Page 77 - SBL Integrated Workbook STUDENT 2018

Approaches to governance

Corporate governance approaches

1.1 Rules and principles based approaches to corporate governance

Approaches to
corporate governance

Rules – based Principles – based
(e.g. USA) (e.g. UK)

 A rules-based approach instils the code into law with appropriate penalties for
transgression

 A principles-based approach requires the company to adhere to the spirit rather
than the letter of the code. The company must either comply with the code or
explain why it has not through reports to the appropriate body and its
shareholders.

1.2 Choice of governance regime

The decision as to which approach to use for a country can be governed by many
factors:

 dominant ownership structure (bank, family or multiple shareholder)

 legal system and its power/ability

 government structure and policies

 state of the economy

 culture and history

 levels of capital inflow or investment coming into the country

 global economic and political climate.

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