Chapter 4 - Corporate Governance outside the UK

Question 1

Corporate Governance outside the UK

Answer 1

Some countries around the world have based their corporate governance frameworks on the UK mode of corporate governance. Others have adopted different approaches.

Question 2

Explain South Africa and the King codes?

Answer 2

The south Africa corporate governance framework is often described as a hybrid corporate governance regime, as some of its provisions follow the principle-based approach, King IV, and others are rule based, being found in a number of laws that apply to companies and directors, including the companies Act of South Africa of 2008.

4.1 King IV
King IV assumed application of the principles set out within it, this is why it has adopted the ‘apply and explain’ regime. This disclosure is an explanation of the practices that have been implemented and how these support achieving the associated governance principle. The governing body can choose where and how to make the disclosures, which should be publicly accessible.

The king reports have repositioned corporate governance in South Africa as a method of achieving sustainability of organisations than just a method of protecting investors.

The integration of corporate responsibility and ethics into the definition of corporate governance is also seen as essential in a region struggling with issues such as corruption, health issues and lack of much needed skills.

Question 3

Explain the Corporate governance framework in China?

Answer 3

China follows the two-tier board system originating from Europe, whereby Chinese companies have:

1. A board of director which is responsible for the management of the company including the oversight from an operational perspective of the management who run the company on a day-to-day basis and
2. A supervisory board which is responsible for ensuring that the board of directors and management do not violate laws or the company’s articles of association which includes the company’s financial records.

China’s corporate governance framework is rules based and costs of the:

1. Laws
2. Code of corporate governance for listed companies 2018
3. Listing stock and trading rules made by the individual stock exchanges.

The Chinese code emphasis on environmental social and governance disclosure, the role of institutional investors as stewards, the accountability of board directors, and board member skills and diversity.

Question 4

Explain the The US and Sarbanes – Oxley Act 2002 (SOX) Corporate Governance?

Answer 4

The US has a rules based approach to corporate governance in response to the corporate collapses in the US in the early 2000’s among them was Enron and Worldcom and the stock collapse following the bursting of the dot.com bubble.

The Sarbanes-oxley act of 2002 was enacted, the securities and exchange commission (SEC) adopted and new rules and the new York stock exchange and Nasdaq stock market changed their standards of governing listed companies.

Here are but a few:

1. Section 307 – adopted a rule that required all stock markets to adopt standards in their listing rules governing the composition and functions of the audit committees and the independence of directors.
2. Section 208 – Introduced new rules on auditor independence, restricting the non-audit services an auditor could provide to the company, introducing a ‘cooling off’ period for auditors, and audit partner rotation and expanded disclosure by the company relating to its auditors.
3. Section 101 – of SOX introduced an independent, non-governmental board, the public company accounting oversight board to oversee the audit of the public companies.
4. Section 302 – introduced requirements for the CEO and CFO to certify the quarterly and annual reports including financial statements files with the SEC.
5. The SEC under section 406 – introduced requirements for codes of conduct and ethics governing the CEO, CFO, Principal accounting officer or controller, or persons performing similar positions.

Question 5

Explain the Japan’s governance framework?

Answer 5

In the attempt to open the market to foreign investors Japan issued its ‘Principles for responsible institutional investors: Japan’s stewardship code’.

Comprises of 8 principles which aims to provide a framework for institutional investors in fulfilling their stewardship responsibilities with regard to both clients, beneficiaries, investee companies which contributes to the growth of the economy of Japan as a whole.

It adopts a ‘comply or explain’ regime.

A few of the principles are:

1. Institutional investors should have a clear policy on how they fulfil their stewardship responsibilities, and publicly disclose it.
2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and public disclose them
3. Institutional investors should monitor investee companies so that they can appropriately fulfil their stewardship responsibilities with an orientation towards the sustainable growth of the companies
4. Institutional investors should seek to arrive at an understanding in common with investee companies and work to the solve problems through constructive engagement with investee companies
5. Institutional investors should have a clear policy on voting and disclosure of voting activity

Question 6

Explain Japan’s Corporate governance code?

Answer 6

Japan’s Corporate governance Code

It defines Corporate governance as ‘ a structure for transparent, fair, timely and decisive decision making by companies with due attention to the needs and perspectives of shareholder and also customers, employees and local communities’

The code adopts a principle – based approach.

Question 7

Q1. Why have different countries’ corporate governance best practices developed in different ways?

Answer 7

Corporate governance has developed in different ways in different countries to reflect their distinct legal systems and also the specific issues that they are dealing with.

Question 8

What are the Key issues in corporate governance?