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Vol
4: Issue No.2 : February, 2004 |
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| Hony.
Editor |
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Dr.
Bindi Mehta
(Director,
Research at ICSI - CCRT, Formerly, Chief economist, CRISIL)
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| Europe-wide
Good Company Standards Laid Out |
Investor
research firms from eight European countries have laid out
a set of core standards for judging how well companies are
run, emphasising shareholder rights and a leading role for
independent directors.
In the latest reaction to a spate of trans-Atlantic accounting
and boardroom scandals, the eight firms said the principles
would provide the benchmark for the advice they give to
institutional investor clients about European companies.
"Ultimately...there is a need to assess the largest
European companies against a common set of standards,"
the firms, working together as the European Corporate Governance
Service (ECGS), said in a statement on Friday.
Corporate governance has moved to the top of many large
investors' agendas over the past few years as huge losses
have mounted from scandals at companies such as Enron in
the United States and Parmalat in Europe.
A number of leading investment firms have beefed up their
corporate governance teams both to check the pedigree of
companies they invest in and to lobby for clearer rules
on board structure, shareholder rights and disclosure.
Europe presents a particular problem for investors because
of the wide number of different rules and traditions.
But the ECGS -- comprising corporate governance research
firms from Switzerland, Spain, Germany, the Netherlands,
Britain, France, Sweden and Italy -- said it expected, and
would monitor for, certain core standards from companies.
COMMON DENOMINATORS
Top of its list was equitable treatment for shareholders,
the principle of one-share one-vote and the elimination
of anti-takeover provisions which it said could be used
to enrich entrenched management.
The pan-European coalition said that firms should not be
employed both as consultants and auditors.
Regarding boards, it said a chief executive officer should
not also act as chairman and that a majority of directors
should be independent.
It also said that it wanted executive pay deals to be drawn
up by independent board committees.
"ECGS will monitor for full disclosure of directors'
remuneration, including salary, short-term bonuses, incentive
schemes, pensions and other benefits," it said.
A number of lucrative remuneration packages for executives
who have presided over companies hit hard during the stock
market slump have infuriated investors over the past few
years, leading to angry shareholder revolts.
The group also said they wanted to see more disclosure about
shareholder meetings.
"Current practices in a number of European markets
makes it impossible for shareholders to vote on a fully
informed basis on such crucial items as the election of
directors, it said.
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| The
OECD Steering Group on Corporate Governance |
The
OECD Steering Group on Corporate Governance co-ordinates and
guides the Organisation's work on corporate governance and related
corporate affairs issues, including market integrity, company
law, insolvency and privatisation. The Steering Group is chaired
by Ms. Veronique Ingram, General Manager, Financial System Division,
Markets Group, at the Australian Treasury and is serviced by
the Corporate Affairs Division in the Directorate for Financial
and Enterprise Affairs.
The Steering Group is currently preparing a review of the original
OECD Principles of Corporate Governance, published in May 1999.
The review of the principles is supported by a survey (version
française) of corporate governance developments in OECD
countries, which was carried out in 2002-2003. In addition,
the OECD has just released a synthesis of experiences gained
from the Regional Corporate Governance Roundtables.In the interest
of broadening the opportunity to participate, the OECD Steering
Group on Corporate Governance, charged with the review, is now
asking for public comment on the draft text of the revised Principles.
This is an opportunity for a broader segment of the public to
comment and participate in the review process
.The Steering Group has also asked its Working Group on Privatisation
and Governance of State-Owned Assets to develop a set of non-binding
principles and best practices on corporate governance of state-owned
assets. This work will start in 2003.A central part of the Steering
Group's mandate is to guide and support OECD's outreach activities
in the area of corporate governance, which takes place within
the framework of the OECD Global Forum on Governance. A key
feature of this work is the Regional Corporate Governance Roundtables
that have been established in Asia, Russia, Latin America, South
Eastern Europe and Eurasia. These Roundtables are organised
in co-operation with the World Bank GroupThe Steering Group
held it most recent meeting in Paris on 6-7 November 2003. It
held consultation meetings with non-members and civil society
on 4 and 5 November respectively.
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| China's
SOE reform focuses on corporate governance |
The collapse
of the Parmalat food empire amid billions of euros of debts
reveals a troubling aspect about Italian capitalism - the
lack of effective financial control over its family-owned
companies.
The focus of China's reform of state-owned enterprises (SOEs)
shifted to corporate governance in 2003, after designating
a specified investor representing the rights of state-owned
assets.
In the past 25 years, China has made unremitting efforts to
improve the efficiency of SOEs, including giving SOEs more
management decision-making power, contracting with managers
to improve their performance, and establishing a modern enterprise
system to make SOEs independent players in the market.
But it was still difficult in China to set up an adequate
framework to handle the relations between rights, duties and
interests among the state, the real investors of the SOEs,
and managers.
As shown by developed market economies, corporate governance
is the most effective way to ensure the managers to protect
investors ' interests, economists say. China recognized this
and stated in 1999 that the core task of the modern enterprise
system is to establish corporate governance mechanism.
However, without a tangible investor for state-owned assets,
it is impossible to set up standard corporate governance mechanism,
the major purpose of which is to balance the managers' interests
and those of the investors.
In March 2003, the State-owned Assets Supervision and Administration
Commission of the State Council (SASAC) was established, serving
as the investor of China's 189 major SOEs. The watchdog of
state-owned assets at the provincial and municipal level was
also set up, serving as investors of other SOEs.
With a clear investor in place, China now is able to find
ways to improve corporate governance of SOEs. In October,
the Communist Party of China declared that establishing standard
corporate governance is the main purpose of reform for the
first time in one of its key documents.
The SASAC took a series of measures to improve corporate governance
of major SOEs, the latest being the implementation of an evaluation
method on Thursday. According to the method, the performance
of SOE managers will be assessed by financial indicators and
salaries will be based on corporate performance.
SASAC Director Li Rongrong also stated recently that the commission
will focus on the establishment of directorates in SOEs invested
solely by the state in 2004.
The SASAC hosted its first international forum on mergers
and acquisitions in November, inviting foreign and private
capital to participate in SOE reform. By transforming large
SOEs into joint- stock companies, China is trying to lay the
foundation for a standardized corporate governance system.
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| Parmalat
effect: OECD puts out tighter corporate governance rules |
The Organisation for Economic Cooperation
and Development (OECD) issued a new set of corporate governance
guidelines, mindful of recent scandals such as Enron and Parmalat.
The new guidelines, to be published on its web site oecd.org,
are for both members and non-members of the rich nations’ club.
They are broad rules that countries can draft into national
legislation, and in some areas, they set more demanding requirements
than the previous guidelines.
The principles stress the importance of enhancing basic shareholders’
rights such as the right to attend key meetings and vote in
key decisions and the right to be informed about the ownership
structure and the financial situation of a company.
They also ask the board to be more transparent about their
role and try to manage potential conflicts of interest that
can emerge at the level of interested parties such as the
banks or analysts.
This is not the case in many emerging markets — in some Asian
countries, shareholders do not even have a clear right to
buy and sell shares.
They also back transparency rules (including independent auditors),
deal with the duties of company boards and call for the protection
of whistle-blowers.
Increasingly, the OECD and its member governments have recognised
the synergy between macro-economic and structural policies,”
the document says.
“One key element in improving economic efficiency and growth,
as well as protecting private savings, is corporate governance.”
The principles are being published for consultation, with
the aim of adopting them at this May’s OECD ministerial meeting.
The guidelines stress that auditors should be independent
and call for the development of high-quality internationally
recognised standards, “which can serve to improve the comparability
of information between countries”.
They also say that analysts, rating agencies and others who
provide analysis and advice should disclose any material conflicts
of interest. “Information about board and executive remuneration
is of concern to shareholders. Of particular interest is the
link between remuneration and company per- formance,” the
notes say.
The US has already responded to the Enron debacle by drawing
up the Sarbanes-Oxley Act to boost regulation of the accountancy
profession.
The European Union, whose Ahold and Parmalat problems have
shown that the bloc is not immune from corporate governance
problems, has also drawn up a new set of guidelines.
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