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Corporate Governance Rules in Six Stock Exchanges: A Comparative Study

DOI:10.14738/assrj.22.937
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Hong Yuh Ching at University Center of FEI
Hong Yuh Ching
Renan Tardelli
Renan Tardelli
Renan Tardelli
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Abstract

This paper aims to compare the corporate governance rules around the world and to ascertain which Stock Exchange SE is more adherent to our proposed corporate governance framework. The SE researched were Tokyo TSE, New York NYSE, Frankfurt Stock Exchange, Brazil BM&FBovespa, London Stock Exchange and Toronto TSX. Several governance models or frameworks extracted from the literature were analyzed, however the integration across these studies showed extremely difficult. This lead us to build our own “proxy” framework composed of 15 rules. TSX has the lowest corporate governance standard compared to other five SE because its document does not provide description in 12 rules out of 15, while London has the highest corporate governance standard with detailed description in 11 rules. As more and more companies do business around the world with their counterparts and governments, it becomes increasingly important to understand the similarities and differences between the corporate governance rules and practices in some Stock Exchange around the world.
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Advances)in)Social)Sciences)Research)Journal)–)Vol.2,)No.2)
Publication)Date:!February!25,!2015!
DOI:10.14738/assrj.22.937.!
!
Ching,' H.Y.,' &' Tardelli,' R.' (2015).Cooperate'Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-)
+&*'%&'().'('$/&0)1,2/%$-3)2456)197B209.'
!
!
)
Copyright!©!Society!for!Science!and!Education,!United!Kingdom)
Corporate(Governance(Rules(in(Six(Stock(Exchanges:(A(
Comparative+Study)
!
Hong)Yuh)Ching)
Centro!Universitário!da!FEI,!Av.!Humberto!de!Alencar!Castelo!Branco!
3972,!São!Bernardo!do!Campo,!Brazil!
)
Renan)Tardelli)
Centro!Universitário!da!FEI,!Av.!Humberto!de!Alencar!Castelo!Branco!
3972,!São!Bernardo!do!Campo,!Brazil!
!
ABSTRACT)
This)paper)aims) to) compare) the) corporate)governance)rules)around)the) world) and) to)
ascertain) which) Stock) Exchange) SE) is) more) adherent) to) our) proposed) corporate)
governance)framework.)The)SE)researched)were)Tokyo)TSE,)New)York)NYSE,)Frankfurt)
Stock) Exchange,) Brazil) BM&FBovespa,) London) Stock) Exchange) and) Toronto) TSX.)
Several) governance) models) or) frameworks) extracted) from) the) literature) were)
analyzed,)however)the)integration)across)these)studies)showed)extremely)difficult.)This)
lead)us)to)build)our)own)“proxy”)framework) composed)of) 15) rules.) TSX) has) the) lowest)
corporate)governance) standard)compared) to) other)five) SE) because)its) document) does)
not)provide)description)in)12)rules)out)of) 15,) while) London) has) the) highest) corporate)
governance) standard) with) detailed) description) in) 11) rules.) ) As) more) and) more)
companies)do)business) around) the) world) with) their)counterparts)and)governments,)it)
becomes) increasingly) important) to) understand) the) similarities) and) differences)
between)the)corporate)governance)rules)and)practices)in)some)Stock)Exchange)around)
the)world.)
!
Keywords:)corporate!governance,!governance!rules,!stock!exchange,!corporate!value.)
)
INTRODUCTION))
The! disclosure! of! information! by! the! companies,! financial! and! nonZfinancial,! is! essential! for!
investors! in! their! process! of! decisionZmaking.! Therefore,! its! disclosure! in! an! objective! and!
transparent!way!may!enable! a! higher!degree!of!reliability! when!one!is!making! an! investment!
decision!over!another.!Companies,!in!general,!should!be!worried!in!creating!an!efficient!set!of!
mechanisms!to!ensure!that!the!behavior!of!the!managers!is!aligned!with!the!best!interest!of!the!
company.!
!
However,!this!might! not! be!the!case!of! many!companies.!!Reaz! and!Hossain![1]!discussed! the!
idea!of!separation!of!power!between!the!executive!management!of!major!public!companies!and!
their! shareholders.! This! is! known! as! the! “principalZagent”! problem.! It! tends! to! plague! the!
relationship! between! shareholders! (the! principals)! and! managers! (the! agents)! owing! to! the!
separation! of! ownership! and! management! (or! control)! in! companies! with! widely! dispersed!
“public”! ownership! of! shares! (Oman,! Fries! and! Buiter)! [2].! These! authors! raised! another!
conflict! of! interest,! the! “expropriation! problem”,! between! controlling! shareholders! on! one!
hand!and!minority!shareholders!(domestic!and!foreign),!and!other!investors,!on!the!other.!The!
expropriation!problem,!as!distinct!from!the! “agency”! problem,!tends!to!prevail,!worldwide,!in!
countries!with!highly!concentrated!structures!of!corporate!ownership.!
!
Ching,' H.Y.,' &' Tardelli,'R.' (2015).Cooperate' Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-) +&*'%&'() .'('$/&0)
1,2/%$-3)2456)197B209.'
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198!
Corporate!governance!can!be!defined!as!the!structures!and!processes!by!which!companies!are!
directed!and!controlled.!Good!corporate!governance!helps!companies!operate!more!efficiently,!
mitigate! risk! and! safeguard! against! mismanagement,! and! improve! access! to! capital! that! will!
fuel!their!growth!(IFC!International!Finance!Corporation)![3].!!
!
For!IBGC!Instituto!Brasileiro!de!Governança!Corporativa![4],!the!basic!principles!of!Corporate!
Governance!are:!
1. Transparency!Z! provide! interested!parties! with!information! that! is!of! interest,! and!not!
merely! those! imposed! by! laws! or! regulations.! It! should! not! be! restricted! to! the!
economic! and! financial! performance,! but! also! consider! other! tangible! and! intangible!
factors!that!guide!managerial!action!and!lead!to!the!creation!of!value.!
2. Fairness! Z! A! fair! treatment! of! all! shareholders! and! other! stakeholders.! Discriminatory!
attitudes!or!policies,!under!any!pretext,!are!entirely!unacceptable.!
3. Accountability! Z! The! agents! of! governance! should! be! accountable! for! their! actions,!
undertaking!the!full!consequences!of!their!acts!and!omissions.!
4. Corporate! Responsibility! Z! The! agents! of! governance! should! watch! over! the!
sustainability!of!their!organizations,!to! ensure! their! company’s!longevity,!by!observing!
social!and!environmental!principles!when!identifying!business!deals!and!operations.!
OECD! Organization! for! Economic! CoZoperation! and! Development! [5]! principles,! however,!
cover! six! key! areas! of! corporate! governance! –! ensuring! the! basis! for! an! effective! corporate!
governance! framework;! the! rights! of! shareholders;! the! equitable! treatment! of! shareholders;!
the! role! of! stakeholders! in! corporate! governance;! disclosure! and! transparency;! and! the!
responsibilities!of!the!board.!These!principles!are!more!comprehensive!than!those!of!IBGC![4]!
for!covering!more!areas.!
!
Academics,! practitioners! and! policy! makers! have! demonstrated! a! dramatically! increased!
interest! in! systems! of! corporate! governance,! especially! after! the! collapse! of! the! centrally!
planned!economies.!This!growth!was!noticed!by!Gillan![6].!In!a!search!of!SSRN!(Social!Sciences!
Research! Network)! abstracts! containing! the! term! corporate! governance,! it! resulted! in! more!
than! 3500! hits,! the! authors! of! this! article! performed! same! search! in! 2014! and! resulted! in!
11500!hits.!
!
The! argument! to! sustain! a! higher! level! of! disclosure! by! the! companies,! regardless! of! being!
mandatory! or! no! is! the! expected! positive! repercussion! of! the! information! at! the! Stock!
Exchange! Markets,! contributing! to! a! better! financial! assessment! of! the! corporations.! Lower!
cost! of! capital,! higher! return,! less! stock! price! volatility! are! some! of! positive! repercussions!
(Malacrida!and!Yamamoto)![7].!
!
To! address! to! investors,! some! Stock! Exchanges! SE! have! separate! level! of! market! listing! that!
includes!only! firms! with! higher! level! of! transparency,!which! can! be! understood! as!corporate!
governance! level.! Examples! of! these! separate! indexes! are! DAX,! MDAX,! TecDAX! and! SDAX! of!
Frankfurt! Stock! Exchange,! IGCX,! IGCT! and! IGCZNM! of! BMF&BOVESPA! (São! Paulo)! and! FTSE!
100,! FTSE! 250,! FTSE! Small! Cap! and! FTSE! Fledgling! of! London! Stock! Exchange.! Going! in! the!
same!direction,!many!Stock!Exchanges!around!the! world!do!have!corporate!governance!codes!
or!rules!to!be!followed!by!the!corporations!listed.!
!
Having! this! in! mind,! this! paper! aims! to! compare! the! corporate! governance! rules! around! the!
world! and! to! ascertain! which! SE! is! more! adherent! to! our! proposed! corporate! governance!
framework.! We! chose! six! Stock! Exchange,! five! from! developed! countries! and! one! from! a!
!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!199!
Advances!in!Social!Sciences!Research!Journal!(ASSRJ)!
Vol.2,!Issue!2!FebZ2015!
developing!country.!The!SE!researched!were!Tokyo!Stock!Exchange,!New!York!Stock!Exchange,!
Frankfurt!Stock!Exchange,! BM&FBovespa! (Brazil),!Toronto!Stock!Exchange! and!London!Stock!
Exchange.!
!
LITERATURE)REVIEW)
IFC![3]!defines!corporate!governance!as!the!structures!and!processes!by!which!companies!are!
directed!and!controlled.!Good!corporate!governance!helps!companies!operate!more!efficiently,!
improve! access! to! capital,! mitigate! risk! and! safeguard! against! mismanagement.! It! makes!
companies!more!accountable!and!transparent!to!investors!and!gives!them!the!tools!to!respond!
to! stakeholder! concerns.! Corporate! governance! also! contributes! to! development.! Increased!
access! to! capital! encourages! new! investments,! boosts! economic! growth,! and! provides!
employment!opportunities.!
!
For!Becht!et!al.,![8]!corporate!governance!is!concerned!with!the!resolution!of!collective!action!
problems! among! dispersed! investors! and! the! reconciliation! of! conflicts! of! interest! between!
various! corporate! claimholders.! In! a! more! expanded! definition,! Gregory! [9]! states! that!
corporate! governance! refers! to! that! blend! of! law,! regulation,! and! appropriate! voluntary!
privateZsector!practices!which!enables! the! corporation!to!attract! financial! and!human!capital,!
perform!efficiently,!and!thereby! perpetuate! itself!by!generating!longZterm!economic! value! for!
its!shareholders,!while!respecting!the!interests!of!stakeholders!and!society!as!a!whole.!
!
In! FRC! Financial! Reporting! Council! Code! [10],! the! purpose! of! corporate! governance! is! to!
facilitate! effective,! entrepreneurial! and! prudent! management! that! can! deliver! the! longZterm!
success! of! the! company.! Corporate! governance! comprises! a! country’s! private! and! public!
institutions,! both! formal! and! informal,! which! together! govern! the! relationship! between! the!
people!who!manage!corporations!(“corporate!insiders”)!and!all!others!who!invest!resources!in!
corporations!in!the!country![5].!
!
From! the! above! definitions,! it! is! clear! that! there! is! not! a! common! definition! of! corporate!
governance!CG.!Gregory![9]!is!the! only! author! that!associates!CG!to!a!blend!of! law,! regulation!
and!voluntary!private!sector!practices!while!the!other!authors/institutions!do!not!mention!law!
or!regulation.!CG!is!mostly!ruled!by!voluntary!private!sector!practices.!All!these!definitions!are!
focused! on! longZterm! success! or! economic! value! of! the! company! (or! alike)! and! its!
shareholders.!Other!common!terms!in!these!definitions!are!transparency!and!accountability!of!
the! different! parties! to! avoid! conflict! between! the! shareholders,! the! people! who! manage!
corporations!(agents)! and! the! company´s!stakeholders/claimholders.!Final!comment!is!on!the!
last!part!of!OECD![5]!definition!regarding! on! who! invest!resources!in!corporations.!Did!OECD!
deliberately! leave! it! open?! Before! discussing! “who”,! the! discussion! should! start! with! “what!
resources”?! If! the! resource! is! money,! no! doubt! the! person! is! the! shareholder/investor.!
However!if!we!expand!to!materials,!equipments,!intellectual!capital,!land,!then!we!are!referring!
to!different!stakeholders.!
!
Correlated)studies)regarding)corporate)governance)and)the)firms´)results)
Corporate!governance!improve!access!to!capital!as!an!increasing!volume!of!empirical!evidence!
indicates! that! well! governed! companies! are! positively! correlated! with! market! valuation! and!
operating!performance!(Klapper!and!Love)![11].!For!them,!performance!improve!as!improved!
governance!structures!and!processes!help!ensure!quality!decisionZmaking,!encourage!effective!
succession! planning! for! senior! management! and! enhance! the! longZterm! prosperity! of!
companies,!independent!of!the!type!of!company!and!its!sources!of!finance.!They!also!found!that!
firms!in!countries!with!weak!overall!legal!systems!have!on!average!lower!governance!rankings.!
!
Ching,' H.Y.,' &' Tardelli,'R.' (2015).Cooperate' Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-) +&*'%&'() .'('$/&0)
1,2/%$-3)2456)197B209.'
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Poor! standards! of! governance,! particularly! in! the! area! of! transparency! and! disclosure,! have!
been!a!major!factor!behind!instability!in!the!financial!markets!across!the!globe!(Claessens!and!
Laeven)![12].!In!their!dataset!of!45!countries,!they!found!that!financial!development!facilitates!
economic! growth! through! greater! availability! of! external! financing.! For! La! Porta! et! al.! [13],!
when!outside!investors!finance!firms,!they!face!a!risk!that!the!returns!on!their!investments!will!
never!materialize! because!the! controlling!shareholders! or!managers! expropriate!them.! Using!
investor! protection! as! the! starting! point! appears! to! be! a! more! fruitful! way! to! describe!
differences!in!corporate!governance!regimes!across!countries.!!!
!
Finally,!Malacrida! and! Yamamoto![7]! analyzed!the! relationship!between! disclosure! and!stock!
price!volatility!of!42!firms!listed!at!BM&FBovespa!and!indicated!that!the!companies!with!better!
average!accounting!disclosure!presented!lower!mean!volatility!levels.!
!
Correlated)studies)on)corporate)governance)rules)
Gompers! et! al.! [14]! studied! the! relationship! between! shareholder! rights! and! firm! value! by!
building! a! “governance! index”! of! 24! governance! rules.! Their! main! data! source! was! the! IRRC!
(Investor!Responsibility! Research!Center)! for! the!period! of!1990! until!1998.! They! found!that!
firms!with!stronger! shareholder!rights!had! higher! firm!value,! higher! profits,!and! higher! sales!
growth,! lower! capital! expenditures! and! made! fewer! corporate! acquisitions.! They! concluded!
that! an! investment! strategy! that! bought! firms! in! the! lowest! decile! of! the! index! (strongest!
rights)! and! sold! firms! in! the! highest! decile! of! the! index! (weakest! rights)! would! have! earned!
abnormal!returns!of!8.5!percent!per!year!during!the!sample!period.!
!
Using! the! ISS! database! (Institutional! Shareholders! Service)! Chung! et! al.! [15]! selected! 24!
governance!rules!in!six!categories!and!found!that!firms!with!better!corporate!governance!have!
narrower! spreads,! higher! market! quality! index,! smaller! price! impact! of! trades,! and! lower!
probability! of! informationZbased! trading.! Their! conclusion! was! that! firms! may! alleviate!
informationZbased! trading! and! improve! stock! market! liquidity! by! adopting! corporate!
governance!standards!that!mitigate!informational!asymmetries.!!
!
Larcker! et! al.! [16]! initially! started! in! their! model! with! 39! structural! measures! of! corporate!
governance.! Using! exploratory! principal! component! analysis,! they! identified! the! underlying!
dimensions! or! structures! of! corporate! governance! and! determined! which! indicators! are!
associated! which! each! factors.! This! resulted! in! 14! factors! or! governance! constructs,! such! as!
Board! Variables,! Stock! Ownership! Variables,! Institutional! Ownership! Variables,! Activist!
Variables,! Debt! Variables,! Compensation! Mix! Variables! and! AntiZTakeover! Variables.! They!
found! that! their! corporate! governance! constructs! have! some! association! with! measures! of!
managerial!decisionZmaking,!firm!performance!and!valuation.!
!
Bebchuk! et! al.! [17]! put! forward! an! entrenchment! index! based! on! six! provisions:! staggered!
boards,! limits! to! shareholder! bylaw! amendments,! poison! pills,! golden! parachutes,! and!
supermajority!requirements!for!mergers!and! charter! amendments.!They!found!that! increases!
in!the!index!level!are!monotonically!associated!with!economically!significant!reductions!in!firm!
valuation! as! well! as! large! negative! abnormal! returns! during! the! 1990Z2003! period.! Adding!
more! provisions! to! an! index! is! hardly! bound! to! be! beneficial,! in! this! area! less! can! be! more.!
Shareholders! and! their! advisers! might! do! well! to! focus! on! those! corporate! governance!
provisions!that!really!matter!for!firm!value.!
!
Comparing!all! the! different!set! of! corporate!governance! variables/rules! utilized!by! the! above!
authors,! we! found! that! only! one! governance! rule! is! common! between! them,! that! is! the!
!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!201!
Advances!in!Social!Sciences!Research!Journal!(ASSRJ)!
Vol.2,!Issue!2!FebZ2015!
existence!or!no!of!poison!pill!for!antiZtakeover.!Each!study!or!paper!tends!to!use!a!different!set!
of!corporate!governance!variables.! The! conclusion! is!that!the!integration!across!these! studies!
becomes!extremely!difficult.!
!
Since!we!were!not!able!to!harmonize!a!set!of!standard!governance!rules!from!these!studies!in!
order! to! build! our! own! “proxy”! framework,! we! took! as! reference! a! comparison! of! corporate!
governance!codes!relevant! to! European!Union.!In! this! study,!Gregory![9]! used! 36!governance!
codes!or!rules,!of!which!we!selected!15!rules!for!our!framework.!These!are!the!following:!
1. Board!Membership!Criteria!Z!the!board!is!composed!in!such!a!manner!that!it!is!capable!
of!handling!its!managerial!tasks,!and!that!it!acts!as!a!constructive!and!qualified!sparring!
partner!for!the!management!at!the!same!time.!
2. Separation!of!Chairman!and!CEO!Z!The!positions!of!chief!executive!officer!and!chairman!
of!the!board!should!preferably!be!distinct.!
3. Lead!Director!Z!If!the!chairmanship! of! these! governing!bodies!is!entrusted!to!the!same!
person,!it! is!necessary! to!ensure! that!there! are!one! or!more! prominent! individuals! on!
the!Board!of!Directors!who!can!form!a!counterZbalance!to!the!influence!of!the!chairman.!
4. Board! Size! Z! It! is! important! that! the! board! has! a! size! which! allows! for! a! constructive!
debate!and! an!efficient! decision!process,! in!which! it!is! possible!for! all! the! directors! to!
play!an!active!part.!
5. Mix! of! Inside! and! Outside! Directors! Z! Boards! should! consider! assigning! a! sufficient!
number!of!nonZexecutive! board!members!capable! of!exercising!independent! judgment!
to!tasks!where!there!is!a!potential!for!conflict!of!interest.!
6. Term!Limits! Z!It! is! recommended! that! directors!are! elected!to! the! board! for! a!defined!
period.!
7. Executive!Sessions!of!Outside!Directors!–!the!Supervisory!Board!meets!at!times!for!one!
sitting!per!year!without!the!Management!Board.!
8. Number! of! Committees! Z! The! forming! of! working! groups! (“committees”)! from! the!
external! members! should! be! discussed! at! least! by! the! Boards! of! Directors! of! listed!
companies.! Such! working! groups! would! be,! e.g.,! the! Auditing! Committee! and! the!
Nomination!and!Remuneration!Committee!of!the!top!management.!
9. Committees!Structure!–!Refers!to!the!number!of!members!in!each!committee.!
10. Independence! of! the! Committees! Z! If! there! is! an! appointment! committee,! it! should! be!
composed!mostly!of!nonZexecutive!directors!and!chaired!by!the!Chairman!of!the!Board!
of!Directors!or!by!a!nonZexecutive!director.!
11. Formal! Evaluation! of! the! CEO! Z! The! remuneration! committee! is! expected! to! select!
appropriate!performance!measures!for!evaluating!and!remunerating!the!CEO!and!other!
executive! directors,! and! satisfy! itself! that! relevant! performance! measures! have! been!
fully!met.!
12. Executive! Compensation! Z! The! remuneration! committee! is! expected! to! select!
appropriate!performance!measures!for!evaluating!and!remunerating!the!CEO!and!other!
executive! directors,! and! satisfy! itself! that! relevant! performance! measures! have! been!
fully!met.!
13. Content!and!Character! of! Disclosure!Z! Disclosure! should!include,! but! not!be! limited! to,!
material!information!on:!!
a) Major!share!ownership.!!
b) Members!of!the!board!and!key!executives!and!their!remuneration.!!
c) Governance!structures!and!policies.!
14. Shareholder!Voting!Practices!Z!The!principle! of! “one!share,!one!vote”!is!the!basis!of!the!
right! to! vote.! Shareholders! should! have! the! right! to! vote! at! general! meetings! in!
proportion!to!the!issued!shareholder!capital.!
Ching,' H.Y.,' &' Tardelli,'R.' (2015).Cooperate' Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-) +&*'%&'() .'('$/&0)
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15. AntiZTakeover! Devices! Z! Shareholders! have! the! right! to! participate! in,! and! to! be!
sufficiently!informed!on!extraordinary!transactions!that!in!effect!result!in!the!sale!of!the!
company.!
METHODOLOGY)
This! is! a! descriptive! analysis! because! it! intends! to! describe! the! differences! among! the!
corporate! governance! rules! of! several! Stock! Exchange! SE! around! the! world.! The! study! was!
based!on!corporate! governance! rules!documents!of! Stock! Exchange!from!BM&FBovespa! [18],!
New!York! Stock! Exchange! [19],!German!Government!Commission![20],!Tokyo!Stock!Exchange!
[21],! Financial! Reporting! Council! [22]! and! Ontario! Securities! Commission! [23].! These!
documents!were!downloaded!from!their!respective!websites.!
!
DISCUSSION)OF)THE)RESULTS)
The!results! can!be! seen!in! appendix!1.! The! names! of! the! Stock! Exchanges! were! shortened! to!
TSE! for! Tokyo,! NYSE! for! New! York,! NM! for! BM&FBOVESPA,! Frankfurt! for! Frankfurt! Stock!
Exchange,!TSX!for!Toronto!and!London!for!London!Stock!Exchange.!
!
We!can! notice! that!TSX!has!the!lowest!corporate!governance!standard!compared!to!other!five!
SE! because! its! document! does! not! provide! description! in! 12! rules! out! of! 15.! On! the! other!
extreme,! we! find! London! with! the! highest! corporate! governance! standard! with! detailed!
description!in!11!rules.!!Regarding!governance!rules,!one!of!them!(lead!director)!displayed!no!
description!in!all!the!six!SE.!Finally,!two!rules!(mix!of!inside!and!outside!directors!and!Content!
and!Character!of!Disclosure)!have!detailed!description!in!four!SE.!!
!
Characteristics)of)New)York)Stock)Exchange,)NYSE)
The! basic! framework! of! NYSE! governance! rules! is! driven! to! the! objective! of! maximizing!
shareholers´wealth!and!protecting!their!interests.!Reaz!and!Hossain![1]!also!share!this!view!in!
his!study.!Dempsey![24]!states!that!NYSE!regime!emphasizes!the!rights!of!shareholders!to!vote!
on!major!company!decisions!and!to!elect!a!board!of!directors.!
!
NYSE!provides! specific! corporate!governance! rules! and! practices! that! listed! companies! must!
follow!despite!they!follow!regulations!and! other! guidance! promulgated! by! the! SEC! (Securities!
Exchange! Committee).! US! companies! listed! on! NYSE! must! comply! with! a! broad! range! of!
corporate! governance! rules.! Some! of! these! rules! require! that! a! company! maintains! at! least!
three! committees,! being! the! audit! committee,! a! corporate! governance! and! a! compensation!
committee,!each!consisting!of!independent!directors.!
!
This!requirement!of! at!least!3! committees!balances!the! relative! freedom!that! companies! may!
have!to!constitute!the!Board!of!Directors!and!ensures!to!shareholders!a!proper!supervision!of!
the!activities!performed!by!the!company.!In!the!rule!Mix!of!inside!and!outside!directors,!NYSE!
requires! that! majority! of! directors! be! independent! or! outsiders,! however! the! company! has!
relative!freedom! to! compose! the! number! of! inside!and! outside! directors.! Nevertheless,! some!
big! companies! adopt! more! rigid! standards,! such! as! WalZMart,! Coca! Cola! and! JP! Morgan! that!
have! only! one! inside! director.! This! attitude! gives! more! credit! to! their! actions! making! the!
company!attractive!to!investors.!!
!
The! Board! of! Directors! is! elected! by! the! shareholders! and! is! responsible! for!setting! the!
direction!and!policy!of!the!company!as!well!as!appointing!its!management.!Regarding!its!size,!
NYSE!is!not!prescriptive!leaving!it!to!the!company´s!choice.!To!illustrate,!Procter!&!Gamble!has!
!
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nine! members,! JP! Morgan! has! eleven! members! while! WalZMart! and! Coca! Cola! have! 15!
members.!
!
Other!similar! characteristic!is! in!the! rule! Separation! of! Chairman!and! Chief!Executive! Officer!
CEO! where! NYSE! does! not! have! such! demand.! This! practice,! if! misconducted,! may! limit! the!
Board´s!power!and!centralize!it!in!the!hands!of!one!person.!Coca!Cola,!JP!Morgan!and!Procter!&!
Gamble! have! same! executive! for! both! positions,! but! JP! Morgan! has! an! independent! Lead!
Director,!which!makes!the!power!more!balanced!in!some!controversial!issues.!
!
In! another! governance! rule,! Executive! sessions! of! independent! directors,! NYSE! requires! an!
annual! regularly! scheduled! board! meeting! at! which! only! independent! and/or! nonZexecutive!
directors!are! present.!Finally,! the! compensation! committee! reviews!and! approves!the! formal!
evaluation!of!the!CEO!as!well!as!determines!the!compensation!of!all!directors!of!the!Board.!The!
companies! should! disclose! their! director’s! compensation! in! a! statement! of! form! filed! by! the!
company!with!the!SEC.!
!
!(*%*+),%&-)&+-."/.0"1".2,%+*3"4.02.56%*7&8&*9.:)"+;.<=+(*9',>.
Novo! Mercado! Corporate! Governance! Equity! Index! is! a! portfolio! composed! of! stocks! of!
companies!that!have!a!good!level!of!corporate!governance!and!are!listed!on!BM&FBovespa.!Its!
initial!listing!is!dated!of!2002!and!has!on!September!2014!around!90! companies! listed! with!a!
market! capitalization! of! US$! 344,! 5! billion.! Brazil,! as! a! developing! country,! seeks! constantly!
investment,!mainly!foreign!investment,!into!trade!and!industry.!Corporate!governance!plays!an!
important!role!in!tapping!investment! by! boosting!investor’s!confidence,!and!this!equity! index!
is!part!of!BM&FBovespa’!strategy!to!attract!local!and!foreign!investors.!
!
To! be! part! of! NM! index,! the! companies’! equity! must! be! exclusively! composed! of! ordinary!
shares,!which!makes!this!SE!unique.!This!may!allow!a!low!ownership!concentration,!similar!to!
what!happens!in!US!equity! market.!Another!characteristic!of!NM,! the! companies!listed!in!this!
index! have! to! maintain! minimum! of! 25%! of! shares! free! float! and! to! publish! their! financial!
demonstrations! in! accordance! to! IFRS! (International! Financial! Reporting! Standards).! To!
protect!the! minority! shareholders,! in! the! case! of! sale! of!company’! control! or! as! part! of! antiZ
takeover!device!(rule!15),!they!are!entitled!to!a!tag!along!of!100%,!ie,!they!have!the!right!to!sell!
the!shares!at!same!price!of!the!majority!shareholders.!
!
In!the!rule!Mix!of!inside!and!outside!directors!in!the!Board,!NM!requires!a!minimum!of!20%!of!
independent!directors.!The!majority! of!companies!listed!is! following!this!rule.!Cielo! has!27%,!
Sonae!Sierra!has!25%,!JSL!with!40%!and!Fleury!with!28%.!Regarding!Board!size,!NM!demands!
minimum!of! five!members.! Cielo! have!eleven! members,!while! Sonae!Sierra! has!eight,! JSL! has!
five!members!and!Fleury!with!7!members,!all!of!them!have!a!term!limit!of!two!years!maximum.!
Moreover,!NM!demands!separation!of!Chairman!of!the!Board!and!the!CEO.!!
!
The!Brazilian!corporate!governance!did!not!show!a!high!standard!in!comparison!with!NYSE!or!
Frankfurt,! but! it! has! many! characteristics! of! our! proxy! not! covered! by! NYSE! and! Frankfurt.!
Like!the!prescription!of!a!minimum!Board!Size!and!most!important!the!mandatory!Separation!
of!Chairman!and!CEO.!
!
Finally,!we!could!not!identify! a!clear!characteristic!of!NM! framework,! like!NYSE!driven!to!the!
objective! of! maximizing! shareholders’! wealth! or! Frankfurt! to! protect! the! stakeholders.!
Nevertheless,! as!said! initially,! it! has! a! high! corporate! governance! standard! and! it! serves! the!
purpose!to!boost!investor’s!confidence.!
!
Ching,' H.Y.,' &' Tardelli,'R.' (2015).Cooperate' Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-) +&*'%&'() .'('$/&0)
1,2/%$-3)2456)197B209.'
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204!
Characteristics)of)Frankfurt)Stock)Exchange)
Frankfurt!Stock! Exchange! is!the! only! of! the! four!Stock! Exchange! analyzed! that! has! a! Code! of!
corporate!governance,! while!the! other!three! have!a! document!containing! rules!for! listing.!Its!
code!presents!essential!statutory! regulations! for!the!management!and!supervision! of! German!
listed! companies! [20].! A! unique! characteristic! is! the! dual! board! system! comprising! a!
Management! Board! and! a! Supervisory! Board.! The! Management! Board! is! responsible! for!
managing!the!company,!the!Supervisory!Board!appoints,!supervises!and!advises!the!member!of!
the!Management!Board!and!is!directly!involved!in!fundamental!decisions!of!the! company.!The!
members! of! the! Supervisory! Board! are! elected! by! the! shareholders,! however! the! employees!
are! also! represented! in! this! Board! from! one! third! to! half! of! the! members,! depending! the!
number! of! employees! [20].! This! concerning! with! employees! is! a! characteristic! of! Frankfurt!
Stock!Exchange,!indeed,!It's!the!only!SE!that!set!among!Management!Board!responsibilities!the!
diversity,!of!men!and!women,!when!filling!managerial!positions.!
!
Frankfurt!requires!only!two!committees,!being!the!audit!and!nominating.!The!chairman!of!the!
audit!committee! should! not! be! a! former! member!of! the!Management! Board! and! members! of!
the!Nominating!should!be!formed!exclusively!by!shareholders!representatives.!
!
The!Management!Board!shall!be!comprised!of!several!members.!However,!looking!the!Board!of!
Bayer,!Allianz,!Adidas!and!Siemens,!they!have!less!members! than!those!companies!in!NYSE!or!
TSE.! ! Bayer! and! Adidas! have! 5! members,! Siemens! 7! and! Allianz! 11! members.! This! can! be!
explained! by! the! existence! of! a! Supervisory! Board! working! very! closely! with! Management!
Board.! Finally,! one! similar! characteristic! with! NYSE! and! TSE! is! that! there! is! no! separation!
between! Chairman! of! the! Management! Board! and! CEO.! This! is! the! practice! in! Adidas! and!
Allianz,!for!instance.!
!
German! Government! Commission! [20]! states! its! purpose! is! to! promote! the! trust! of!
International! and! national! investors,! customers,! employees! in! the! management! and!
supervision!of!listed!companies.!
!
Characteristics)of)Tokyo)Stock)Exchange,)TSE)
Reaz!and! Hossain![1]! states!that! the! cultural! dimension! of! the! corporate! governance! and! the!
family! values! drive! the! Japanese! governance! system.! This! fact! might! be! the! reason! why!
crossholdings! between! financial! and! nonZfinancial! companies! are! the! trademark! of! the!
Japanese!ownership!structure!and!thus,!the!ownership!is!widely!dispersed.!
!
Tokyo! Stock! Exchange! [21]! is! not! prescriptive,! it! lacks! clarity! in! the! description! of! the!
corporate! governance! rules.! For! instance,! in! the! rule! Number! of! Directors,! this! document!
shows!the!average!number!of!persons!per!listed!company!and,!yet,!in!472!companies,!there!are!
more! than! 5! directors.! Canon! has! 19! members,! Softbank! has! 10! members,! Sumitomo! 15!
members!and!Mizuho!13!members.!
!
Regarding! the! number! of! independent! directors! in! the! Board,! the! average! number! is! 1.02!
outside! director! per! company.! However,! the! percentage! of! companies! whose! number! of!
outside!directors! having! a! seat! on! the! board! of! directors! occupies! more! than! oneZthird.! This!
seems!to! be!the! case! of! Softbank! with! 3! independent!directors! and!Mizuho! with!6! outsiders.!
Canon!and!Sumitomo!have!only!2!independent!members.!!
!
Companies! with! committees! in! TSE! are! required! to! establish! 3! committees,! being! the!
nomination!the!largest!(with!average!of!4.04!members),!the!compensation!with!3.73!members!
!
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and!audit!committee!with!3.71!members.!As!far!as!independence!of!committees!is!concerned,!
the!majority!of!members!must!be!outside!directors.!
!
Finally,!the! president!chairs!the!Board!of!directors!in!78.9%!of!TSEZlisted!companies!followed!
by! the! company! Chairman! in! 19.7%! of! the! companies.! Among! the! companies! surveyed,! only!
Sumitomo!has!this!separation.!
Tokyo! Stock! Exchange,! has! lower! corporate! governance! standards;! it! fulfills! 5! out! of! 15!
governance! rules.! Despite! this! lack! of! prescription,! the! Tokyo! Stock! Exchange! [21]! mentions!
that! there! is! growing! awareness! that! the! intrinsic! purpose! of! corporate! governance! is! to!
improve!corporate!value.!
!
Characteristics)of)London)Stock)Exchange)
London! Stock! Exchange,! alongside! with! Frankfurt! Stock! Exchange,! counts! with! a! Corporate!
Governance! Code,! but! it! is! the! only! SE! that! shares! its! code! with! other! countries! of! United!
Kingdom,!because!it!is!UK!Corporate!Governance!Code.!
!
The!Management!Board! of!London!SE! is! the!only! SE! that!has! a! Board!Membership! criteria.! It!
says!is!“Based!on!Merit”,!although!not!specific,!but!it!is!still!the!only!document!that!shows!this!
concern.!!
!
Board! Size! is! not! very! prescriptive! since! it! determines! a! “sufficient”! size.! We! took! few! cases!
from!FTSE!100,!and!we!found!that!board!of!Capita!has!10!members,!Pearson!10!members!and!
Diageo!9! members,! the! average!is!9.7!members.!In!comparison!with!others,!the!NYSE!average!
is!12.5,!NM!is!7.25,!Frankfurt!is!7!and!Tokyo!is!14.3!members.!It!shows!that!even!with!the!lack!
of!prescription,!the!companies!opted!for!a!mean!number!of!members.!!
!
It!is!important!to!point!out!that!some!important!governance!rules!are!not!covered!by!the!other!
Stock!Exchanges.! One! ruel! is! Separation! of! Chairman!and! CEO!that,! as! said! before,! should!be!
avoided!because! concentrates! too! much! power!in! one! person.! Even! so,!only! NM! and! London!
state!that!chairman!and!CEO!should!not!be!the!same!person.!A!second! rule! is! the! existence!of!
outside! directors! on! the! board,! London! SE! determines! that! the! chairman! should! be!
independent!but!NYSE!is!a!step!forward!and!states!that!the!majority!of!the!board!should!be!of!
outside!directors.!Third!and!last!rule,!Board!Size!should!have!an!appropriate!size,!it!is!not!easy!
(if! possible)! to! set! a! range! applicable! to! all! companies,! but! London! lacks! prescription! when!
determining!a! “sufficient”! size.!NM! goes! a!step! forward!and! set! that!the! minimum!number!of!
directors!on!the!board!should!be!5.!In!our!sample,!the!average!is!higher!than!5,!however!every!
company!should!have!a!board!that!is!capable!to!comply!with!its!duties.!!
!
London! SE! determine! that! listed! companies! should! have! at! leats! Audit,! Nominating! and!
Remuneration!committees,!Frankfurt!SE!follows!a!similar!policy,!determining!the!existence!of!
two! specific! committees.! Frankfurt! and! London! are! not! the! only! Stock! Exchanges! that! set! a!
minimum! number! of! committees,! NYSE! and! TSE! also! does! but! they! do! not! specify! what!
committees!should!exist.!
!
London!SE!not!only!showed!the!highest!standard!in!comparison!with!all!other!Stock!Exchanges!
fulfilling!11!out!of!14!rules,!but!also!states!that!the!listing!company!should!consider!the!gender!
equilibrium!on!the!managerial!positions.!Toronto!SE!and!Frankfurt!SE!also!have!this!concern.!
!
Characteristics)of)Toronto)Stock)Exchange,)TSX)
Toronto!Stock!Exchange!shows!to!be!an!interesting!case.!It!has!the!lowest!standards!according!
to!our!study.!Indeed!it!complies!only!with!items!related!to!disclosures,!because!the!document!
Ching,' H.Y.,' &' Tardelli,'R.' (2015).Cooperate' Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-) +&*'%&'() .'('$/&0)
1,2/%$-3)2456)197B209.'
!
!
!
206!
with!corporate!governance!rules!(TSX!does!not!have!a!Code!of!Corporate!Governance)!does!not!
require!companies!to!follow!specific!rules,!it!requires!the!companies!to!disclosure!the!reasons!
for! such.! For! example! regarding! Separation! of! Chairman! and! CEO,! TSX! does! not! require!
separation!but!is!mandatory!the!disclosure!when!the!chairman! is!the!CEO!and!the!reasons!for!
that.! This! gives! company! much! more! freedom! than! the! other! systems,! but! with! mandatory!
disclosures!to!keep!transparency.!
!
As!we!did!with!others!SE,!we!took!few!cases!of!Toronto!SE!and!looked!at!the!size!of!the!Board!
of! Directors.! Altaris! Royalty! board! has! 7! members,! AltaGas! has! 9! members,! ATS! Automation!
has!7! members! and! Badger! Daylighting!has! 5!members.! The! average! is! 7!members,! which! is!
very! close! from! the! average! of! NM! and! Frankfurt.! Both! of! them! comply! with! the! item! Board!
Size.!We!can,! then,!infer!that! in!this!case! the!mandatory!disclosure! of!TSX!and! the!board!size!
requirements!of!Frankfurt!and!NM!had!the!same!effect!in!companies’!policies.!
!
After!analyzing!the!TSX!corporate!governance!structure,!one!important!option!appeared!for!SE!
when!developing! corporate! governance!system.! If!companies! listed! in!this! SE!are!not! mature!
enough!to!handle!prescriptive!rules,!the!mandatory!disclosure!can!be!a!suitable!option!that!will!
not! only! make! company's! policies! more! transparent! but! also! make! companies! adopt! higher!
governance!standards!to!become!more!interesting!to!investor.!
!
CONCLUSION)
As! more! and! more! companies! do! business! around! the! world! with! their! counterparts! and!
governments,!it!becomes!increasingly!important!to!understand!the!similarities!and!differences!
between! the! corporate! governance! rules! and! practices! in! some! Stock! Exchange! around! the!
world.! The! state! of! companies’! corporate! governance! practices! and! rules! has! changed!
dramatically!worldwide!after!the!financial!crisis!in!2008.!!
!
We! hope! that! this! study! allows! listed! companies! to! gain! an! understanding! of! the! state! of!
progress!of! corporate!governance! around!the! world!and! contributes!to! have!a! more! efficient!
corporate!governance!system.! Ultimately,! this!will!result! in!continuously!making! profits! from!
business!activities!and!enhancing!corporate!value.!
!
The!discussion!on!international!rules!of!corporate!governance!clearly!indicates!that!there!is!no!
single!framework!followed!around!the!world.!Reaz!and!Hossain![1]!also!claims!that!there!is!no!
single!governance! style!which!may!be!followed!in!the!context!of!different!countries.! The!main!
differences! and! similarities! are! summarized! in! appendix! 1.! Each! Stock! Exchange! has! unique!
characteristics!but!none!of!them!showed!rigid!rules,!London!complied!with!more!items!of!our!
proxy!but!many!of!them!are!not!prescriptive.!On!the!other!hand,!NM!has!the!most!prescriptive!
rules! but! did! not! cover! many! items,! the! others! SE! are! less! prescriptive! than! NM! or! less!
compliant!than!London,!thus!all!Stock!Exchanges!have!areas!of!development.!!There!are!clearly!
governance! differences! much! more! attribute! to! cultural! and! country! wise! dimensions.! A!
comparative!picture!of!the!corporate!governance!scenarios!in!these!six!SE!researched!has!the!
purpose!to!identifying!potential!problem!areas.!
!
A!suggestion!for!future!work!is!to!expand!this!sample!to!cover!other!Stock!Exchanges!and!gain!
a!more!thorough!understanding!of!the!corporate!governance!rules!and!standards.!
!
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German!Government!Commission.!(2014).!German!code!of!corporate!governance.!
http://www.dcgk.de//files/dcgk/usercontent/en/!download/code/EZCorpGov_2014.pdf.!
Tokyo!Stock!Exchange.!(2013).!TSEZListed!companies!white!paper!on!corporate!governance.!
http://www.tse.or.jp/rules/cg/whiteZpaper/b7gje60000005ob1Zatt/b7gje6000003ukm8.pdf.!
Financial!Reporting!Council.!(2014).!UK!Corporate!Governance!Code.!https://www.frc.org.uk/OurZWork/CodesZ
Standards/CorporateZgovernance/UKZCorporateZGovernanceZCode.aspx!
Ontario!Securities!Commission.!Disclosure!of!Corporate!Governance!Practices.!
http://www.osc.gov.on.ca/documents/en/SecuritiesZCategory5/20141211_58Z101_amdZgovernanceZ
practices.pdf!
Dempsey,!T.!(2012).!Corporate!governance!for!main!market!and!aim!companies.!London!Stock!Exchange.!
http://www.londonstock!exchange.com/companiesZandZadvisors/aim/publications/documents/corpgov.pdf.!!
!!
Ching,' H.Y.,' &' Tardelli,'R.' (2015).Cooperate' Governance' Rules' in' Six' Stock' Exchanges:' A' Comparative' Study.'!"#$%&'() *%) +,&*$-) +&*'%&'() .'('$/&0)
1,2/%$-3)2456)197B209.'
!
!
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208!
APPENDIX)1)
!
Governance)
Rules)
TSE)
NYSE)
NM)
Frankfurt)
London)
TSX)
Board)
Membership)
Criteria)
Not!Covered!
Not!Covered!
Not!Covered!
Not!Covered!
Based!on!Merit!
Not!Covered!
Separation)of)
Chairman)and)
CEO)
Not!Covered!
Not!Covered!
Mandatory!
Not!Covered!
Mandatory!
Not!Covered!
Lead)Director)
Not!Covered!
Not!Covered!
Not!
applicable!
because!
separation!of!
Chairman!
and!CEO!is!
mandatory!
Not!Covered!
Not!applicable!
because!
separation!of!
Chairman!and!
CEO!is!mandatory!
Not!Covered!
Board)Size)
Not!Covered!
Not!Covered!
At!least!5!
Several!
members!
Sufficient!
Not!Covered!
Mix)of)Inside)
and)Outside)
Directors)
At!least!one!
outsider!
Majority!
outsiders!
At!least!20%!
outsiders!
Not!Covered!
Chairman!should!
be!independent!
Not!Covered!
Term)Limits)
1!year!
Not!Covered!
2!years!
Not!Covered!
1!year!
Not!Covered!
Executive)
Sessions)of)
outside)
Directors)
Not!Covered!
Once!a!year!
Not!Covered!
Not!Covered!
Not!Covered!
Not!Covered!
Number)of)
Committees)
3!
3!
Not!Covered!
Audit,!
Nominating!
Audit,!
Nominating,!
Remuneration!
Not!Covered!
Committee)
Structure)
At!least!3!
Audit:!At!least!3,!
Others:!Not!
Covered!
Not!Covered!
Not!Covered!
Audit:!3,!
Remuneration:!3,!
Nominating:!Not!
Covered!
Not!Covered!
Independence)
of)Committees)
Majority!
outsiders!
Entirely!outsiders!
Not!Covered!
Audit:!
Independent!
Chair!!
Nominating:!
Exclusively!
shareholders!
representatives!
Audit:!Entirely!
independent,!
Remuneration:!
Entirely!
independent,!
Nominating:!
Majority!
independent!
Not!Covered!
Formal)
Evaluation)of)
CEO)
Not!Covered!
Compensation!
committee!review!
and!approve!
Not!Covered!
Not!Covered!
Remuneration!
committee!
recommendations!
Disclosed!
Executive)
Compensation)
Not!Covered!
Compensation!
committee!
recommendations!
Not!Covered!
Not!Covered!
Remuneration!
committee!
recommendations!
Disclosed!
Content)and)
Character)of)
Disclosure)
Not!Covered!
Comply!with!
items!b)!and!c)!!
Not!Covered!
Comply!with!
items!a)!and!b)!!
Comply!with!item!
c)!
!
!
!
Comply!with!
item!b)!and!
c)!
!
Copyright!©!Society!for!Science!and!Education,!United!Kingdom!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!209!
Advances!in!Social!Sciences!Research!Journal!(ASSRJ)!
Vol.2,!Issue!2!FebZ2015!
Shareholders)
voting)
practices)
Not!Covered!
Not!Covered!
Not!Covered!
Each!share!
carries!one!
vote!
Not!Covered!
Not!Covered!
AntiM
Takeover)
Devices)
Not!Covered!
Not!Covered!
TagZAlong!
Management!
Board!and!
Supervisory!
Board,!must!
submit!a!
statement!of!
their!reasoned!
position!so!that!
the!
shareholders!
can!make!an!
informed!
decision!on!the!
offer.!
Not!Covered!
Not!Covered!
! !
!
... The Corporate Governance dimension was the one that obtained less adherence by the companies of the segment, the subtheme "fiscal transparency" was reported by all the companies, since the subtopic "percentage of executives in the council" did not obtain quotations from the companies. Ching and Tardelli (2015) commented that the Board should have a sufficient number of non-executive members of the company capable of exercising a fair trial in situations that may create a conflict of interest. Table 2 shows the level of companies that compose this segment and the adherence of these companies to the reference model. ...
Responsible Investment and the Disclosure of ESG Information in the Companies' Integrated Reports
Chapter
Full-text available
  • Feb 2020
The objectives of this research are twofold: examine to what extension the environmental, social and governance information ESG are disclosed in the Integrated Reports of three industry sectors and whether there is difference in the disclosure between these chosen sectors. The vehicle of analysis is the Integrated Report and in its absence, the Sustainability Report. The disclosure reference model of sustainability proposed by Ching, Toste and Tardelli was used to examine which ESG information described in this model are present in the companies' reports. The sample consists of 15 companies of automotive, consumer goods and health care sectors. There were different levels of ESG information disclosure in the reports of the chosen companies, both in the dimension and in sectors. The disclosure in Corporate Governance dimension as well as in the consumer goods sector was less reported. The conclusions are: (a) there is still a long way to go by companies on the importance of disclosing ESG information; (b) one may speculate whether the low level of disclosure in corporate governance is due to lack of knowledge or disregard by the companies for this information; (c) the integrate reports are still being adopted in a shy way, given that the first release of its framework was in 2012. Finally, there is a concern about how socially responsible fund managers and responsible investors are making their investment decisions, as their primary source of ESG information should be disclosed in the Integrated Reports or Sustainability Reports.
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Thy Governance Matters: A Study on Governance Practices of Stock Exchanges in India
Article
Full-text available
  • Jun 2021
Historically the responsibility of ushering the practices of good governance, transparent management and effective control process for the corporate houses rests under the jurisdiction of those stock exchanges where the shares of the companies are listed. However, the very question of the management and governance of these stock exchange houses are always under the scanner across the globe in view of the limitations of their historic pattern of member-owned ‘non-profit’ kind of mutual organizational structure. The lacunae of that typical organizational structure was that their activities are primarily targeted towards members interests as well as that set up was not immune fully from the malice like insider trading and conflict of interest for office bearers and traders. In view of this following the global pattern the Union Government of India had decided for corporatization of stock exchanges thereby creating a separation of ownership, management and trading membership of stock exchanges which is formally known as demutualization and corporatization of stock exchanges. A committee was set up by the SEBI under the chairmanship of Justice M.H. Kania which had submitted the report in 2002 recommending corporatizations and demutualization of stock exchanges which become mandatory for every stock exchange in India to implement within a stipulated period of time. Against this backdrop the present study is conducted to make an overview of the present state of governance affairs of major stock exchanges in India. It has been observed that the corporatization and governance practices of the major bourses in India had followed governance practices like separation of the post of chairman and CEO, inclusion of public interest directors as outside directors in the board, adherence to code of conducts for directors, organizing frequent meetings of directors etc.
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A Reference Model of Sustainability Disclosure based on Four Sustainability Stock Indexes
Article
Full-text available
  • Sep 2016
The study proposes to develop a reference model of sustainability disclosure based on the models and requirements of four sustainability indexes - Dow Jones Sustainability Index, Corporate Sustainability Index ISE, Frankfurt STOXX and Financial Times FTSE ESG. The approach employed to develop the model is a qualitative analysis of the complementarity among the Stock indexes above mentioned alongside a literature review on sustainability disclosure frameworks. There is no consensus around what should be measured and how. Yet, there is no study in the literature that has ever discussed the models of the sustainability stock indexes and the respective data required in each one of them or compared these models and their requirements. The present study attempts to fulfill this gap by examining the initiatives and requirements of four prominent sustainability indexes. This study contributes to the sustainability responsible investment literature. The inclusion of a firm in a sustainability index can be perceived as a positive signal by investors and this can be explained by signaling theory. This analysis can help investors and/or socially responsible fund managers to screen the stocks against this reference model and determine those firms that are more adherent to it.
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Corporate governance: information disclosure level and its relation with the stock price volatility on Ibovespa
Article
Full-text available
This empirical-analytical study investigates the role of accounting as a source of information to the Brazilian capital market. It aims to verify whether the accounting disclosure level provided by Brazilian entities is related to the volatility of their share prices on Bovespa (Brazilian Stock Exchange). Entities with greater accounting disclosure level are expected to present lower volatility of their stock returns. To analyze the relation between disclosure level and stock price volatility, we collected information published by 42 companies listed on Ibovespa, using the annual reports for 2002. After segregating these companies into three different groups in accordance with their specific disclosure level, using cluster analysis, we statistically verified the existence or not of significant differences between their disclosure and stock price volatility levels. The analyses indicated that the companies with better average accounting disclosure presented lower mean volatility levels, while the cluster with worse average disclosure presented higher mean volatility levels. This evidences that higher average disclosure levels result in lower mean volatility of stock returns.
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Investor Protection and Corporate Governance
Article
Full-text available
Recent research has documented large differences among countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. A common element to the explanations of these differences is how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the differences in laws and the effectiveness of their enforcement across countries, discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.
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Corporate Governance in Developing, Transition and Emerging-Market Economies
Article
Full-text available
  • Jan 2004
• Sound national systems of corporate governance are essential for all countries, including the poorest, to reap the benefits of globalisation. • “Corporate governance” comprises the institutions that govern the relationship between people who manage corporations and all others who invest resources in them. • The quality of local corporate governance critically affects a country’s ability to achieve sustained real productivity growth and the success of its long-term development efforts. • Pyramidal corporate-ownership structures, cross shareholdings and multiple share classes are widely used by corporate insiders in the developing world to extract corporate-control rents, exploit other investors and resist pressures to improve corporate governance. • The power of corporate insiders and their close relationship with those who exercise political power mean that sound corporate governance requires sound political governance, and vice versa.
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How Important Is Corporate Governance?
Article
  • May 2005
We examine the relation between a broad set of corporate governance indicators and various measures of managerial decision making and organizational performance. Using a sample of 2,106 firms, we distill 39 structural measures of corporate governance (e.g., board characteristics, stock ownership, institutional ownership, activist stock ownership, existence of debt-holders, mix of executive compensation, and anti-takeover variables) into 14 governance constructs using principal components analysis. We find that these 14 constructs are related to operating performance, have a somewhat mixed association with abnormal accruals, Tobin's Q, and excess stock returns, and little relation to class action lawsuits and accounting restatements.
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Corporate Governance, Investor Protection and Performance in Emerging Markets
Article
  • Mar 2002
We use recent data on firm-level corporate governance (CG) rankings across 14 emerging markets and find that there is wide variation in firm-level governance in our sample and that the average firm-level governance is lower in countries with weaker legal systems. We explore the determinants of firm-level governance and find that governance is correlated with the extent of the asymmetric information and contracting imperfections that firms face. We also find that better corporate governance is highly correlated with better operating performance and market valuation. Finally, we provide evidence that firm-level corporate governance provisions matter more in countries with weak legal environments.
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Recent Developments in Corporate Governance: An Overview
Article
I develop a corporate governance framework, provide a broad overview of recent corporate governance research, and place each of the Special Issue papers within the context of this framework. The papers in the issue contribute to our understanding of a wide range of governance topics including: the role of antitakeover measures, board structure, capital market governance, compensation and incentives, debt and agency costs, director and officer labor markets, fraud, lawsuits, ownership structure, and regulation. In short, the papers span almost every aspect of governance systems.
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Corporate Governance And Equity Prices
Article
  • Feb 2003
Shareholder rights vary across firms. Using the incidence of 24 governance rules, we construct a "Governance Index" to proxy for the level of shareholder rights at about 1500 large firms during the 1990s. An investment strategy that bought firms in the lowest decile of the index (strongest rights) and sold firms in the highest decile of the index (weakest rights) would have earned abnormal returns of 8.5 percent per year during the sample period. We find that firms with stronger shareholder rights had higher firm value, higher profits, higher sales growth, lower capital expenditures, and made fewer corporate acquisitions. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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!Issue!2!FebZ2015! and!audit!committee!with!3.71!members.!As!far!as!independence
  • Advances
  • Social
  • Sciences
  • Research
  • Journal
Advances!in!Social!Sciences!Research!Journal!(ASSRJ)! Vol.2,!Issue!2!FebZ2015! and!audit!committee!with!3.71!members.!As!far!as!independence!of!committees!is!concerned,! the!majority!of!members!must!be!outside!directors.! ! Finally,!the!president!chairs!the!Board!of!directors!in!78.9%!of!TSEZlisted!companies!followed! by! the! company! Chairman! in! 19.7%! of! the! companies.! Among! the! companies! surveyed,! only! Sumitomo!has!this!separation.!
! has! lower! corporate! governance! standards;! it! fulfills! 5! out! of! 15! governance! rules
  • Tokyo
  • Stock
  • Exchange
Tokyo! Stock! Exchange,! has! lower! corporate! governance! standards;! it! fulfills! 5! out! of! 15! governance! rules.! Despite! this! lack! of! prescription,! the! Tokyo! Stock! Exchange! [21]! mentions! that! there! is! growing! awareness! that! the! intrinsic! purpose! of! corporate! governance! is! to! improve!corporate!value.! ! Characteristics)of)London)Stock)Exchange)