The principles of corporate governance established by the Organization for Economic Cooperation and Development are the most popular and famous in various countries.
This is probably due to the fact that these principles provide guidelines for use by Governments of member and non-member States of the Organization in the assessment and improvement of the legal and institutional frameworks, regulatory and companies.
This detailed guidance to policy makers and legislation in each state according to the environmental conditions, cultural, legal and economic, and focused on the companies that traded shares in the stock exchange. It is also a useful tool to improve methods of corporate governance which are not being used in the circulation of shares in state-owned enterprises, this in addition to the principles of the Organization for Economic Cooperation and Development take official capacity as issued by an international organization which has its weight (Azeddine Fikri Touhani -2009).
It had been taken into account that formulated principles are (Mohammed Samir Bilal-2005) :
– Brief.
– Intelligible.
– Available for use at the international level.
In view of the differences among States in organizational matters, legislation and regulations, bodies and institutions in charge of corporate governance, it is clear that there could not be a unified framework which would be applicable in all States. Accordingly, the set of principles for governance is not mandatory but are recommendations, so that each state can benefit from them according to their circumstances according to their capital market.
There are six basic principles of corporate governance established by the Organization for Economic Cooperation and Development (OECD, 2004 these are (Ahmed Helmi Gomaa-2009):
1- Ensure a basis of an effective framework for corporate governance:
A. The framework for effective governance and the basis of the emphasis on transparency.
B. The efficiency of financial markets, and framework has an impact on the overall performance of the economy.
C. The legal and regulatory requirements are consistent with the provisions of the law and are transparent.
D. The allocation of responsibilities between the various authorities on the basis of achieving the common good.
E. The authorities, supervisory and regulatory and responsibility for the application of the relevant laws.
F. The authority and integrity and adequate resources to perform its duties in a professional and objective manner.
2- The rights of shareholders:
Should ensure that the framework of governance provides protection to shareholders and which facilitates their rights in accordance with the following:
A. Include the basic rights of shareholders as follows:
– Ensure methods of registration of ownership.
– The transfer or transfer ownership of stocks.
– Access to information of the company in a timely and regular basis.
– Participate and vote in the General Assembly to shareholders.
– The election of the members of the Governing Council.
– Access to the shares of the company\’s profits.
B. The shareholders have the right to participate and to obtain information to cope with the resolutions related to the fundamental changes in the company, including:
– Amendments to the statute or the founding contract company and other basic documents of the company.Offer additional shares.Any financial transactions might result in the sale of the company.
C. Should be made available to the shareholders of the opportunity to participate effectively and vote in the General Assembly to shareholders. As well as to inform them of the rules governing the General Assembly to shareholders including the voting procedures.
Among those rights is the following:
– Provide shareholders sufficient information at the appropriate time on the place and date and agenda for the work of the meetings of the General Assembly and to provide full information in the appropriate time on the issues which targets decisions during the meetings.
– The opportunity to shareholders to direct questions to the Governing Council to add topics to agendas. The work of the meetings of the General Assembly.
D. The disclosure of structures capital arrangements to allow shareholders to ensure that censorship is not commensurate with the property rights of the collateral.
E. Markets must be given the opportunity to function efficiently and with transparency, particularly with regard to the Control disclosure of the rules and procedures that govern the process Acquisitions on integration into the sale of a portion of the assets of the company so that the contributors to know their rights, which must be clear on operations and prices transparent and fair Conditions protection of the rights of all shareholders. Should facilitate the exercise of intellectual property rights to all shareholders, including the institutional investors. Where should investors the founding fathers of the disclosure of corporate governance of their policies with regard to the voting representative of their investments, with the disclosure of the departments to which they belong the conflicts of interests that may affect the exercise of their rights to ownership of the investments.
F. Shareholders must be given the opportunity to consult among themselves on issues of fundamental rights to shareholders set forth in these principles.
3- Equal treatment of shareholders:
Must ensure that the framework of governance and equal treatment of all shareholders, including small shareholders. Foreign shareholders should all be given the opportunity in obtaining appropriate compensation in case of violation of their rights by taking into account the following:
– Must be treated equally with shareholders from the same category.
– Should be within each shareholders category with the same voting rights.
– It should be voted in a manner agreed with shareholders.
– The members of the Governing Council and the executive directors to disclose the existence of any particular interests or their relatives had been linked to affect the company.
4- The role of stakeholders:
Must contain the framework of the corporate governance of the recognition of the rights of stakeholders and agree law, and encourages the effective cooperation between companies and stakeholders in the area of building wealth and employment and the continuity of companies through the following:
– Confirm the respect for the rights of stakeholders protected in law.
– The opportunity of stakeholders to obtain appropriate compensation in the case of violations of their rights.
– Ensure and provide the capability for the participation in the process of corporate governance, Periodic access to adequate and reliable information in a timely manner.
– Allow stakeholders, including workers and others representatives, the freedom of access to the Governing Council to report irregularities and prevent illegal or non – ethical behavior, so as not to affect their rights.
5- Disclosure and transparency:
Must ensure that the framework of governance and accurate disclosure in the appropriate time for all the important matters of the company\’s financial position, performance and corporate governance. This can be realized through observance of the following:
– Must include in the disclosure, as a minimum, the financial and operational results and objectives of the company, the right of the majority in the property and the rights to vote, the members of the Governing Council And managers Chief Executive salaries and benefits granted to them, unforeseen factors risk, matters the material belonging to the personnel and other stakeholders, structures and policies Governance.
The company should ensure:
– The preparation and review of the information disclosure in accordance with the standards of financial disclosure and financial regulations.
– Ensure objective external financial statements of the company.
– Ensure distribution channels and information access to information users the timely economic cost.
– Support by the framework of governance and effective access to be able to provide investors analysis and advice before analysts or evaluation agencies including investors can take decisions about conflict of interests which affect the fairness of the analysis and advice.
6-The responsibilities of the Governing Council:
The Governing Council must allow a system of governance and guidelines for a strategy to guide the companies and effective follow-up of the executive administration by the Governing Council. Also to include the accountability of the Governing Council by the company shareholders, through the following:
– That the members of the Council on the basis of full information, honesty, in good faith within the safety of the rules applicable in accordance with the best interests of the company and shareholders.
– In the case of the adoption of Council decisions that affect shareholder groups differently, the board that shareholders are treated equally .
– To ensure that the Governing Council compatibility with existing laws Interests stakeholders.
– To apply the Governing Council of ethical standards Samoa to take into accounts the interests of shareholders.
– The Management Review and the strategy and plans of action.
It is clear that the basic objective of the principles of good governance is the protection of the shareholders and the parties of the relationship to the achievement of this goal and that this requires the presence of the framework of the joint stock companies with the provisions of the control over the performance of the behavior of firms through activating the role of auditors (External Auditor, references, the rules of procedure of the Review Committee).
2.1.7. Basic Parameters Required for the Application of Corporate Governance
In order to ensure the proper application of the principles of corporate governance, this must be available in installation settings, as follows (Mohammad Mustafa Sulaiman-2006):
Internal settings : Rules include the methods applied within companies, containing the administrative structures of governance to clarify how decisions are taken within companies and the distribution of powers between the parties on the application of governance (the governing council, administration, shareholders, stakeholders) and in a form that does not lead to a conflict between the interests of those parties, but which leads to achieving the interests of investors in the long term.
External settings: These settings refer to the environment or the general climate in which companies operate varies from state to state, as follows:
1. The laws and regulations governing the markets such as the company laws and the laws of the capital market and the laws organizing competition and preventing monopoly.
2. The efficiency of the financial system to ensure the provision of necessary funding for projects.
3. The efficiency of the supervisory institutions such as the Capital Market Authority and stock market by the provisions of the Superintendence of Companies.
4. The role of non-governmental institutions in ensuring the commitment of the members to the behavioral aspects of professional and ethical conduct and to ensure efficient functioning of the markets. Including the associations of accountants and auditors and bar associations.
5. The degree of competitiveness in the commodity markets and production.
There are in additional foreign determinants, another aspect which entail media financial, accounting and the degree of transparency in the economy .(Farouq Gomaa Abdel-2006) .
Corporate governance is based on three main pillars are:
A. Ethical behavior: Ensuring the commitment of behavior.
B. Oversight and accountability: the activation of the roles of the stakeholders in the success of the company.
C. Risk management: Through the establishment of a system for the management of risks and disclosure and connecting the risks for users and stakeholders. The effective application of the principles of corporate governance requires the availability of several elements in the business environment that support the application of governance, including .( Azeddine Fikri Touhani-2008):
1- A series of laws and regulations which clarify the rights and obligations of all parties to governance.
2- A clear organizational structure which defines the rights and responsibilities including the application of accounting of responsibility.
3- Integrated accounting information system that allow to achieve the following goals:
– The achievement of disclosure and transparency to all parties.
– The existence of a clear vision to develop appropriate strategy of the company and the plans, short and long-term to achieve them.
– The provision of necessary indicators for the implementation of the control and accountability and performance evaluation.
4- The commission of an independent review which shall have powers to enable them to exercise their functions of supervision and control of the work of the external and internal follow-up reports, complying with of company administration for the implementation of the proposals and recommendations contained in those reports.
5- Ensure the observance of ethical behavior and professional codes of conduct for good governance and for all parties
6- Emphasize the responsibility of the Governing Council in observing the laws and interests related to the application of ethical standards in the exercise of all its functions.
7- The existence of an effective body independent of the Administration, responsible for the application of the rules of governance and follow up commitment (Farouq Gomaa Abdel -2006).
2.1.8. The Characteristics of Good Corporate Governance
There is a set of characteristics which must be available for good governance comprising the following ( Mohammad Abd Al Fattah Ibrahim -2005):
1. Discipline: any followers of ethical behavior and appropriately, verified through:
– Clear statements to the public.
– The presence of the incentive for administration toward achieving a higher price per share.
– The commitment to the core work is clearly identified.
– The use of debt in the targeted projects.
– Adoption of the outcome of governance in the annual report.
2. Transparency : in the sense of providing a real picture of what is happening, verified through:
– The disclosure of the financial targets accurately.
– The publication of the annual report in time.
– The prevention of leakage of information before the declaration.
– The disclosure of the final results.
– The application of accounting and auditing standards. Updating the information on the Internet.
3. Independence : means the exercise of the functions of the administration without influences and pressures from any third party paid by the administration to take decisions biased in favor of a particular party organization at the expense of the interests of other parties. Verified through:
– The equitable treatment of shareholders by the Governing Council and senior management.
– The presence of the President of the Security Council an independent management of senior management.
– The existence of the supervisory department independent of the executive management.
– The presence of the Audit Committee chaired by a member of the Governing Council of independent.
– The presence of external auditors is not associated with the company.
4. Accounting responsibility: the existence of responsibility before all the stakeholders in the company realized through:
– The failure of the Governing Council of the supervisory role of the Executive Board.
– The presence of the members of the Governing Council of independent and non-staff.
– Full meetings and periodic reports to the Governing Council.
– The capacity of the members of the governing council to effective review.
– The presence of the Audit Committee to nominate the External Auditor and monitor its work.
– The presence of the Committee on the review of the retreat of the reports of the internal auditors oversees the work of the internal audit.
5. Accountability: in the sense of the possibility of the evaluation and assessment of the work of the Governing Council and operational management, which can be achieved by the following:
– Practice work in a good way away from personal interests.
– Act effectively against individuals who exceed their borders.
– Immediate investigation of the abuse of senior management.
– The development of mechanisms to penalize executives and the members of the Governing Council.
6. Justice: Must consider the rights of various groups of stakeholders in the company, and can be achieved through:
– The fair treatment of minority shareholders by the majority.
– The right of all shareholders in the invitation to the meetings of the General Assembly.
– Fair compensation for the members of the Governing Council.
– The protection of the rights of shareholders and give them the right to veto when the abuse of their rights is happened
– Participation in the appointment of directors and in decision-making.
7. Social Awareness: including the following:
– The existence of a clear policy confirming moral conduct code.
– The existence of a recruitment policy is clear and fair.
– The existence of a clear policy on environmental liability.
Application of a framework to a group of 20 countries , found that companies with high governance had excellent performance and grossed the highest revenue in similar companies (Azeddine Fikri Touhani-2006).
The access to good governance must be as follows (Farouq Gomaa Abdel-2005) :
1. Emphasize that there are standards of quality principles of governance.
2. The implementation of the tasks and activities planned effectively and efficiently.
3. Follow-up with internal controls include:
– Internal audit of the management of the independent companies.
– The organizational structure of the codified form specifies the overlapping relations to achieve the goal of internal audit is required.
– Use qualified persons with good reputations.
– Sound policies and measures of internal auditing.
4. External audit in cooperation with the Committee for the review and risk management.
5. Financial control of governmental bodies
6. Promote the importance of the tools of good governance and the law of the dealing with all its aspects and how they are implemented
2.1.9. The Stages of Corporate Governance
The application of governance rises in gradual stages, in accordance with the degree of absorption in society.
The most important stages forming the infrastructure of good governance are as follows ( Muhsin Ahmad Al Khodairi-2008):
The first stage: the definition phase of corporate governance and favorable public opinion and carrier-grade:
At this stage to clarify the aspects of governance and determine the dimensions and concepts landmarks, as is clarified their curricula, and theories, and tools, and tools, what is important in this stage briefing individuals in all aspects and dimensions of the concept of governance, and then form an opinion in a pro and supported governance.
Second stage: the phase of building the infrastructure and governance:
A strong infrastructure is required for Governance to be capable of interaction with variables and updates. The basic structure is an important element and for the building of governance.
The third stage: the development of a standard program record time of governance :
Requires the application of governance and a specific timetable of work and duties and to follow up on the progress of implementation and governance, and to identify any obstacles preventing the full implementation of the provisions of the governance, leading to the proper implementation of governance.
The fourth stage: the implementation and application of governance:
Perform tests to measure the extent of readiness and desire of all parties in the application of Governance.
The Governance freedoms practiced in return where restrictions and control of the implementation requires the following:
1. Achieve greater autonomy to the authorities of the corporate community, Governance similar to democracy as to the necessity of openness, accountability and transparency.
2. Achieving the application of professional and ethical standards of the business community.
The fifth stage: Follow-up in the development of governance:
Ensure Hassan implementation of previous phases, controls and follow-up is a tool used by companies for the proper implementation of governance, through addressing any mistake and devising tools that prevents aggravating the effectiveness of governance and the provision of protection for companies. Consequently, the status of an organizational unit or observer advocate within the administrative structure of the company will help to ensure good performance of the oversight function in governance.
2.1.10. Summary
Through the study of the conceptual framework for the joint stock companies, the research can be summarized as follows:
1. There are several definitions for the concept of governance but there is no agreement between researchers and practitioners on a specific definition of governance, because of the inclusion of the concept of so many economic, legal, administrative and accounting, social and ethical values.
2. Increased attention to the concept of corporate governance to minimize the problems resulting from the separation of ownership and management, and in order to avoid the administrative and financial corruption and which would lead to financial crises of the companies. The importance of corporate governance is that it guarantees the achievement of objectives by enterprise. It attracts investments and moves the wheel of development and commitment to corporate governance principles and the existence of market transparency in disclosing the existence of tools for effective monitoring and protection of the rights of shareholders and all parties associated with the company.
3. It can be said that the principles of governance are a major output of the system of governance. The principles of governance of the Organization for Economic Cooperation and Development, are the most popular and widespread in the various states, but are not binding. is to develop a framework of governance of states which suits its cultural, environmental, economic, legal and social, to ensure the proper application of the principles of good governance is made available for the installation settings.
4. Constitute the characteristics of good governance discipline, transparency, independence, accounting for responsibility, accountability, justice, social awareness and a framework for governance.
The application of governance passes through several stages, and needs to gradually, according to a timetable for the successive phases,
.