The International Corporate Governance System

1 OECD Principles of Corporate Governance 349 2 OECD Principles – Assessment Matrix 355 3 New York Stock Exchange Commission Report. The use of the OECD Principles of Corporate Governance and the standard of the International Monetary Fund and the World Bank (Anglo-Saxon model) should not exclude other models (ie the continental European or Japanese model) that depart from the OECD principles envisaged . the ultimate goals of fairness, accountability, responsibility and transparency have been achieved.

Comparative Corporate Governance

General

A series of financial scandals beginning in the 1980s have raised questions about the ethics of corporate governance in the US and other developed economies. Furthermore, recent research has found a link between the state of corporate governance in an economy and the severity of crises it experiences.

The political framework

As explained in Chapter 6, the British system of corporate governance differs significantly from the American system of corporate governance, and all other countries that the authors include in 'Anglo-Saxon' are more similar to the UK and thus almost totally different from the US. In fact, the British corporate governance system is becoming more relational, more like an insider system, with the main difference being that the role of the British institutional investors is more creative when they participate in the extension of the City Code on Takeovers and Mergers.

The economic framework

The authors came to the same conclusion: Anglo-Saxon jurisdictions offer more shareholder protection than the civil law countries. A thorough analysis of the methodology used by these authors shows the wrongness of the approach.

Corporate governance structure

The concentrated corporate governance structure
The diluted corporate governance structure

Within a concentrated corporate governance structure, ownership and/or control is concentrated in the hands of a small group, either a family, a group of families, or a holding company, that manages the day-to-day operations of the corporation. Generally, within a diluted governance structure, ownership and/or control is dispersed among shareholders.

Corporate governance core principles

Fairness
Accountability
Responsibility
Transparency

Concentrated corporate governance structure is more common in civil law countries such as Germany, France and Japan. Diluted corporate governance structure is common within capital market-oriented countries or jurisdictions, where most companies have raised their capital by issuing securities in the capital markets.

The irony of corporate governance

The shortness of the Anglo-Saxon corporate governance model

Toward a network corporate governance model

In contrast, best corporate governance practices for the audit function require the market to be separate or fragmented as is the case in Russia, where more than 7,000 firms share the audit market.

General

The OECD core principles

The six OECD principles on corporate governance These six corporate governance principles include
The inefficiency of the six OECD principles

The sixth OECD principle stated that "the corporate governance framework should ensure the strategic direction of the company, effective monitoring of management by the board and accountability of the board to the company and shareholders". The actions of the board must be in accordance with the law, taking into account the interests of the shareholders.

The future of the OECD guidelines

Partnership structure
Family businesses

whereas the OECD principles analyze corporate governance through the lens of shareholders and management – the agency problem – and the assumption that corporate governance is important as it tends to reduce the cost of capital does not fit the family business structure for at least two reasons: (i) an agency problem exists or may exist and (ii) the capital issue can be resolved by the founder or family members providing the necessary cash without interfering with the market. The establishment of a board of directors in a family business provides a means of protecting the stability and continuity of the business.

Conclusion

General

To give confidence to members by temporarily making available to them the general resources of the Fund under adequate safeguards, so as to enable them to correct maladjustments in their balance of payments without taking measures which destroy national or international prosperity ; in accordance with the above, to shorten the duration and reduce the degree of inequality in the international balances of payments of members. In the midst of the financial crisis of 2008, the so-called G20 called for the reform of the IMF's corporate governance in order to restore the affected legitimacy of the institution; but five years later little progress has been made.

Current organizational structure of the IMF

The executive board
The board of governors
The international monetary and financial committee
The management
The Joint IMF–World Bank Development Committee
The Independent Evaluation Office
Inadequacy of the IMF governance

It advises and reports to the Board of Directors on issues related to the management of the international monetary and financial system. The IMF management consists of the general manager (MD) and the first deputy director.

Reforming the IMF corporate governance

An open and meritocratic process for leadership position The absence of a formal and transparent system for selecting the MD and
A review of the quotas at the IMF
An expansion of double majority systems of decision making

A member state's voting power is determined based on a quota system based on its financial contribution to the IMF. The amount of the loan that a member state can get from the IMF also depends on its quota contribution.

The IMF goals

The IMF has certain modalities regarding the payment of a country's membership fee: a quarter of the amount must be paid in Special Drawing Rights (IMF unit) and the remaining 75 percent in the local currency of the member state or any other accepted currency. by the IMF. However, a member state's quota changes automatically if that member state's economy expands or contracts.

The key functions of the IMF

Surveillance
Financing
Technical assistance

In recent years, the IMF's surveillance mandate has also evolved in scope to include simultaneous consultations among several member countries, and IMF staff investigate member countries' exchange rate policies to prevent unfair competitive advantage. The IMF has often used its technical assistance mission as a tool to achieve stabilization policy.

Categories of IMF lending

Concessional loans
Non-concessional loans

The IMF lends to a member country by providing it with reserve funds received from other member countries. However, IMF member countries that provide funding for the program criticized the program as ineffective. v) Compensatory Financing Facility (CFF).

The IMF corporate governance strategy

To make financial support more flexible and tailored to the needs of low-income borrowers, the IMF through the PRGF has since January 2010 provided: Extended Credit Facility (ECF), Rapid Credit Facility (RCF) and Stand-by Credit Facility (SCF). The IMF strategy on improving corporate governance has a dual objective: (i) to ensure that emerging markets adapt to a global economy in which financialization of capital becomes the main driver of wealth accumulation; and (ii) extending the prominence of shareholders over stakeholders to protect the interests of primary investors in global markets. B) The criticism of the IMF's approach.

Accountability, transparency at the IMF

Accountability
Transparency
Performance criteria (PC)
Program reviews (PRs)
Prior actions (PAs)
Structural adjustments (SAs)

PCs are conditions agreed by the IMF and the borrowing member country from the aid asset. PCs allow the IMF to assess the borrower member country's commitment or seriousness, as the subsequent disbursements are conditional on the success of the conditions precedent.

Conclusion

Supplementary reading

In addition, the implementation of SA by the IMF was dictated by the business model of investment banking, which is contrary to the spirit of the IMF Charter. So the Fund's failure to issue them is an error of the first order, even if such warnings may not have been heeded.

General

Organizational structure of the World Bank

The Board of Governors
The Board of Directors
The Office of the President
The inadequacy of the World Bank governance

Vice President and Network Head Poverty Reduction and Economic Management Vice President World Bank Institute. Vice President and WMA Chief Ethics Officer Figure 4.1 Organizational structure of World Bank effective 2 June 2012.

The aims of the World Bank

Almost seven decades after its creation, the distribution of voting power and the composition of governing bodies remain almost the same. WB governance does not provide a fair measure of voice and participation for all members.

Reforming the World Bank governance structure

Representation on the WB executive board is based on the right to vote. Given the fact that the WB works on the basis of consensus with few decisions formally going to a vote, EDs from developing countries are more or less merely "figures".

The World Bank assessment of member states

Often the WB will commission a local consultant to complete a template designed to reflect a country's corporate governance legal and regulatory framework, as well as information on corporate governance practices. The process could be improved if the WB moves to work closely with regional experts instead of generalist experts from an international background.

Towards a World Bank for the twenty-first century

The protection of the minorities
The alteration of the voting rights
The establishment of an independent OIE
Changing the auditing process of the World Bank activities Ex-post auditing of the WB activities should be conducted not by an

The Governing Council, as the guardian and interpreter of the WB Articles, should amend the WB Constitution to accommodate developing countries and improve their voting rights within all decision-making institutions. Instead, the external auditor for the WB activities should be appointed by the minority group and held accountable only to the minority group.

Conclusion

Supplementary reading

We are writing in a personal capacity to share our views and concerns with the World Bank Board of Directors and the wider development community as the Executive Directors are about to interview the final three candidates for World Bank presidency. The Executive Directors make an important choice at a crucial time for the future of the World Bank and its role in a rapidly changing world.

General

With more and more companies registering with the SEC and raising money from the public, the US has managed to imaginatively work out a corporate governance structure based on a theoretical and legal concept of the principal agent, despite its flaws and inadequacies. of such an approach. Overall corporate governance lacks a conceptual analytical approach in terms of checks and balances.

The agency approach

The board fiduciary duties
The safeguards: the business judgment rules
Limited shareholders’ rights
Reforming the BJR

The business judgment rule protects the board of directors against lawsuits arising from a breach of duty of care or wrongdoing. In the Unocal case, the Delaware Supreme Court set forth a list of elements or factors to be considered in assessing the existence of a threat to the target corporation.

The Company

The flaws and inadequacies of the agency approach The agency theory, developed in the early twentieth century, bears with it

Conflict of interests
Corporate defensive tactics

Household International Inc., 26 Delaware courts, for the first time, upheld the House plan as a legitimate exercise of the board's business judgment. Whenever these elements are found in the case, the Delaware court would approve poison pill prevention maintenance.

The financial and accounting framework

Section 404(a) requires both the CEO and CFO to annually assess and attest to the effectiveness of the company's internal audit process. Section 1101 of the SOX Act requires that a corporation's federal tax return be signed by the director of such corporation.

Shareholders’ limited corporate governance rights

Limited rights compared to other developed systems
Shareholders’ derivative litigation: a hurdle race

To establish a stockholder's derivative action, the plaintiff must (i) establish standing; (ii) either make a pre-suit claim to the company's board of directors or allege that the claim is futile; and (iii) adequacy of demand. Under each prong of Aronson, the plaintiff must plead particular facts that create a reasonable doubt that (i) the directors are disinterested and independent, or (ii) that the transaction was a valid exercise of the board's business judgment.

Reforming the system: more checks and balances

New standard of liability
Recognition of the role of employees
Compensation system
Dismantling the board group-think culture
Reforming the federal judicial system

The remark was considered offensive and used as an attempt to derail the confirmation of the only well-educated justice on the US Supreme Court. In the United Kingdom, France, Germany and Japan, judges are one of the most respected groups.

Conclusion

Introduction

The development of corporate governance in the UK The development of corporate governance in the UK is linked to a string

The Cadbury Report (1992)
The Greenbury Report (1995)
The Hampel Report (1998)
The Turnbull Report (1999)
The Higgs Report (2003)
The Tyson Report (2003)
The Revised Combined Code (2008)

The Higgs report highlighted the role and effectiveness of non-executive directors and their relationship with shareholders. Among other things, the Higgs report recommended that a non-executive director hold a key position on the board of directors.

The UK corporate governance approach

Corporate takeover
Call special meetings and amend the corporate charter Under the Company Act (CA) of 2006, a UK public corporation can uni-
Removal of directors without cause

Under section 168 of the UK Companies Act, a company can remove a director before the end of his term by ordinary resolution at a meeting. In addition, the articles of association should not exclude the possibility of dismissal of the director under Article 168(1).

The role, functions, and remunerations of the board Under the UK Company Law of February 2010 the role and functions of

The chairman
The board

There must be a formal, rigorous and transparent process for appointing new directors to the board. Except in smaller companies, at least half of the board of directors, excluding the chairman, should be made up of non-executive directors determined by the board to be independent.

The board accountability, internal control, and audit The board should present a balanced and understandable assessment

The board should ensure that board members, especially ordinary board members, have access to independent professional advice at the company's expense, where they deem it necessary to carry out their responsibilities as board members.

The board relationship with the shareholders

Shareholder derivative action

9 To initiate a statutory derivative action, the shareholder must seek to promote the success of the company and act in good faith.

The takeover market for corporate control

In doing so, it is the duty of the director to promote the success of the company for the interests of the creditors as a class. If management believes it has a better plan for the company, it must convince shareholders of the superiority of its plan.

The pros and cons of the UK approach

The enforcement of poison pills is complicated by Article 11 of the Takeover Directive, commonly referred to as the "breakthrough clause". The ban on poison pills is very strong in the UK, both in terms of the code and the actual practical implementation.

General

The board duties

Duty to manage
Duty of loyalty or the fiduciary obligations
Duty of care

The duty of loyalty requires that directors avoid conflicts of interest and/or usurp the company's business opportunities. The duty of care is not breached if the board has acted prudently and on a reasonably informed basis.

Role, Functions, and Remuneration of the Board

The role and the functions
Audit committee
The remuneration of the board

Under section 122(i) of the CBCA, the duty of loyalty, also known as the fiduciary duty, requires directors to act honestly and in good faith in the best interests of the company. Canadian audit committees appoint (annually) the external auditor of the company's financial statements, subject to shareholder approval.

Assessment of Duties

The proper purpose doctrine
The Business Judgment Rule (BJR)

The external auditor must report to the audit committee on any problems or difficulties encountered during the performance of the external audit. The court found that he was trying to thwart Teck's attempts to gain control. of the company was not improper.

Shareholders’ rights

It was found during the legal battle that members of the so-called 'compensation committee' did not understand the key components of the bounty they were handing out to the chairman.

The board relationship with stakeholders

Peoples Department Stores Inc (Trustee of) v. Wise

The Court of Appeal ruled that the directors had a duty to take into account the position of the bondholders and to investigate possible alternatives that could maintain the high rating of their investment, even if it was ultimately found to be in favor of the shareholders. . The Supreme Court ruled that directors' fiduciary duty is a broad conceptual concept, not limited to short-term earnings or stock value, but based on the long-term interest of the company.

The market for corporate takeover

Takeover regulations
Takeovers defensive tactics

Canada Enterprises, Inc (BCE) challenged the deal on the grounds that their high bond rating would be jeopardized. 6 In addition, section 194 of the CBCA would be triggered whenever an offeror making an offer for the shares of an offeree would control or own 10 per cent or more of any class of shares of that offeree.

Conclusion

The use or use of poison pills has certain limitations: apart from the approval of any new poison pill plan by the shareholders, the Canadian Securities regulators have jurisdiction over poison pill (real plan) whenever it is used as a defensive tactic by the target's board of directors used. directors. Moreover, any attempt by the board to introduce a poison pill in the midst of a takeover battle would be considered oppressive or a breach of directors' fiduciary duties.

General

Corporate governance in Australia

The ‘Comply or explain’ approach
The board of directors
The shareholders’ rights
Integrity of financial reporting
The risk management process
Remuneration

Under Australian corporate governance, all companies must identify and disclose the respective roles and responsibilities of the board of directors and management. The board of directors is required to set up a remuneration committee consisting of at least three independent directors and chaired by an independent director.

Corporate governance in New Zealand

The audit committee
The remuneration committee
The nomination committee

4 NZLR 2.1 of the Corporate Governance Best Practices Code further adds that a director must not simultaneously hold the positions of CEO and chairman of the board. Under Rule 3.1 of the NZ Code of Best Practice for Corporate Governance, the audit committee must consist of at least three non-executive directors, with at least one director having in-depth knowledge in accounting and finance.

Shareholder derivative action in Australia

Finally, section 166 of the Companies Act 1993, which deals with the costs of proceedings, allows the court to order that the company bear all or part of the reasonable costs of the proceedings unless the court finds that doing so is unjust would be or would be unfair for the company to bear those costs.

Market for corporate takeovers in Australia

The Australian Securities and Investments Commission (ASIC) The ASIC monitors compliance with the Corporations Act and investi-
The Takeovers Panel

The panel's decisions are subject to review, on their merits, by a separately convened review panel. The management of the target company can push back an unsolicited bid through either proactive preemptive strategies, 7 or defensive tactics.

Market for corporate takeovers in New Zealand

In addition, the Panel's decisions are subject to judicial review by the courts if the Panel violates the administrative legal process or principles. The Panel has consistently held that transactions related to takeovers should be decided by security holders, not the boards.

Conclusion

Takeover bids can be off-market bids (for both listed and unlisted securities) or market bids. Market offers are rare in Australia due to the requirement that they be cash only and unconditional.

General

The purpose of the corporation in Japan

The structure of the Japanese corporation

Independent directors
The corporate auditor system

Board compensation

Cash salaries and cash retirement bonuses, neither of which are directly tied to performance, make up the bulk of executive compensation. On the other hand, performance-based pay accounts for a relatively small portion of total pay.

Shareholder derivative action

Under new rules introduced by the financial regulator, publicly listed Japanese companies are required to disclose the individual names and pay levels of all directors and statutory auditors who receive ¥100 million or more in salaries, bonuses, stock options and pension payments .

Market for corporate takeovers

The CVSG
The Tokyo Securities Exchange (TSE)
The Judicial

However, the Tokyo High Court based its decision on a basis different from that of the district court. However, the Supreme Court's reasoning differed from that of the High Court and appeared to be consistent with that of the District Court.

Shareholders rights

Conclusion

General

Board structures

The two-tier structure
The unitary board

The Supervisory Board advises and regularly supervises the Executive Board in managing the company. The Dutch Corporate Governance Code provides specific rules based on the remuneration of the management board and the supervisory board.

Executive compensation

The compensation committee approach
The government-capping approach (France)

The remuneration of the members of the supervisory board is determined by the shareholders and does not depend on the results of the company. France is taking a unique approach by setting a cap on the amount CEOs and board members must receive as remuneration.

Shareholder derivative action

Germany
Italy
Spain
France

In Scandinavia, a claim for damages can be brought by one of several shareholders on behalf of the company, if such a procedure is decided upon at the shareholders' meeting. 18 The minority shareholder must own at least 10 percent of the authorized share capital at the time of the claim against the directors or the board.

Market for corporate takeovers

Germany
Italy
Spain
France
Scandinavia

Normally, the board will try to convince the shareholders that the offer price is too low in relation to the intrinsic value of the outstanding shares. Due to the high level of education of the German members of the supervisory boards, such an agreement is not easy to pass.

Introduction

Furthermore, developing countries must start with political and economic infrastructure to sustain corporate governance. Besides increasing the profits of shareholders, corporate governance in China and India and other developing countries pursues other goals, such as mitigating the potential conflict between the controlling shareholders and the minority shareholders.

Corporate governance in Brazil

The audit committee and the fiscal board
The independent auditor
The shareholders’ rights
The financial statements’ disclosure
Market for corporate takeovers

To avoid excessive concentration of powers in one hand, the Brazilian corporate governance code recommends that the offices of the chairman of the board and the CEO be separated. Brazilian corporate law is silent on board activities, however, the CVM and IBCG recommend that the board adopt bylaws to regulate its duties and meetings.

Corporate governance in Russia

The board structure
Internal control and external auditing
Shareholder derivative action
Market for corporate takeover

Thus, audit services have healthy competition in Brazil compared to the rest of the developed systems. Directors must perform their duties in good faith, reasonably and in the interest of the company.

Corporate governance in India

The audit committee
Disclosure of transactions with subsidiaries
Disclosure of corporate transactions
India’s corporate governance challenges

Synttech, which has strong political and judicial support, resorted to criminal investigations against the management of the target. It contains specific provisions that:. i) limit the control of the target to consider any defense.

Corporate governance in China

The principal-to-principal relationship
Corporate management in China
The stakeholders’ rights
The external auditor
Alternative dispute resolution
Shareholder derivative action Section 165 of the new Company Act provides

Likewise, the shareholder's claim would be waived in the event of irreparable damage to the company's interests. In addition, the target's board of directors must not block the offer or violate the rights of shareholders.

General

The board of directors

The structure of the board
Responsibilities of the board
Board’s committees

Of the committees, the audit committee and the nomination and remuneration committee are the most common. a). Review the interim and annual financial statements before their presentation to the board;.

The shareholders’ rights

To this end, it monitors that no felon or person convicted of any crime affecting honor or honesty is nominated to the Board or its Committee. It also recommends that appropriate remuneration be paid to those who sit on the board or its committees.

Information and disclosure

These statements provide additional information regarding the members of the board, the management team and the management discussion and analysis. Financial statements are prepared in accordance with the local national accounting standards and audited according to national standards.

Executive compensation

Shareholder derivative action

However, the Act does not contain a law (or section) for the protection of minority shareholders in privately owned companies. The protection of minority shareholders in private companies is subject to general principles of Sharia law.

Market for corporate takeover

Shareholders' legal actions against directors in public companies are based on the breach of fiduciary duties or the company's internal code or bylaws. In general, minority shareholders can sue directors under the ultra vires theory or if they can establish that the directors' actions are illegal.

Conclusion

This is striking, given the fact that in KSA 75 percent of companies are owned either by founding families and relatives or by the government.

Audit Roles

General

One of the fundamental principles of current corporate governance around the world is the importance of external financial auditing. 3 The function of the audit is to ensure that an organization's results and related information are fairly presented.

Internal audit v. external audit

The Internal auditor
The external auditor

The internal audit attribute standards

The purpose, authority, and responsibility of the internal auditor