Introduction
Corporate governance refers to the set of laws, guidelines, customs, procedures, and institutions, which guide the governance in a company or corporation, control, or direction. In addition, it includes the stakeholder’s relationships, as well as the goals which guide the corporation.
Vital stakeholders in a corporation include the community involved, creditors, clients, employees, suppliers, and shareholders. While discussing Azerbaijan’s corporate governance failure, it is worth noting that the subject is multi- faceted. An extremely vital concern for corporate governance is safeguarding the answerability of people within the organization.
Strategies, which get rid of or minimise the key- agent challenge, are essential in accomplishing this. There is an aspect within the subject of corporate governance that assesses the result of corporate governance on economic efficiency. In regard to this, there is a keen assertion on the welfare of shareholders. This paper aims at analysing the failures in Azerbaijan’s corporate governance.
Failures in Azerbaijan’s Corporate Governance
There are several evident characteristics which can be associated with the development and implementation of the joint stock institutions, in addition to Azerbaijan’s corporate governance. The Selected Privatisation Model and Practice have various characteristics. The shareholders lack knowledge in regard to economic areas, which are concerned with corporate governance and joint stock institutions. According to Monks and Nell (70), another key characteristic is inevitable shareholder syndrome.
During the privatisation process for enterprises, managers mostly acquire reasonable share portions and people with an interest in the enterprise via corruption. Other violation forms are also used to accomplish this. Consequently, the enterprise has no option but to be under their control.
Shareholders who possess less share portions have mass violations of their rights. This results from the immense gaps and conflicting legislation areas. This leads to violation of small investors’ rights. The management of leading companies is in favour of the principal shareholders’ interests.
Therefore, there is half- willingness to cater for small shareholder’s shares. Most of the times, small and principal shareholders have a conflict of interests, because key shareholders have a tendency of transforming the company’s legal and organizational form through liquidating it (Monks and Nell 54).
The law enforcement institutions and the judicial systems are extremely corrupt, resulting to poor legal and judicial infrastructure in companies. The system should enforce and protect property rights, but it is exceptionally unstable. This leads to broader share concentration occurrence. The rate of the discipline and culture of contracts is extremely low (Weismann 634).
The market institutions have characteristics of poor growth. Moreover, the reforms lag behind, leading to poor economic growth. The level of liquidity is exceedingly low, and the securities market develops exceptionally poorly. There is unavailability of cultural conducts and corporate morals.
In the majority of the cases, key managers in companies lack modern skills to manage the companies. Finally, companies lack transparency, which is vital in managing any company. Following are some of the measures that can be taken to improve these challenges.
Improving Azerbaijan’s Corporate Governance
Irrespective of the fact that an international report pronounced an improvement in Azerbaijan’s corporate governance within the last five years, there are gaps in compliance and law, which require keen attention.
The IFC Azerbaijan Corporate Governance Project, the World Bank, and the Global Corporate Governance Forum conducted an investigation concerning the management of Azerbaijan companies. According to their findings, there has been the creation of a solid capital market. However, there is a lot that requires to be done (Weismann 650). There is an urgent need for the protection of investors and increased effectiveness for supervisory boards.
Moreover, companies should be more discreet in revealing the content of their disclosure. The CG ROSC (Corporate Governance Report on the Observance of Standards and Codes) contains the findings and recommendations of the research. This report summarises the recent improvements in the regulations for corporate governance, and suggests policy recommendations. Moreover, investors have a benchmark against which Azerbaijan’s corporate governance can be assessed.
According to the report, there are principal gaps regarding the law. Moreover, there are gaps regarding the overall awareness of and adherence to the protocols and laws. Therefore, strategies to solve these gaps are necessary. Moreover, additional support from donors is essential.
This will ensure amicable solution to these gaps. There should be the introduction of a code and promotion of a bigger awareness of the subject (Estrin 110). This will safeguard Azerbaijan’s economic development as a safe place for international investment. This is particularly within the present on- going worldwide financial crisis. Continued and wide- based efforts are necessary in ensuring the implementation of the assessment’s policy recommendations. This should be done with the use of suitable enforcement measures.
The heads of the committee agree that corporate governance is vital for promoting the rate of economy capitalization. It is imperative to consider these measures while solving the challenges with Azerbaijan’s corporate governance.
The two key issues that require consideration are; the way in which businesses should disclose their information and discreetness of the availed information. A standardized format is necessary when disclosing the information. It is crucial to mention that corporate governance’s quality plays a prominent role in promoting foreign direct investment.
Works Cited
Estrin, Saul. “Competition and corporate governance in transition.” Journal of Economic Perspectives (2002): 101-124. Print.
Monks, Robert and Nell Minow. Corporate governance. New York: Wiley, 2012. Print.
Weismann, Miriam. “The foreign corrupt practices act: The failure of the self-regulatory model of corporate governance in the global business environment.” Journal of business ethics 88.4 (2009): 615-661. Print.