Why do the listed company need external audit on its financial statements? Is the reason only compliance with law? The answer is not. The other reason is that readers/users need an assurance and a confidence through independent examination of evidence on those financial statements by external auditor due to the existence of separation of ownership from control. Traditionally, external auditor in corporate governance is to check whether the financial information of the company given to shareholders or other stakeholders is reliable. He expresses an opinion on whether the financial statements give a true and fair view of the company's financial position and its results of operations. An audit helps protect the interest of stakeholders and also provides a level of comfort to key decision makers for decision making (Cheung and Lee, 2008). However, there is a question on the value of external audit is only add on financial statements?
Corporate governance now is a popular topic in the real world since the Asian financial crisis in 1997 and corporate failures such as Enron and WorldCom in 2000. It is arising from the separation of ownership and control of the company. It involves a set of relationship between company's management, its board, its shareholders and other stakeholders (e.g. employees, creditors, suppliers and investors etc.). The purpose of corporate governance is to maximize the wealth of its shareholders and protect their interests as well as other stakeholders. In order to achieve this purpose, independent external auditors, the board of directors and the audit committee are indispensable (The Public Oversight Board, 1994).
For effective corporate governance, it is so important for each listed companies. It advocates for building highly effective boards to companies for balancing power, performance and profits with integrity, transparency and accountability. It also help the companies increased their competitiveness on the global. According to the Global Investor Opinion Survey took by McKinsey & Co in 2002, it showed majority of investors are willing to invest in companies with good corporate governance. Besides, the effectiveness of governance mechanisms can reduce the scope of agency conflict which arising from the separation of ownership and control. Thus, it provides greater protection to shareholders (Pei, 2004) as well as stakeholders.
Moody (2003) believed that the quality and reliability of the board is the critical to effective governance. Nevertheless, in practice, the word "effectiveness" on the issue of corporate governance is still in questionable. Many of challenge on the board of directors failed to function as oversight bodies on behalf of all shareholders. There may have a query on the protection of shareholders' interest, in particular minority shareholders whether adequate or not due to lack of effective mechanisms that could provide checks and balances such as the representation of independent directors and independent subcommittees for auditing, nomination and remuneration (Ma et al., 2000).
Dechow et al. (1996) found that when there is an absence of appropriate oversight from the board of directors and audit committee, management is more likely to engage in earnings manipulation and also engage the behavior of hostile takeovers (Shivdasani, 1993). These phenomenon are reflecting ineffective corporate governance of the company. Inadequate financial controls and supervision from board level is one of the reasons for corporate failure (Neville and David,1996).
Shultz (2008) said if there is no assessment and no accountability, how shareholders could know that the board, and its committee, are effectively representing them and doing their job. Everyone knows that each of listed companies have their own corporate governance. But, there is a challenge on it is that how much degree or what extent of the effectiveness of corporate governance do those companies have? Are their corporate governance consist with its principles (such as transparency, accountability, treat every shareholders fairly) thereby achieved the aim of corporate governance? It is difficult for shareholders or other stakeholders to know that without any assessment. They can aware the problem of corporate governance of the company only after a bad news announced.
Now, this is a good time for external auditor to break his traditional role in corporate governance and to extend the scope of the audit from giving an opinion on financial statements alone to engaging on issues of the effectiveness of corporate governance. That is an innovative role for external auditor in corporate governance. This study is to investigate whether external auditors have ability to audit their client's effectiveness of corporate governance.
OBJECTIVES AND STRUCTURE
This study will cover the followings objectives in order to achieve the above aim:
To undertake an analytical literature review of corporate governance and external auditor in corporate governance;
To explore the need for new role of external auditors in corporate governance;
To discuss the criterions of assessing the effectiveness of corporate governance;
To investigate whether the external auditors have ability to audit their client's effectiveness of corporate governance.
Section 2 attempts to discuss the idea of corporate governance, its aim and principles. In addition, the traditional role of external auditors in corporate governance, its relationship with the board of directors and audit committee will be discussed. Section 3 tries to discuss the phenomenon of corporate governance in practice through the case of Citic Pacific of Hong Kong and thereby to demonstrate the need of innovative role of external auditors in corporate governance. Section 4 is methodology that stated the research method. Section 5 will discuss the criterion of assessing the effectiveness of corporate governance and also interview has been select for supporting and finding. Section 6 is the conclusion.
SECTION 2 - LITERATURE REVIEW
WHAT IS CORPORATE GOVERNANCE?
DEFINITION OF CORPORATE GOVERNANCE AND ITS AIM
The term 'Corporate Governance' has no single formal definition. Generally speaking, "Corporate governance is a system by which business corporations are directed and controlled" (Cadbury, 1992). Gillan and Starks (1998) define corporate governance as the system of laws, rules and other factors that control operations at a corporation. On the other hand, Shleifer and Vishny (1997) define "Corporate governance as the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment". Moreover, John and Senbet (1998) stated that corporate governance is a set of mechanisms. Such mechanisms have been classified as either external or internal governance mechanisms (Brown and Caylor, 2005). External governance concerns interaction between external stakeholders and corporate managers and directors. While, internal governance concerns the interaction among corporate insiders, such as management, directors and employees.
Nevertheless, Hong Kong Institute of Certified Public Accountants ("HKICPA", 2004) described corporate governance as the processes and the related corporations' structures by which corporations are directed, controlled and held to account. It involves a set of relationships between a corporation's management, its board, its shareholders and other stakeholders. The structure of corporate governance specifies the distribution of rights and responsibilities among them and point out the rules and procedures for making decisions on corporate affairs (Organization for Economic Co-operation and Development ("OECD"), 2004). Besides, corporate governance provides the structure through which the objectives of the corporation are set, and also provides the framework for achieving those objectives and monitoring performance.
The Hong Kong Institute of Directors ("HKIOD", 2009) expressed that the aim of corporate governance is to enhance long term shareholders' wealth through enhancing corporate performance and accountability of management and the board to shareholders. Ho and Ko (2008) described that except for this aim, corporate governance now encompasses the interests of shareholders as well as stakeholders.
EFFECTIVE CORPORATE GOVERNANCE
"Effective corporate governance is a manifesto for building highly effective Boards and corporations by balancing power, performance and profits with integrity, transparency, accountability and reform in private and public sectors." (Vindel, 2005)
PRINCIPLES OF CORPORATE GOVERNACE
Openness, accountability and integrity are fundamental principles of corporate governance which identified in the Cadbury Report (1992). Subsequently, the OECD (2004) expanded those principles into the five principles for corporate governance which are international accepted and recognized as follows:
The rights of shareholders - The ownership and participatory rights of shareholders are being protected by law or procedure or practices. They have rights to understand and obtain all relevant and material information about the company on a timely and regular basis and to sell or transfer shares. In addition, they have rights to participate and vote in general shareholder meeting and have the opportunity to ask question to the board including annual external audit. They also can exercise their right to participate in key decisions such as appointment and removal of directors; or approval of major mergers or acquisition.
The equitable treatment of shareholders - All shareholders, including minority and foreign shareholders, should be treated equally. They have equal right and opportunity to correct the activity of shareholders which their original rights have been violated, such as misappropriation of assets by the controlling shareholders. Any insider trading and abusive self-dealing should be prohibited.
The role of stakeholders - Companies should recognize the right of stakeholders (i.e. employees, creditors, suppliers and investors) to participate in company's business. Such that, it can create shareholders' wealth and sustainability to the company through mutual co-operation between company and stakeholders.
Disclosure and transparency - Information should be prepared and disclosed timely and accurately on all material matters regarding the company, including the financial situation, performance, ownership and governance of the company.
The responsibilities of the Board - The board should monitor and review the performance of management effectively, thus, it can minimize the agency problem inherent in the separation of ownership and control. In additions, the board is accountable to the company and the shareholders (i.e. work in the best interest among them). It should treat all shareholders fairly and should be able to exercise objective and independent judgment on company's affairs.
Except the above, the Nolan Committee (1995) considered personal qualities as another principle behind governance where he defined them as selflessness, integrity, objectivity, accountability, openness, honesty and leadership for company in order to build effective corporate governance (cited in HKICPA, 2004).
BENEFIT OF GOOD CORPORATE GOVERNANCE
Good corporate governance helps the company to use its resources more efficiently (Mehmet and Michael, 2006). It also assists the board and management to facilitate effective monitoring and pursue objectives, which are benefit to their company and stakeholders. Besides, having good corporate governance, the company can enhance its image and brand value. HKIOD (2009) expressed that good governance can support wealth creation that in turn drives more investment and employment. According to the Global Investor Opinion Survey, it showed that majority of investors are willing to invest in companies with good corporate governance (McKinsey & Co., 2002). Furthermore, the company can enjoy lower cost of capital and reduces the risk of insolvency also.
EXTERNAL AUDITOR IN CORPORATE GOVERNANCE
External auditor, who is the employee of a public accounting firm, has been engaged to conduct their audit of a particular company's financial statements. They are required by law to conduct an annual financial statements audit (i.e. statutory audit). External auditor has a duty to exercise his professionism in their conduct of audit. He acts as the fiduciaries of the shareholders of the company, but not to the management, so that he must be accountable to the shareholders.
Normally, external auditors do not have direct corporate governance responsibility; while only the Boards of directors, audit committee and other supervisory committees is responsible for corporate governance. However, International Standard on Auditing ("ISA") 260 stated that "Communications of audit matters with those charged with governance". ISA 260 requires auditors to determine those persons that are charged with governance. As such, they are playing a significant role in maintaining good corporate governance (Ali, 1999) and they must ensure that good corporate governance practices are adopted (Anandarajah, 2001). External auditors' primary role in corporate governance is to check whether the financial information given to shareholders or other stakeholders is reliable. They are in the position to express an opinion on whether the financial statements of a company give a true and fair view of its financial position and its results of operations in accordance to the relevant financial reporting framework (e.g. Generally Accepted Accounting Principles) and also complied with the legal requirements (e.g. Company Act, 2006).
Auditors are independent, must examine their client's financial statements, obtain sufficient and appropriate audit evidence in order to assess and give their audit opinion, thus they must plan and perform their audit with ethical requirements and select their procedures based on their judgment for obtaining reasonable assurance as to whether the financial statements are free from material misstatement (i.e. due to fraud or error). For their client's internal control, they do not express opinions on the effectiveness of their client's internal control, while they must to understand their client's internal control as part of the audit. Baker (2009) described external auditors would cooperate with and assess the work of internal auditors. In additions, they must evaluate the appropriateness of current accounting policies, the justifiability of the reasons of accounting estimations made by the directors, as well as evaluate the overall presentation of the financial statements.
Cheung and Lee (2008) expressed that an audit help protect the interest of stakeholders and provides a level of comfort to key decision makers as more transparency and reliable financial information have been provided for them to make business decisions. They also said with good corporate governance and sound financial reporting processes, corporate accountability is enhanced, which eventually leads to the creation of wealth for stakeholders. Low (2002) concluded that an effective and objective audit is an essential part of corporate governance. Therefore, an audit can add value to corporate governance.
(Consider: Waterdog)
BOARD OF DIRECTOR AND ITS RELATIONSHIP WITH EXTERNAL AUDITORS
The board of directors ("The Board") of a company, which is ultimately responsible for corporate governance, is accountable to its shareholders of the company (Ho and Ko, 2008). Hillman and Dalziel (2003) described the two main functions of the board as monitoring and providing resources. It provides entrepreneurial leadership of the company and set the company's strategic aims, ensure that the necessary financial and human resources are in place for the company to meet its objectives, review and monitor management performance and behaviors, thus, it makes the success of the company by directing and supervising the company's affairs.
Most of literatures are to promote the effectiveness of the board of directors. Shareholders of the company are also expected that because they believe the effective board can improve the protection of their interests or wealth. Nevertheless, Ma et al. (2000) expressed that the effectiveness of the board in monitoring managers and exercising control on behalf of shareholders depends on number of factors. They are the representation of independent non-executive directors ("NEDs") on boards, independent board committees (such as remuneration, nomination and audit committees), and splitting the role of the chief executive officer ("CEO") from that of chairman of the board.
For NEDs, they are indispensable to effective corporate governance. They must be independent and do not have any relationship with the company which could affect the exercise of independent judgment. They are in the best position to monitor the performance of the board, the executive and contributing to the development of strategy. Fama (1980) said outside directors might act as professional referees to ensure that competition among insiders stimulates actions consistent with shareholders value maximization. Besides, Fields and Keys (2003) noted that outside directors who support the beneficial monitoring and advisory functions to firm shareholders. In additions, NEDs also provide their independent advices on sensitive areas (such as appoint or remove the management, remuneration). Nevertheless, with regard to the proportion of outside directors, there is no evidence to demonstrate that it affects future firm performance (Bhagat and Black, 1997). However, according to O' Sullivan's (2000) investigation, he examined the relationship between audit fee in the United Kingdom and the proportion of non-executives on the board of directors, and found that the greater the percentage of non-executives the higher the audit fee. He concluded that having more non-executive directors on the board enhance audit quality by increasing audit fee.
On the other hand, Neville and David (1996) believed that the audit, the remuneration and the nomination committees are the most important board committees in corporate governance. Each of the committee assists the board in carrying out different responsibilities. Audit committee will be discussed in Section 2.5. For remuneration committee, it must be independent and must have a clear policy on remuneration. In order to attract, retain and motive directors to achieve the long-term goals of the company, it must have an appropriate reward policy (such as performance bonuses) for them. NEDs should review such remuneration policy and practice and determine whether remuneration of executive directors appropriate or not. Any problems and issues in such remuneration should be reported and recommended to the board. For nomination committee, it should be chaired by NED and may include the chairman of the board for consultation. The main task of the committee is to propose candidates for election to the Board and must take into consideration the various rules or needs on the Board. Neville and David (1996) described this committee as the vehicle by which new NEDs are brought for selection. The short-term appointment of NED must be prohibited. Aside from this task, the committee also review and assess whether NEDs are devoting enough time to fulfill their duties.
With regard to the chairman and CEO of the company, Thomas and Ram (2010) represented that their roles and responsibilities has always been confused in practice. The chairman is responsible for leadership of the board, keeping board members focused on the objectives, setting meeting agenda, ensuring the provision of accurate, timely and clear information to directors, ensuring effective communication with shareholders, arranging the regular evaluation of the performance of the board, its committees and individual directors and facilitating the effective contributions of non-executive directors and ensuring constructive relations between executive and non-executive directors. The chairman should not jeopardize the CEO's credibility and erode the power or authority of the CEO. It should be responsible for governance and managing the board, while the CEO manages the business. Neville and David (1996) highly recommended separating the role of CEO from that of chairman because concentration of decision management and decision control in one individual will reduce board's effectiveness in monitoring top management (Fama and Jensen, 1983). It should be avoided and differentiate leadership of the board from running of the business.
The relationship between the board and external auditor also cannot be disregard. The board must ensure that it receives relevant and reliable information in order to meet its obligations to shareholders. External auditor must assist the board in achieving that goal. Furthermore, Broadley (2006) described that auditors must express their view on the appropriateness to the board, not just the acceptability of the accounting principles used or proposed to be used and on the transparency and completeness of the disclosures. Therefore, auditors have to stand up to their clients and must say things their clients do not want to hear (such as disagreements with management that affect the financial statements). By keeping open in communicating with the board and also its audit committee, they help the board to pursue and maintain good corporate governance; eventually the interest of shareholders is being protected.
AUDIT COMMITTEE AND ITS RELATIONSHIPS WITH EXTERNAL AUDITORS
Audit committee, as a sub-committee of the Board of directors, is a vital component of an effective corporate governance system. The role of audit committee is to assist the Board of director in carrying out its responsibilities. Such responsibilities are to oversee the integrity of financial reporting process, financial statements and system of internal control of the company. It keeps an ongoing communication between the Board of directors, financial management, external and internal auditors of the company. In order to enhance the quality of committee, independent non-executive directors are being required to involve in audit committee.
Audit committee is also responsible for the appointment of external auditor, negotiation of audit fee and considers whether contain conflict of interest between external auditors and the company exists (HKICPA, 2002). Moreover, it also monitors the activity of external auditors in order to enhance the credibility of audited financial statements. It prohibited non-audit services (such as book-keeping, internal audit outsourcing services, financial information systems design and implementation etc.) that provided by external auditors to the company. However, it can approve some non-audit services provided by those auditors, for example: tax services.
On the other hand, audit committee composition is strongly related to financial reporting quality. Cohen and Hanno (2000) represented that audit committee ensure the integrity of the financial reporting process. It has duties to provide assurance whether the financial disclosures including the company's financial condition, its result of operations, plans and long-term commitments are presented reasonably (i.e. the true and fair presentation) by the management or directors and to understand the key financial reporting risk area and system of internal control, monitor the control process of the company, so that it examine both interim and annual financial statements and also check, review and monitor the work done by both internal auditors and external auditors.
External auditors consider the effectiveness of audit committees as part of their assessment of the effectiveness of the company's internal control over financial reporting. Beasley (1996) found that effective audit committees significantly reduced the probability of financial statement fraud. McMullen (1996) also found that firms with active audit committees had fewer errors, reduce irregularities and shareholder suits. Such that, having effective audit committee, the interest of shareholders are being protected and also external auditors could take advantage because they enjoy the lower audit risk (Cohen and Hanno, 2000) and easy to access risk areas of the company when they conduct audit.
SECTION 3 - EXPANDING THE ROLE OF EXTERNAL AUDITOR IN CORPORATE GOVERNANCE
Everyone knows that each of listed companies have their own corporate governance. However, there is question on their corporate governance. That is how much degree or what extent of the effectiveness of corporate governance do those companies have?
In theory, the effectiveness of governance mechanisms can reduce the scope of agency conflict which arising from the separation of ownership and control and also advocates for building highly effective boards to companies for balancing power, performance and profits with integrity, transparency and accountability, thus, it provides greater protection to shareholders (Pei, 2004) as well as stakeholders.
Nevertheless, in practice, the word "effectiveness" on the issue of corporate governance is still in questionable. For shareholders/stakeholders, this is a potential risk on the company. Some phenomenon are reflecting the company's corporate governance is lack of effective. For example: When there is an absence of appropriate oversight from the board of directors and audit committee, management is more likely to engage in earnings manipulation (Dechow et al., 1996) and also engage the behavior of hostile takeovers (Shivdasani, 1993). These are directly challenged on the board of directors that failed to function as oversight bodies on behalf of all shareholders.
Similarly, the case of Citic Pacific Limited ("Citic Pacific") of Hong Kong has also been criticized that the corporate governance is lack of effective. In 2008, Citic Pacific, which recorded a huge amount of losses (approximately HK$15.5 billion) in its book of account, has issued warming of earning. The main problems are come from the Group Financial Director - Mr. Chang Li Hsien, Leslie who failed to follow the Group's hedging policy, has invested one of the financial derivative products - called "Accumulators" on behalf of the company without informed to and authorized by the chairman - Mr. Yung Chi Kin, Larry. And also, the Group Financial Controller - Mr. Chau Chi Yin failed to perform his monitor's duties and to report this unusual hedging transaction to the chairman. Both of them are executive directors. At the time, the board did not know such unusual hedging transaction.
This case reflect on the accountability of Citic Pacific is in doubt. There may not have a clear structure for defining the roles and responsibilities of all parties who are responsible for their decision and actions. The critique is on the roles of Mr. Leslie Chang and Mr. Chau. As they are executive directors of the company, they must have a fiduciary duty to both the shareholders and the company. They are accountable to the board, so that everything of the company including each of decision-making must inform and report to the board on a regular basis - quarterly, semiannually, annually or anytime (if urgent). However, in fact, they haven't have fulfill their duties.
The activity of Mr. Leslie Chang has been treated as exceeded his authority. He ignored the Group's hedging policy for assessing the risk of such financial derivative product and misuses the company's resources to invest on it without authorized by the chairman of the board. At the same time, Mr. Chau has been criticized for negligence. He awarded this unusual hedging transaction, but he did not perform his monitor's role for checking and balancing on such transaction and also did not report this material issue to the board. This induced the board failed to oversee the performance of two executive directors who have been entrusted to run the company, as it did not know this transaction at that time. Eventually, the company suffered a huge amount of losses and issued warming of earning as results.
In additions, the transparency of Citic Pacific has also been criticized. When the board knows the problem of losses, it did not disclose such losses to the public at first instance. At least 6 weeks, the problem is finally disclosed. There is challenge on the board whether is accountable to its shareholders or not because it delays to the disclosure of material price sensitive information to the public. Without any inside information disclosure, shareholders/ stakeholders are difficult to know and understand what is the problem of company faced to.
As the above stated, it demonstrated that the problem of corporate governance of Citic Pacific is lack of effective. Accountability and transparency are the essential elements for effective corporate governance, however, the results of the case is disappointed. When there is lack of effective mechanisms that could provide checks and balances, shareholders' wealth are being threatened and they expected returns on investments has also been disillusion. At the same time, their hearts were full of trouble on whether the board or others parties (such as INED) are effectively representing them and doing their job or not (i.e. act in shareholders' interests) due to agency problem. Besides, for lots of investors, they will loss their confidence for investing the company with ineffective corporate governance and for stakeholders, such as employee; they will worry about the going concern of the company (i.e. the problem of company's collapse). It seems that there is no way out for them.
Nevertheless, external auditors can add value to them through corporate governance audit. They are accountability that they act in the interest of primary stakeholders, whilst having regard to the wider public interest. In addition, they are objectivity and independence; therefore they are free from influences and express their opinions independently based on audit without any bias. As such, this is a good time for external auditor to break his traditional role in corporate governance and to extend the scope of the audit from giving an opinion on financial statements alone to engaging on issues of the effectiveness of corporate governance. That is an innovative role for external auditor. According to the result of consultation of ACCA, many auditors and interested parties in major markets across the world agreed that the time has come to consider extending the audit to the examination of, and giving a formal opinion on the effectiveness of corporate governance of company (ACCA, 2010).
An annual of corporate governance audit is carried out may act as a deterrent or a monitoring mechanism, so that it will enhance the protection of shareholders' wealth as well as enhance the level of effectiveness of corporate governance of the company. Through independent examination on the issue of corporate governance took by external auditors, it can give a confidence and an assurance to shareholders/stakeholders. Furthermore, Andrew (1998) view on the benefits of such audit as a preventative medicine. He said it combines the benefits of an annual medical checkup, healthy diet and regular exercise program. Such as audit identifies problems at an early treatable stage, before irreparable harm befalls a company. This allows external auditors to give their constructive advice to the board on improving the effectiveness of corporate governance of the company. Eventually, the misgiving of shareholders or other stakeholders that arising from ineffective corporate governance are being settled.
SECTION 5 - FINDING AND RESULTS
THE CRITERIA FOR ASSESSING THE EFFECTIVENESS OF CORPORATE GOVERNANCE
Effective corporate governance must achieve / done its principle so that OECD's principles are the criterions for assessing the effectiveness corporate governance.
THE EQUITABLE TREATMENT OF SHAREHOLDERS
OECD (2006) principle II expressed that "The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights." Through protection of non-controlling shareholders from potential misuse such as misappropriation by boards, managers and controlling shareholders, the integrity of capital markets is preserved as result and also attracts investors for making an investment.
This principle suggested the followings criteria by OECD (2006) for assessment:
When the company proposed to change the voting rights of different series and classes of shares, it should submit for approval at shareholders' general meeting through a specified majority of voting shares in the affected categories. If the adequate notice of meeting isn't followed, it should be redress.
Information about the material attributes of all classes and series of the company's shares is required to disclose sufficient on a timely basis to prospective investors for their decision-making about whether purchase shares or not. The company should make an updated summary description of the material attributes of its share capital on a regular basis.
If votes is cast by custodians/nominees in the meeting, there should have contracts established between custodians/nominees and beneficial shareholder for clearly defining the rights of vote and any instruction for voting that provided by the beneficial shareholder to custodians/nominees.
The voting methods should be used at shareholder's meeting for ensuring the equitable treatment of shareholders. And also the voting results should be made available to shareholders on timely basis.
Ex-ante mechanisms (i.e. a pre-emptive rights and qualified majorities for certain decision) should be provided for minority shareholders to protect their rights and/or ex-post mechanisms (i.e. rights cover access to redress once rights have been violated) sanctions against controlling shareholders for abusive actions (e.g. the extraction of direct benefit via high pay and bonuses for employer family members or inappropriate related party transactions etc.) taken against them. As such, there are effective means of redress for minority shareholders and adequate remedies.
Improper insider trading and similar abusive conduct by insiders are prohibited. There is an effective enforcement regime for deterring and detecting such insider trading and abusive conduct from violators and also there are effective transparency standards covering various types of self-dealing for providing effective protection to investors against abusive self-dealing (e.g. unreasonable managerial perquisites) by insiders.
