The four common elements of corporate governance and country governance are “fairness, accountability, transparency and responsibility” (Boyd and Stephen 5; Fernando 45). Fairness refers to equitable treatment and protection against misappropriation of assets.
Accountability refers to effective monitoring of the board and accountability of the board to the company and shareholders. Transparency refers to the timely and accurate disclosure on finances, performance and ownership. Lastly, responsibility refers to ethical behaviors and complying with national laws.
Specific elements of corporate governance include “equity holders, markets (capital markets and product market), debt providers (public debt and private debt), employees, business practices, legal system and public opinion” (Boyd and Stephen 5).
On the other hand, specific elements of country governance include “political stability, voice and accountability, government effectiveness, absence of violence, control of corruption, regulatory quality and rule of law” (Djité 205).
Indicators of Country governance include “Democracy Index (DI), Corruption Perception Index (CPI), Global corruption Barometer (GCB) and Bribe Payer’s Index (BPI)” (Hák et al. 377). The use of DI is based on the assumption that public participation in the political practices may control government corruption.
On the other hand, the CPI is a survey of surveys, mirroring the views of investors, scholars and risk analysts, both citizens and foreigners. First established in 1995, the CPI builds on seventeen studies from thirteen sovereign bodies. The CPI is a result of systematic survey of polls offered to Transparency International between 2001 and 2003 (Hák et al. 377).
While the CPI aims at evaluating heights of corruption among countries, the Global corruption Barometer (GCB) focuses on positions of the public concerning these heights of corruption (Hák et al. 377). The GCB interviews respondents on the effects of corruption on their private and family life.
Respondents from developing countries may be able to live with high heights of corruption, while respondents in developed countries cannot tolerate even low levels of corruption. The BPI complements the GCB and CPI, since it deals with the tendency of corporations from top exporting nations to bribe in developing markets (Hák et al. 377).
Similarly, indicators of corporate governance include ownership concentration, equity share and value of shares traded.
Ownership concentration as an indicator allows comparison of states in relation to the ownership arrangement of their corporate sectors. High levels of ownership concentration denote that block holders control corporations. Conversely, low levels of ownership denote that block holders are minor economic factors.
Equity share implies that there is more inclination towards external minority shareholders. Conversely, a high proportion of equity in GDP denotes that corporations have been successful in orienting their governance to the needs of outsider capital and minority stakeholders.
The value of shares traded is defined as “the total value of shares traded on national stock divided by GDP” (Djité 77). Normally, this data progression acts as an indicator of the activity of equity markets. It shows the level at which the tenure of listed companies shifts between different equity market players, but not the general value of ownership stakes.
The Sarbanes-Oxley Act is not the only law that deals with corporate governance since we also have company laws, securities regulation, accounting and auditing standards, insolvency law, labor law and tax law. All these laws protect investors from corporate inefficiencies, malfeasances and misleading financial information.
Good governance is essential both at corporate level, and at national level. Countries should come up with more policies and exercise reforms that support good governance at all levels. Policy objectives should focus on reducing the reliance of corporations on bank financing. Banks should refrain from loaning projects, which are appropriate just for venture capital, with reference to risk-return profile.
Equally, open restrictions should be applied on bank borrowing by corporations. Such a condensed association between lenders and borrowers forms a central objective of prudential banking laws. Nonetheless, reinforcement is required, if the general reliance of corporate borrowers and bank lenders is to reduce.
Apparently, such a condensed association is only feasible if substitute-financing sources (a more buoyant capital market) are accessible. Debt-equity-ratio should be fixed at a definite multiple, for example at two. Limit must as well be applied on bank debt as a multiple of equity, or as a proportion of total debt.
What requires close supervision is not the association between a corporation and all banks, but the relation with entity banks. The share of an individual borrower in overall bank loaning may also be limited. Surpassing this limit should be restricted on public listing. Large-scale bank borrowing should be left to borrowers who conform to the standards and regulations of good corporate governance.
On their part, banks should liberate themselves from the control by majority shareholders holders. Commercial banks should all ensure that they are public listed in the stock market. Banks that may face limitation due to size should combine with larger banks. A limit should be fixed on the number of shares that an individual entity can hold (for example, twelve percent).
Works Cited
Boyd, Gavin, and Stephen Cohen. Corporate Governance and Globalization: Long Range Planning Issues, Washington, DC: Elgar, 2000. Print.
Djité, Paulin. The Language Difference: Language and Development in the Greater Mekong Sub-Region, Bristol, U.K: Multilingual Matters, 2011. Print.
Fernando, Arthur. Corporate Governance: Principles, Policies and Practices, New Delhi: Pearson Education, 2009. Print.
Hák, Tomaš, Bedřich Moldan and Arthur Dahl. Sustainability Indicators: A Scientific Assessment, Washington, DC: Island Press, 2007. Print.