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Vol
4: Issue No.5 : May, 2004 |
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| Hony.
Editor |
| Dr.
Bindi Mehta
Professor
& Chairperson (Research & Publications)
Narsee Monjee Institute of Management Studies
(Deemed University) |
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| Fitch
Ratings: Corporate Governance Issues From the Bondholders' Perspective
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Fitch
Ratings is today publishing its global criteria for evaluating
and incorporating the quality of a company's governance
practices into its credit ratings process. Fitch believes
that corporate governance matters to bondholders, who have
been reminded in recent years of the negative impact that
a governance breakdown can have on credit quality. Fundamental
corporate governance weaknesses can lead to deterioration
in a company's credit quality and, in turn, its credit ratings.
This criteria report formalizes Fitch's framework for reviewing
corporate governance, which the agency has long viewed as
an important element to consider in assessing a company's
credit quality. 'While Fitch's credit analysis always has
taken aspects of corporate governance into account, the
publication of this report formalizes a more systematic
framework for evaluating a company's governance practices.
It also provides the marketplace with our recently completed
research and with a better understanding of how the quality
of a company's governance practices can affect its credit
profile,' said Kim Olson, Managing Director, Fitch Ratings.
Fitch's framework expands the 'principal-agent' view of
corporate governance, which traditionally has focused almost
exclusively on equityholders, and presents the governance
principles that are most important to protecting bondholder
interests. These principles form the basis for Fitch's methodology
and address such topics as the independence and effectiveness
of the board of directors, the use of related party transactions,
and the reasonableness of executive compensation. The methodology
is designed to be applicable globally and as such can be
used to evaluate a range of different corporate structures
and organizational models worldwide.
Fitch's methodology for evaluating the quality of a company's
corporate governance incorporates two main prongs of analysis:
(1) leveraging governance data and information in a systematic
manner; and (2) reviewing the qualitative attributes of
a company's practices. 'We feel that there is a benefit
to performing both systematic data analysis and contextual
reviews of a company's governance practices,' said Fitch's
Chief Credit Officer, Robert Grossman. Looking ahead, Fitch
will continue to refine its approach for evaluating corporate
governance and will monitor further evolution and changes
in this important field.
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| OECD
Countries Agree New Corporate Governance Principles |
The governments
of the 30 OECD countries have approved a revised version of
the OECD's Principles of Corporate Governance adding new recommendations
for good practice in corporate behaviour with a view to rebuilding
and maintaining public trust in companies and stock markets.
The revised
Principles respond to a number of issues that have undermined
the confidence of investors in company management in recent
years. They call on governments to ensure genuinely effective
regulatory frameworks and on companies themselves to be truly
accountable. They advocate an increased awareness among institutional
investors and an effective role for shareholders in executive
compensation. They also urge strengthened transparency and
disclosure to counter conflicts of interest.
The OECD
Principles of Corporate Governance, first published in 1999,
have been widely adopted as a benchmark both in OECD countries
and elsewhere. They are used as one of 12 key standards by
the Financial Stability Forum for ensuring international financial
stability and by the World Bank in its work to improve corporate
governance in emerging markets.
In 2002,
OECD governments called for a review of the Principles to
take account of developments in the corporate sector. The
revised text is the product of a consultation process involving
representatives of both OECD and non-OECD governments as well
as of businesses and professional bodies, trade unions, civil
society organisations and international standard-setting bodies.
Veronique
Ingram, Chair of the OECD Steering Group on Corporate Governance,
said: "The revised Principles emphasise the importance
of a regulatory framework in corporate governance that promotes
efficient markets, facilitates effective enforcement and clearly
defines the responsibilities between different supervisory,
regulatory and enforcement authorities. They also emphasise
the need to ensure transparent lines of management responsibility
within companies so as to make boards and management truly
accountable."
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| Regulators
encouraging debate on corporate governance disclosure
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Three
of Canada's largest provincial securities regulators are proposing
an alternative way to improve the disclosure of corporate
governance practices by Canadian companies, saying that more
public debate is needed about the best regulatory approach
to take.
The British Columbia and Alberta securities commissions along
with Quebec's Autorité des marchés financiers
have published Multilateral Instrument 51-104 Disclosure of
Corporate Governance Practices for comment today.
The proposal comes after some members of the Canadian Securities
Administrators, including the ASC, published for comment on
January 16, 2004 proposed Multilateral Instrument 58-101,
entitled Disclosure of Corporate Governance Practices, and
proposed Multilateral Policy 58-201 Effective Corporate Governance.
Those instruments set out "best practices" against
which reporting issuers would be required to disclose their
corporate governance practices.
The Alberta, British Columbia and Quebec regulators say that
the format of the required disclosure in the January proposal
could pressure issuers to adopt the "best practices"
even when it is not appropriate for them.
The regulators
noted "opinions about governance practices have evolved
significantly in the past decade and will likely continue
to evolve based on issuers' experience applying the current
ideas." They are asking for public comment on whether
"codifying current views about best practices could stifle
future innovation and enhancement of governance practices."
The three
regulators say that, by proposing the alternative rule, they
are not looking to establish two different sets of standards
for disclosure of corporate governance practices but rather
to ensure that the approach eventually adopted reflects a
full consideration of the issues and, ideally, results in
a uniform approach across Canada.
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