Since the impact of non-listed companies on society is significant (these companies are considered the backbone of a robust economy and major job creators), the lack of corporate governance analysis in this area is likely to be detrimental. Politicians, investors, lenders and other stakeholders thus prefer to recommend the application of the rules and principles of corporate governance tailored to the requirements of publicly owned companies. The question of the economic effect of the 'one-size-fits-all' approach to corporate governance regulation on the performance of non-listed companies has produced mixed results.
In this view, unlisted companies do not seem to benefit from the spillover effect of applying disproportionate rules and principles of corporate governance. This does not mean that policy makers should completely change course and redirect their focus on corporate governance issues of non-listed companies. The objective of these corporate governance measures is to protect the public company's key stakeholders, i.e. shareholders, from managerial opportunism, thereby creating shareholder value.
The Contemporary Debate on Corporate Governance
Source: 'European Corporate Governance Institute, McKinsey Analysis' (published in Paul Coombes and Simon Chiu-Yin Wong, Why Governance Codes Work, The McKinsey Quaterly 2004 Number 2). Because it is imperative that firms adopt corporate governance codes as much as possible without any change, it can be argued that a "comply-or-explain". This governance style is further exacerbated by the progressive convergence of corporate governance codes around the world.
This example shows that the convergence of corporate governance codes should not be taken too far.
The Future of Corporate Governance: ‘Refocus’ on Non- Listed Companies
At the same time, these joint ventures and alliances encourage the further development of new technologies and the reduction of international barriers. For example, most joint ventures break up or fail within 7 years (see Figure 6) due to a lack of trust at the beginning and the difficulty of gaining trust mid-stream due to the conflicting interests of the parties. The rest of the study will argue that the implementation of good governance norms, which may be available in the form of legal rules, standards or optional guidelines, is equally essential to prevent deadlock, poor performance management, mistrust and stagnation in joint ventures. .
Empirical research supports the view that policymakers and legislators need to become more involved in providing non-listed companies with a governance framework that will promote strong decision-making, accountability, transparency and ultimately firm performance. An improved corporate governance framework is likely to encourage private equity and venture capital investment in fast-growing, high-potential companies and thus facilitate the provision of sustainable, high-quality jobs (see Figure 7). Indeed, a shift in focus from public companies to non-listed companies is important because, as we argued earlier, the preponderance of companies worldwide are non-listed and ownership and control are usually not completely severed.
Therefore, it is necessary to obtain a better assessment of the design and content of the legal framework of corporate governance of companies that are not listed on the stock exchange. This process can greatly accelerate awareness and demand for corporate governance principles in non-listed companies. Nevertheless, these four developments are expected to prompt policymakers and regulators to shift their attention to the governance needs of non-listed companies.
Indeed, we can already foresee a pattern of demand for and supply of corporate governance institutions that prompts politicians and legislators to devise and introduce corporate governance rules and principles of best practice that are better equipped to tackle difficult problems and challenges that are typical of family businesses, joint ventures and venture capital-backed companies. In the next part, a typology of categories of non-listed companies is discussed, along with the management framework and the role that guidelines can play in helping companies achieve their goals.
The Legal Corporate Governance Framework for Non- Listed Companies
Two sets of problems have repeatedly arisen due to the public nature of closed companies. Nevertheless, the success of the venture capital market is likely due to the availability of a corporate form that combines strong management and control features with contractual flexibility. The main source of information for the public is the periodic publication of the company's annual reports.
First, the independent joint venture partners are often at the same time competitors outside the scope of the venture. The growth of venture capital investment has been accompanied by a shift in the nature and composition of the US market. In the next section, we show that stage financing provides the necessary incentives to align the interests of the entrepreneur and the venture capital fund.
Only entrepreneurs who are confident in their skills and the quality of the company will accept the incentive contract. At each stage of financing, investors provide capital in exchange for shares of the company. Furthermore, syndicated investments can serve to alleviate the venture capitalist's hold-up problem.
The board mechanism also allows the venture capitalist to have access to key information about the potential profitability of the venture. Convertible preferred stock gives the venture capitalist a fixed claim on the venture's returns in the form of a dividend. Common stock provides incentives to the entrepreneur as compensation is based on the performance of the venture.
Terminating the investment in the portfolio company is the final stage in the venture capital process.
Summary and Conclusions
The refocusing of corporate governance on typical problems in non-listed companies, including family-owned businesses, joint ventures and high-potential start-ups, could help to promote countries' economic performance. Finally, it can only be expected that non-listed companies, which are largely dependent on bank financing and venture capital, must have a professional management structure in place. Separate discussions on corporate governance could well help raise awareness of the beneficial effects of such measures.
We then turned to the three pillars that form the corporate governance framework for non-listed companies. One of the most important pillars is of course company law, which could be seen as the main source of corporate governance techniques in relation to non-listed companies. In this view, courts and other conflict resolution bodies are essential to fill the gaps in the corporate governance framework afterwards.
While there could be significant recourse to the use of existing corporate governance mechanisms (designed for listed companies) to regulate, among other things, the ownership and control structures, the composition and functioning of the board of directors, transparency requirements and access to capital of external approaches and strategies for succession planning and conflict resolution, this study advocated the introduction of a separate approach for establishing corporate governance guidelines. It is important, especially in view of the need for more professionally managed non-listed companies, to put in place measures that are sufficiently attractive and coherent from a cost-benefit perspective to convince non-listed companies to opt for a well-tailored framework of legal regulations. mechanisms and standards. Such an optional set of recommendations could therefore not only play a crucial role in raising awareness about the importance of good corporate governance practices, but could also include provisions on the benefits of educating and training board members and shareholders to be competent and become reliable players in the field of corporate governance. unlisted companies.
Despite the expected benefits of these guidelines, empirical research is needed to confirm the expected productivity effects discussed earlier in this study for unlisted firms in general. It is clear that unlisted companies operating within a well-designed and effective governance structure are likely to be more successful and consequently more attractive to outside investors.
Endnotes
16 Limited liability was not an automatic consequence of the concept of the company as an independent legal person. A high share price prevents hostile takeovers and the subsequent dismissal of the board members. Many of the measures are aimed at discouraging earnings management and other forms of opportunism.
34 Illustrative of this is the report of the Dutch Corporate Governance Code Monitoring Committee, which monitored the operation of the Dutch Corporate Governance Code and its implementation by listed companies and shareholders. The Monitoring Committee's corporate governance code was installed by the Ministry of Finance on 6 December 2004 – approximately one year after the introduction of the Code. To be effective, a borrowed legal rule or standard must be understood and appreciated by local legislators, law enforcers, and other legal and economic actors. 1999), Comparative Corporate Governance and the Theory of the Firm: Case Versus Global Reference, Columbia Journal of Transnational Law 38:.
39 Another example of 'ineffective convergence' is the worldwide prominence given to the independent members of the board. 45 See Doing Business in 2004, Understanding Regulation, A joint publication of the World Bank, International Finance Corporation and Oxford University Press. In Germany, the German Supreme Court imposed a broad fiduciary duty on controlling shareholders of the German limited company – Gesellschaft mit beschränkter Haftung (GmbH) – in the ITT case (BGH 5 June 1975, BGHZ 65, 15 (ITT).
As a result of the restructuring of the IASC, on 1 April 2001, as one of its first decisions, the new Council renamed the IASC the International Accounting Standards Board (IASB) and, as far as future international accounting standards are concerned, the IAS to International Financial Reporting Standards (IFRS). 61 Derivative lawsuits are brought by one or more shareholders in the name of the corporation and for the benefit of the corporation as a whole, and are an exception to the usual rule that the board of directors of a corporation manages the affairs of the corporation.
