CORPORATE GOVERNANCE ACCOUNTABILITY A CLOSER LOOK AT CORPORATE

CORPORATE GOVERNANCE & ACCOUNTABILITY A CLOSER LOOK AT CORPORATE MALDIVES Ms. Mariyam visam

Content • Legal framework for businesses in Maldives • Governance for Private Companies • Corporate Governance for Public Companies • Lessons from Corporate Maldives

Need for better governance • Information Asymmetries • Managing a business by bringing resource efficiency Providing a business case for governance is important in order to enlist management support. There a number of purported benefits of corporate governance: • It is suggested that strengthening the existing architecture increases accountability and maximizes sustainable wealth creation • Institutional investors believe that better financial performance is achieved through better management, and better managers pay attention to governance, hence the company is more attractive to such investors.

Why Corporate Governance? • At a basic level, to fulfil the requirements of the companies act, you need to govern your company • Corporate governance – “the system by which companies are directed and controlled …” Sir Adrian Cadbury, UK, 1992

Maldives Companies Act • Characteristics: - a separate legal entity - limited liability - Memorandum and Articles of Association - Members / Shareholders - Directors - Managing Director - Secretary - Company Seal

Companies’ Obligations • Annual Fee • Appointing a Secretary • No guarantees and loans to Directors • Holding 2 meetings annually • Maintaining minutes of Board Meetings • Maintaining Financial Accounts • Submission of Directors Report and Audit Reports

Evolution of systems in a company 1. Pooling funds – SHAREHOLDERS [INFORMAL] 2. Register a Company to do business – MANAGERS & DIRECTORS [FORMAL REPRESENTATION] 3. Life as a Private Limited Company – DIRECTORS, MANAGERS, STAKEHOLDERS [FORMAL REPRESENTATION] 4. Life as a Public Company DIRECTORS, MANAGERS, STAFF, STAKEHOLDERS INCLUDING INVESTORS [FORMAL REPRESENTATION]

Good Governance Practices • Duty of care • Duty of loyalty • Directors and Secretary • Employees and stakeholders • Ethics, Disclosure, Transparency

Duty of Care?

Duty of loyalty?

Directors & Secretaries

Employees and stakeholders

Ethics, Disclosure, Transparency

Functions of the Board • Direct & control • Direct through CEO • Apply controls through internal control mechanisms • Monitor performance

Separation of roles • The board chairman, or company chairman, is the leader of the board of directors. • He or she is responsible for managing the board. • The CEO is responsible for the executive management of the company’s operations.

Business operations & governance Operational areas affected by Governance Board of Directors Board Committees - Duties & Functions - Composition - Reporting Directors Remuneration Relations with shareholders Institutional Accountability & Audit Private Risk & Internal Control + Audit

Conflicts of Interest • Cross-shareholdings which in turn results quite clearly in potential conflict problems • Conflicts could potentially arise as an individual could be a director of several major companies at once and the same time, all of which have similar interest in pursing a particular course of action • Nature of the shareholding structure and interlocking directorships, related party transactions arises often • This is the biggest CG challenge for today • It is prohibited in other countries’

Related Party Transactions • All related party transactions should be transparent • How do you do it? • Disclosure and transparency is key rather than prohibition of such transactions

Audit, Book Keeping, Internal Controls • Book keeping is practiced in a very traditional level • Businesses ought to think this enables them to maintain confidentiality

What’s the expectation here? • Recipients of your company reports - Shareholders - Government - Providers of credit - Employees

GOVERNANCE FOR PUBLIC LIMITED COMPANIES • Companies that are listed on the MSE required to adhere with CMDA CG Code • Comply or explain code • Mandatory provisions & voluntary provisions

What’s the expectation here? • Direct & indirect stakeholder groups • Shareholders • Government • Employees • Interest groups • Providers of credit • Local communities • Customers and • Suppliers

CORPORATE DISCLOSURE • Timely disclosure of material information - Quarterly reports - Annual reports - Any other material information • Investor relations - Educate the investors’ on company development through more than one media vehicle

Discussion • Why do private companies face difficulties in accessing finance? • Why are we unable to nurture SMEs? • Why are we not confident in listed companies? • What is the role of SOEs in our economy?