CG Module 4 2022

VI SEM CORPORATE GOVERNA NCE
Module 4
International Perspective on Corporate Governance
Legislative Framework of Corporate Governance in United Kingdom, USA, Australia,
Brazil, China, South Africa; OECD Principles of Corporate Governance.
Learning Outcomes of the Module
• Demonstrate the capacity to exercise judgement under minimal supervision
to solve emerging corporate governance problems in complex contexts using
social, ethical, economic, regulatory and global perspectives
• Interpret the knowledge of corporate governance theories, regulation and the
policy imperatives that underlie corporate governance regulation to assess
and propose solutions for corporate governance problems
• Inference the theory of corporate governance and apply this theory in
analysing corporate structures, board composition and how boards of
directors conduct their affairs.
• Appraise ethical aspects in corporate governance
Corporate Governance in UK
UK Corporate Governance Journey
Category Category Category

Diversity Narrative reporting Corporate
governance
Parker Review
February
January
January
2020
2020
2020
Committee published The FRC Financial The FRC published a

an update report – Reporting Lab report assessing
Ethnic diversity published its report, reporting against the
enriching business Workforce-related 2016 UK Corporate
leadership corporate reporting: Governance Code
Where to next? and commenting on
early adopters of
2018 UK Corporate
Governance Code
1 Note: This module is strictly for Private circulation only- JU-CMS. This Module is
compiled by Sunitha.B.K,. Do not upload on any websites
Whistle Blowing legislation in UK

➢ The Public Interest Disclosure Act
➢ The Civil Service Code
➢ The Data Protection Act 1998
➢ The UK Bribery Act 2010
➢ Case Law
Corporate Governance Framework in USA
In the United States there are two primary sources of law and regulation relating to
corporate governance
State Corporate Laws

State corporate law - both statutory and judicial - governs the formation of privately
held and publicly traded corporations and the fiduciary duties of directors. Most of
the states follow Delaware Law.
Federal Securities Laws

The Securities Act of 1933 (Securities Act) and The Securities Exchange Act of 1934
(the Exchange Act)
• The Securities Act regulates all offerings and sales of securities, whether by
public or private companies.
• The Exchange Act addresses many issues, including the organisation of the
financial marketplace generally, the activities of brokers, dealers and other
financial market participants and, as to corporate governance, specific
requirements relating to the periodic disclosure of information by publicly
held, or ‘reporting’, companies.
Evolution of Corporate Governance in USA
Years Developments
1977- The Foreign Provides for specific provisions regarding establishment,
Corrupt Practices Act maintenance and review of systems of internal control.
Prescribed mandatory reporting on internal financial
1979- US Securities controls.
Exchange
Commission
Emphasized the need of putting in place a proper control
environment, desirability and its committees and a
1985- Treadway consequence, the Committee of Sponsoring
commission Organisations(COSO) took birth.
The Act made fundamental changes in virtually every

aspect of corporate governance in general and auditor
independence, conflict of interests, corporate
2002- Sarbanes – responsibility, enhanced financial disclosures and severe
Oxley Act penalties for willful default by managers and auditors, in
particular.
The Dodd-Frank The Dodd-Frank Act is legislation signed into law by

Wall Street Reform President
and Consumer Barack Obama in 2010 in response to the financial crisis
Protection Act, 2010 that
became known as the Great Recession. Dodd-Frank put

regulations on the financial industry and created
programs to
stop mortgage companies and lenders from taking
advantage of consumers.
The Dodd-Frank Act is a comprehensive and complex bill
that
contains 16 major areas of reform. The law places strict
regulations on lenders and banks in an effort to protect
consumers and prevent another all-out economic
recession. Dodd-Frank also created several new agencies
to oversee the regulatory process and implement certain
changes.
New Agencies which were created

1. The Financial Stability Oversight Council (FSOC) for
identifying risks that affect the financial industry
2. The Consumer Financial Protection Bureau (CFPB)
for protecting consumers for fraudulent Banks
3. The Office of Credit Ratings to ensure reliable credit
ratings
Whistle Blowing Laws in USA
• The Whistleblower Protection Act
• The Occupational Safety and Health Act 1970 (“OSHA”) protects those who
have reported or complained about workplace safety and health issues
• The Corporate and Criminal Fraud Accountability Act 2002 (Sarbanes-Oxley

– “SOX”), as expanded by the Wall Street Reform and Consumer Protection
Act 2010 (“Dodd-Frank”), protects securities law related whistleblowers
• The Affordable Care Act protects those blowing the whistle on issues related
to healthcare reform.
Corporate Governance in Australia

Model of Corporate Governance Followed in Australia
Australia has almost, all the times, been traditionally characterized as following
outsider system of corporate governance.
KEY FEATURES OF CORPORATE GOVERNANCE IN AUSTRALIA
The current system of corporate governance in Australia is characterized by a

number of features, including:
• Extensive Regulation And Personal Liability Of Directors,

• A Move Towards Principles-Based Systems Of Governance, And
• Influential Large Institutional Investors and a Strong Investment 'Infrastructure'.
Corporate Governance Framework

The Corporate Governance Framework in place in Australia extends beyond mere
compliance with regulatory requirements and includes a mix of prescriptive and
voluntary elements. Broadly, the three key elements include
• ‘Hard’ Law, being legally binding case law and legislative requirements, such as
the Corporations Act 2001 (Cth) (Corporations Act),
• ‘Soft’ Law, being the listing rules of Australian Securities Exchange Limited (ASX)
which principally have effect as a contract under law, and
• Non-Binding Guidelines, most notably including the third edition1 of the ASX
Corporate Governance Council’s Principles and Recommendations (ASX
Principles).
Regulatory Authority
In the business context/ Governance, the regulators and relevant government

agencies include:
• The Australian Securities And Investments Commission (ASIC)

• The Australian Competition And Consumer Commission (ACCC)
• The Australian Prudential Regulation Authority (APRA)
• The Australian Tax Office (ATO).
Non Regulatory Authority
ASX Corporate Governance Council
The ASX Principles were first introduced in 2003 and set out recommended
corporate governance practices
ASX Corporate Governance Council has recommended that the Board of the listed
entity, before its approval of the entity’s financial statements, should receive a
declaration from the CEO and CFO that the financial records are properly
maintained, financial statements comply with appropriate accounting standards and
give a true and fair view of the financial position and performance of the entity and
their opinion is based on the sound risk management and effective internal controls.
Investor Guidelines and Expectations
Australia has highs levels of institutional ownership and, as a result, institutional

investors have come to play a prominent role in Australian corporate governance.
Owing to Australia’s mandatory retirement savings scheme, superannuation
(pension) funds, in particular, have become significant investors in listed equities
and are prominent in articulating and promoting expectations regarding companies’
corporate governance practices.
The peak representative bodies for asset owners and asset managers in Australia
publish their expectations regarding companies’ corporate governance practices. A
number of individual institutional investors also issue their own publications.
Moreover, there is a significant industry of proxy advisers, engagement firms and
governance advisers which facilitates institutional investors’ share voting and
engagement activities. A number of these firms also issue publications outlining
their expectations regarding companies’ corporate governance practices.
Institutional Investor Stewardship
The concept of institutional investor stewardship is well-recognised in Australia. To

date, stewardship has been an industry-led initiative. Australia has, in fact, two
stewardship codes: one issued by the peak representative body for asset managers
(the Financial Services Council) and one issued by the peak representative body for
asset owners (the Australian Council of Superannuation Investors).
The two codes adopt a non-prescriptive approach towards stewardship; that is, they
operate on a ‘comply or explain’ approach and do not prescribe in detail the types of
stewardship activities investors are expected to undertake. Nonetheless, it is
generally acknowledged in Australia that institutional investors have significantly
increased their participation in corporate governance since the 1990s. In particular,
investors now proactively exercise their voting rights and engage in significant
levels of behind-the-scenes interactions (or ‘engagement’) with companies. As a
result, investors have been able to encourage meaningful changes in companies’
corporate governance practices.
Whistle Blowing
The Australian Government first signalled its intention to legislate in this area in
2002; ASX Corporate Governance Council Principles and Recommendations provide
for it; Corporation Act restricts retaliation against any whistleblower and gives
him/her civil rights including reinstatement of employment, qualified privilege
against defamation; thus, protection is extensive; a proper website has been designed
for the purpose
Corporate Governance in Brazil

OVERVIEW OF GOVERNANCE REGIME
Corporate governance is governed by the following:
• Civil Code, which provides a specific section dedicated to limited liability
companies.
• Corporations Act, which applies to publicly and privately held corporations
and limited liability companies that choose the Corporation Act's subsidiary
application in their articles of association.
• Rules set out by the Brazilian Securities and Exchange Commission (CVM),
which apply to publicly held corporations. This includes the Corporate
Governance Code for Publicly Held Companies (Corporate Governance
Code) (see Question 4).
• Rules enacted by the Brazilian Stock Exchange (BM&F Bovespa). The BM&F
Bovespa has created differentiated listing segments, with rules setting out
corporate governance practices and transparency requirements in addition to
those already established under Brazilian corporate legislation. The adherence
to the listing segments better advertises the company's efforts to improve its
relations with its investors and increases the potential for appreciation in asset
value. This adhesion is voluntary and must be approved by the BM&F
Bovespa.There are currently four special listing segments established by the
BM&F Bovespa:
•BovespaMais;
• BovespaMais Level 2;
• Level 1;
• Level 2; and
• Novo Mercado.
The basic difference between such segments is the level of demand for
differentiated governance practices by the companies that adhere to their
respective regulations.
The Novo Mercado has the highest level of corporate governance requirements..
Code of Best Practices in Corporate Governance (IBGC Code)
The Code of Best Practices in Corporate Governance (IBGC Code) is considered the
most established and comprehensive code relating to corporate governance in Brazil.
The IBGC Code is divided into the following five chapters:
• Shareholders.
• Board of directors.
• Board of officers.
• Fiscal and controlling bodies.
• Conduct and conflicts of interest.
The first four chapters contain a set of best practices and recommendations. The last
chapter discusses conduct standards for an entity's agents, in addition to proposing
policies and practices to avoid conflicts of interest and misuse of assets and
information.
The compliance with the recommendations set out in the IBGC Code is not
mandatory and the IBGC Code does not set out a special compliance procedure. Any
type of corporate entity can choose to comply with the IBGC Code; the IBGC Code is
not confined to a specific type of corporate entity.
CORPORATE LEADERSHIP
Board structure and practices

Brazilian listed companies are managed by a board of directors and by an executive
office. Brazilian companies can also install a fiscal board, which does not have the
nature of a managerial body but rather of a supervisory body.
Board of Directors
The authority of the board of directors established by the Brazilian Corporation Law
cannot be delegated to other bodies. Generally speaking, the director must be
someone with an unblemished reputation who has not been convicted in an
administrative or judicial procedure in relation to corporate crimes or irregularities.
The board of directors shall be composed of at least three members and Level 2
segments, the board must be composed of at least five members and at least 20 per
cent of the members must be considered to be ‘independent’. The members of the
board of directors are not required to be Brazilian residents.
The board of directors can create specific committees (e.g., compensation, related-
party transactions, and audit) to assist it in the management of the company. In this
regard, listed companies must rotate their independent auditor every five years and
must wait at least three years before rehiring the same auditor. However, if the listed
company has installed a statutory audit committee, rotation can occur every 10 years
instead of five.
Executive board
The executive board shall be composed of at least two officers. The officers of
Brazilian listed companies can be elected and removed at any time by the board of
directors.
Among other duties, the executive board represents the company in dealings with
third parties. The by-laws may establish that certain managerial decisions should be
taken in executive board meetings only.
Compensation of the members of the board of directors and executive board

The shareholders’ meeting shall prescribe the aggregate or individual compensation
of the members of the board of directors and executive board, including benefits of
any kind and representation allowances, taking into consideration their
responsibilities, the time devoted to their duties, their skills and professional
standing, and the market value of their services. If the shareholders’ meeting
approves the aggregate compensation to be paid to the company’s directors and
officers, it will fall under the authority of the board of directors to approve the
allocation of the compensation between the company’s directors and officers.
If the company’s by-laws sets forth a compulsory dividend equal to or above 25 per
cent of the net profits, it may establish a share in the company’s profits to the benefit
of the company’s directors and officers, provided that the total amount thereof does
not exceed the annual compensation of the directors and officers, nor one-tenth of
the profits, whichever is the lower. Nevertheless, directors and officers shall only be
entitled to a share in the profits in a financial year for which the compulsory
dividend is paid to the shareholders.
Detailed information on the compensation paid to the company’s directors and

officers, including, but not limited to, the breakdown of the compensation (e.g., fixed
and variable compensation), the minimum, lowest and average compensation paid,
must be disclosed in the company’s reference form.
Fiscal board
The fiscal board is a supervisory body responsible for supervising the company’s
directors and officers and providing information in this respect to the shareholders.
The fiscal board is a compulsory body, but need not operate on a standing basis. A
non-permanent fiscal board must be instated upon the request of shareholders
representing at least 10 per cent of the voting stock or 5 per cent of the non-voting
stock.
The fiscal board is composed of three to five members and a like number of
alternates. The conditions for election and impairment of fiscal board members (who
must be Brazilian residents) are prescribed by law.
The fiscal board has the authority to, among other things:
• Monitor the actions of the company’s officers and directors and verify their
compliance with their legal and statutory duties;
• Review and give an opinion on the board of directors’ annual report;
• Review and give an opinion on proposals of the management to the

shareholders’ meeting relating to changes in capital, issuance of debentures or
warrants, investment plans or capital budgets, dividend distribution and
certain corporate reorganisations;
• Report any error, fraud or criminal act and suggest measures useful to the
company to any officer or member of another administrative body and, if
these fail to take any necessary steps, to act to protect the corporation’s
interest and report to the shareholders’ meeting;
• Review the balance sheet and other financial statements periodically prepared
by the company; and
• Examine the financial statements for the fiscal year and give an opinion about
them.
The fiscal board’s authorities can be neither delegated nor attributed to any other
body of the company.
DISCLOSURE
The Brazilian Corporation Law has adopted the principle of full disclosure when it
comes to acts or facts related to the company that may be considered relevant. The
disclosure of material events is a duty of the company’s investor relations officer,
who may be held personally liable for damages arising as a result of non-disclosure.
CORPORATE RESPONSIBILITY
Pursuant to the Brazilian Corporation Law, all publicly held companies must
prepare on an annual basis, within their financial statement, a value-added
statement, which could be considered as the balance statement of the company’s
‘social account’. This statement provides information on the overall wealth produced
by the company, on the allocation of resources to those areas of the company that
contributed to the generation of that wealth (such as employees, financiers,
shareholders, the government and others) and on the unallocated portion of that
wealth. In addition, some companies seek certification from institutes such as the
Ethos Institute, the Brazilian Institute of Social and Economic Analysis and the
Global Reporting Initiative, but such certification is not mandatory for listed
companies.
Contact with shareholders
Mandatory and best practice reporting to all shareholders

The company must disclose to all of its shareholders, through its website, as well as
on the CVM and BM&FBOVESPA websites, certain ordinary and extraordinary
reports or information, such as the reference form, financial statements, minutes of
the shareholders’ meetings and documents necessary for review by shareholders to
be able to exercise their voting right in shareholders’ meetings.
Whenever the company holds a meeting with a specific shareholder to discuss a

material fact that has not been disclosed, it is usual to have this shareholder sign a
non-disclosure agreement and the shareholder would be subject to a blackout
period, during which it would be unable to trade in the company’s shares, until the
material information is disclosed to the market.
Corporate Governance in China

In China, many entities both inside and outside companies play a role in shaping the
behaviour and governance of Chinese Companies. The inner circle consists of
shareholders’ general meetings, boards, and management personnel who are engaged
in operating the companies and are directly responsible for their governance. The
outer circle is composed of regulators (chiefly, the China Securities Regulatory
Commission-CSRC), stock exchanges {the Shanghai Stock Exchange (SSE) and the
Shenzhen Stock Exchange (SZSE)}, the Chinese legal system, the auditing system,
and institutional investors. China has made rapid progress in corporate governance,
in part because of the gradual removal of ownership and personnel barriers, coupled
with an increasingly globalized and mature business environment.
Although China’s government and companies have made substantial progress in

recent years to improve corporate governance, many problems still exist.
The following nine key corporate governance problems in China:
1. Highly concentrated ownership structure,

2. Insider control of corporate affairs,
3. Weak protection of shareholders’ rights,
4. Frequent insider trading, self-dealings and collusions in market manipulations,
5. Falsification and fabrication of financial data,
6. Weak independent board of directors and specialized committees,
7. Weak supervisory board,
8. Weak auditing profession, and
9. Weak external governance structure.
Regulatory Bodies for Corporate Governance
China Securities Regulatory Commission
Name of the code
Code of Corporate Governance for listed companies in China
The Code consists of a set of principles covering:

• Shareholder's rights.
• Board structure and composition.
• Directors' duties and remuneration.
• Information disclosure.
The Code has adopted the principle of mandatory regulation, and the Securities
Regulatory Committee of the PRC (CSRC) can order rectification where there has
been non-compliance with the Code. The Code also provides that whether the Code
has been complied with must be disclosed in the company's annual report.
Phases of Corporate Governance
China’s corporate governance development process that can be divided into four
phases
Phase 1: From 1978 to 1984
From 2004 to present
The major feature of this phase was decentralisation. In 1979, the State Council
promulgated a number of rules and regulations on reforming the enterprises’
management 1. THE CORPORATE GOVERNANCE FRAMEWORK IN CHINA 14
CORPORATE GOVERNANCE OF LISTED COMPANIES IN CHINA © OECD 2011
mechanism. These new rules were geared to readjust the relationship between the
state and its enterprises. . Favourable measures in terms of fixed-asset investment,
asset depreciation and working capital management were provided to the
companies to expand their incentives for better business performance.
The major feature of this phase was the change in SOEs’ profit distribution and the
formation of the management responsibility system. In 1984, the idea that the
ownership and management of state-owned enterprises could be separated as
appropriate was suggested for the first time. In 1986, the CPC Central Committee,
together with the State Council, issued a number of documents, including the Terms
of Reference for Managers of State-owned Industrial Enterprises, explicitly

stipulating that the manager is a company’s representative of a legal personality, and
a new type of corporate leadership system featuring “overall responsibility of the
manager, a supervisory and guarantee role for the company’s CPC subcommittee,
and democratic management by the employees” was also established.
The establishment of a modern enterprise system was at the core reform during this
phase. In 1993, it was made clear that “efforts need to be made to transform the
company management mechanism and establish a modern enterprise system that
suits the needs of a market economy, with clearly defined ownership, rights and
responsibilities, and features the separation of government from enterprises and
scientific management. Modern enterprises can have many organisational forms
based on the composition of capital.
Phase 4: From 2004 to present
Historical constraints to good governance of listed companies started to be gradually

addressed from 2004 onwards. With the help of government regulators, such as
those represented by the CSRC, the level of corporate governance among listed
companies has been constantly improving. New laws were introduced like The
Company Law (2006), Securities Law (2006) etc..
The Legal Framework for Corporate Governance
Main Corporate Governance Legislation
• The Company Law, which applies to all corporate entities.
• The Securities Law of the PRC, which mainly applies to public companies,
whether listed or not.
• Various regulations, measures and guiding opinions, including but not limited to
the Code of Corporate Governance of Listed Companies, issued by the Securities
Regulatory Committee of the PRC (CSRC) and other authorities, which apply to
listed companies.
• Various laws and regulations governing corporate governance of state-owned

enterprises (SOEs).
There are laws governing various corporate social responsibilities, such as PRC
employment laws, environment laws and consumer laws.
Brief Explanation of Corporate Governance Laws
The Company Law and the Securities Law, both introduced in 2006, provide the
foundation for drawing up and developing a corporate governance framework in
China.
The revised Company Law improved companies’ governance structure and

mechanisms to protect lawful shareholders’ rights and public interests. It
highlighted the legal obligations and responsibilities of those in actual control of the
company – the directors, senior management and supervisors. It improved
companies’ financing and financial accounting systems of companies and the
systems governing corporate mergers, divisions and liquidation.
Company Law (2006)
The Company Law (2006) (is formulated to standardize the organization and
behavior of companies, to protect the legitimate rights and interests of companies,
shareholders and creditors, safeguard socioeconomic order and promote the
development of a socialist market economy. It governs the incorporation and
organizational structure of limited liability companies, equity transfers of limited
liability companies, the incorporation, organizational structure, issuance and transfer
of shares of companies limited by shares, the qualifications and obligations of
company directors, supervisors and senior executives, corporate bonds, corporate
finance and accounting, company mergers, splits, capital increases and reductions,
company dissolution and clearance, branches of foreign companies and legal
liabilities.
Securities Law (2006)
The Securities Law (2006) was drawn up to standardize securities issues and
transactions, protect the legitimate rights and interests of investors, safeguard
socioeconomic order and public interests and promote the development of a socialist
market economy. It governs securities issues, securities transactions, general
provisions, listing of securities, disclosure of information, prohibited transactions,
acquisition of a listed company, stock exchanges, securities companies, securities
registration and clearance institutions, securities service organizations, securities

industry associations, securities regulatory institution and legal liabilities.
Criminal Law Amendment Act (2006)
Amendment VI to the Criminal Law (2006) was designed to match the amended
Securities Law and Company Law, to give a more complete definition of legal
liabilities in the securities field, improve the laws governing the securities market
and promote its healthy development. The Amendment governs the following
corporate governance related offences: disclosure breaches, non-disclosure of major
information, breach of trust and damage of listed company’s interests, insider
trading and leakage of insider information and manipulation of securities or futures
market.
Regulatory and/or enforcement bodies
While CSRC and stock exchanges in PRC are the main regulatory bodies that
supervise the corporate governance of public companies, the following
governmental agencies are responsible for the enforcement of corporate governance
rules/requirements within their respective authorities:
• The Ministry of Finance (MOF). The MOF is a department of the State Council
that is responsible for the drafting, supervision, and implementation of the
applicable accounting rules and regulations.
• The State-owned Assets, Supervision and Administration Commission

(SASAC). SASAC is the governmental agency responsible for the supervision and
administration of state-owned shares, assets and investments, including
performing the shareholder's responsibilities according to the Company Law and
other laws and administrative regulations pursuant to requirements of the State
Council.
The Ministry of Commerce (MOFCOM), the State Administration of Industry and

Commerce (SIAC), and other local law enforcement departments in respect of tax,
customs and labour also have authority over companies in China in their respective
jurisdictions.
Whistleblower Policy
In China, legislation provides that if the whistle blowing is true, the labor security
administration will offer financial incentives to the whistleblower who has provided
important clues or evidence for investigating material violations of labor security
laws, regulations or rules.
• The Provisions on the Reporting of Crimes to People’s Procuratorates set out

the protection available to whistleblowers who report corruption and bribery
cases to a people's procuratorate. The provisions include a number of
measures which ensure:
➢ The confidentiality of corruption reports provided to the people's
procuratorates (eg, keeping informers’ personal information
confidential); and
➢ The personal safety of informers and their close relatives.
• The provisions also provide a reward mechanism for whistleblowers who
report crimes to a people's procuratorate.
• The Criminal Procedure Law also contains several measures that protect the
personal safety of witnesses giving evidence in legal proceedings and their
families.
• An employee who is dismissed for whistle blowing would need to commence
an action for wrongful dismissal against the employer.
• In anti-corruption and anti-bribery cases, the anti-corruption bureau, an
internal organization in the people’s procuratorate, may offer financial
incentives to encourage whistle blowing.
Accountability for disclosure:
The secretary of the board of directors shall be in charge of information disclosure.

In addition to disclosing mandatory information, a company shall also voluntarily
and timely disclose all other information that may have a material effect on the
decisions of shareholders and stakeholders and shall ensure equal access to
information for all shareholders.
Corporate Governance in South Africa
In South Africa, The King Report on Corporate Governance is a ground-breaking

booklet of guidelines for the governance structures and operation of companies in
South Africa. It is issued by the King Committee on Corporate Governance. Three
reports were issued in 1994 (King I), 2002 (King II), and 2009 (King III) and a fourth
revision (King IV) in 2016. The Institute of Directors in Southern Africa (IoDSA)
owns the copyright of the King Report on Corporate Governance. The Compliance
with the King Reports is a requirement for companies listed on the Johannesburg
Stock Exchange. The King Report on Corporate Governance has been cited as "the
most effective summary of the best international practices in corporate
governance". The philosophy of the code consists of the three key elements i.e.
leadership, sustainability and good corporate citizenship.
King Code on Corporate Governance
The King Committee, a private-sector body comprising of former South African

Supreme Court Judge, Mervyn King was formed in 1992, to draft corporate
governance guidelines.
The body issued its first report King I Report on Corporate Governance in South
Africa, in 1994 which was regarded by many as ahead of its time in adopting an
integrated and inclusive approach to the business life of companies, embracing
stakeholders other than shareholders. In 2002, the second King Report on Corporate
Governance was published. It contained a Code of Corporate Practices and Conduct
and referred to seven characteristics of good corporate governance. The King III report
was released on 1 September 2009 which marked a significant milestone in the
evolution of corporate governance in South Africa and brought significant
opportunities for organisations that embrace its principles. The King III was on an
‘apply or explain’ basis. The ‘apply or explain’ approach required more consideration
– application of the mind - and explanation of what has actually been done to
implement the principles and best practice recommendations of governance.
King IV was released on 1 November 2016. It was effective for financial years
commencing from 1 April 2017
King Report IV
➢ A set of voluntary principles and leading practices.
➢ Drafted to apply to all organisations, regardless of their form of incorporation.
Sector supplements explain how the King IV Code should be applied by
certain organisations/sectors.
➢ The King IV Code’s principles and practices are linked to desired outcomes,
therefore articulating the benefits of good corporate governance.
➢ The Code differentiates between principles and practices. Principles are
achieved by mindful consideration and application of the recommended
practices.
➢ Philosophical underpinnings in King III retained but refined in King IV™.
➢ ‘Corporate governance’, for purposes of King IV™, has now been defined
➢ Corporate governance should be concerned with ethical leadership, attitude,
mindset and behaviour
➢ The focus is on transparency and targeted, well-considered disclosures
➢ Remuneration receives far greater prominence, in line with international
developments
➢ King IV recognises information in isolation of technology as a corporate asset
that is part of the company’s stock of intellectual capital and confirms the
need for governance structures to protect and enhance this asset
➢ There is a new emphasis on the roles and responsibilities of stakeholders
Regulatory Bodies for Corporate Governance
➢ The Institute of Directors of South Africa

➢ Center for Directorship and Corporate Governance
➢ The Competition Commission.
Name of the code:
The King Reports on Corporate Governance
Laws Governing - Corporate Governance
The Companies Act

1973
The Act has been in existence since 1973 and imposes a number of statutory duties
on directors which if properly observed will result in good corporate management. It
governs how companies should be administered and provides for regulation of
powers, duties and remuneration of directors. However, the Act does not specifically
provide for corporate governance but it imputes liability on directors if it is found
that directors conducted the business of the company fraudulently or recklessly.
2008
The new Companies Act 71 of 2008 into law in 2009. In terms of the government
policy statement issued before the promulgation of the new Act, the revised
company law is expected to promote the competitiveness and development of the
South African economy. This will be achieved by, among other ways, promoting
innovation and investment in South African markets and companies by providing a
predictable and effective regulatory environment that allows for growth, flexibility,
transparency, good governance and ensures compatibility and harmonisation with
best practice internationally.
Securities Services Act 36 of 2004
In an effort to fight insider trading and enhance corporate governance in South

Africa‘s capital markets, the South African government passed the Securities
Services Act in 2004 and established the Insider Trading Directorate within the
Financial Services Board (which supervises the non-banking financial services
industry) to monitor and enforce the law. The Security Services Act makes it a
criminal offence for anyone to make use of ―inside information to buy or sell any
securities or financial instruments in a company in a regulated stock market
Public Finance Management Act 1 of 1999
The Public Finance Management Act introduced much more comprehensive

standards for reporting and accountability by adopting an approach to financial
management in public sector institutions that requires performance in service
delivery, and economic and efficient deployment of state assets and resources.
Broad-Based Black Economic Empowerment Act 53 of 2003
The Broad-Based Black Economic Empowerment Act was thus passed to set up a
legal framework for the promotion of black economic empowerment so that black
people have sufficient influence over strategic direction and core management of
businesses.
The Johannesburg Securities Exchange Listings Requirements
To promote transparency, independence and accountability, the Listings

Requirements provide for declaration of directors‘ interests. Companies seeking a
listing must submit to the JSE a director‘s declaration for each director, evidencing
that the directors are free of conflicts of interest between the duties they owe the
company and their private interests. This is aimed at ensuring that directors do not,
without the informed consent of the company, use the company's assets,
opportunities, or information for their own profit.
Whistleblower Policy
In South Africa the Protected Disclosures Act (no 26 of 2000) makes provision for
procedures in terms of which employees in both the public and private sector
who disclose information of unlawful or corrupt conduct by their employers or
fellow employees, are protected from occupational detriment.
This law is to encourage honest employees to raise their concerns and report
wrongdoing within the workplace without fear. This law should be welcomed as
a crucial corporate governance tool to promote safe, accountable and responsive
work environments.
Accountability for disclosure:
The boards should ensure that the Company makes full and timely disclosure of
material or matters concerning the company.
Organisation for Economic Co-operation and Development (OECD)
Introduction
The Organisation for Economic Co-operation and Development (OECD)
Quick facts
➢ History: Established in 1961
➢ Headquarters: Paris, France
➢ Membership: 35 countries
➢ Budget: EUR 374 million
➢ Secretary-General: Angel Gurría
➢ Secretariat staff: 2 500
History
The OECD was originally called the Organisation for European Economic
Cooperation, or OEEC. It was started in 1947, after World War II, to run the Marshall
Plan to reconstruct Europe. Its goal was to help European governments recognize
their economic interdependence. In this way it was one of the roots of the European
Union.
Current Membership
Today OECD has 35 Member countries span the globe, from North and South
America to Europe and Asia-Pacific.
Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia,

Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan,
Latvia, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland,
Portugal, Slovak Republic, Slovenia, Spain, South Korea, Sweden, Switzerland,
Turkey, the United Kingdom and the United States.
Partner Countries
Brazil, China, India, Indonesia, Russia, and South Africa.
Structure of OECD
OECD Principles of Corporate Governance
The Organization of Economic Cooperation and Development released its first set of
corporate governance principles in 1999. The principles were developed and endorsed
by the ministers of OECD member countries in order to help OECD and Non-OECD
governments in their efforts to create legal and regulatory frameworks for corporate
governance in their countries.
The Principles provide recommendations for national policymakers on shareholder

rights, executive remuneration, financial disclosure, the behaviours of institutional
investors and how stock markets should function.
The Principles were originally developed by the OECD in 1999 and last updated in
2004. The 2015 version addresses developments in corporate governance and the
rapidly changing corporate and financial landscape.
The Principles are non-binding. They are intended to “provide a robust but flexible
reference for policy makers and market participants to develop their own
frameworks for corporate governance”.
Principle 1
The corporate governance framework should promote transparent and fair markets,
and the efficient allocation of resources. It should be consistent with the rule of law
and support effective supervision and enforcement.
Principle 2
The corporate governance framework should protect and facilitate the exercise of
shareholders’ rights and ensure the equitable treatment of all shareholders,
including minority and foreign shareholders. All shareholders should have the
opportunity to obtain effective redress for violation of their rights.
Principle 3
The corporate governance framework should provide sound incentives throughout

the investment chain and provide for stock markets to function in a way that
contributes to good corporate governance.
Principle 4
The corporate governance framework should recognise the rights of stakeholders

established by law or through mutual agreements and encourage active co-operation
between corporations and stakeholders in creating wealth, jobs, and the
sustainability of financially sound enterprises.
Principle 5
The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including the
financial situation, performance, ownership, and governance of the company.
Principle 6
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.
Reference Questions
SECTION A -2 MARKS
1. Name any 2 committees of Corporate governance in UK

2.
3. Mention any 2 acts of corporate governance in UK.
4. Mention any 2 acts of corporate governance in USA.
5. Mention any 2 committees of corporate governance in USA.
6. Mention any 2 laws of corporate governance in Australia.
7. Mention any 2 regulatory authorities of corporate governance in Australia.
8. Mention any 2 laws of corporate governance in China.
9. Name the regulatory authorities of corporate governance in South Africa.
10. Mention any 2 laws governing corporate governance in South Africa.
11. What is hard law in Australia?
12. What is soft law in Australia?
13. Mention the any 2 Brazil’s corporate Laws.
14. What is Fiscal Board in Brazilian corporations?
15. What is OCED?
16. Which is Regulatory Bodies for Corporate Governance in China?
17. How many countries are there in OCED?
18. Which is the regulatory authority for Corporate governance in China?
19. Mention the codes of Corporate Governance in South Africa.
20. How many principles of Corporate Governance are recommend by
OCED?
21. In which year OCED was established?
SECTION C-10 MARKS
1. Explain the corporate governance framework in USA.

2. Explain the corporate governance framework in UK.
3. Explain the corporate governance framework in Australia.
4. Explain the corporate governance framework in China.
5. Explain the corporate governance framework in South Africa.

6. Explain the corporate governance framework in Brazil.
7. Explain various federal security laws which influence corporate
governance in USA.
8. Explain the corporate governance environment in Australia.
9. Explain the corporate governance environment in China.
10. Explain the Kings code of corporate governance.
Questions are not exact representation questions appearing in exams
References
• https://www.iasplus.com/en-gb/news/2015/09/oecd-principles-for-corporate-governance
• https://usoecd.usmission.gov/our-relationship/about-the-oecd/what-is-the-oecd/
• https://www.thebalance.com/organization-economic-cooperation-development-3305871
• https://www.thebalance.com/organization-economic-cooperation-development-3305871
• www.oecd.org.
• https://www2.deloitte.com/za/en/pages/africa-centre-for-corporate-
governance/articles/kingiv-report-on-corporate-governance.html
• https://www.pwc.co.za/en/publications/king4.html
• http://www.nacf.org.za/guide_to_the_whistle_blowing_act/section_two.html
• http://uir.unisa.ac.za/bitstream/handle/10500/4254/dissertation_moyo_n.pdf?sequence=1&isA
llowed=y
• https://www.alrc.gov.au/publications/corporate-governance-framework
• https://www.herbertsmithfreehills.com/latest-thinking/corporate-governance-in-australia-a-
snapshot
• http://www.accaglobal.com/in/en/student/exam-support-resources/fundamentals-exams-
study-resources/f4/technical-articles/corporate-governance--a-south-african-perspective.html
• https://www.iod.com/news/news/articles/UK-Corporate-Governance-Code
• http://www.metropolitancorporatecounsel.com/articles/6173/corporate-governance-uk-and-
us-comparison
• https://uk.practicallaw.thomsonreuters.com/3-597-
4626?__lrTS=20171014182838848&transitionType=Default&contextData=(sc.Default)&firstPag
e=true
• https://thelawreviews.co.uk/edition/the-corporate-governance-review-edition-
7/1140904/brazil
• https://ecgi.global/content/corporate-governance-
australia#:~:text=Corporate%20governance%20in%20Australia%20is,governance%20framewo
rk%20are%20outlined%20below.&text=Australian%20companies%20are%20established%20u
nder,Act%202001%20(Corporations%20Act).
• https://www.nortonrosefulbright.com/en/knowledge/resources-and-tools/uk-corporate-
governance-portal/uk-corporate-governance-timeline
• https://ecgi.global/content/corporate-governance-brazil

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VI SEM CORPORATE GOVERNA NCE

UK Corporate Governance Journey

Category Category Category

Committee published The FRC Financial The FRC published a

Whistle Blowing legislation in UK

State Corporate Laws

Federal Securities Laws

Evolution of Corporate Governance in USA

The Act made fundamental changes in virtually every

The Dodd-Frank The Dodd-Frank Act is legislation signed into law by

became known as the Great Recession. Dodd-Frank put

New Agencies which were created

Whistle Blowing Laws in USA

• The Whistleblower Protection Act

• The Corporate and Criminal Fraud Accountability Act 2002 (Sarbanes-Oxley

Corporate Governance in Australia

KEY FEATURES OF CORPORATE GOVERNANCE IN AUSTRALIA

The current system of corporate governance in Australia is characterized by a

• Extensive Regulation And Personal Liability Of Directors,

Corporate Governance Framework

In the business context/ Governance, the regulators and relevant government

• The Australian Securities And Investments Commission (ASIC)

• The Australian Tax Office (ATO).

Non Regulatory Authority

ASX Corporate Governance Council

Investor Guidelines and Expectations

Australia has highs levels of institutional ownership and, as a result, institutional

Institutional Investor Stewardship

The concept of institutional investor stewardship is well-recognised in Australia. To

Corporate Governance in Brazil

Code of Best Practices in Corporate Governance (IBGC Code)

Board structure and practices

Compensation of the members of the board of directors and executive board

Detailed information on the compensation paid to the company’s directors and

• Review and give an opinion on the board of directors’ annual report;

• Review and give an opinion on proposals of the management to the

Contact with shareholders

Mandatory and best practice reporting to all shareholders

Whenever the company holds a meeting with a specific shareholder to discuss a

Corporate Governance in China

Although China’s government and companies have made substantial progress in

The following nine key corporate governance problems in China:

1. Highly concentrated ownership structure,

Regulatory Bodies for Corporate Governance

China Securities Regulatory Commission

Name of the code

Code of Corporate Governance for listed companies in China

The Code consists of a set of principles covering:

Phase 1: From 1978 to 1984

Phase 2: From 1984 to 1992

Phase 3: From 1993 to 2003

From 2004 to present

Phase 1: From 1978 to 1984

Phase 2: From 1984 to 1992

of Reference for Managers of State-owned Industrial Enterprises, explicitly

Phase 3: From 1993 to 2003

Phase 4: From 2004 to present

Historical constraints to good governance of listed companies started to be gradually

The Legal Framework for Corporate Governance

Main Corporate Governance Legislation

• The Company Law, which applies to all corporate entities.

• Various laws and regulations governing corporate governance of state-owned

Brief Explanation of Corporate Governance Laws