defines corporate governance as “the system of checks and balances, both
internal and external to companies, which ensures that companies discharge their ac-

countability to all their stakeholders and act in a socially responsible way in all areas of their
business activity” (p. 14). The main premise of the book is based upon the perceived shift from
the shareholder-based model of corporate governance, with attention being principally focused
on making companies more accountable to shareholders, to an increasing emphasis on meeting
the needs of a broad range of stakeholders. The author argues that theoretical frameworks that
doi:10.1016/j.intacc.2007.09.002
447Book reviews
suggest companies should only be accountable to shareholders are not necessarily inconsistent
with theoretical frameworks, which favor stakeholder accountability. The author also observes
that this wider stakeholder approach, linked to social responsibility and to some extent an
ethical approach to business, is not necessarily inconsistent with corporate profitability. This
belief is, as the author states, founded “on a growing body of literature and empirical evidence
that suggests that corporate accountability, which takes into account a broad range of social,
ethical and environmental factors, is conducive to financial performance” (p. 29).
3. Part 1
Part I, which consists of chapters 1–6 deals with corpor ate-governance frameworks and
mechanisms. Chapter 1 first defines corporate governance before dealing with the
theoretical frameworks of agency, transaction cost, and stakeholders. The author compares
and contrasts these before noting that they are “different lenses through which the same
problems may be observed and analys ed” (p. 23). Chapter 2 deals with corporate-
governance failure with particular reference to “Enron” and “ Parmalat”. The main focus is
the “Enron” case study which illustrates the dangers associated with weak corporate
governance and ineffective checks and balances. The author observes that while the U.S. and
Italian corporate-governance systems are very different, it is interesting to note that they are
equally vulnerable to similar forms of abuse and corporate-governance weaknesses. Chapter
3 focuses on U.K. corporate-governance reform, which the author states has, since the first
edition of the book, been subject to over-all fine tuning and refining of corporate-governance
mechanisms rather than dramatic changes and reforms. The chapter provides a useful
historic overview and summary of the corporate-governance reports from the Cadbury
Report (1992) to present day. The chapter introduces the corporate-governance codes of

practice and policy documents and explains the U.K. self-regulatory/voluntary approach to
corporate governance, described as the “comply or explain” approach, aimed at encouraging
compliance with its associated “good” corporate-governance culture rather than strict
statutory code. This approach has not been adopted at a global level and many countries have
adopted a more legalistic and statutory approach. It also highlights the impo rtant link
between governance and financial performance, before concluding with the development of
corporate-governance ratings, which impact on shareholder wealth. Chapter 4 deals in some
detail with the role of the board of directors, focusing mainly on U.K. listed companies. The
chapter covers the main initiatives supported by academic literature from board structure to
the increasingly important role of the non-executive director. The board is compared to a
“healthy heart” that ne eds to be “healthy, fit and carefully nurtured for the company to run
effectively” (p. 77). The author outlines the corporate-community response to the Higgs
Report (2003) and considers the arguments put forward by the literature relating to whether
non-executive directors play a useful corporate-governance role. The chapter highlights the
initiatives to widen the non-executive “gene pool” recommended by Higgs (2003) and
Tyson (2003). It closes with a view that the board is subject to a complexity of dynamics
which leads to perhaps a need to consider not only an “agency theory, finance paradigm” but
also other disciplines, such as “management science” when seeking “understanding of board
as corporate governance mechanisms” (p. 104). Chapter 5 considers the role of the
institutional investor, highlighting the monitoring aspect in the context of agency theory. The
448 Book reviews
chapter explains how the ownership structure has become more concentrated in the hands of
a small group of large institutional investors and the related, complex web of ownership, as
exemplified by pension fund investment management. The chapter also deals with the
increasing acti vity of the institutional investor, with special reference to research into
institutional investor voting in the U.K. and the impact of shareholder activism on corporate
performance and company value. Chapter 6 is dedicated to the way in which corporate
transparency contributes to corporate governance and the associated mechanisms by which
companies may become more transparent. A particular feature of this chapter is the section
dealing with the emerging areas of governance reporting and forward-looking narrative

reporting. Other key aspects of the chapter include the importance of risk disclosure and the
role of the audit in corporate governance linked to the agency problem.
4. Part II
Part II of the book focuses on the theme of global corporate governance. Chapter 7
introduces corporate-governance systems worldwide, based upon the main determinates of
ownership structure and legal frameworks while recognizing the impact of cultural and other
influences. The author acknowledges the difficulty associated with the categorization of a
country's corporate-governance system but adopts the accepted “insider” and “outsider” model
(p. 182), while offering the view that there is a real possibility that corporate governance will
converge at a global level. Chapter 8 provides a reference dictionary of corporate-governance
systems of selected countries that seeks to illustrate the broad diversity arising from their own
legal frameworks, corporate ownership, structure, culture, and economic factors. This chapter
clearly meets its aim of providing a flavor of the rich diversity of corporate-governance systems
internationally. However, it could benefit from elaboration or even form the basis in its own
right of a comparative text on international corporate-governance systems.
5. Part III
Part III broadens the debate on corporate governance by “extending the theoretical
paradigm from a narrow agency theory perspective to encompass a stakeholder theory
perspective” (p. 231). The author does this very successfully in chapter 9 by considering the
growth of corporate social responsibility and highlighting the potentially strong impact of
corporate behavior on a wide range of stakeholders. This is supported by a discussion of the
social, ethical, environmental, and sustainability disclosure which has the potential of
discharging their accountability to a wide range of stakeholders. The author notes the
importance of environmental and sustainability corporate reporting in achieving wider
accountability to both shareholders and corporate stakeholders. This is supported by a
growing perception that “good management of socia l and environmental issues is a
reflection of good general management, which is helping to drive the sustainability agenda”
(pp. 263–264). The chapter concludes by considering the academic debate that exists over
the stakeholder engagement and its genuine success in promoting corporate accountability.
Chapter 10 develops the theme of a broadening corporate-governance agenda through its

analysis of the role of institutional investors in driving corporate social responsibility by
taking account of environmental, social, and governance factors in their investment
449Book reviews
decisions. This analysis extends to consideration of socially-responsible investment
strategies and investments and their drivers and profitability. The author reports upon the
increasingly sophisticated engagement and dialogue that is emerging between institutional
investors and their investee companies in the area of social and environmental information as
part of socially-responsible investment. The author offers the view that such issues are now
being integrated into the heart of corporate-governance concerns for the institutional-
investment community. The chapter concludes with the statement that “this represents a deep
change in the attitude of business and financial institutions towards social responsibility,
endorsing a broader remit than that encapsulated by pure agency theory” and that a “broader
agenda for corporate governance, which embraces a stakeholder theory approach, may no
longer be viewed as inconsistent with value creation in the long run” (p. 302). Part III
concludes with chapter 11 which provides a brief insight into the author's view of the future
direction of corpor ate governance and accountability, which touches upon investor activism,
the global convergence in corporate governance, and corporate-governance refor m.
In conclusion, it is fair to say that the author achieves the stated aims of this work in an
informative and easily-read format. The book not only provides a great deal of explanation
and detail on the topic of corporate governance and accountability for undergraduates and
practitioners alike, but also provides a very useful discourse on a range of associated
theories, with reference to key literature on corporate governa nce and accountability, for
postgraduates embarking on their research.
References
Cadbury, A. (1992). Report of the committee on the financial aspects of corporate governance (Cadbury report).
Higgs (2003). Review of the role and effectiveness of non-executive directors (Higgs report). London: Department
of Trade and Industry.
Tyson (2003). Report on the recruitment and development of non-executive directors (Tyson report). London
Business School.
Jonathan Edwards

Business School, Bournemouth University, United Kingdom
doi:10.1016/j.intacc.2007.09.001
Financial statement analysis and security valuation, Stephen H. Penman, 3rd ed.
McGraw-Hill/Irwin, International edition (2007), xxix + 776 pages, £44.99, ISBN-
10: 007-125432-3
Penman's book is a well crafted volume, which offers plenty of content including
detailed material on “hands-on” financial statement analysis and valuation. It is com-
prehensive and such, the 2nd edition was widely adopted. The book provides a helpful
reference for students in economics and business, particularly for MBA candidates.
Penman's book also serves the needs of professionals who are confronted with valuation
450 Book reviews