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

Name: The Analytical Buildings of Singapore and some Northern Asian Corporate Governance Standards after the Global Crisis
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Author: Dinh Tran Ngoc Huy
ISBN: 978-3-668-62117-6

Scientific Essay, 2014

19 Pages

Dinh Tran Ngoc Huy (Author)

Excerpt

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.

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.

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

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

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%

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

Stockholder Code

Accountabili

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

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: Dinh Tran Ngoc Huy (Author)
Year: 2014
Pages: 19
Catalog Number: V387062
ISBN (eBook): 9783668621176
File size: 706 KB
Language: English
Keywords: 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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