The Analytical Buildings of Singapore and some Northern Asian Corporate Governance Standards after the Global Crisis


Scientific Essay, 2014

19 Pages


Excerpt

2
specialized rules for listed companies and indicate growing convergence in internal control
mechanisms independent of board structure. EU (2002) also issues the Code of Best practices and
the 2006 Directive requires that each listed company should publish an annual corporate
governance statement to what extent the company can comply with that code. Among its key
principles is the separation of roles between the CEO and the Chairman as it stated "The
Chairman and CEO roles should be separate and the CEO should not immediately become
Chairman of either a unitary or a supervisory board". Noia, Carmine Di., (2009) at ECIIA
Conference shows after the crisis 2009 in Europe, there is no definition of shareholder due to
national jealousy of company law; no harmonization of record date; and no shareholder
identification. And OECD (2009) confirmed that the financial crisis can be an attribute to failures
and weaknesses in corporate governance system, including risk management system and
executives salaries. After crisis 2007-2008, Erkens, David., Hung, Mingyi., and Matos, Pedro.,
(2010), found out that during crisis, firms with more independent boards raised more equity
capital, which partially caused them to experience worse stock returns. Last but not least, AFG
2010 Corporate Governance (CG) Code, France, stated the European code should be completed
so that basic CG guidelines were defined to encourage best CG practices in every field for all
listed companies in European Economic Area. And Aytekin et all (2013) concluded that
researchers and practitioners should give special attention to board development and its
functioning in order to develop corporate governance in Turkey, and also in Canada, because this
factor is found to be weak compared to other factors.
But, what are the comparative guidelines of northern Asian corporate governance standards?
Theory of Corporate Governance, Scandal and Market Manipulation
Theory of manipulation
Different ownership structure affects manipulation. In dispered ownership regime, manager may
have incentives to do some stock market manipulation. Baik, Bok., Billing, Bruce K., and Morton,
Richard M., (2005) expressed SEC' concerns that managers can manipulate non-GAAP
measures to mislead investors. Moreover, it can be viewed from accounting manipulation side,
which covers accounting techniques (such as one-time charges,...) to manipulate expenses and
profits of the company. The US Exchange Act 1934 or Australian Corporation Act 2001 have a
section describing market manipulation as transactions which create an artificial price for a
tradable security.
Theory of corporate governance and financial crisis
The 2012 CG Code in Pakistan mentioned good CG instills investor confidence. The UK
Financial Reporting Council (2010) stated corporate governance is about what the board of a
company does and how it sets the values of the company, and is to be distinguished from the day
to day operational management of the company by full-time executives. We can see, therefore,
different approaches on corporate governance.
Research methodology
First of all, we perform a comparative analysis of Northern Asian corporate governance principles
in each of two (2) different groups including: 1) Northern Asian representative Corporate
Governance group, here, we select two countries: Mongolia and Bangladesh which have many
modifications in their history of issuing corporate governance principles; and 2) Relatively good
Corporate governance group including Pakistan and Singapore;
We also use international standards of corporate governance for reference such as: ADB and
OECD's corporate governance principles as reference.

3
After that, we make a suggestion on what so-called common corporate governance principles for
Northern Asian which is aiming to create a basic background for relevant corporations interesting
in corporate governance subject. Additionally, it can be considered as the recommendation to
relevant countries' government and other relevant organizations for public policy and necessary
evaluation. For a summary of our standards, see Exhibit sessions and the below table 4.
3. EMPIRICAL FINDINGS
In business life, corporate governance is a framework that will guide businesses in managing
interconnections of multiple and diversified elements in their internal and external environments.
This framework uses sustainable development as a concept that could successfully be adapted
into strategic management theory and practice. Errors in using CG framework might create
manipulation and lead to the scandals and bankruptcies of many companies.
A- Findings on Corporate governance issues after financial crisis, corporate scandals and
market manipulation
There are several popular issues including: there still lacks of the appraisal of the role of the legal
division in the company which contributes to the bad results on the corporate performance and
scandals.
We can point it out another CG issue. It is, the errors of financial and accounting procedures that
lead to manipulation in both balance sheet and income statement.
B- Findings on Ways of Manipulation during Corporate Scandals
Several Manipulation Techniques found out during corporate scandals involve, but not limited to:
B.1 ­ The manipulation techniques in the income statement:
Here, the company's revenues are recorded when the company is not completing all services
committed. Or managers join in cooking the firm books and manipulating the company earnings.
For example, in the 2006 Healthsouth scandal, the company earnings was boosted ($1.4 billion
from 1996 to 2003) with fictious transactions.
B.2 - The manipulation techniques in both the income statement and balance sheet:
In case of Lehman Brothers (2008), it is accused of using another company, Hudson Castle, for
its accounting manipulation which means transferring its asset and risks. Or in 2002 Adelphia
scandal, one of the larges cable firm in the US, revenues from its subsidiaries and other
businesses flowed into one account which used to pay bills. Then, the management used
company's line of credit for personal purchases.
B.3 - The manipulation techniques relevant to international accounting practice code:
We can see two (2) below different popular accounting rules on treatment "impairment" term
which may mislead the company.
In IFRs: Impairment is recorded when an asset's carrying amount exceeds the higher of the asset's
value-in-use (discounted present value of the asset's expected future cash flows) and fair
value less costs to sell.
And in GAAPs: Impairment is recorded when an asset's carrying amount exceeds the expected
future cash flows to be derived from the asset on an undiscounted basis.
B.4 - Other manipulation techniques net belong to above classifications:
Manipulation can happen when the individual or company sells share when the price is high and
buy back when low price to maximize the return. Moreover, manipulation happen if fund
managers can use invested money for their own purposes and steal funds from investors. For
example, in 2008 Madoff investment scandal, people and investors entrusted fund management
but the money were used for management personal gain and investors lost $50 billion.

4
C-
Actions on Preventing or Controlling negative manipulation
Necessary actions to prevent or control negative market manipulation are, but not limited to,
periodically re-evaluation of Code of Best Practices, enhancing board independence, and internal
procedures to avoid corruption.
D-
Findings on Construction of a Limited Common Northern Asian Corporate
Governance standards
These findings will be shown in a detailed analysis of a model indicated in the later sessions.
<D.1> - Group 1 ­ Northern Asia representative corporate governance standards analysis
In Bangladesh
The 2004 Code of Corporate Governance mentioned boards need to have secretary or compliance
officer.
One of its main characteristics is the establishment of asset-liability (ALCO) committee in FI that
examine risk level of assets and liabilities. ALCO meets at least monthly to review loan approval,
risk MGT and debt restructuring.
It is a good point in the Code that the financial institution (FI) should publish a code of best
practice for customers.
In general, the 2004 Code has CG for SOES, FI and NGO. But it would be better to clarify roles
of supervisory board.
Table 1 ­ The Bangladesh 2004 Corporate Governance Code (a short summary evaluation)
Subjects or
parties
Main quality
factors
Sub quality
factors
Responsibilities Objectives
Note
Audit
committee
AC chairman be
NED with
financial
experience;
At least 3
members;
Sign/review balance
sheet, profit and loss
statement;
True and fair picture of
co.;
Nomination
committee
Not mentioned
clearly in the
Code
Not
mentioned
clearly in the
Code
May nominate qualified
persons for directorship;
Not mentioned clearly in
the Code
Compensatio
n or
Remuneratio
n committee
Not mentioned
clearly in the
Code
Compensation
for BD;
Not mentioned clearly
in the Code
Not mentioned clearly in
the Code
CEO Statement
on
effectiveness of
IC, IA;
Sign/review
balance sheet,
profit and loss
statement;
May be invited to attend
committee meeting;
True and fair picture of
co.;
The Chair
Statement on
effectiveness of
IC, IA;
May be
invited to
attend
committee
meeting;
BD chairman prepare
board agenda;
Not mentioned clearly in
the Code
CEO and
The Chair
relationship
Not mentioned
clearly in the
Code
Not
mentioned
clearly in the
Code
may sign compliance
certificate;
Not mentioned clearly in
the Code
Corporate
Secretary
Coordinate b.t
board and
Attend
committee
Circulate board papers;
keep annual record of
Not mentioned clearly in
the Code

5
committee; meeting;
may
sign
compliance
certificate;
compliance with CG
Code;
Compliance
officer
Not mentioned
clearly in the
Code
Advice on IC;
sign
compliance
certificate;
Advise senior MGT and
board on duties,
liabilities, legal;
Not mentioned clearly in
the Code
Board of
Directors
Add value to
BD, independent
judgement; not
hold
directorship
more than 6
boards;
Not involve in
day to day
operational
decisions;
majority
NEDs,
independent
directors;
Provide strategic policy; in the best interests of the
company and shareholders
Executive
director
Not mentioned
clearly in the
Code
Join BD; hold
senior MGT
position;
Not mentioned clearly
in the Code
Not mentioned clearly in
the Code
Understood
from the Code
Non-
executive
director
AC chairman be
NED;
Join BD, AC,
NC;
Not mentioned clearly
in the Code
Not mentioned clearly in
the Code
(Senior)
Independent
director
Not have
financial,
commercial to
the co.;
Join BD;
Not mentioned clearly
in the Code
Not mentioned clearly in
the Code
CFO/Finance
Director
Not mentioned
clearly in the
Code
Statement on
effectiveness
of IC, IA;
Sign/review balance
sheet, profit and loss
statement;
True and fair picture of
co.;
Management
team
Not mentioned
clearly in the
Code
Accountable
to BD;
BD provide direction to
MGT; BD determine
MGT performance
criteria;
Not mentioned clearly in
the Code
Supervisory
board
Not mentioned
clearly in the
Code
In NGO, by
General body;
Not mentioned clearly
in the Code
Not mentioned clearly in
the Code
Internal
control
Not mentioned
clearly in the
Code
Not
mentioned
clearly in the
Code
BD monitor IC
mechanism; AC review
internal risk controls;
Maintain the accuracy of
financial results;
Internal audit Ensure adequate
resource ,
information
access for IA;
access any
record any time
any location;
AC meet IA
at least once a
year w/o
MGT;
independent
from mgt;
AC approve and
remove IA, review IA
reports and plan;
investigate all levels of
co.;
Protect the co. and
shareholders;
External
audit
Independent,
well-qualified;
rotated at least 3
yrs;
AC access
objectivity of
EA;
Not mentioned clearly
in the Code
Not mentioned clearly in
the Code
Disclosure
and
transparency
Disclose
shareholders
owning > 10%
shares
Disclose
quarterly
unaudited
results;
Disclose annual director
report, including
compliance certificate;
Not mentioned clearly in
the Code
Shareholders
and Minority
Not mentioned
clearly in the
Elect the
board;
May nominate
directors, audit firms;
Not mentioned clearly in
the Code

6
Stockholder Code
Accountabili
ty
Not mentioned
clearly in the
Code
Accounts
audited to
conform with
IAS;
BD create code of
conduct detailing
director roles, duties;
Not mentioned clearly in
the Code
Leadership Not
mentioned
clearly in the
Code
Not
mentioned
clearly in the
Code
Act by CEO/MD, chair,
BD;
Not mentioned clearly in
the Code
Note
The underlined part is describing some more works needed to be done for relevant subjects and parties.
Smaller listed companies can ignore some provisions.
In Mongolia
It includes roles of BD and suggests an Operational rules for Board of directors.
A short summary and evaluation of this revised 2007 Code is shown in the Exhibit 1.
Besides, it pays attention to active participation in BD/committee meetings.
Another different point is the function of BD. The 2007 Code suggests BD oversee risk MGT.
In short summary, Strengths of the Mongolia Code are, but not limited to, mentioning a
transparent nomination procedure for executive mgt, though the Code does not well clarify CEO
and NED duties.
Comparison between Bangladesh and Mongolia Corporate governance standards
It is in the 2004 Bangladesh Code that the compliance officer in FI provide regular reports to BD
on the adequacy of CG.
While, the Mongolia Code take into account of roles of executive management in implementing
decisions of BD
Another advantage in the Bangladesh Code is the MD/CEO accountable to BD in SOEs, not to
politicians or other government officials.
On the contrary, the Mongolia Code illustrates executive mgt perform decisions of supervisory
council.
In Bangladesh Code, it requires that institutional shareholders should take an active role in
evaluating director decisions, company performance. On the other hand, Mongolia Code stated
dealing with conflict of interest set out in the Company Code.
The 1
st
Establishment of a so-called Limited Northern Asian Representative Corporate
Governance standards
With the selection of Mongolia and Bangladesh as two Asian countries (limited) which represent
in the construction of general corporate governance principles and standards, we build the below
table with the following criteria:
Firstly, it includes contents that enable firm to encounter corporate governance issues after the
corporate scandals and financial crisis. It also functions as a summary of general corporate
governance standards from these two Asian representative countries.
Therefore, we use the term "Limited Northern Asian Representative Corporate governance
standards" to represent for the common criteria. The term "limited" here means the criteria
mentioned below is better in the light of the author's appraisal, which is considered in the context
that the financial crisis and the corporate scandals caused many errors in the system of Corporate
Governance in North Asia. It is also constructed in the way that being the better understandable
criteria.
Excerpt out of 19 pages

Details

Title
The Analytical Buildings of Singapore and some Northern Asian Corporate Governance Standards after the Global Crisis
Author
Year
2014
Pages
19
Catalog Number
V387062
ISBN (eBook)
9783668621176
File size
706 KB
Language
English
Tags
corporate governance standards, board structure, code of best practice, financial crisis, corporate scandals, market manipulation, internal audit
Quote paper
Dinh Tran Ngoc Huy (Author), 2014, The Analytical Buildings of Singapore and some Northern Asian Corporate Governance Standards after the Global Crisis, Munich, GRIN Verlag, https://www.grin.com/document/387062

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