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BWRR3123/ CORPORATE

GORVERNANCE

CHAPTER 6
INTERNATIONAL CODES OF
CORPORATE GOVERNANCE

Mallin: Corporate Governance 4e

Objective
To understand the principles and practices of
corporate governance in other countries.

Mallin: Corporate Governance 4e

Introduction
Corporate governance principles and codes have been
developed in different countries and issued from stock
exchanges, corporations, institutional investors, or
associations (institutes) of directors and managers with the
support of governments and international organizations.
There are many different models of corporate governance
around the world. These differ according to the variety of
capitalism in which they are embedded.
As a rule, compliance with these governance
recommendations is not mandated by law, although the
codes linked to stock exchange listing requirements may
have a coercive effect.
Mallin: Corporate Governance 4e

Corporate governance in the UK

Cadbury (1992)
Greenbury (1995)
Hampel (1998)
Above three reports recommendations
encompassed in the Combined Code (1998)

Mallin: Corporate Governance 4e

Corporate governance in the UK

Turnbull (1999, 2005)


Myners (2001, 2008)
Higgs (2003)
Smith (2003, 2008)
Above reports recommendations largely
incorporated in revisions of the Combined
Code (2003, 2006, 2008)

Mallin: Corporate Governance 4e

Corporate governance in the UK


Walker Review (2009)
UK Corporate Governance Code (2010,
2012)
UK Stewardship Code (2010)
Davies Report (2011, 2012)

Mallin: Corporate Governance 4e

Corporate governance in the UK


In addition, the Companies Act 2006; FSA
Reviews 2005 and 2009 (Turner); FRC
Reviews (2006, 2008, 2009); HM Treasury
2009 (Walker Review); EU Directives; US
Sarbanes-Oxley; and the impact of
institutional investors and their representative
groups all have influence on UK corporate
governance

Mallin: Corporate Governance 4e

Corporate Governance in US
Delaware General Corporation Law
Employee Retirement Income Security Act
(ERISA) (1974)
Sarbanes-Oxley Act (2002)
Commission on Public Trust and Private
Enterprise (2003)
NYSE Corporate Governance Rules (2003,
2010)

Mallin: Corporate Governance 4e

Corporate Governance in Continental


Europe

Germany
Denmark
France
Italy

Mallin: Corporate Governance 4e

Germany
Key Characteristics Influencing German Corporate
Governance
Feature Key characteristic
Main business form
Public or private companies
limited by shares Predominant ownership Financial and
non-financial structure companies
Legal system
Civil law
Board structure Dual
Important aspect Compulsory employee
representative on
supervisory board

Mallin: Corporate Governance 4e

Denmark
Key Characteristics Influencing Danish Corporate
Governance
Feature Key characteristic
Main business form
Public or private companies
limited by shares Predominant ownership Institutional
investors and structure foundation ownership
Legal system
Civil law
Board structure Dual
Important aspect Many shares have multiple
voting rights

Mallin: Corporate Governance 4e

France
Key Characteristics Influencing French Corporate
Governance
Feature Key characteristic
Main business form
Public or private companies
limited by shares Predominant ownership State,
institutional investors structure and individuals
Legal system
Civil law
Board structure Unitary (but other structure
possible)
Important aspect Many shares with multiple voting
rights
Mallin: Corporate Governance 4e

Italy
Key Characteristics Influencing Italian Corporate
Governance
Feature Key characteristic
Main business form
Limited liability companies;
partnerships
Predominant ownership Non-financial/holding
structure companies; families
Legal system
Civil law
Board structure Unitary
Important aspect Board of auditors required

Mallin: Corporate Governance 4e

Corporate Governance in the PanEurope

The Czech Republic


Poland
Russia
Hungary

Mallin: Corporate Governance 4e

14

The Czech Republic


Key Characteristics Influencing Corporate
Governance in the Czech Republic
Feature Key characteristic
Privatization method
Mass privatization via
voucher
Predominant ownership State; institutional outsiders
structure (investment funds and
banks)
Legal system
Civil law
Board structure Dual
Important aspect Influence of investment
privatization funds (IPFs)
Mallin: Corporate Governance 4e

Poland
Key Characteristics Influencing Corporate Governance
in Poland
Feature Key characteristic
Privatization method
Management and employees
buy company
assets
Predominant ownership Institutional outsiders (NIFs);
structure State; individuals/families
Legal system
Civil law
Board structure Dual
Important aspect Role of National Investment
Funds (NIFs)

Mallin: Corporate Governance 4e

Russia
Key Characteristics Influencing Corporate Governance
in Russia
Feature Key characteristic
Privatization method
Mass privatization via
voucher
Predominant ownership Insiders (managers and
structure workers) although outsiders
increasing
Legal system
Civil law
Board structure Dual
Important aspect Covers dividend payments

Mallin: Corporate Governance 4e

Hungary
Key Characteristics Influencing Corporate Governance
in Hungary
Feature Key characteristic
Privatization method
Privatization via selling
majority control to outside
investor, often foreign
Predominant ownership State; institutional outsiders
structure (foreign)
Legal system
Civil law
Board structure Dual
Important aspect State influence but potential
influence of foreign investors

Mallin: Corporate Governance 4e

Corporate Governance in South


Africa, Egypt , India and Brazil

South Africa
Key Characteristics Influencing Corporate
Governance in South Africa
Feature
Key characteristic
Main business form
Public limited company
Predominant ownership Institutional investors
structure
Legal system
Common law
Board structure
Unitary
Important aspect
Inclusive approach

Mallin: Corporate Governance 4e

Egypt
Key Characteristics Influencing Corporate Governance in
Egypt
Feature Key characteristic
Main business form
Joint stock company
Predominant ownership State; Institutional and structure
individual investors
Legal system
Civil law
Board structure Unitary
Important aspect Shariah law (for example, in
Islamic financial institutions)

Mallin: Corporate Governance 4e

India
Key Characteristics Influencing Corporate Governance
in India
Feature Key characteristic
Main business form
Public limited company
Predominant ownership Corporate bodies; families;
structure but institutional investors ownership
increasing
Legal system
Common law
Board structure Unitary
Important aspect Some aspects of the Code
are
mandatory
recommendations

Mallin: Corporate Governance 4e

Brazil
Key Characteristics Influencing Corporate
Governance in Brazil
Feature
Key characteristic
Main business form
Public limited company
Predominant ownership Controlling owner
structure
(corporations or individuals)
Legal system
Civil law
Board structure
Dual
Important aspect
Fiscal councils

Mallin: Corporate Governance 4e

Corporate Governance in the AsiaPacific

Japan
South Korea
Malaysia
Singapore
China
Australia

Mallin: Corporate Governance 4e

24

Japan
Key Characteristics Influencing Corporate
Governance in Japan
Feature Key characteristic
Main business form
Public limited company
Predominant ownership Keiretsu; but institutional
structure investor ownership increasing
Legal system
Civil law
Board structure Dual
Important aspect Influence of keiretsu

Mallin: Corporate Governance 4e

Japan
Before world war II, Japans Corporate System was
dominated by huge family owed businesses (the
zaibatsu)
After the war, these businesses evolved into the
kereitsu, which are related closely through share
ownership to one or more banks.
The banks that owned companies also sat on
company boards and played an important role in
monitoring company management.
There was little separation of ownership and control,
and companies were diciplined by their banks.
Mallin: Corporate Governance 4e

Japan
Japans CG system is often likened to that of
Germany because banks can play an
influential role in companies. However, there
are fundamental differences: driven partly by
culture and partly by Japanese shareholding
structure (keiretsu).
The Japan Corporate governance committee
published its revised code in 2001.
The code has six chapters , which contained a
total of 14 principles.
Mallin: Corporate Governance 4e

South Korea
Key Characteristics Influencing Corporate
Governance in South Korea
Feature Key characteristic
Main business form
Public limited company
Predominant ownership Controlling shareholder
structure (family, corporate cross- holding)
Legal system
Common law
Board structure Unitary
Important aspect Influence of chaebol

Mallin: Corporate Governance 4e

South Korea
After world war II, Korea was occupied by Japan was
influenced by the Japanese structure of business.
As in Japan, the corporate ownership structure has
been characterized by founding family ownership
concentration.
The Korean chaebol, or conglomerate business
groups, have arisen from family-run companies and
are now global players.
There has been little separation of ownership and
control as the owners and managers have tended to be
the same people at the highest level.
Mallin: Corporate Governance 4e

South Korea
The Korean Committee on Corporate governance , a
non-governmental bodies issued its Code of Best
practice of Corporate Governance in September
1999.
The aim is to maximize corporate value by enhancing
transparency and efficiency of corporation.
The code has five sections relating to shareholders,
the BOD, audit systems, stakeholders and
management monitoring by the market.
Legal basis and compliance disclosure (comply and
explain)
Mallin: Corporate Governance 4e

Malaysia
Key Characteristics Influencing Corporate
Governance in Malaysia
Feature Key characteristic
Main business form
Public limited company
Predominant ownership Controlling shareholder
structure (family, corporation, or trust
nominee)
Legal system
Common law
Board structure Unitary
Important aspect Influence of bumiputera
shareholders; emphasis on
director training

Mallin: Corporate Governance 4e

Singapore
Key Characteristics Influencing Corporate
Governance in Singapore
Feature
Key characteristic
Main business form
Public limited company
Predominant ownership Families, state
structure
Legal system
Common law
Board structure
Unitary
Important aspect
Influence of the State (for
example via Temasik
Holdings)
Mallin: Corporate Governance 4e

Singapore
Singapore is one of the leading financial
centres in Asia.
Temasik Holdings is an investment company
that was incorporated under the Singapore
Act in 1974 to hold and manage investments
and assets previously held by the Singapore
government.
The aim was for Temasik to own and manage
these investments on a commercial basis
Mallin: Corporate Governance 4e

Singapore
The Corporate Governance Committee of SID
(Singapore institute of Directors) issued its
Code of Corporate Governance in
November 2001.
The code is divided into 4 sections: Board
matters; Remuneration matters; Accounting
and Audit; and Communication with
shareholders.
Legal basis and compliance disclosure
(comply and explain)
Mallin: Corporate Governance 4e

China
Key Characteristics Influencing Corporate
Governance in China
Feature Key characteristic
Main business form
State-owned enterprises,
joint stock companies
Predominant ownership State
structure
Legal system
Civil law
Board structure Dual
Important aspect Influence of Communist Party

Mallin: Corporate Governance 4e

China
China is a communist state, progress in capital
market and in area of corporate governance has
been slower than in several East Asean countries.
The China Securities Regulatory Commission and
the State Economic and trade Commission issued
Code of Corporate Governance for Listed
Companies in China in January 2002.
The code includes basic principles of corporate
governance.

Mallin: Corporate Governance 4e

China
Companies were owned chiefly by the
government (principal owner of china
companies).
Little separation of ownership and control.
Minority shareholders have few rights and their
concern are usually ignored by majority
shareholders.
Legal basis and compliance disclosure (comply
and explain)

Mallin: Corporate Governance 4e

Australia
Key Characteristics Influencing Corporate Governance
in Australia
Feature Key characteristic
Main business form
Public corporations
Predominant ownership Institutional investors; nonstructure institutional shareholders (corporate or
family)
Legal system
Common law
Board structure Unitary
Important aspect More emphasis on
shareholder rights in recent
years; also board diversity
Mallin: Corporate Governance 4e