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Meaning, Reasons, Theories, And Systems Of Corporate Governance

As (Christine, 2007) point out, although annual report may give an accurate picture of business activities and financial position at any point of time, there are many facets of the business that are not effectively reflected in the annual report and accounts. There have been a number of high-profile corporate collapses that have arisen despite the fact that the annual report and accounts seemed fine and healthy, these corporate collapses have had an adverse effect on shareholders, employees, suppliers, and all stakeholders.

According to (Al-Latif, 2008), corporate governance is a word that barely existed 20 years ago. Now it is in common use not just in companies and investment sector but also in charities, universities, local authorities and national health trusts. It has become shorthand for the way an organization is run, with particular emphasis on its accountability, integrity and risk management. Corporate governance is an exciting area, fast developing to accommodate the needs of a changing business environment where investor expectations are higher than ever before.

In order to realize why corporate governance has become so important, it is essential to have an understanding of what corporate governance actually is and how it may improve corporate responsibility and accountability. This what the researcher will explain during this chapter.

2.2 Meaning and Nature Of Corporate Governance.

As (Brian, 2008) realized, corporate governance term is not easy to define. The term governance relates to a process of decision making and implementing the decisions in the interest of all stakeholders not only the shareholders. It basically relates to enhancement of corporate performance and ensures proper accountability for management in the interest of all stakeholders.

According to (EWMI, 2005) corporate governance refers to the rules, systems and procedures that guarantee the best protection and balance between the interests of the company managers, stockholders and other stakeholders. Corporate governance rules are primarily applied on listed joint stock companies and other financial institutions taking the form of joint stock companies, a joint stock company embodies numerous parties, each representing its own interests; these parties include employees, management, members of the board of directors, shareholders and other stakeholders. In summary, corporate governance is the mechanism or system through which the various interests in a joint stock company represent themselves and interact with each other.

According to (Sir Adrian Cadbury [1] , 2000) corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework main task is to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations, and society. The incentive to corporations and to those who own and manage them to adopt internationally accepted governance standards is that; these standards will help them to achieve their corporate objectives and to attract investment. The incentive for their adoption by states is that; these standards will strengthen the economy and discourage fraud and mismanagement.

Till now, there is no agreement yet on the definition of corporate governance among writers, researchers, scientific academies and professional organizations (Soliman, 2004). In the next section the researcher will introduce a number of widely accepted corporate governance definitions, as follows:

(1) A Fairly narrow definition of corporate governance is given by Shleifer and Vishny (1997): "corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment".

(2) A broader definition is provided by the organization for economic co-operation and development (OECD) in 1999 which describe corporate governance as "A set of relationships between a company's board, its shareholders and other stakeholders, it also provide the structure through which the objectives of the company are set and the means of attaining those objectives, and monitoring performance are determined".

(3) Similarly Sir Adrian Cadbury in (1999) said: Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals, the aim is to align as nearly as possible the interest of individuals, corporations and society. According to sir Adrian Cadbury corporate governance is the system by which companies are directed and controlled.

(4) Kok Peng defines corporate governance as the enhancement of corporate performance through supervision, monitoring of management performance and ensuring the accountability of management to shareholders and stakeholders.

From the above definitions, the following results can be concluded:

1. Corporate governance is concerned with both the shareholders and the internal aspects of the company (such as internal control) and the external aspects of the company (such as an organizations relationship with its shareholders and other stakeholders). This can be shown in the following figure:

Figure (2.1)

Shareowners

(Provide money to managers, appoint directors)

Directors

(Report to shareowners, oversee managers)

Managers

(Act as agents for owners, report to directors)

Source: (Lloyd, 2005 et al), corporate governance principal actors: shareowners, directors, and managers.

2. Corporate governance demands the participation of private actors, including auditors, accountants, and credit rating agencies. But on the other hand, it involves the functions of government, securities regulators, and capital market authorities.

3. In addition, corporate governance specifies the distribution of rights and responsibilities among different participants in the corporation such as the board, managers, shareholders and other stakeholders and spells out the rules and procedures for making decisions on corporate affairs.

4. Corporate governance is fundamental to well-managed companies; through it companies can ensure that it operates at optimum efficiency.

5. Some of the important features of corporate governance are as follows:

- It helps to ensure that an adequate and appropriate system of controls operates within a company and hence assets may be safeguarded.

- It prevents any single individual having too powerful an influence.

- It is concerned with the relationship between a company's management, the board of directors, shareholders, and other stakeholders.

- It aims to ensure that the company is managed in the best interests of the shareholders and the other stakeholders.

- It tries to encourage both transparency and accountability, which investors are increasingly looking for in both corporate management & performance.

2.3 Emergence and Development of Corporate Governance.

As (Abd-Elhamid, 2001) noted, investors worldwide value companies with good corporate governance practices. In 2002 McKinsey consulting surveyed over 200 institutional investors to find that 80% of respondents would pay a premium for well-governed companies, from 11% in Canada to 40% in Egypt (Global Investor Opinion Survey, 2002).

In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals. The California Public Employees' Retirement System (CalPERS [1] ) led a wave of institutional shareholder activism as a way of ensuring that corporate value would not be destroyed by the now traditionally good relationships between the CEO and the board of directors. The "revolution" started actually in the early 1990s with the Cadbury Report on the financial aspects of corporate governance (as the researcher will explain later), to which was attached a code of best practice.

Cadbury report (1992) is internationally recognized as the starting point for the development of corporate governance codes in Europe. It originated the self-regulation approach, whereby reporting on the management of a company was part of the listing requirements for public companies. The emphasis on the board as the focal point for decision making could also be said to be led by Cadbury (Jones and Pollit, 2004). Many of the recommendations of the Cadbury Code have been incorporated into the OECD Principles of Corporate Governance (1999, 2004) and into other national Corporate Governance Codes.

In 1995, the Greenbury report added a set of principles on the remuneration of executive directors, and in 1998 the Hampel report brought the two together and produced the first combined code. One year later, the Turnbull report concentrated on risk management and internal controls were published.

2.4 Why has Corporate Governance become so topical?

The answer of this question (why has corporate governance become so important recently) is directly linked to two parallel processes (Richardson, 2004 et al); the first is globalization while the second is transformation in the structure of firm ownership due to the growth of institutional investors, privatization, and rising shareholder activism. These processes have increased the perceived need for more effective monitoring mechanisms and appropriate incentive plans to strengthen corporate governance systems.

Behind the main reasons that explain why corporate governance has become so topical in recent years is the series of financial and corporate crises and collapses, including:

Asian financial crisis (1997/98).

Dotcom boom & bust (2000).

Enron, Worldcom and Tyco scandals in the United States (early 2000).

Parmalat earnings mis-statement scandal in Italy in 2002/3, as well as similar events at Ahold in Holland and Alstom in France.

Economic downturn over 2001-3.

Non-performing loans among state banks in China.

Problems associated with family and state ownership in Asia (not all bad, but abuses have occurred).

According to (OPM & CIPFA, 2005), corporate governance is essential as it works on enhancing corporate returns, builds investor confidence, brings greater oversight over operations and decisions and therefore boosts the wealth/value of the firm. Corporate governance also leads to societal gains such as increasing corporate ownership through privatizations, precludes corruptive behavior, leads to workers’ training, enhances corporate competitiveness and eventually improves economic performance. In addition, corporate governance promotes restructuring through developing the proper incentive systems for management and employees by carrying out tough decisions in face of global competition.

Finally and according to (Ayuso & Argandona 2007) the researcher can summarize the major reasons behind why has corporate governance received more attention lately as follows:

- Firstly, the proliferation of scandals and crises. Scandals and crises are just manifestations of a number of structural reasons of why corporate governance has become more important for economic development and a more important policy issue in many countries.

- Secondly, due to technological progress, liberalization & opening up of financial markets, and other structural reforms especially price deregulation & the removal of restrictions on products and ownership.

- Thirdly, the mobilization of capital is increasingly one step removed from the principal-owner, given the increasing size of firms and the growing role of financial intermediaries. The role of institutional investors is growing in many countries, with many economies moving away from “pay as you go” retirement systems. This increased delegation of investment has raised the need for good corporate governance arrangements.

- Finally, international financial integration has increased, trade & investment flows are increasing also. This has led to many cross-border issues in corporate governance.

2.5 Countries practices (experiences) in the field of corporate governance.

The corporate governance literature in the US and the UK focuses on the role of the board as a bridge between the owners and the management (Cadbury, 1992; Salmon, 1993; Ward, 1997). In an environment in which ownership and management have become widely separated, the owners are unable to exercise effective control over the management or the board. The management becomes self perpetuating and the composition of the board itself is largely influenced by the likes and dislikes of the chief executive officer (CEO). Corporate governance reforms in the US and UK have focused on making the board independent of the CEO.

(Franks, 1995 et al) used the term "insider" and "outsider" systems to differentiate between two types of ownership and control structures. In the outsider system, there is dispersed ownership of corporate equity amongst a large number of outside investors (as in both the UK and the USA). In contrast, in an insider system (such as in many continental European countries) ownership tends to be much more concentrated, with shares often being owned either by holding companies or families.

In the next section [1] the researcher will look at several countries, with respect to corporate governance practices, in a more detailed view (Christine, 2007 op.cit):

2.5.1 Corporate Governance In United States.

In the United States, corporations are governed under common law, the model business corporation act, and Delaware law. Individual rules for corporations are based upon the corporate charter and less authoritatively the corporate bylaws. As (Kaplan, 2003) points out, corporate governance in the U.S. has changed dramatically since 1980. As a number of business and finance scholars have pointed out, the corporate governance structures in place before the 1980s gave the managers of large public U.S. corporations little reason to make shareholder interests their primary focus. Before 1980, corporate managements tended to think of themselves as representing not the shareholders, but rather the corporation. In this view, the goal of the firm was not to maximize shareholder wealth, but to ensure the growth or at least the stability of the enterprise by balancing the claims of all important corporate stakeholders including employees, suppliers, and local communities, as well as shareholders.

During 2002 the U.S. corporate governance system has been heavily criticized, largely as a result of failures at Enron, WorldCom, Tyco and some other prominent companies. Those failures and criticisms, in turn have served as catalysts for legislative changes that occurred such as Sarbanes-Oxley Act of 2002 (SOX). The Sarbanes-Oxley Act of 2002, introduced in the United States of America in the aftermath of Enron, has fundamental governance implications for listed American companies, their foreign subsidiaries and foreign companies that have US listings. It applies to all Securities and Exchange Commission registered organizations, irrespective of where their trading activities are geographically based. SOX is different from the UK's Combined Code, and from codes of corporate governance adopted elsewhere in the OECD, in that compliance is mandatory rather than comply or explain.

2.5.2 Corporate Governance In United Kingdom.

As (Christine, 2007) points out, following various financial scandals and a perceived general lack of confidence in the financial reporting of many British companies, the financial reporting council, the London stock exchange, and the accountancy profession established the committee on the financial aspects of corporate governance on may 1991. After the committee was set up, the scandals at Bank of Credit and Commerce International (BCCI) and Maxwell happened, and as a result, the committee interpreted its remit more widely and looked beyond the financial aspects of corporate governance as a whole. The committee was chaired by Sir Adrian Cadbury and when the committee reported in December 1992, the report became widely known as "the Cadbury report".

The Cadbury report recommended a code of best practice with which the boards of all companies registered in the UK should comply with, whilst the code of best practice is aimed at the directors of listed companies registered in the UK, the committee also exhorted other non listed companies to try to meet its requirements.

2.5.3 Corporate Governance In Germany.

As (Christine, 2007) points out, The German corporate governance system is based on a dual board system, the dual board system comprises a management board and a supervisory board. The management board is responsible for managing the company while the supervisory board appoints, supervises and advises the members of the management board and is directly involved in decisions of fundamental importance to the company. Characteristics influencing German corporate governance can be represented in the following table:

Table (2.1)

Key characteristics influencing German corporate governance practices

Feature

Key Characteristic

Main Business Form.

Public or private companies limited by shares

Predominant Ownership structure.

Financial and non-financial companies

Legal System.

Civil Law

Board Structure.

Dual

Important Aspect.

Compulsory employee representation on supervisory board

Source: Christine A.Mallin (2007), corporate governance, second edition, Oxford University press Inc., New York.

2.5.4 Corporate Governance In France.

As (Christine, 2007) points out, the corporate governance system in France is set in a civil law context and traditionally doesn't offer good protection to minority investors. The French government has been an important stakeholder partly because of its direct shareholdings in French industry and also because of the fact that many civil servants are appointed in corporate boards. The first French corporate governance report was the vienot committee report in 1995, the vienot committee was established by two employers' federations and with the support of leading private sector companies. Key characteristics influencing French corporate governance can be represented in the following table:

Table (2.2)

Key characteristics influencing French corporate governance practices

Feature

Key Characteristic

Main Business Form.

Public or private companies limited by shares

Predominant Ownership structure.

State, institutional investors, individuals

Legal System.

Civil Law

Board Structure.

Unitary (but other structure possible)

Important Aspect.

Many Shares have multiple voting rights

Source: Christine A.Mallin (2007), corporate governance, second edition, Oxford University press Inc., New York.

2.5.5 Corporate Governance in Russia.

As (Christine, 2007) points out, the emergence of corporate governance in Russia is a recent phenomenon. Following the collapse of the Soviet Union, politically motivated privatization produced a system where corporate governance was not valued and shareholders were unable to come together to restructure and develop their companies. At the end of the 1990s, businesses were still poorly governed and investors and minority shareholders had few rights under the law.

The Russian institute of directors is one of the important organizations working to improve corporate governance practices in Russia. It assists Russian companies in complying with good corporate governance practices, as well as provides information on the development of corporate governance practices domestically and abroad. It also conducts corporate governance audits and holds regular training courses for board members and company secretaries in parallel.

2.5.6 Corporate Governance In China.

As (Wong, 2005 et al) realizes, corporate governance receives much attention in China in recent years. The core of such attention is the debate about how China can develop an effective corporate governance system to improve its listed companies’ performance and protect the minority shareholders. The Chinese stock market was officially born in the late 1990. In fewer than fifteen years, it has grown to become the eighth largest in the world. Based on the statistics from the China securities regulatory commission, there are already 70 million investor accounts opened across the country.

The corporate governance model adopted in China can be best described as a control based model in which the controlling shareholders employ all kinds of governance mechanism to tightly control the listed firms. It has been found that concentrated ownership structure, management-friendly boards, inadequate financial disclosure, and inactive take-over markets have been the most acceptable governance norms in China.

After reviewing different Countries practices (experiences) in the field of corporate governance, the researcher had reached a number of conclusions, can be summarized in the following points:

1. Corporate governance doesn't entail only internal company procedures but also it encompasses a wide variety of tools that also address the whole environment within which companies operate.

2. Corporate governance helps to build a foundation for economic growth by aiding countries in attracting investment, facilitating institutional reform, increasing competitiveness, and promoting minority shareholders rights protection.

3. Corporate governance helps to clean up the governance environment, exposing insider relationship and injecting values of transparency and accountability in both private and public transactions.

2.6 Importance of Effective Corporate Governance.

As mentioned before; during the last decade each year has seen the introduction or revision of a corporate governance code in a number of countries. These countries have encompassed a variety of legal backgrounds and cultural &political contexts. However, in each of these countries the introduction of corporate governance codes has generally been motivated by a desire for more transparency and accountability, and a desire to increase investor confidence in the stock market as a whole.

Corporate governance really matters; there is some evidence that good corporate governance produces direct economic benefit to the organization. One study conducted at Georgia State University and published in December 2004 (Lawrence, 2004 et al) found that; public companies with independent boards of directors have higher returns on equity, higher profit margins, larger dividend yields, and larger stock repurchases.

Although the Sarbanes-Oxley Act of 2002 applies almost exclusively to publicly held companies, the corporate scandals that gave rise to that legislation have increased pressure on all organizations to have better corporate governance practices. According to (Abdelhamid, 2001 op.cit) effective corporate governance is essential as corporate governance seeks to promote five basic objectives: first, leadership for efficiency and effectiveness; second, leadership for probity (gaining respect and credibility); third, leadership for responsibility (responsive to the needs of stakeholders & the community); fourth, leadership that is transparent & accountable; and fifth, leadership with focused intelligence.

As a result and as (Dixon, 2007) points out, failure in corporate governance is a real threat to the future of every corporation. The importance of corporate governance lies in its contribution both to business prosperity and accountability. Good corporate governance stimulates performance, generating higher returns and profitability of companies, leads to higher total factor productivity growth, and finally regarded as a major source of economic growth. Finally, good corporate governance can make significant contribution to the prevention of malpractice and fraud.

Generally, the researcher can summarize the importance of effective corporate governance, as follows:

1. The presence of strong governance standards provides better access to capital and aids economic growth. Corporate governance also has broader social and institutional dimensions. Properly designed rules of governance should focus on implementing the values of fairness, transparency, accountability, and responsibility to both shareholders and stakeholders.

2. Good corporate governance ensures that the business environment is fair and transparent and that companies can be held accountable for their actions. Conversely, weak corporate governance leads to waste, mismanagement, and corruption.

3. Good corporate governance recognized as essential for establishing an attractive investment climate characterized by competitive companies and efficient financial markets [1] .

4. At the level of the firm, the importance of corporate governance for access to financing, cost of capital valuation, and performance has been documented in a number of countries. Better corporate governance leads to higher returns on equity and greater efficiency.

On the other hand, and according to (CIPE, 2008) countries that have good corporate governance systems are associated with:

- Having better access to external finance: good corporate governance systems encourage global investors to invest, which subsequently leads to greater efficiencies in the financial and banking sectors.

- Lower costs of capital: investors that are provided with high levels of disclosure by well-governed companies are likely to provide capital to those well-governed companies at a lower rate, reflecting the investors’ improved knowledge of the company’s strategy and performance. 

- Improved company performance: sustainable wealth creation within the private sector can only be brought about through good management, entrepreneurship, innovation, and better allocation of resources. Better corporate governance adds value by improving the performance of companies through more efficient management, better asset allocation, and improvements in productivity. 

- Higher firm valuation and share performance: many researchers have identified the existence of a “corporate governance premium” (an additional price that investors will pay for shares in well-governed companies). In addition, some researchers have identified superior share performance by well-governed companies. 

- Reduced risk of corporate crises and scandals: companies with good corporate governance practices will have better risk-management systems, which are more likely to cope with corporate crises and scandals, than those without. These systems include enterprise risk-management, disaster recovery systems, media management techniques, and business continuity procedures.

This turn us back to what Arthur Levitt [1] have said in past years: If a countries does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. Thus all enterprises in that country will suffer the negative consequences.

2.7 Corporate Governance Systems.

An optimal corporate governance structure is the one that would minimize institutional costs resulting from the clash of the diverging interests of stakeholders and board members. According to (Kobrak, 2003 et al) the traditional way to describe governance regimes is through distinguishing between “outsiders” and “insiders” systems. The difference between them will be represented in the following section:

2.7.1 The Outsiders Systems.

As (Kobrak, 2003 et al) insists, the classic “outsider" systems are found in the United States and the United Kingdom. The distinguishing features of the outsider model are:

1. Dispersed equity ownership with large institutional holdings.

2. The recognized primacy of shareholder interests in the company law.

3. A strong emphasis on the protection of minority investors in securities law and regulation.

4. Relatively strong requirements for disclosure.

In these countries, equity is typically owned by widely dispersed groups of individual and institutional investors. Although these countries have long traditions of equity ownership by individuals, a phenomenon of institutionalization of wealth is occurring in which an increasing share of national income is managed by institutional investors (mutual funds, pension funds and insurance companies). Institutional investors are emerging as the largest owners of equity in the United States and already are the dominant owners of industry in the United Kingdom.

As (Maher, 1999 et al) insists, the “outsider” system can be also characterized as a market-based system. It relies heavily on the capital market as a means of influencing behavior. The system is also characterized by a legal and regulatory approach that favors use of the public capital markets and is designed to build confidence among non-controlling investors.

2.7.2 The Insiders Systems.

As (Kobrak, 2003 et al) insists, in most other OECD countries and nearly all non-Members [1] ownership and control are relatively closely held by identifiable and cohesive groups of "insiders" who have longer-term stable relationships with the company.

Insider groups usually are relatively small, their members are known to each other and they have some connection to the company other than their financial investment. Groups of insiders typically include some combination of family interests, allied industrial concerns, banks and holding companies. Frequently, the insiders can communicate among themselves with relative ease to act in concert to monitor corporate management, which acts under their close control. In addition, the legal and regulatory system is more tolerant of groups of insiders who act together to control management while excluding minority investors.

The following table summarizes the characteristics of "outsiders" and "insiders" systems of corporate governance:

Table (2.3)

Characteristics of "outsiders" and "insiders" systems of corporate governance

Points Of Comparison

Outsiders Systems

Insiders Systems

Ownership Structure.

Dispersed ownership.

Concentrated ownership.

Ownership Management relation.

Separation of ownership from management.

No separation, ownership& management are closely related.

Debt to Equity ratio.

Low.

High.

Bank loans to assets ratio

Low.

High.

Representation of other stakeholders.

No representation for their interests.

There is a representation for their interests.

Incentive to control.

Low within external investors.

High from stakeholders.

Legal proceedings.

Financial compensation in case of breach of the law and fiduciary duties.

No civil liability for violation of trade laws.

Source: Frank H.Stephen and Jurgen G.Backhaus, 2003, corporate governance and mass privatization: a theoretical investigation of transformations in legal and economic relationships. Journal of economic studies, Vol.30 No. 3/4, PP 389-468.

As (Sullivan, 2003 et.al) explains, there is no single model of good corporate governance as both insider and outsider systems have their strengths, weaknesses, and different economic implications. Furthermore, the effectiveness of different corporate governance systems is influenced by differences in countries’ legal & regulatory frameworks, and historical & cultural factors.

2.8 Corporate Governance: Principals & International Initiatives.

As (أبو العطا, 2005) points out, during the last decade each year has seen the introduction or revision of a corporate governance code in a number of countries. These countries have encompassed a variety of legal backgrounds, cultural & political contexts, business forms, and share ownership. However, in each of these countries the introduction of corporate governance codes has generally been motivated by a desire for more transparency, and a desire to increase investor confidence in the stock market as a whole.

Corporate governance codes and guidelines published in many countries around the globe have been issued by a variety of bodies ranging from committees appointed by government departments, representatives from the investment community, representatives from professional bodies, stock exchange bodies, in addition to various investor representative groups. In the next section the researcher will examine a number of corporate governance initiatives around the world:

2.8.1 Cadbury report [1] .

As (Christine, 2007) points out, after the occurrence of many financial scandals in the British market the financial reporting council, the London stock exchange, and the accountancy profession established the committee on the financial aspects of corporate governance in May 1991. After the committee was set up, the scandals at BCCI and Maxwell happened and as a result the committee interpreted its remit more widely and looked beyond the financial aspects to corporate governance as a whole. The committee was chaired by Sir Adrian Cadbury and, when the committee reported in December 1992, the report became widely known as "the Cadbury report".

The report recommendations covered: the operation of the main board; the establishment, composition, and operation of key board committees; the contribution that can be made by non-executive directors; the reporting and control mechanisms of a business. In other words, Cadbury report recommended a code of best practice with which the boards of all listed companies registered in the UK should comply. Companies should comply with the code but if it cannot comply with any particular aspect of it, then it should explain why it is unable to do so. This disclosure gives investors detailed information about any instances of non-compliance and enables them to decide whether the company's non-compliance is justified.

Few years after the publication of Cadbury report, the Greenbury report on disclosure of directors' remuneration were issued in addition to the Hampel report [1] .

2.8.2 OECD principles of corporate governance (1999) as revised (2004) [2] .

The organization for economic cooperation and development published its corporate governance principles in 1999, following a request from the OECD council to develop corporate governance standards and guidelines. Prior to producing the principles, the OECD consulted the national governments of member states, the private sector, and various international organizations including the World Bank and the International Monetary Fund.

The OECD principles of corporate governance were endorsed by OECD ministers in 1999 and have since become an international benchmark for policy makers, investors, corporations and other stakeholders around the globe. The Financial stability forum [1] has designated the OECD principles as one of the twelve key standards for sound financial systems.

OECD recognizes that there is no single model of corporate governance that is applicable to all countries. However, the principles represent certain common characteristics that are fundamental to good corporate governance; OECD principles were reviewed and revised in 2004. These principles cover six major issues which are:

1. Ensuring the bases for an effective corporate governance framework.

2. The rights of shareholders and key ownership functions.

3. The equitable treatment of shareholders.

4. The role of stakeholders in corporate governance.

5. Disclosure and transparency.

6. The responsibilities of the board.

Generally, OECD principles focus on publicly traded companies but as in the Cadbury report, there is an encouragement for other business forms, such as privately held or state-owned enterprises to utilize these principles to improve corporate governance. The OECD principles are non-binding but nonetheless their values as key elements of good corporate governance have been recognized and have been incorporated into codes in many different countries. For example, the committee on corporate governance in Greece produced its principles on corporate governance in Greece in 1999, which reflected the OECD principles, whilst the china securities regulatory commission published its code of corporate governance for listed companies in china in 2001, which also draws substantially on the OECD principles. The same happens in case of Egypt as the researcher will explain in the next chapter.

2.8.3 World Bank [1] .

World Bank utilizes the OECD principles; the aim was to prepare countries corporate governance assessments that identify corporate governance institutional frameworks & practices in individual countries. These assessments may then be used to support policy dialogue, strategic work and operations, and to aid in determining the level of technical assistance needed in given countries in relation to their corporate governance development.

The World Bank's corporate governance activities focus on the main dimensions of the OECD principles which are: the rights of shareholders; the equitable treatment of shareholders; the treatment of stakeholders; the duties of board members and disclosure & transparency. Clearly, the OECD principles are very much in evidence in this approach. In addition, the International Monetary Fund published reports on the observance of standards and codes. Sections on corporate governance, accounting, and auditing are included in these reports.

2.8.4 Global Corporate Governance Forum.

The Global Corporate Governance Forum (GCGF) is at the heart of corporate governance cooperation between the OECD and the World Bank. The Global Corporate Governance Forum supports regional and local initiatives to improve corporate governance in middle and low income countries in the context of broader national or regional economic reform programs.

The Forum’s mandate is to promote the private sector as an engine of growth, reduce the vulnerability of developing and emerging markets to financial crisis, and provides incentives for corporations to invest and perform efficiently in a transparent, sustainable, and socially responsible manner. In doing so, the forum partners with international, regional, and local institutions drawing on its network of global private-sector leaders.

The global corporate governance forum plans to provide assistance to developing transition economies on corporate governance. It states that it has three functions which are: broadening the dialogue on corporate governance, exchanging experience & good practices, and to coordinate activities & fill gaps in provision of technical assistance.

2.8.5 International Corporate Governance Network [1] .

The International Corporate Governance Network (ICGN) is a global membership organization of over 500 leaders in corporate governance based in 50 countries with a mission to raise standards of corporate governance around the globe. ICGN membership includes institutional investors, business leaders, policy makers and professional advisors. This enables the ICGN to draw on three unique strengths:

(1) Breadth and expertise which extends across the global capital markets to include senior decision makers and opinion leaders in the practice of corporate governance.

(2) Magnitude of institutional investors who collectively represent funds under management in excess of US$12 trillion, giving a focus on the role of shareholders responsible for the long term savings of the wider community.

(3) Geographic diversity with members drawn from every region including Africa, Europe, Latin America, the Middle East, North America, and South and East Asia.

Following the revision of the OECD principles (2004), the ICGN reviewed its global corporate governance principles and published revised principles in 2005. The ICGN revised principles also identify some additional principles of particular concern to the ICGN and its members. The new revised ICGN principles cover eight areas which are: corporate objective-shareholder returns, disclosure and transparency, audit, shareholders ownership & responsibilities, corporate boards, corporate remuneration policies, corporate citizenship, stakeholder relations & ethical conduct of business, and corporate governance implementation.

2.8.6 Basle Committee.

The Basel committee on banking supervision provides a forum for regular cooperation and coordination on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues with a view to promoting common understanding.

According to (Christine, 2007), Basle committee 1999 guidelines have been influential in the development of corporate governance practices in banks around the globe. Sound governance can be practiced regardless of the form of a banking organization. In 2006, the Basle committee issued new guidance comprising eight sound corporate governance principles, which are:

1. Board members should be qualified for their positions, have a clear understanding of their role in corporate governance, and be able to exercise sound judgment about the affairs of the bank.

2. The board of directors should approve and oversee the bank's strategic objectives and corporate values that are communicated throughout the banking organization.

3. The board of directors should set and enforce clear lines of responsibility and accountability throughout the organization.

4. The board should ensure that there is appropriate oversight by senior management consistent with board policy.

5. The board and senior management should effectively utilize the work conducted by the internal audit function, external auditors, and internal control functions.

6. The board should ensure that compensation policies and practices are consistent with the bank's corporate culture, long-term objectives & strategy, and control environment.

7. The bank should be governed in a transparent manner.

8. The board and senior management should understand the bank's operational structure.

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