I NTERNATIONALC OMPARISON OF S ELECTEDC ORPORATEG OVERNANCE G UIDELINES ANDC ODES OFB ESTP RACTICE

I NTERNATIONAL C OMPARISON OF S ELECTED C ORPORATE G OVERNANCE

G UIDELINES AND C ODES OF B EST P RACTICE

THE AMERICAS · EUROPE · ASIA · AFRICA · AUSTRALIA

Holly J. Gregory September 2008

Corporate Governance refers to that blend of law, regulation, and appropriate voluntary private-sector practices which enables the corporation to attract financial and human capital, perform efficiently, and thereby perpetuate itself by generating long-term economic value for its shareholders, while respecting the interests of stakeholders and society as a whole.

The principal characteristics of effective corporate governance are: transparency (disclosure of relevant financial and operational information and internal processes of management oversight and control); protection and enforceability of the rights and prerogatives of all shareholders; and, directors capable of independently approving the corporation’s strategy and major business plans and decisions, and of independently hiring management, monitoring manage- ment’s performance and integrity, and replacing management when necessary.

Ira M. Millstein

Senior Partner, Weil, Gotshal & Manges LLP and noted authority on corporate governance

Weil, Gotshal & Manges LLP : Founded in 1931, Weil, Gotshal & Manges LLP has evolved into a leading international law firm, offering expertise in a wide range of diverse practice areas. With an extraordinary talent base of over 1,200 attorneys in 20 offices around the world,

Weil Gotshal serves a broad array of clients across multiple industries. The Firm’s Corporate Governance Group is recognized as the preeminent counselors of corporate boards, management and institutional inves- tors on the full range of governance issues including: board composition, structure and processes; executive and director compensation; direc- tor responsibilities, including in connection with mergers, spin-offs and other extraordinary transactions; internal and governmental investiga-

tions of alleged accounting or other corporate misconduct; and shareholder initiatives. The Corporate Governance practice is well-integrated with other practice areas, providing the Firm with an unparalleled capacity to serve as

counselors to companies and their boards across the entire range of situations: from healthy companies using governance to reduce risks of future business distress or to protect extraordinary transactions, to companies facing takeovers or enterprise-threatening litigation, to compa-

nies on the brink of financial distress. The Business, Finance & Restructuring department is renowned for its ability to advise directors, inves-

tors, creditors, and companies on preventing and handling all forms of financial distress. The Business & Securities Litigation department is

highly regarded for its representation of a wide variety of companies and their directors in various forms of shareholder litigation, including in

litigation related to takeovers. The Firm’s Corporate department regularly represents clients in the full range of merger and acquisition, pri- vate equity, capital markets, bank and securitized financing, and other commercial transactions, including in many of the largest and innova-

tive transactions completed each year.

Holly J. Gregory

Weil Gotshal attorneys have advised the World Bank, the Organisation for Economic Co-operation and Development (“OECD”), the Euro-

Partner

pean Commission and various stock exchanges and regulatory bodies on governance reform efforts and have been leaders in providing director Weil, Gotshal & Manges LLP training programs worldwide. In addition, the Firm has played a leading role in the development of some of the world’s most influential cor-

767 Fifth Avenue porate governance recommendations and guidelines, including: National Association of Corporate Directors (“NACD”), R EPORT OF THE New York, NY 10153-0119

NACD B LUE R IBBON C OMMISSION ON D IRECTOR P ROFESSIONALISM (1996, reissued 2001, 2005); General Motors Board of Directors, Tel: +1 212 310 8038

C ORPORATE G OVERNANCE G UIDELINES (1994, most recently revised 2008); OECD P RINCIPLES OF C ORPORATE G OVERNANCE (1999, revised

Fax: +1 212 310 8007 G ORPORATE OVERNANCE P RINCIPLES AND R ECOMMENDATIONS (2000); Interna- tional Corporate Governance Network (“ICGN”), S TATEMENT ON G LOBAL C ORPORATE G OVERNANCE P RINCIPLES (1999, revised 2005); R e-mail: EPORT holly.gregory@weil.com OF T HE B LUE R IBBON C OMMITTEE ON I MPROVING THE E FFECTIVENESS OF C ORPORATE A UDIT C OMMITTEES (for the New York Stock Exchange

2004); European Association of Securities Dealers (“EASD”), C

(“NYSE”) and National Association of Securities Dealers (“NASD”)) (1999); and the R EPORT OF THE OECD B USINESS S ECTOR A DVISORY Ms. Gregory specializes in

G ROUP ON C ORPORATE G OVERNANCE (“Millstein Report”) (1998). The Firm also completed a study of guidelines and codes for the European corporate governance as a

Commission entitled: C OMPARATIVE S TUDY OF C ORPORATE G OVERNANCE C ODES R ELEVANT TO THE E UROPEAN U NION AND I TS M EMBER

field of legal practice. S TATES (2002). For more information about the services we offer, visit http://www.weil.com or call Holly J. Gregory at 212-310-8038.

NEW YORK * AUSTIN * BOSTON * DALLAS * HOUSTON * MIAMI * PROVIDENCE * SILICON VALLEY * WASHINGTON, DC * WILMINGTON

BUDAPEST * FRANKFURT * HONG KONG..* LONDON * MUNICH * PARIS * PRAGUE * SHANGHAI * WARSAW

INTERNATIONAL COMPARISON OF SELECTED CORPORATE GOVERNANCE GUIDELINES AND CODES OF BEST PRACTICE: THE AMERICAS • EUROPE • ASIA • AFRICA • AUSTRALIA

Holly J. Gregory 1 September 2008

OECD Principles/Millstein Report

Code: OECD P RINCIPLES OF C ORPO -

Code: P RINCIPLES OF G OOD C ORPO -

Code: T HE B ELGIAN C ODE ON C ORPO - Codes:

Codes:

R ECOMMENDATIONS ON A) CVM A) “W HERE W ERE THE D IRECTORS ?” revised April 2004)

RATE G OVERNANCE (April 1999,

RATE G OVERNANCE AND B EST P RAC -

RATE G OVERNANCE (December 2004)

TICE R ECOMMENDATIONS (March

C ORPORATE G OVERNANCE (June

G UIDELINES F OR I MPROVED

2003); Reissued as C ORPORATE

Issuing Body: Corporate Governance

2002) (“CVM Recommendations”)

G OVERNANCE IN C ANADA (Dey

Report) (December 1994) ERNANCE : I MPROVING C OMPETITIVE -

Related Document: C ORPORATE G OV - G OVERNANCE P RINCIPLES AND

Committee (“Lippens Committee”), a

ODE OF B) C B EST P RACTICE (March

(August 2007)

committee related to a stock exchange

A C ECOMMENDATIONS

2004) (“IBGC Code”)

B) B

EYOND C OMPLIANCE : B UILDING

NESS AND CCESS TO APITAL IN

and a business, industry and/or aca-

A G OVERNANCE C ULTURE (S AUCIER

G LOBAL M ARKETS – AR EPORT TO THE

Issuing Body: Australian Stock Ex-

demic association

Issuing Body: R EPORT ) (N OVEMBER 2001)

OECD (“the Millstein Report”) (April change (“ASX”)

A) Comissão de Valores Mobiliários

Legal Basis and Compliance:

(“CVM”) (Securities & Exchange

Legal Basis and Compliance: This Code includes Principles, which

Issuing Bodies:

Commission of Brazil)

Issuing Body: Organisation for Eco-

Disclosure (comply or explain)

are mandatory; Provisions, which are

A) Toronto Stock Exchange

B) Instituto Brasileiro de Gover-

nomic Cooperation & Development

B) Joint Committee on Corporate (“OECD”), an intergovernmental or-

to be observed on a comply or explain

Governance, a committee related to ganisation

Objective: Improve company’s per-

nança Corporativa (“IBGC”)

basis; and Guidelines, which are op-

formance, competitiveness and/or ac-

tional

Legal Basis and Compliance:

a stock exchange and an account-

ants’ association Legal Basis and Compliance:

cess to capital; improve quality of gov-

A) Disclosure (comply or explain)

ernance-related information available

Objective: Improve companies’ per-

B) Voluntary (disclosure encouraged)

Voluntary

to equity markets

formance, competitiveness and/or ac-

Legal Basis and Compliance:

Disclosure (comply or explain) Objective: Improve companies’ per-

cess to capital

Objective: Improve companies’ per-

Scope: Listed companies

formance, competitiveness and/or ac-

formance, competitiveness and/or ac-

Objective: Improve companies’ per- cess to capital

Scope: Listed companies; encouraged cess to capital

Predominant Board Structure (listed

cess to capital Scope: Listed companies; encouraged

Unitary

to all companies

formance, competitiveness and/or ac-

companies):

Scope:

Predominant Board Structure (listed

A) Listed companies

to all companies companies): Unitary

B) All companies

Scope: Listed companies; encouraged to all companies

Predominant Board Structure (listed companies): Unitary*

Predominant Board Structure (listed companies): Unitary

* In addition to the Board of Directors, the CVM Recommendations refer to a “Fiscal Board, and the IBGC Code to an “Advisory Board.” The Fiscal or Advisory Board has limited powers; the Board of Directors hires the CEO and has traditional supervisory body pow- ers. We therefore characterize the Brazilian board structure as unitary.

Holly J. Gregory, a partner in the law firm of Weil, Gotshal & Manges LLP, practices in the firm’s corporate governance group. Lyn F. Fay assisted in this comparative analysis. Other regional C OMPARISONS are available at http://www.weil.com/wgm/pages/Controller.jsp?z=p&sz=CorpGov&db=wgm/WGMDoc.nsf&d=7fa691ef5e6d00ef85256d81004b74ba

China Denmark France Germany India

OVERVIEW

Code: C ODE OF C ORPORATE G OVERN - Code: C ORPORATE G OVERNANCE

Code: T HE C ORPORATE G OVERNANCE

Code: G ERMAN C ORPORATE G OVERN - Code: R EPORT OF THE C OMMITTEE

A PPOINTED BY THE SEBI ON C ORPO - (January 2002)

ANCE FOR L ISTED C OMPANIES IN C HINA R ECOMMENDATIONS 2005 OF L ISTED C ORPORATIONS (October

ANCE C ODE (February 2002, most re-

RATE G OVERNANCE (February 2000) Issuing Bodies: The China Securities

(October 2005, revised February 2008) 2003)*

cently revised June 2007)

Issuing Body: Securities & Exchange Regulatory Commission (“CSRC”) and change Committee on Corporate Gov- terprises de France (MEDEF) and As- sion on Corporate Governance

Issuing Body: Copenhagen Stock Ex- Issuing Bodies: Mouvement des En-

Issuing Body: Government Commis-

Board of India (“SEBI”)

the State Economic and Trade Com-

ernance

sociation Française des Entreprises Pri- (“Cromme Commission”)

mission

vées (“AFEP”)

Legal Basis and Compliance: Manda-

Legal Basis and Compliance: tory as to specified recommendations Legal Basis and Compliance:

Legal Basis and Compliance:

The Recommendations include Princi- Legal Basis and Compliance:

This Code includes Recommendations,

Disclosure (comply or explain)

ples or Rationales; Recommendations,

Disclosure (comply or explain)

which are to be observed on a comply

Objective: Improve companies’ per-

formance, competitiveness and/or ac- Objective: Improve quality of board

which are to be observed on a comply

or explain basis and which are indi-

or explain basis; and Comments, which Objectives: cated by use of the word “shall”; Sug- cess to capital

(supervisory) governance; improve

provide practical instructions and ex-

Improve quality of board (supervisory) gestions, which are optional and which

companies’ performance, competitive-

Scope: Listed companies

amples of how companies may apply

governance; improve quality of gov-

are indicated by terms such as

ness and/or access to capital; improve the Recommendations

Predominant Board Structure (listed quality of governance-related informa-

ernance-related information available

“should” or “can”; and passages

to equity markets

which do not use these terms and which companies): Unitary

tion available to equity markets

Objective: Improve companies’ per-

formance, competitiveness and/or ac-

Scope: Listed companies

are mandatory under applicable law

Scope: Listed companies

(Cf. Foreword)

cess to capital

Predominant Board Structure (listed

Predominant board structure (listed

companies): Unitary

Objective: Improve companies’ per-

companies): Unitary*

Denmark, encouraged to other compa- formance, competitiveness and/or ac-

Scope: Listed companies domiciled in

cess to capital; improve quality of gov-

nies not currently subject to a corpo-

ernance-related information available

rate governance code

to equity markets

* This Code refers to a structure

Predominant Board Structure (listed

called the “supervisory board” in ad-

Scope: Listed companies, encouraged

companies): Two-tier

dition to the “board of directors.”

to all companies

Since the “supervisory board” has very

Predominant Board Structure (listed

limited powers, and since it is the

companies): Two-tier

board of directors that hires the CEO and has all traditional supervisory

* This Code consolidates the Viénot I

body powers, we characterize the Chi-

Report (1995), the Viénot II Report nese system as having a unitary board. (1999) and the Bouton Report (2002).

Republic of Korea

Mexico

OVERVIEW

Code: C ODE FOR G OOD C ORPORATE

Codes:

Codes:

Code: C ODE OF B EST P RACTICE FOR

Code: C ORPORATE G OVERNANCE C ODE

FOR M EXICO (June 1999) tober 2006)

G OVERNANCE (April 2001, revised Oc-

EPORT A) R /C ODE OF C ONDUCT

RINCIPLES OF A) P C ORPORATE G OVER - C ORPORATE G OVERNANCE (September

(“P REDA R EPORT ”) (O CTOBER 1999)

NANCE FOR L ISTED C OMPANIES 1999)

Issuing Body: El Consejo Coordinador Issuing Body: National Committee on (“Code”) (revised July 2002, May

B) C ORPORATE G OVERNANCE C ODE

(March 2004) (“TXS Principles”)

Empresarial (“CCE”), a committee Governance (re-named from National

EVISED B) R C ORPORATE G OVERNANCE Issuing Body: Korean Committee on

(commission) related to a stock Committee for Corporate Governance

2003, March 2006)

P RINCIPLES (May 1998, revised Oc- Corporate Governance, a committee

exchange and a business, industry in 2004), a committee related to a

tober 2001) (“CGFJ Principles”) related to a stock exchange and a

and/or academic association ; and La business, industry and/or academic

Issuing Body: Committee for the Cor-

business, industry and/or academic

Comisión Nacional Bacaria y de association

porate Governance of Listed Compa-

Issuing Bodies:

association

nies, a committee related to a stock

A) Tokyo Stock Exchange (“TSX”)

Valores (“CNBV”), a committee (com-

mission) organized by government Legal Basis and Compliance:

exchange

B) Corporate Governance Forum of

Legal Basis and Compliance:

Japan (“CGFJ”), an organization

Disclosure (comply or explain)

Disclosure (comply or explain)

Legal Basis and Compliance: related to a business, industry

Legal Basis and Compliance:

Disclosure (comply or explain) Objective: Improve quality of board

Disclosure (comply or explain)

and/or academic association

Objective: Improve quality of board

(supervisory) governance; improve

(supervisory) governance

Objective: Improve companies’ per-

Legal Basis and Compliance: companies’ performance, competitive- Objective: Improve quality of board

Scope: Listed companies, state-owned (supervisory) governance; improve

formance, competitiveness and/or ac-

Voluntary

ness and/or access to capital; set

companies’ performance, competitive- enterprises and companies utilizing

cess to capital; improve quality of gov-

standards for review of Korean law

ness and/or access to capital public funds; encouraged to all com-

ernance-related information available

Objective: Improve quality of board

to equity markets

(supervisory) governance; improve

Scope: Listed companies; encouraged

panies

companies’ performance, competitive- to all companies

Scope: Listed companies

Scope: Listed companies

Predominant Board Structure (listed

Predominant Board Structure (listed companies): Two-tier*

ness and/or access to capital Predominant Board Structure (listed

Predominant Board Structure (listed

Scope: Listed companies

companies): Unitary

companies): Unitary

companies): Unitary* Predominant Board Structure (listed

companies): Two-tier (optional unitary structure)

* This Code refers to a structure called the “board of auditors” in addition to the “board of directors.” Since the

board of auditors has very limited governance powers, and since it is the

* This Code regularly uses the terms

board of directors that hires the CEO

“Board of Commissioners” for the su- and has all traditional supervisory pervisory board and “Board of Direc- body powers, we characterize the tors” for the management board.

Italian system as having a unitary board.

The Netherlands

Russia

South Africa

Code: S WEDISH C ODE OF C ORPORATE ERNANCE C ODE –P RINCIPLES OF GOOD

Code: T HE D UTCH C ORPORATE G OV -

Code: R USSIAN C ODE OF C ORPORATE

Code: K ING R EPORT ON C ORPORATE

Code: P RINCIPLES OF G OOD C ORPO -

C ONDUCT (April 2002)

G OVERNANCE F OR S OUTH A FRICA 2002 ATE G OVERNANCE : C ODE OF G OOD

G OVERNANCE (2008)

CORPORATE GOVERNANCE AND BEST

– E XECUTIVE S UMMARY (November

P RACTICE FOR B OARDS AND D IRECTORS

PRACTICE PROVISIONS (December 2003) Issuing Body: Federal Securities

1994, revised March 2002)

(June 2004, August 2004, September

Issuing Body: Code Group (“Åsbrink

Group”), a committee (commission) Issuing Body: Corporate Governance

Commission

2004; English translation December

organized by government and related Committee (“the Tabaksblat Commit- Legal Basis and Compliance:

Issuing Body: Institute of Directors in

to a business, industry and/or academic tee”), a committee organized by gov-

South Africa

Disclosure (comply or explain)

Issuing Body: Instituto de Consejeros- association

ernment and related to a stock ex-

Legal Basis and Compliance:

Objective: Improve companies’ per-

Administradores (“IC-A”) (Institute of

change and a business, industry and/or

Disclosure (comply or explain)

formance, competitiveness and/or ac-

Directors-Administrators)

Legal Basis and Compliance:

academic association Disclosure (comply or explain)

cess to capital

Objective: Improve quality of board

Legal Basis and Compliance:

Legal Basis and Compliance:

(supervisory) governance

Voluntary (disclosure encouraged)

Objective: Improve accountability to

This Code includes Principles, which shareholders and/or maximise share-

Scope: Joint stock companies; encour-

aged to all companies

Scope: Listed companies, banks, fi-

are mandatory; and Best Practice Pro-

Objective: Improve companies’ per-

holder value; improve companies’ per-

nancial and insurance entities, and

visions, which are to be observed on a

Predominant Board Structure (listed

formance, competitiveness and/or ac-

formance, competitiveness and/or ac-

public sector enterprises and agencies;

comply or explain basis

companies): Two-tier*

cess to capital

cess to capital, provide an alternative

to legislation Objective: Improve quality of board

all other companies expected to con-

sider applying the principles of this

Scope: Listed companies, encouraged

(supervisory) governance

Code, as appropriate in their particu-

to all companies

Scope: Listed companies, encouraged

to all companies Scope: Listed companies

lar circumstances

Predominant Board Structure (listed

Predominant Board Structure (listed Predominant Board Structure (listed

Predominant Board Structure (listed

companies): Unitary

companies): Unitary companies): Two-tier*

companies): Unitary

* This Code was drafted for the two-

tier corporate board structure that predominates among Dutch listed com- panies, but also provides for the choice of a single-tier board, in which case:

• Principles and Provisions regard-

ing the supervisory board in a

two-tier structure apply to the non- executive directors in a one-tier

structure; • Principles and Provisions regard- * The law “On Joint Stock Compa- ing the management board in a

nies” (1995, as amended) requires that

two-tier structure apply to the ex-

a joint stock company with more than

ecutive directors in a one-tier

fifty shareholders have a supervisory

structure; and

body (“board of directors”) in addition

• Principles and Provisions regard- to an executive body. This Code rec- ommends that the board of directors ing the chairman of the supervi- sory board in a two-tier structure

form the executive body into a man-

apply to the nonexecutive chair-

agement board accountable to it and to the shareholders.

man in a one-tier structure. (Preamble ¶ 10)

Switzerland

UK (Cadbury Report)

UK (Combined Code)

USA (NACD Report)

USA (BRT Principles)

OVERVIEW

Codes: Code: R EPORT OF THE C OMMITTEE ON

Code: T HE C OMBINED C ODE ON

Code: R EPORT OF THE NACD B LUE

Code: P RINCIPLES OF C ORPORATE

WISS A) S C ODE OF B EST P RACTICE THE F INANCIAL A SPECTS OF C ORPORATE C ORPORATE G OVERNANCE (July 1998,

R IBBON C OMMISSION ON D IRECTOR

G OVERNANCE (May 2002, revised No-

vember 2005)* inafter “Code”)

(Böckli Report) (July 2002) (here- G OVERNANCE (“Cadbury Report”) (De- revised July 2003, June 2006, June

P ROFESSIONALISM (November 1996,

cember 1992, reissued 1996)

reissued 2001, 2005)

IRECTIVE ON B) D [D ISCLOSURE OF ] I N -

Issuing Body: The Business Round-

Issuing Body: The Financial Reporting Issuing Body: National Association of able (“BRT”), a committee related to a ATE G OVERNANCE (August 2002,

FORMATION R ELATING TO C ORPOR - Issuing Body: Financial Reporting

business, industry and/or academic effective as of July 1, 2002) (here- change, a committee (commission) re-

Council and the London Stock Ex-

Council (“FRC”), a UK association

Corporate Directors (“NACD”)

that includes representatives of busi-

association

Legal Basis and Compliance:

Voluntary Legal Basis and Compliance: Issuing Body: Panel of Experts,

inafter “Directive”)

lated to a stock exchange and a busi-

ness, accountancy, law, government

ness, industry and/or academic asso-

and the public sector

ciation Voluntary Improve quality of board

Economiesuisse (Swiss Business Fed-

Legal Basis and Compliance:

Objective:

Objective: Improve quality of board eration) and SWX Swiss Exchange

Legal Basis and Compliance: The Code includes Principles, which

(supervisory) governance; improve

governance-related information avail- (supervisory) governance; improve Legal Basis and Compliance:

Disclosure (comply or explain)

are mandatory; and Provisions, which

are to be observed on a comply or ex-

able to equity markets

governance-related information avail-

A) Voluntary

Objective: Improve quality of board

plain basis. The Combined Code has

able to equity markets

(supervisory) governance; improve

Scope: Listed companies; encouraged

Scope: Listed companies; encouraged disclosure (comply or explain) as to

B) Mandatory as to Annex § 5;

been appended to the Listing Rules of

governance-related information avail-

to all companies

both the London Stock Exchange and

remainder able to equity markets

to all companies

the Irish Stock Exchange

Predominant Board Structure (listed

Scope: Listed companies; encouraged

companies): Unitary

Predominant Board Structure (listed

Objectives: Objective: Improve quality of board

A) Improve quality of board (supervi-

to all companies

companies): Unitary

(supervisory) governance; improve

sory) governance

Predominant Board Structure (listed

governance-related information avail-

B) Improve quality of governance-

companies): Unitary

able to equity markets; improve inves-

related information available to

tor confidence by raising standards of

equity markets

corporate governance

* The 2005 BRT Principles are a re- Scope: Listed companies; encouraged

statement of the 2002 BRT Principles, to all companies

Scope: Listed companies

which updated the Statement on Cor-

porate Governance (September 1997), Predominant Board Structure (listed

Predominant Board Structure (listed

companies): Two-tier that had updated Corporate Govern- ance and American Competitiveness (March 1990), which in turn updated The Role and Composition of the Board of Directors of the Large Publicly

companies): Unitary

Owned Corporation (January 1978).

OECD Principles/Millstein Report

1. Definition of Corporate Governance

Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate gov- ernance also provides the structure through which the objectives of the company are set, and the means of at- taining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders, and should facilitate ef- fective monitoring…. Corporate governance is only part of the larger economic context in which firms operate, which includes, for ex- ample, macroeconomic policies and the degree of competition in product and factor markets. The corporate govern- ance framework also depends on the legal, regulatory and institutional envi- ronment. In addition, factors such as business ethics and corporate aware- ness of the environmental and societal interests of the communities in which a company operates can also have an im- pact on its reputation and its long-term success. (Preamble at 2)

See Principle I (The corporate govern- ance framework should promote trans- parent and efficient markets, be consis- tent with the rule of law and clearly articulate the division of responsibili- ties among different supervisory, regu- latory and enforcement authorities.).

See also Principle VI (The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of manage- ment by the board of directors, and the board of director’s accountability to the supervisory board, company and the shareholders.).

Corporate governance is the “frame- work for rules, relationships, systems and processes within and by which au- thority is exercised and controlled in corporations”. It encompasses the mechanisms by which companies, and those in control, are held to account. Corporate governance influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised. (Introduction, p. 3)

Corporate governance is a set of rules and behaviours according to which companies are managed and controlled.

A good corporate governance model will achieve its goal by setting a proper balance between entrepreneurship and control, as well as between perform- ance and conformance. For entrepreneurship, corporate gov- ernance rules should not only facilitate performance-driven direction, but should also provide mechanisms for direction and leadership while ensuring integrity and transparency in the deci- sionmaking process. Good corporate governance should help determine a company’s objectives, the means through which these objectives are at- tained and how performance is to be evaluated. In this sense, corporate governance should provide incentives for the board and management to pur- sue objectives that are in the interest of the company, its shareholders and other stakeholders. Control means effective evaluation of performance, careful management of potential risks, and proper supervision of conformity with agreed procedures and processes. Here, the emphasis is on monitoring whether robust control systems are effectively in operation, whether potential conflicts of interest are managed and whether sufficient checks are in place to prevent abuse of power leading to private benefits pre- vailing over corporate benefits. (Preamble ¶ 1)

Corporate governance is a set of prac- tices aiming to optimize a company’s performance and protect stakeholders such as investors, employees, and creditors, thus facilitating access to capital…. The adoption of good corporate gov- ernance practices constitutes a set of mechanisms through which investors … protect themselves against deviation of assets by individuals with the power to influence or take decisions in the name of the company. Companies with a governance system that protects all investors tend to have higher valuations, because investors recognize that everyone will receive the due and respective return on their investment. (CVM Recommendations, Introduction)

Corporate Governance is a corporate managing and monitoring system, in- volving relations with the Owners, Board of Directors, Officers, Independ- ent Auditors, and Fiscal Council. Good corporate governance practices are geared to add value to a company, fa- cilitate its access to capital and contrib- ute to its perpetuation. (IBGC Code, Introduction)

“Corporate governance” means the process and structure used to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business. The process and struc- ture define the division of power and establish mechanisms for achieving accountability among shareholders, the board of directors and management. The direction and management of the business should take into account the impact on other stakeholders such as employees, customers, suppliers and communities. (Dey Report, 2.1)

See Saucier Recommendation 15 (The Canadian Securities Administrators, in cooperation with the TSE, CDNX, the CICA and other appropriate profes- sional bodies, should develop a pro- gram to support and encourage ongoing research, analysis and education in the area of corporate governance. They should consider establishing a standing committee or some other permanent structure that would be mandated with overseeing such a program.)

See also Saucier Report, p. 13 ([T]here are four conditions that can materially assist boards in developing [a govern- ance] culture: ƒ … “outside directors”; ƒ … an “independent board

leader”…; ƒ a CEO who understands the role of

the board and is openly supportive of building a healthy governance culture; and

ƒ regular meetings of the outside

directors without management….).

China Denmark France Germany India

1. Definition of Corporate Governance

Not covered directly, but see Preface (In accordance with … commonly ac- cepted standards in international corpo- rate governance, [this] Code … is for- mulated to promote the establishment and improvement of [a] modern enter- prise system by listed companies, to standardize the operation of listed com- panies and to bring forward the healthy development of the securities market.).

Not covered directly, but see Principle I (Corporate governance implies that the supervisory board and the executive board understand that interaction be- tween the management and the share- holders is of vital importance to the company. As owners of the company, the shareholders can actively exercise their rights and use their influence re- sulting in management protecting the interests of shareholders as best as pos- sible, and ensuring efficient deploy- ment of the company’s funds, both in the short as well as the long term. Therefore, good corporate governance depends on appropriate frameworks which encourage shareholders to enter into a dialogue with the management of the company and each other.).

Not covered, but see Bouton Report, p. 4 (Recent events raise the fundamen- tal issue of the distribution of responsi- bilities among the various market play- ers, such as executive management, boards of directors, auditors and regu- lators…. What is needed is for all con- cerned parties to apply, in good faith, a set of “ground rules”, the aims of which are understood and accepted by all.).

Not covered directly, but see the Fore- word (This German Corporate Govern- ance Code … presents essential statu- tory regulations for the management and supervision (governance) of Ger- man listed companies and contains in- ternationally and nationally recog- nized standards for good and respon- sible governance. The Code aims at making the German Corporate Gover- nance system transparent and under- standable.).

The Committee’s recommendations have looked at corporate governance from the point of view of the stake- holders and in particular that of the shareholders and investors, because they are the raison d’etre for corporate gov- ernance and also the prime constituency of SEBI…. The other way of looking at corporate governance is from the contri- bution that good corporate governance makes to the efficiency of a business enterprise, to the creation of wealth and to the country’s economy. In a sense, both these points of view are related, and during discussions at the meetings of the Committee there was a clear con- vergence of both points of view. (§ 1.5)

See § 2.7 (The Committee has identi- fied the three key constituents of corpo- rate governance as the Shareholders, the Board of Directors and the Man- agement, and has attempted to identify, in respect of each of these constituents, their roles and responsibilities as also their rights, in the context of good cor- porate governance. Fundamental to this examination, and permeating this exer- cise, is the recognition of the three key aspects of corporate governance, namely: accountability, transparency and equality of treatment for all stake- holders.).

See also § 4.2 ([T]he fundamental objec- tive of corporate governance is the “en- hancement of shareholder value, keep- ing in view the interests of other stake- holders”.).

See also End Note (Corporate govern- ance extends beyond corporate law. Its fundamental objective is not mere ful- fillment of the requirements of the law but ensuring commitment of the board in managing the company in a trans- parent manner for maximising long- term shareholder value.).

Republic of Korea

Mexico

1. Definition of Corporate Governance

Not covered directly, but see Preamble

B.5 (The Code of Good Corporate Governance of Indonesia, hereinafter call the GCG Code, is a living instru- ment offering standards as well as guidance for companies to implement GCG with the purpose of … - achieving sustainable growth of the company…. - empowering the function and inde- pendency of each company organ…. - encouraging … high moral values and compliance with the law and regula- tions…. - stimulating the company awareness of social responsibilities…. - optimizing the value of the company for its shareholders by also taking into consideration the interests of other stakeholders…. - enhancing the competitiveness of a company, both nationally and interna- tionally….).

Corporate Governance, in the sense of the set of rules according to which firms are managed and controlled, is the result of norms, traditions and pat- terns of behaviour developed by each economic and legal system and is cer- tainly not based on a single model that can be exported and imitated every- where. (Report, 2)

See Report, 4 (The Committee has identified the maximisation of share- holder value as the primary objective of good Corporate Governance, consider- ing that, in the longer term, the pursuit of this goal can give rise to a virtuous circle in terms of efficiency and com- pany integrity, with beneficial effects for other stakeholders….).

Corporate governance is generally de- fined as the framework for disciplining corporate activities. (TXS Principles, Introduction)

The nature of supervision by a present- day board of directors, having indepen- dent directors at the heart of its activi- ties, is the undertaking of appropriate monitoring from the aspect of fulfilling the duties entrusted to them, while motivating the executive managers and employees with an appropriate com- pensation system in order to encourage independence. The balancing of this supervision (from the standpoint of the shareholders) with management (the administration of the company busi- ness) is called governance…. (CGFJ Principles, Foreword ¶ 8)

See TSX Principles, Appendix (In Ja- pan, the legal framework prescribes two types of mechanisms for corporate governance that apply to most listed companies: a corporate auditors sys- tem consisting of … the board of direc- tors … and the board of corporate audi- tors (“corporate auditors system”); and

a committees system consisting of … the board of directors and committees composed of members of the board of directors (nomination committee, audit committee, and compensation commit- tee) … (“committees system”). The selection is left to individual compa- nies.).

Not covered directly, but see Preamble ([T]he Committee enacts this Code to present a direction for better corporate governance that will render companies more credible, domestically and inter- nationally, and enhance transparency and efficiency of the management.).

Not covered directly, but see the Code, “Motive and Intent” ([The] purpose [of the Code] is to encourage more trans- parent management practices in order to … attract more investment….).

The Netherlands

Russia

South Africa

Spain

Sweden

1. Definition of Corporate Governance

Not covered directly, but see Preamble “Corporate governance” is a term that

Not covered directly, but see Foreword Good corporate governance is a ¶ 3 (The code is based on the principle encompasses a variety of activities

“Corporate governance is concerned

question of ensuring that companies are accepted in the Netherlands that a

with holding the balance between eco- (The purpose of this document is to

run as efficiently as possible on behalf company is a long-term form of col-

connected with the management of

nomic and social goals and between

provide Spanish Company Boards and

Directors with a set of principles which of their shareholders. (§ I.1) laboration between the various parties

companies. Corporate governance af-

individual and communal goals….

fects the performance of economic en- [T]he aim is to align as nearly as pos-

relate to international best practice for

involved. The stakeholders are the

tities and their ability to attract the

sible the interests of individuals,

good corporate governance. When

groups and individuals who directly or capital required for economic growth.

corporations and society.” (Introduc-

drafting this work, we sought practical,

indirectly influence (or are influenced

Improvement of corporate governance

tion and Background, quoting Sir

widely accepted proposals that corre-

by) the achievement of the aims of the in the Russian Federation is vital for

Adrian Cadbury, C ORPORATE G OVERN - late with the “comply or explain” prin-

company. In other words: employees, increasing investment in all sectors of

ANCE O VERVIEW , World Bank Report,

ciple. The IC-A upholds the need for a

shareholders and other providers of

the Russian economy from both do-

reasonable balance between regulation,

capital, suppliers and customers, but

mestic sources and foreign investors.

mandatory rules, and self-regulation,

also government and civil society. The One means to foster such improvement See Introduction and Background § 18

rules which are not obligatory and may

management board and the supervisory is to introduce standards that are based ([S]even characteristics of good corpo-

be followed by all those who wish to

board have overall responsibility for

on an analysis of best practices of cor- rate governance:

ƒ Discipline

spearhead corporate governance, but, if

weighing up the interests, generally

porate governance. (Introduction)

not observed, require an explanation

with a view to ensuring the continuity

… management to adhere to be-

for noncompliance….).

of the enterprise. In doing so, the com-

haviour … correct and proper….

ƒ Transparency

pany endeavours to create long-term

See also Introduction (Corporate Gov-

shareholder value. The management

… the ease with which an outsider

ernance in Spain started out with the

board and supervisory board should

is able to make meaningful analy-

Olivencia Commission. Subsequently,

take account of the interests of the dif-

sis of a company….

mention should be made of the recom-

ƒ Independence

ferent stakeholders. The confidence of

mendations of the Aldama Commis-

the stakeholders that their interests are

… mechanisms … to minimise or

sion, the Spanish Transparency Act …

represented is essential if they are to

avoid … conflicts of interest….

as well as the Spanish Securities and

ƒ Accountability

cooperate effectively within and with

Exchange Commission (CNMV) Cir-

the company. Good entrepreneurship,

Individuals or groups … need to be cular 1/2004 issued in March 2004 on

including integrity and transparency of

accountable for their decisions and

the Annual Corporate Governance Re-

decisionmaking by the management

actions….

port, as the most relevant milestones to

ƒ Responsibility

board, and proper supervision thereof,

date. There is still a long way to go in

including accountability for such su-

… behaviour that allows for cor-

pursuit of the goal of full implementa-

pervision, are essential if the stake-

rective action and for penalising

tion of good corporate governance in

holders are to have confidence in the

management board and the supervision.

… taking into account all those that See also These are the two pillars on which § II.1 (The Shareholders’ right

have an interest in the company

to information is an essential principle

good corporate governance rests and on

[including] minority shareowners

underlying the philosophy of Corporate

which this code is based.).

Governance, and the Board as a whole

ƒ Social responsibility

is responsible for ensuring it….).

… respon[siveness] to social issues [and] a high priority on ethical stan- dards.).

Switzerland

UK (Cadbury Report)

UK (Combined Code)

USA (NACD Report)

USA (BRT Principles)

1. Definition of Corporate Governance

Corporate governance encompasses the Corporate governance is the system by Good corporate governance should

A good corporate governance structure full range of principles directed

Not covered directly, but see Introduc-

is a working system for principled goal towards shareholders’ interest seeking

which businesses are directed and

contribute to better company perform- tion, p. 1 (The accepted governance

controlled. (Report § 2.5)

ance by helping a board discharge its

paradigm is simple: management is

setting, effective decisionmaking, and

accountable to the board, and the board appropriate monitoring of compliance control and transparency at the top

a good balance between direction and

duties in the best interests of share-

and performance. Through this vibrant company level while maintaining deci- free to drive their companies forward,

See Report § 1.1 ([B]oards ... must be

holders; if it is ignored, the conse-

is accountable to shareholders.).

and responsive structure, the CEO, the sionmaking capacity and efficiency.

quence may well be vulnerability or

senior management team and the board (Code, Introduction)

but exercise that freedom within a

poor performance. Good governance

framework of effective accountability.

should facilitate efficient, effective and

of directors can interact effectively and

This is the essence of any system of

entrepreneurial management that can

respond quickly and appropriately to

good corporate governance.).

deliver shareholder value over the

changing circumstances, within a

longer term. (Preamble 1)

framework of solid corporate values, to provide enduring value to the share- holders who invest in the enterprise. (p. 6)

See p. 5 (Effective corporate govern- ance requires a clear understanding of the respective roles of the board and senior management and of their rela- tionships with others in the corporate structure…. Effective corporate gov- ernance requires a proactive, focused state of mind on the part of directors, the CEO and senior management, all of whom must be committed to business success through maintenance of the highest standards of responsibility and ethics.).

10

11

OECD Principles/Millstein Report

2. The Corporate Objective & Mission of the Board of Directors

The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

A. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.

B. Where board decisions may affect different shareholder groups dif- ferently, the board should treat all shareholders fairly.

C. The board should apply high ethical standards. It should take into account the interests of stakeholders.

(Principle VI) The board should be able to exercise

objective independent judgment on corporate affairs. (Principle VI.E)

See Millstein Report, Perspective 21 ([C]orporations should disclose the extent to which they pursue projects and policies that diverge from the pri- mary corporate objective of generating long-term economic profit so as to enhance shareholder value in the long term.).

See also Topic Heading 2a, below.

Companies should establish and dis- close the respective roles and responsi- bilities of board and management. (Principle 1)

The company’s framework should be designed to: ƒ enable the board to provide stra-

tegic guidance for the company and effective oversight of management;

ƒ clarify the respective roles and

responsibilities of board members and senior executives in order to facilitate board and senior executives’ accountability to both the company and its shareholders; [and]

ƒ ensure a balance of authority so

that no single individual has un- fettered powers.

(Commentary on Principle 1) See Topic Heading 2a, below.

In a “one-tier board” model, the board has a dual role to play: to support en- trepreneurship and to ensure effective monitoring and control. (Preamble ¶ 6)

The company shall adopt a clear gov- ernance structure. (Principle 1)

The company shall have an efficient and effective board taking decisions in the corporate interest. (Principle 2)

The company shall define a clear ex- ecutive management structure. (Prin- ciple 6)

See Provision 1.1 (The company should define and disclose the board’s terms of reference in its Corporate Governance Charter….).

See also Provision 6.1 (The board should determine, in close consultation with the CEO, the terms of reference of the executive management detailing its responsibilities, duties, powers, compo- sition and operation.).

See also Topic Heading 2a, below.

Board of Directors The board of directors should seek to

protect the company’s assets, ensure that the objectives of the company are carried out, and guide management with the goal of maximizing return on investments, adding value to the com- pany. (CVM Recommendation II.1)

The board of directors supervises man- agement. (Commentary on CVM Rec- ommendation II.4)

The mission of the Board of Directors is to protect and add value to the com- pany and maximize the return on the investment. (IBGC Code ¶ 2.3)

Fiscal/Advisory Board The Fiscal Council, an essential part of

the Brazilian companies’ governance system, is a non- mandatory institution whose purpose is to oversee the actions of their administrative bodies and give its opinion on certain matters to the owners. It should be seen as a tool de- signed to add value to the company, since it works as an independent con- trol for the owners of the company. (IBGC Code ¶ 5.1)

See Commentary on CVM Recommen- dation § IV.5 (The fiscal board’s su- pervisory capacity shall be the broadest possible, due to responsibilities im- posed by law in the case of miscon- duct.).

See also Family Council Family companies should consider set-

ting up a Family Council. A Family Council is a small group set up to dis- cuss family matters and organize ex- pectations regarding the company. (IBGC Code ¶ 1.10)

See Topic Heading 2a, below.

The board of directors of every corpo- ration should explicitly assume respon- sibility for the stewardship of the cor- poration…. (Dey Report, Guideline 1)

We define the principal objective of directing and managing the business and affairs of the corporation as en- hancing shareholder value. (Dey Re- port, § 2.2(2))

Boards of directors are stewards of the corporation’s assets and their behaviour should be focused on adding value to those assets by working with manage- ment to build a successful corporation and enhance shareholder value. (Sau- cier Report, p. 7)

See Saucier Report, p. 12 (The Canada Business Corporations Act (CBCA) states that “the directors shall manage the business and affairs of the corpora- tion.” The Dey Report observed that this description is confusing, as boards today may “supervise, direct or over- see” but the “day-to-day management must be delegated to others.” The Dey Report recommended that, to eliminate confusion, the CBCA be amended to make it clear that the responsibility of directors is “to supervise the manage- ment of the business.” We agree with that position and believe that the Act should be amended to reflect this.).

See Saucier Report, p. 25 (Role of the board of a controlled corporation).

See Topic Heading 2a, below.

12

China Denmark France Germany India

2. The Corporate Objective & Mission of the Board of Directors

Not covered directly, but see Ch. 3, (3)

42 (The board of directors shall be made accountable to shareholders. A listed company’s corporate governance framework shall ensure that the board of directors can exercise its power in accordance with laws, administrative regulations and the company’s articles of association.).

Supervisory Board The supervisory board shall supervise