Corporate governance: Corporate governance:

Asia PacificAsia Pacific

JAPANJAPAN

The Japan corporate governance The Japan corporate governance committee published its revised code committee published its revised code in 2001. The Code had six chapters, in 2001. The Code had six chapters, which contained 14 principles.which contained 14 principles.

(i)(i) Mission & Role of BoardMission & Role of Board :- It :- It contains 5 principles – contains 5 principles –

Position & purpose of BODPosition & purpose of BOD Function & powersFunction & powers Organization of the BODOrganization of the BOD Outside directors & its Outside directors & its

independenceindependence Role of the leader of the BODRole of the leader of the BOD

(ii) (ii) Mission & role of committees Mission & role of committees estd within BOD:-estd within BOD:-

The BOD is recommended to The BOD is recommended to establish various committees establish various committees including an audit, compensation & including an audit, compensation & nominating committee. nominating committee.

It should have atleast 3 directors & It should have atleast 3 directors & an outside director as chairman of an outside director as chairman of the committee.the committee.

(iii) (iii) Leadership responsibility of Leadership responsibility of the CEO:-the CEO:-

Formulate management strategiesFormulate management strategies Set up an executive mgt committee Set up an executive mgt committee

to assist him in conducting all to assist him in conducting all aspects of the businessaspects of the business

(iv) (iv) Addressing shareholder Addressing shareholder derivative litigation:-derivative litigation:-

A litigation committee, comprised a A litigation committee, comprised a majority of independent directors, majority of independent directors, may be estd to determine whether may be estd to determine whether litigation action should be made litigation action should be made against directors or executives against directors or executives against whom the co/shareholders against whom the co/shareholders may have claimmay have claim

(v) (v) Securing fairness & Securing fairness & transparency for executive transparency for executive management:-management:-

Internal controlInternal control disclosuredisclosure

(vi) (vi) Reporting to the shareholders Reporting to the shareholders & communicating with & communicating with investorsinvestors:-:-

The co’s executives are encouraged The co’s executives are encouraged to meet analysts & others who can to meet analysts & others who can convey info to investors & convey info to investors & shareholders about the co. shareholders about the co.

Info should be posted on the Info should be posted on the Internet.Internet.

In 2004, the Tokyo Stock Exchange In 2004, the Tokyo Stock Exchange issued the principles of corporate issued the principles of corporate governance for listed co’s. governance for listed co’s.

The legal framework in Japan, via the The legal framework in Japan, via the Commercial Code of Revision on Boards Commercial Code of Revision on Boards (2003), provides for two corporate (2003), provides for two corporate governance structures :- governance structures :-

(i)(i) Corporate Auditor’s system- consisting of Corporate Auditor’s system- consisting of general meetings with BOD, auditors general meetings with BOD, auditors

(ii)(ii) Board of corporate auditors & a Board of corporate auditors & a committees system- general meetings of committees system- general meetings of the shareholders, BOD & committees.the shareholders, BOD & committees.

SOUTH KOREASOUTH KOREA

The Korean committee was estd in The Korean committee was estd in March 1999, with funding from the March 1999, with funding from the Korea stock exchange, the Korea Korea stock exchange, the Korea Securities dealers’ association, the Securities dealers’ association, the Korea listed co. association, & the Korea listed co. association, & the Korea investment trust co’s Korea investment trust co’s association.association.

The Code has 5 sections:-The Code has 5 sections:-

(i)(i) ShareholdersShareholders – rights & – rights & responsibilitiesresponsibilities

(ii) (ii) BODBOD – setting corporate goals & – setting corporate goals & strategies to achieve them, strategies to achieve them, approving business plans & budgets, approving business plans & budgets, supervising risk management supervising risk management activities, ensuring appropriate activities, ensuring appropriate information disclosure. Board information disclosure. Board meetings of the full board should be meetings of the full board should be held regularly, at least once a held regularly, at least once a quarter.quarter.

(iii) (iii) Audit SystemsAudit Systems – All public – All public corporations, govt. invested institutions corporations, govt. invested institutions & financial institutions, should establish & financial institutions, should establish an Audit committee composed of at an Audit committee composed of at least 3 board members, of which at least 3 board members, of which at least two-thirds should be outside least two-thirds should be outside directors; at least 1 member should directors; at least 1 member should have professional auditing knowledge.have professional auditing knowledge.

(iv) (iv) StakeholdersStakeholders – appropriate means – appropriate means of redress for infringement of their of redress for infringement of their rights. rights.

(v) (v) Management monitoring by the Management monitoring by the marketmarket – Corporations shall actively – Corporations shall actively disclose matters of material disclose matters of material importance to the decision making of importance to the decision making of shareholders, creditors & other shareholders, creditors & other interested parties.interested parties.

MALAYSIAMALAYSIA

The Code has 4 parts :- The Code has 4 parts :-

(i) Broad principles of good corporate (i) Broad principles of good corporate governancegovernance

(ii) Best practices for companies(ii) Best practices for companies

(iii) Role of investors & auditors in (iii) Role of investors & auditors in corporate governancecorporate governance

(iv) Explanatory notes (iv) Explanatory notes

DirectorsDirectors – responsibilities will – responsibilities will includeinclude

(i)(i) Strategic direction of the co. Strategic direction of the co.

(ii)(ii) Ensuring proper mgtEnsuring proper mgt

(iii)(iii) Identifying risks & their Identifying risks & their managementmanagement

(iv)(iv) Overall effectiveness of the internal Overall effectiveness of the internal control systemscontrol systems

(v)(v) Investor relationsInvestor relations

(vi)(vi) Training of directorsTraining of directors

Director’s remunerationDirector’s remuneration – there should be a – there should be a committee to recommend remuneration levels committee to recommend remuneration levels for the executive directors. The remuneration of for the executive directors. The remuneration of non-executive directors should be decided by non-executive directors should be decided by the board as a whole & should reflect each non-the board as a whole & should reflect each non-executive’s experience & responsibilities in the executive’s experience & responsibilities in the company.company.

Accountability & Audit – Accountability & Audit – an audit committee an audit committee should be estd, comprised of atleast 3 directors should be estd, comprised of atleast 3 directors with majority being independent. Its role is:-with majority being independent. Its role is:-

(i)(i) Reviewing financial statementsReviewing financial statements(ii)(ii) Appointment of external auditor, his fee, nature Appointment of external auditor, his fee, nature

& scope of audit& scope of audit(iii)(iii) Reviewing the scope & results of internal controlReviewing the scope & results of internal control

Shareholders - Shareholders - there should be an there should be an effective communication strategy effective communication strategy b/w shareholders & board.b/w shareholders & board.

CHINACHINA

The Code is broadly based on the The Code is broadly based on the OECD Principles of Corporate OECD Principles of Corporate Governance. Governance.

It contain 7 main chapters :-It contain 7 main chapters :-

(i) (i) Shareholders & meetings Shareholders & meetings :- they :- they should be treated fairly & should have should be treated fairly & should have equal rights, redress thru legal action, equal rights, redress thru legal action, proper communication channels.proper communication channels.

(ii) (ii) Listed co’s & its controlling shareholdersListed co’s & its controlling shareholders – – This section of the code deals with a protocol for This section of the code deals with a protocol for how the controlling shareholders should behave how the controlling shareholders should behave when an enterprise is being restructured or when an enterprise is being restructured or reorganized prior to listing. reorganized prior to listing.

The controlling shareholders initially nominate the The controlling shareholders initially nominate the candidates for directors & supervisors on the candidates for directors & supervisors on the basis of their professional skills, knowledge & basis of their professional skills, knowledge & experience.experience.

The listed company should be able to act The listed company should be able to act independently of the controlling shareholders.independently of the controlling shareholders.

(iii) Directors & BOD – (iii) Directors & BOD – they should ‘faithfully, they should ‘faithfully, honestly & diligently perform their duties for the honestly & diligently perform their duties for the best interest of the co. they should meet best interest of the co. they should meet periodically & have a pre- set agenda, with timely periodically & have a pre- set agenda, with timely & clear information about all agenda items being & clear information about all agenda items being sent to directors.sent to directors.

(iv) (iv) Supervisors & supervisory boardSupervisors & supervisory board – this – this board should comprise individuals with board should comprise individuals with professional knowledge or work experience in professional knowledge or work experience in such areas as law accounting. Duties are :-such areas as law accounting. Duties are :-

Supervising corporate financeSupervising corporate finance Supervising directors’ & managers’ performanceSupervising directors’ & managers’ performance Protecting co’s & shareholders rights & interestsProtecting co’s & shareholders rights & interests

(v) (v) Performance assessments & Performance assessments & incentive & disciplinary systems –incentive & disciplinary systems –

Performance should be assessed thru a Performance should be assessed thru a fair & transparent procedurefair & transparent procedure

Compensation should be linked to both the Compensation should be linked to both the co’s performance & the individuals co’s performance & the individuals performance.performance.

(vi) (vi) StakeholdersStakeholders – the Code mentions that – the Code mentions that the co. should respect the legal rights of the co. should respect the legal rights of the various stakeholder groups & provide the various stakeholder groups & provide them with information as appropriate.them with information as appropriate.

(vii) (vii) Information disclosure & Information disclosure & transparencytransparency

AUSTRALIAAUSTRALIA In 2003, ASX corporate governance In 2003, ASX corporate governance

council issued the principles of Good council issued the principles of Good Corporate Governance & Best Practice Corporate Governance & Best Practice Recommendations.Recommendations.

10 core principles:-10 core principles:-(i)(i) Recognize & publish the respective roles Recognize & publish the respective roles

& responsibilities of Board & mgt& responsibilities of Board & mgt(ii)(ii) Have a board of an effective Have a board of an effective

composition, size & commitment to composition, size & commitment to discharge adequately its responsibilities discharge adequately its responsibilities & duties& duties

(iii) Promote ethical & responsible (iii) Promote ethical & responsible decision makingdecision making

(iv) Have a structure to independently (iv) Have a structure to independently verify & safeguard the integrity of verify & safeguard the integrity of the co’s financial reportingthe co’s financial reporting

(v) Promote timely & balanced (v) Promote timely & balanced disclosure of all material matters disclosure of all material matters concerning the co.concerning the co.

(vi) Respect the rights of shareholders (vi) Respect the rights of shareholders & facilitate the effective exercise of & facilitate the effective exercise of those rightsthose rights

(vii) The system should identify, assess, (vii) The system should identify, assess, monitor & manage risk & inform investors monitor & manage risk & inform investors of material changes to the co’s risk profileof material changes to the co’s risk profile

(viii) Fairly review & actively encourage (viii) Fairly review & actively encourage enhanced board & mgt effectivenessenhanced board & mgt effectiveness

(ix) Ensure the level & composition of (ix) Ensure the level & composition of remuneration is sufficient & reasonable & remuneration is sufficient & reasonable & that its relationship to corporate & that its relationship to corporate & individual performance is definedindividual performance is defined

(x) Recognize legal & other obligations to all (x) Recognize legal & other obligations to all legitimate stakeholderslegitimate stakeholders