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Development of corporate governance

Governance codes

3.1 Reasons for developing a code

 It should reduce instances of fraud and corruption improving shareholder
perception and market confidence.

 There is statistical evidence that poor governance equates to poor performance.

 Management consultancy, McKinseys, found that global investors were willing
to pay a significant premium for companies that are well governed. (In the
region if 25% premium)

 The existence of good governance is a decision factor for institutional investors.

 Even if it does not add value, it reduces risk and huge potential losses to
shareholders.

3.2 Practical problems with a governance code

 The process is reactionary rather than proactive, responding to major failures in
governance rather than setting the agenda.

 The impact varies depending on the nature of the company and the global
viewpoint.

 Directors complain that it restricts or even dilutes individual decision- making
power.

 It adds red tape and bureaucracy in the use of committees and disclosure
requirements...and therefore costs

 Adherence to governance requirements harms competitiveness and does not
add value.

 It cannot stop fraud.

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