CG in US,Europe and Iran

7/27/2019 CG in US,Europe and Iran

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Corporate Governance in EU,US andIran

By: Mahboubeh Arab

Ms. Accounting , University LectureMember of Iranian Accounting Association (IAA)

Member of European Accounting Association (EAA)

Chief Accounting of Energy Exchange

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Importance of Ethics:Peter Dracker

There is no suchthing as businessethics.Theres

just ethics; and weall have to practicethem every day in

everything we do.

.

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History of big Companies

1- Muscovy is the first private Joint Stock

Company was established in 1553 in Russian

2- Eastern India (1600)-First Listed company in

Netherland stock Exchange

3- Eastern India Netherlands (1602)

4-Eastern India France(1664)

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.

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.-

.

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Which Model is better?!

There is no single model of

good corporate governance.

However, work carried out in

both OECD and non-OECD

countries and within theOrganisation has identified

some common elements that

underlie good corporate

governance.

()

.

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Why Corporate Governance

Sustainable CorporateGovernance complianceis a careful mix of

economic viability,social responsibility and

sound operations

.

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Principles of Corporate

Governance Ensuring the basis for an effective

corporate governance framework

The rights of shareholders and

key ownership functions;

The equitable treatment of

shareholders

The role of stakeholders;

Disclosure and transparency

The responsibilities of the board

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Timeline of Corporate Governance

Separation of Ownership to management ( 19th.age)

The Cad bury Report (1992), UK

Green bury Report (1995) , UK

Hampel Report1998), UK

The Higgs & Smith Report(2003) , UK

COSO 1998 (USA)

The principles of Corporate Governance (OECD-1998 & 2004)

Information on the Company Law Review (2001)

The Company Law White Paper (2002)

Sarbanes- Oxley Act 2002 USA The Tyson report on the Recruitment and Development of Non-Executive

Directors (2003)

The European Commissions Action Plan for Company Law and CorporateGovernance (2003):

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What is social responsibility

Social responsibility is adoctrine that claims thatan entity whether it isstate , government,

corporation, organizationor individual has aresponsibility to society.This responsibility can be

"negative," in that it is aresponsibility to refrainfrom acting, or it can be"positive" meaning aresponsibility to act.

()

.

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Corporate Social Responsibility

Corporate social responsibility(CSR) is an expression used todescribe what some see as acompanys obligation to besensitive to the needs of all of the

Stakeholders in its businessoperations. CorporateGovernance is the constructthrough which the provisions of abusiness are put in place, the wayof acquiring those objectives are

discussed and listed, theguidelines and expectationsregarding performance aremeasured and the structure ofresource use is outlined.

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Main Stakeholders

Shareholders

Employees

Management

Customers

Creditors (i.e. Banks)

Suppliers

Local Communities

Others


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Two models of Corporate

Governance

1- Outsider (shareholders)US Model

2- Insider (stakeholders)European

Modle


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World CG Structures

Anglo-American

One Share-One vote

Stockholder

Stakeholder

European

Stakeholder

Stock Holder

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Key Players in Anglo-American

Model

Shareholders

Board Members

Managers

Employees

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The Anglo-US Model

The Anglo-US model is characterized by share ownership of

individual, and increasingly institutional, investors not

affiliated with the corporation (known as outside

shareholders or outsiders); a well-developed legalframework defining the rights and responsibilities of three key

players, namely management, directors and shareholders; and

a comparatively uncomplicated procedure for interaction

between shareholder and corporation as well as amongshareholders during or outside the AGM.


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Players in the Anglo-US Model

Players in the Anglo-US model include

management, directors, shareholders

(especially institutional investors), government

agencies, stock exchanges, self-regulatory

organizations and consulting firms which advise

corporations and/or shareholders on corporate

governance and proxy voting.


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CG as European Social Model

Two tire board

Stakeholders roleBanking system

Supreme board ()


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The outsider model

A priority to market regulation

the owners of firms tend to have a transitory interestin the firm

The absence of close relationships betweenshareholders and management

the existence of an active `market for corporatecontrol - takeovers, particularly hostile ones

the primacy of shareholder rights over those of otherorganizational groups


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The insider model

The priority to stakeholders control

The owners of firms tend to have an enduringinterest in the company

They often hold positions on the board of directorsor other senior managerial positions

The relationships between management andshareholders are close and stable

There is little by way of a market for corporatecontrol

the existence of formal rights for employees toinfluence key managerial decisions


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European Social Model of Corporate

Governance

Rights and equitable treatment of

shareholders

Interests of other stakeholders

Role and responsibilities of the board

Integrity and ethical behavior Disclosure and transparency


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Social European Model

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OECD principles

AuditingBoard and management structure and

process

Corporate responsibility and compliance

Financial transparency and information

disclosure

Ownership structure and exercise of

control rights

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CG Background in USA

Corporate Governance is the system by whichbusinesses are directed and controlled. CorporateGovernance has a long history in the US, dating back tothe 20th. century.

Within corporate governance the board assumes theresponsibility for managing the business, controllingthe risks to its assets and developing the business.

Since the year 2000 there has been an increasedinterest in Corporate Governance due to the high

profile collapse of major brands including Enron andMCI, which led to the US Government passing theSarbanes-Oxley Act (SOX) in 2002.


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What is COSO

The Committee of Sponsoring Organizations (COSO) wasformed by several professional groups, including the Instituteof Internal Auditors (IIA), Financial Executives Institute (FEI),

American Institute of Certified Public Accountants (AICPA),

American Accounting Association (AAA), and Institute ofManagement Accountants (IMA). COSO's goal was to developfindings and recommendations for an integrated framework ofcorporate internal control. This was accomplished by first

publishing the Report of the National Commission onFraudulent Financial Reporting (popularly referred to as theTread way Commission) in 1987, and the definitive InternalControl - Integrated Framework in 1992.

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Base of Modern Corporate governance

Shareholder Rights

Transparency

Board Accountability

Ethical Behaviour

Stackholder Right


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Sarbanes-Oxley Act 2002

The Sarbanes-Oxley Act of 2002 , also known as the Public

Company Accounting Reform and Investor Protection Act of

2002 and commonly called SOX or Sarbox; is a United States

Federal Law enacted on July 30, 2002

Sarbanes Oxley, often abbreviated to 'SOX' came about

following the high-profile collapse of several large companies,

including Enron, Tyco International, Adelphia, and WorldCom.

The Sarbanes-Oxley (SOX) Act of 2002 had fundamental

governance implications for listed American companies, theirforeign subsidiaries and foreign companies that have US

listings. It applies to all Securities and Exchange Commission

(SEC) registered organizations, irrespective of where their

trading activities are geographically based.


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Requirements of the Sarbanes-Oxley

Act The act contains 11 sections outlining corporate board

responsibilities with the general aim of increasing boardaccountability for their actions, increasing auditor autonomy andincreasing the penalties for fraudulent financial activity.

SOX is different from the UK's Combined Code, and from codes of

corporate governance adopted elsewhere in the OECD, in thatcompliance is mandatory, rather than comply or explain. Thisaspect, combined with significant potential sanctions for individualdirectors, is driving SOX compliance requirements through thesupply chain.

While the Act lays down detailed requirements for the governance

of organizations, the three highest profile and most critical sections which were implemented in phases - are 302, 404 and 409.


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Sarbanes Oxley Act Sections 302, 404,

409

Des Sarbanes-Oxley 302 Sarbanes-Oxley 404 Sarbanes-Oxley 409

Required:

Quarterly certification

of financial reports

Disclosure of all known

control deficiencies Disclose acts of fraud

Management annually

certify internal

controls

Independent

accountant must attest

report

Quarterly change

reviews

Monitor operational

risks

Material event

reporting

Real-time

implications 4

business days for

report to be filed

Responsible: CEO

CFO

Management

Independent auditor

Management

Independent auditor


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Iran Capital Market Structure

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Commerce Act & CG in Iran

1- Commerce act has approved in 1931 and last

amend 1969

2-Framework of Commerce Act is European

structure

3- Express stakeholder in more than 20 articles

3- Framework of Corporate Governance(draft) is

Anglo-American Model !!

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Rights of Stakeholders & Transparency

:40 :24 :97 :727598 :37488108 83848694: :240 :40 :24 32

385 347

4 3

35364273 - Right ofstakeholder

251(8 1374742 -Disclosure & Transparency


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Draft CG in Iran

Every company should be headed by an effective

board which is collectively responsible for the

long-term success of the company.

There should be a clear division of responsibilitiesat the head of the company between the running

of the board and the executive responsibility for

the running of the companys business. No oneindividual should have unfettered powers of

decision.


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Chairman and Non-Executive

The chairman is responsible for leadership of

the board and ensuring its effectiveness on all

aspects of its role.

As part of their role as members of a unitary

board, non-executive directors should

constructively challenge and help develop

proposals on strategy.


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All Committees

The Audit Committee,

Compensation & Management Development

Committee,

Corporate Governance & Nominating

Committee, Public Responsibility Committee,

Risk Policy Committee


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Accountability & Corporate Governance

Role of chief of the board(CEO)

Role of audit committee Role of non-Executive managers

Role of internal audit

Role of shareholders annual meeting

Human resources control

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Tehran Stock Exchange

415 listed company

Market Value $ 83 Billion Non-Active Shares 100 Listed Co.

Audit firm registered firm 154 10 Biggest listed Co.

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Useful links

1- http://www.tse.ir/en/marketwatch.aspx

2- http://www.seo.ir/

3-http://www.csdiran.com/

4-http://www.investiniran.ir/default.htm

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http://www.tse.ir/en/marketwatch.aspxhttp://www.tse.ir/en/marketwatch.aspx


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Sources

1-ww.gmiratings.com/Images/GMI_Country

2-OECD Corporate Governance

3-UK Corporate Governance FRC publication

4- Sarbanes Oxley Act

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CG in US,Europe and Iran

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Transcript of CG in US,Europe and Iran