This report shows a study of Corporate Governance Code of the Maldives rectified by CMDA. The report evaluates the roles and interests of shareholders and stakeholders and how they are made accountable as to how the objectives of the company are achieved, how risks are monitored and assessed, and how performance is optimized. The purpose is to apply corporate governance code to shareholder’s and stakeholder’s interest.

The first part of the report will give the introduction of corporate governance covering definition of corporate governance, corporate governance in Maldives and reasons for corporate governance.

The second part will talk about the roles interests of shareholders and stakeholders. The shareholders and stakeholders will be given separately by providing the relevant sections from corporate governance code and how these roles will affect the company performance.

The last part of the report will give an evaluation on restriction and challenges when applying codes of governance by CMDA covering the advantages of corporate governance and challenges. It will also cover the comparison of the three listed companies’ corporate governance compliances in Maldives and it will show relationship between the corporate governance compliance and performance of the companies.

2.0 Introduction

Corporate governance (CG) is an important effort to ensure accountability and responsibility and is a set of principles, which should be incorporated into every part of the organization. In the wake of accounting, leadership, and governance scandals at such large companies as Enron, Tyco, and WorldCom, corporate governance has succeeded to attract a great deal of interest as it focuses not only the long term relationship, which has to deal with checks and balances, incentives for managers and communications between management and investors but also the transactional relationship, which involves dealing with disclosure and authority. Numerous works, studies, and researches have been conducted to enact principles, codes, and guidelines for ensuring good corporate governance systems and culture within the organizations.

This paper will give a Study of the Corporate Governance Code in Maldives; rectified by the CMDA (Capital Market Development Authority) by evaluating the roles and interests of shareholders and stakeholders by providing the relevant examples in Maldives. In addition to this, this paper will show how they (board and company) are made accountable as to how the objectives of the company are achieved, how risks are monitored and assessed, and how performance is optimized. So the purpose of this paper is to apply corporate governance code to shareholder’s and stakeholder’s interest.

2.1 Corporate Governance

Sir Adrian Cadbury in ‘Global Corporate Governance Forum’ provided defined corporate governance as “Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society” (Cadbury, 2000).

Different authors view the meaning of corporate governance differently. For example, one school of thought describes corporate governance as a “system” by which companies are directed and controlled (Greenbury, 1992). Another school views corporate governance as “structures and processes for decision making, accountability, control and behavior at the governing body” to others corporate governance is about “finding ways” to ensure effective decision making but it must be kept in our mind that the fundamental concern of corporate governance is to ensure the conditions whereby a firm’s directors and mangers are held accountable, ensure better and effective protection to all stakeholders. The World Bank argues that the framework of corporate governance should be based on four “pillars” – of Responsibility, Accountability, Fairness and Transparency (RAFT) (Pound 1995).

2.2 Corporate Governance in Maldives

Corporate governance ensures that companies are directed and managed at board and management level in a fair and transparent manner. It provides guidance on how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized. Good corporate governance structures encourage companies to create value (through entrepreneurism, innovation, and development), ensure implementation of effective control systems commensurate with the risks involved, provide accountability and transparency and. Good corporate governance must be planned and implemented at the Board level and led by the Board as an illustration for the rest of Management and more junior members of the company to follow (Corporate Governance Code, 2012).

Corporate governance code by CMDA in Maldives is divided into mandatory provision (Board Matters, Remuneration Matters, Management Matters, Audit, External Audit and Internal Control, Company Secretary, Shareholder Rights, Disclosure Requirements and System to Raise Concerns) and Voluntary Provision (Investor and Media Relations). This Code applies to all listed companies, regardless of the nature of their business. The Maldivian Government has a system of recognizing and rewarding companies with good corporate governance practices (Corporate Governance Code, 2012).

2.3 Reasons for Corporate Governance

The need for corporate governance arises from the potential conflicts of interest among Stakeholders in the corporate structure. These conflicts of interest often arise from two main reasons. First, different stakeholders have different goals and preferences. Second, the stakeholders have imperfect information as to each other’s actions, knowledge, and preferences. (Osman 2006).

Good corporate governance practices have an impact in determining the cost of capital in a global capital market. Companies in the Maldives must be equipped to compete globally and to maintain and promote investor confidence both in the Maldives and internationally. Good corporate governance is also grounded in Islam where transparency, disclosure and accountability are important tenets in doing business (Corporate Governance Code, 2012).

Good corporate governance will evolve with the changing circumstances of a Company and must be tailored to meet those circumstances. Best practices will also evolve as developments take place both in the Maldives and internationally. The provisions of the Code cannot prevent frauds and corporate failures, they can provide a reference point for enhanced structures to minimize problems and optimize performance and accountability in the Company (Corporate Governance Code, 2012).

3.0 Roles and interests Shareholders and Stakeholders

3.1 Shareholders

Shareholders are the owners of the company who get dividend. Since they are the owners, they have roles and interests on the company (Cadbury, 2000).

3.11 Shareholder Communications

According to the Section 6.2 (a) of Corporate Governance Code 2012 by CMDA, companies must engage in regular, effective and fair communication with shareholders at general meetings or through other means. Section 6.2 (b) says that Companies must regularly convey pertinent information, gather views or inputs, and address shareholders’ concerns. Section 6.2 (c) says that Companies must disclose information equally to all shareholders. Where there is inadvertent disclosure made to a selected group, companies should make the same disclosure publicly to all others as soon as possible.

3.12 General Meetings

According to the Section 6.3 (a), the annual general meeting, is the main means of communication between shareholders, Management and the Board. Section 6.3 (b) says that Companies must encourage greater shareholder participation at annual general meetings by requiring shareholder attendance, and allow shareholders the opportunity to communicate their views on various matters affecting the company. Section 6.3 (c) says that Shareholders should be well-informed regarding general meetings through issue of notices and the meeting should be organized in a manner that allows for maximum shareholder participation, subject to reasonable limitations, and equitable treatment of shareholders.

Section 6.3 (d) says that the notice of the annual general meeting should include information about the agenda items to be discussed, including a description of auditor candidates, director candidates, and the text of proposed resolutions. The information provided about the agenda items for any general meeting should be detailed enough to allow shareholders to make an informed decision. The agenda should be presented in the order items will be addressed in the meeting. Section 6.3 (e) says that the outcome and proceedings of general meetings should be recorded and be verifiable. Section 6.3 (f) says that the chairpersons of the Audit, Nomination and Remuneration Committees should be present and available to address questions at general meetings. The external auditors should also be present to address shareholders’ queries about the conduct of audit and the preparation and content of the auditors’ report.

3.13 Voting Rights

According to the Section 6.4 (a), voting rights and procedures must be clearly explained to shareholders so they may fully assert their rights in general meetings. Section 6.4 (b) says that in establishing the voting procedures and rights for companies, the principle of one share, one vote must guide every company. Within a class of shares, all shareholders must have the same voting rights. Information regarding the voting rights of all classes of shares must be available to potential shareholders. Section 6.4 (c) says that to facilitate voting by shareholders, proxy voting rules must be simple and easy to follow.

Section 6.4 (d) says that the Shareholders may also be allowed to vote in absentia. In this regard, companies are encouraged to make the appropriate provisions in their Articles of Association to allow for absentia voting methods such as by mail, email, fax, and at banks or such other suitable official premises situated on the various Islands etc., if the shareholders so consent. Section 6.4 (e) says that there should be separate resolutions at general meetings on each substantially separate issue. Companies should avoid ‘bundling’ resolutions unless the resolutions are interdependent and linked so as to form one significant proposal. Where resolutions are ‘bundled’, companies should explain the reasons and material implications.

3.14 Other rights of shareholders relating to;

1. Board Members

Section 1.2 (a) says that every company must be headed by an effective Board of Directors which is accountable to the shareholders. Section 1.3 (c) says that Shareholders should have an opportunity to nominate Board candidates, with at least 21 days’ notice provided to shareholders to allow them to make their nominations. Section 1.3 (e) says that the Board must release at least the information provided in the preceding sub-paragraph (d) submitted by the candidates to all shareholders. This information will assist in comparing director candidates and identifying the most suitable person, as well as enable shareholders to make informed decisions.

Section 1.5 (b) says that the Board should set the company’s values and standards, and ensure that obligations to shareholders are understood and met. Section 1.5 (c) says that the Board must always act in the best interests of the shareholders as a whole. Section 1.5 (f) says that the Chairman should ensure effective communication with shareholders and promote high standards of corporate governance. Section 1.6 (a) says that the board should serve the legitimate interests of the shareholders and should establish commercial and financial policies, and ensure the major investments needed to achieve the company’s objects and increase the value of shareholders’ equity.

2. Audit Committee

Section 1.8 (c, vi) says that the Audit Committee must prepare reports on all meetings for the Board, and make a report in the company’s annual report for the benefit of all the shareholders.

3. Remuneration matters

Section 2.1 (c) says that the performance-related elements of remuneration must form a significant proportion of the total remuneration package of executive directors and must be designed to align their interests with those of shareholders. Section 2.1 (c) says that the company should report to the shareholders each year in the annual report on the global remuneration of directors and top Management (who are not also directors) of the company. Section 2.4 says that the company must report to the shareholders each year in the annual report the individual salaries of its directors and its top Management.

4. Management matters

Section 3.2 (a) says that the Board must clarify the roles and responsibilities of senior management in order to facilitate Board and Management accountability to its shareholders. Section 3.2 (c) says that the Board must ensure that the Management maintains a sound system of internal control to safeguard the shareholders’ investments and the company’s assets.

5. External Auditors and Internal Controls

Section 4.2 (b) say that the appointment of the external auditors must be affirmed by the shareholders at the annual general meeting. Section 4.3 (a) says that the Board must ensure that the Management maintains a sound system of internal controls to safeguard the shareholders’ investments.

6. Investors and media relationships

Section 9.4 says that every Company should endeavour to issue a quarterly newsletter providing brief information to its shareholders about the financial status of the Company, the recent non-confidential business undertakings of the Company, its state of compliance with relevant laws and regulations, including this Code, and any other matter that the Company believes would be of interest to its shareholders.

Therefore, these sections provide many rights to shareholders. Since they are the owners of the company, they can influence the company objectives and performance by using their roles.

3.2 Stakeholders

Stakeholders are person or a group with an interest or concern in a business. There are internal and external stakeholders. Internal stakeholders include Employees, Management, and Company secretary, Board of directors and Audit Committee. The external stakeholders include Customers, Media, Public (Community), Government, Non-governmental organizations and Press groups/ activists, Suppliers and Competitors.

3.21 Internal stakeholders

1. Employees

Employees are the people who run the daily business operations in the company. Section 1.1 (a) says that the company’s Board of Directors should be accountable to the stakeholders, including creditors and employees of the company. Section 1.6 (a, xi) says that the board needs to appoint the CEO and key employees of the company. Section 8.1 says that the Board should introduce a system of ensuring that an appropriate process is put in place to enable employees to raise any concerns that they have, whether on a confidential basis or otherwise, of any non-compliance or fraud or other misdemeanour within the company. Section 8.2 says that all employees must be made aware of the system for raising concerns that has been implemented. All employees must also be given the assurance that they will not be in any way penalised for raising the concern. Since they are the people who run the company, they can bring major change to the company performance. Hence it is important to satisfy and motivate them.

2. Management

Management is has various roles in the company. According to the Section 3.2 (a) the Board must clarify the roles and responsibilities of senior management in order to facilitate Board and Management accountability to the company. Section 3.2 (c) says that the Board can obtain, at the company’s expense, outside legal or other professional advice on any matter deemed necessary for it to effectively perform its duties. Section 3.2 (d) says that the Board must ensure that there is a procedure in place that requires all managers of the company to disclose to the Board all situations of conflict of interests immediately upon such a conflict arising, whether potential or real. Managers are people who run the company. Management plans, organizes, directs and controls the various functions in the company. Therefore the company’s performance is highly depending on the managers’ performance.

3. Company secretary

Company secretary has a major role in the company. According to the Section 5, the Company’s Secretary must give advice to Management and the Board on their responsibilities and liability with regard to legal and regulatory requirements and compliance with corporate governance code. The Company Secretary must also keep an annual record of the company’s compliance or noncompliance with this Code and all other relevant laws. Company Secretary acts as a point of communication between the board of directors and company shareholders, reporting in a timely and accurate manner on company procedures and developments. Therefore the secretary can bring changes to the company performance.

4. Board of directors

Board of directors has many roles in the company. According to the Section 1.1 (a) the company’s Board of Directors should be accountable to the stakeholders, including creditors and employees of the company. Section 1.1 (b) says that the Board is collectively responsible for promoting the success of the company. Section 1.1 (e) says that each director should add value to the Board. Section 1.1 (f) says that each director must disclose any conflict of interests he may face and abstain from any decision making process where he is so conflicted.

Section 1.5 (b) says that the Board should provide entrepreneurial leadership, set strategic aims, provide direction to the Management and ensure that the necessary financial and human resources are in place for the company to meet its objectives. The Board needs to ensure that a framework of prudent and effective internal controls which enables risk to be assessed and managed is established, and monitor and assess the effectiveness of such internal controls established. They need to review Management performance and determine its remuneration and need to set the company’s values and standards, and ensure that obligations to the stakeholders are understood and met. Section 1.5 (c) says that the Board must always act in the best interests of the company as a whole.

Section 1.5 (e) says that the non-executive and independent directors need to challenge the business directions and management’s performance and need to review the performance of management and monitor the reporting of performance. Section 1.5 (f) says that the Chairman needs to encourage constructive relations between the Board and Management and needs to promote high standards of corporate governance.

Section 1.6 (a) says that the board needs to ensure that the company complies with all relevant laws and regulations, including the Code of Corporate Governance, and other codes of best business practice. They need to ensure that technology and information systems used in the company are sufficient to operate the company effectively with strong internal control systems and maintain competitiveness. They need to establish commercial and financial policies, and ensure the major investments needed to achieve the company’s objects and increase the value of shareholders’ equity. They need to adopt internal procedures and regulations for the conduct of the company’s affairs. They need to determine the Management’s powers and responsibilities and monitor their performance. They need to adopt a disclosure policy for the company and the Board, and ensure its follow-up and implementation as required by law. They need to appoint the CEO and key employees of the company. They also need to adopt the annual and interim financial statements. Therefore the company’s performance is highly depending on the board’s performance in the company.

5. Audit Committee

Audit committee has various roles in the company. According to the Section 1.8 (c. v) the Audit Committee need to review effectiveness of company’s internal risk controls and risk management systems. They need to monitor the integrity of annual and interim financial statements of the company. They need to review and challenge where necessary the consistency of, and any changes to, accounting policies. They need to investigate any matter within its terms of reference, full access to and cooperation by Management and full discretion to invite any director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. They need to review the internal and external audit functions and to evaluate the independence and effectiveness of the work of the external auditors.

Section 4.1 (d) says that the Audit Committee should monitor and review the effectiveness of the internal audit activities, including reviewing all internal audit reports and plans and monitoring management’s responsiveness, and ensure that it is adequately resourced. Section 4.1 (e) says that the Audit Committee should, at least annually, ensure the adequacy of the internal audit function. Section 4.2 (e) says that the Audit Committee must review the independence and objectivity of the external auditors annually. Section 4.3 (b) says that the Audit Committee must, at least annually, review the adequacy of the company’s internal financial controls, operational and compliance controls, and risk management policies and systems established by the Management. Therefore the audit committee can change company performance and direction by using their roles.

3.22 External stakeholders

1. Customers

Customers want the business to produce quality products at reasonable prices. According to Section 1.1 (a) says that the company’s Board of Directors should be accountable to the stakeholders of the company. Section 1.1 (b) says that the Board is collectively responsible for promoting the success of the company. Section 1.1 (e) says that each director should add value to the Board. Section 1.5 (c) says that the Board must always act in the best interests of the company as a whole. Section 1.6 (a, iii) says that the board needs to ensure that technology and information systems used in the company are sufficient to operate the company effectively with strong internal control systems and maintain competitiveness. All these sections are implied roles and these sections are focus on the development of the company which will help the company to satisfy its customers by providing quality products at reasonable price. If the company is not meeting the customers’ expectations, the customers will switch to other good suppliers. Therefore the internal stakeholders need to perform their roles and responsibilities in accordance with the corporate governance code in order to protect the customer’s interests.

2. Media

Media roles are to educate and ensure company information reaches to public. According to Section 1.1 (a), the company’s Board of Directors should be accountable to the stakeholders of the company. Section 7.1 says that every Company must ensure that it issues an annual report that complies with the provisions of the Companies Act and the Listing Manual and explain how the Company has achieved compliance with the provisions of this Code. Where there has been no compliance, the Company must explain why the compliance could not be achieved. Section 9.4 says that every Company should endeavour to issue a quarterly newsletter providing brief information to the interested parties about the financial status of the Company. Section 9.1 says that the media must have a clear understanding of the principles of corporate governance. Section 9.2 says that it is important company to initiate exchange of experience between the general public, the companies and the local media on corporate governance. Section 9.3 (b) says that Companies should encourage the media to publicise corporate governance reforms. Section 9.3 (a) says that Companies should promote development of a strong financial press by disclosing information, and preparing short objective articles and editorials. These sections provide implied and expressed roles to the media. The company needs to protect the media interests and needs to build good relation in order to protect the company image.

3. Public (Community)

The community which has a stake in the company as employers of local people and business activity also affects the local environment. According to the Section 1.1 (a), the company’s Board of Directors should be accountable to the stakeholders of the company. Section 7.1 says that every Company must ensure that it issues an annual report that complies with the provisions of the Companies Act and the Listing Manual and explain how the Company has achieved compliance with the provisions of this Code. Where there has been no compliance, the Company must explain why the compliance could not be achieved. Section 4.2 (e) says that the Audit Committee must review the independence and objectivity of the external auditors annually. Section 9.2 says that it is important to initiate exchange of experience between the general public, the companies and the local media on corporate governance. These sections provide implied and expressed roles to the public and the public can play major role for the success of the company. The public can create bad image and there will be potential customers. Therefore the company needs to protect the public interest to protect the image.

4. Government

The government has stake on company by various laws. According to Section 1.1 (a), the company’s Board of Directors should be accountable to the stakeholders of the company. Section 1.6 (a, ii) says that the board needs to ensure that the company complies with all relevant laws and regulations, including the Code of Corporate Governance, and other codes of best business practice. Section 1.6 (a, vii) says that the board needs to adopt a disclosure policy for the company and the Board, and ensure its follow-up and implementation as required by law. Section 7.1 says that every Company must ensure that it issues an annual report that complies with the provisions of the Companies Act and the Listing Manual and explain how the Company has achieved compliance with the provisions of this Code. Where there has been no compliance, the Company must explain why the compliance could not be achieved. These sections show implied and expressed roles of the government. The government can fine or hold the license if the company does not follow the various laws enforced by the government. Therefore, the company needs to protect the government interest to run the company smoothly.

5. Non-governmental organizations and Press groups/ activists

Pressure groups can influence what we think about the business and its environment. According to Section 1.1 (a), the company’s Board of Directors should be accountable to the stakeholders of the company. Section 7.1 says that every Company must ensure that it issues an annual report that complies with the provisions of the Companies Act and the Listing Manual and explain how the Company has achieved compliance with the provisions of this Code. Where there has been no compliance, the Company must explain why the compliance could not be achieved. Section 1.5 (b, iv) says that the Board needs to set the company’s values and standards, and ensure that obligations to the stakeholders are understood and met. A pressure group can challenge and even change the behaviour of a business by contacting the press, organising marches and running campaigns. These sections provide implied roles to them and therefore the company needs to protect these groups’ interests to protect the image.

6. Suppliers

Suppliers want the company to continue to buy their products. According to the Section 1.1 (a), the company’s Board of Directors should be accountable to the stakeholders including supplier of the company. Section 7.1 says that every Company must ensure that it issues an annual report that complies with the provisions of the Companies Act and the Listing Manual and explain how the Company has achieved compliance with the provisions of this Code. Where there has been no compliance, the Company must explain why the compliance could not be achieved. These sections provide implied and expressed roles to them. The supplier might not supply the products if the company does not perform well. Therefore the company needs to follow the corporate governance code and other best practices to get the products from suppliers regularly.

7. Competitors

The competitors are the other market players or the suppliers in market. According to the Section 1.1 (a), the company’s Board of Directors should be accountable to the stakeholders of the company. Section 7.1 says that every Company must ensure that it issues an annual report that complies with the provisions of the Companies Act and the Listing Manual and explain how the Company has achieved compliance with the provisions of this Code. Where there has been no compliance, the Company must explain why the compliance could not be achieved. These sections provide implied roles to them. Competitors can steal the customers if the company does not perform well. Therefore the company needs to follow the corporate governance code and other best practices to compete in the market and to retain the customers.

4.0 Evaluation on restriction and challenges

4.1 Advantages

1. Excellent Management; if a company is practicing corporate governance, people not linked to the firm will also be able to assess its governance. This is because the most fundamental principle of corporate governance is transparency and the principles of disclosure. Every step taken by company authorities, having control over the company’s management, is in the best interests of the company and its stakeholders. This has a positive impact on the community and may reflect upon the market valuation of the firm and hence, its share price (Best-Practice.com, 2013).

2. High Level of Transparency; Companies that follow a set of best practices are encouraged to be highly transparent about their business. This helps them attain the trust of the community and its stakeholders and eases the task of raising capital, when needed. As the business is easy to assess and evaluate due to its high level of transparency, many investors and financial institutions prefer funding these companies than those that are not following the core principles of corporate governance (Best-Practice.com, 2013).

3. Stakeholder Benefits; under corporate governance, a firm tends to act in the best interest of the firm and its stakeholders. This will ensure greater success as the goal of the company managers will now be aligned with the goals of the company. The result of this will be greater profits and faster growth which will benefit the company and all the stakeholders (Best-Practice.com, 2013).

4. Reputation and Recognition; the practice of good corporate governance followed by firms will allow them to gain the trust of the investors, the customers and the community at large. This will have a positive impact on the company’s reputation and it will be recognized as a fair and transparent company. This image will help the company prosper in the long run and achieve its goals more quickly.

5. Reduces Wastage; Good practices of corporate governance help companies become more efficient in their business. Employees that are trained to follow ethical business practices will avoid excess wastage of company resources will tend to utilize all resources optimally (Best-Practice.com, 2013).

6. Reduce Risks, Mismanagement and Corruption; a company can reduce the amount of risks in their business as well as any attempts of corruption and mismanagement by following the practices of good governance. Due to the amount of transparency necessary in companies that follow the principles of good governance, many individuals intending to misuse their position and power will be unable to do so. This will reduce the overall incidences of negative acts in the company and help it achieve success and a positive image in the community (Best-Practice.com, 2013).

7. Economic Benefit; A company following good corporate governance will be able to achieve the trust of the community and hence, success in the long run. A firm’s good reputation will ensure a good flow of capital by attracting foreign investors in the economy and will benefit the economic situation of the nation (Best-Practice.com, 2013).

4.2 Restriction and Current challenges

1. Institutionalized corruption

Corruption affects all classes of society, all state organizations, monarchies, and republics. It is present in all societies, in developed as well as developing ones. Corporations cannot be separated from the corruption that exists in the society in which they are operating especially if they are operating in a weakened corporate governance environment. The ignoble alliance between the political and business class has created a system where corruption is institutionalized. Hence, it is has become a major challenge for corporate governance compliance (Adekoya, 2011).

2. Weak regulatory framework

There are countries where the ruling elites have little respect for the laws of the land. Rather than obeying laws, the politicians will peddle their political influence and connections to circumvent and violate laid down procedures and control mechanisms. Some countries operate a unique system where the ruling political elites are treated as “untouchables” and “above the law”. The country’s law enforcement agencies have been deliberately weakened by the corrupt practices of the political elites either military or civilian such that they are more inclined to look the other way instead of confronting the “big men” (Adekoya, 2011).

3. High unemployment

The third major challenge to corporate governance reforms is the high unemployment. The incentives for doing business transparently, accountably and maintaining high ethical standards are nonexistent. Corporations often behave in manners that suggest that they are not bothered by the environment and social responsibility concerns of the citizens. There are countries which the governments have persistently reneged on its many promises of rapid development promises to the people such that corporations are more inclined to disrespecting the people‘s rights, doing business unethically, damaging the natural environment than embarking on corporate social responsibility (Adekoya, 2011).

4. Collapse of moral values

The fourth challenge to good corporate governance is the collapse of the country’s moral values. The country is often described as a nation with no moral values or has lost its moral compass such that the religious institutions are more interested in material things rather than the spiritual development of the believers. The institutional and widespread corruption discussed above has eaten deep into some societies. Faith based organizations are consistently accused of financial impropriety at different times to the extent that the people seem to be losing their faith and confidence in these institutions (Adekoya, 2011).

5. Sox Compliance Challenges

It has been argued that the emerging corporate governance reforms, including SOX, SEC related implementation rules, and listing standards, have caused smaller companies to (1) incur compliance costs that are disproportionate to the induced incremental benefits, and (2) divert the attention of company management away from strategic decisions and operational activities. The main challenge is the cost of compliance. Some of rules, for example, rules concerning internal controls of Section 404, cost at least one hundred times more than what was originally estimated by the SEC (Blume, & Oman, 2005).

6. Shareholder Challenging Issues

There are several challenging shareholders issues. Not all shareholders have a full access to the proxy statements and existing SEC rules allow companies to reject any proposal pertaining to director election. The prevailing plurality voting system also makes it difficult for shareholders to monitor their companies. Shareholders of public companies with dispersed ownership have few, if any, incentives or opportunities to monitor their company’s business affairs and managerial activities (Blume, & Oman, 2005).

4.3 Corporate Governance Code compliance in Maldives

Adherence to corporate governance		Amana Takaful plc	BML plc	STO plc
1	Shareholder Communications	✓	✓	✓
2	Annual General Meetings	✓	✓	✓
3	Voting Rights	✓	✓	✓
4	Dividends given	✓	✓	✓
5	Internal Controls	✓	✓	✓
6	Internal audit	✓	✓	✓
7	Annual reports	✓	✓	✓
8	Quarterly reports	✓	✓	✓
9	Public disclosure and transparency	✓	✓	✓
10	Risk Management	✓	✓	✓
11	External audits	✓	✓	✓
12	Corporate Social Responsibility	✓	✓	✓
13	Compliance with best practice	✓	✓	✓
14	Compliance with ethical standards	✓	✓	✓
15	Customer relation	✓	✓	✓
16	Effective Board	✓	✓	✕
17	Voluntary Provision: Media relation	✕	✓	✓
18	Composition of Board	✓	✓	✕
19	Compliance with legal standards	✓	✓	✓
20	Board Member Remuneration Disclosure	✓	✓	✓
21	Separation of Chairman and MD	✓	✓	✓
22	Roles of Chairman and MD	✓	✓	✓
23	Duties of the Board	✓	✓	✓
24	Training	✓	✓	✓
25	Committees	✓	✓	✓
26	Evaluation of Board performance	✓	✓	✓
27	Individual Board Member Remuneration Disclosure	✓	✓	✕
28	Roles and responsibilities of management	✓	✓	✓
29	Access to information	✓	✓	✓
30	Non-financial Statements	✓	✓	✓
31	Systems to raise concerns	✓	✓	✓
32	Voluntary Provision: Investors	✓	✓	✓
33	Company Secretary	✓	✓	✓

The above table shows the evaluation of corporate governance compliance in the three public limited companies (STO plc, Amana Takaful plc and BML plc) in Maldives. This information is taken from their websites, annual and quarterly reports.

The evaluation of corporate governance compliance in these three public limited companies shows there are few issues in compliances of corporate governance in these companies, however the most of the sections in corporate governance code are following by them. It is clear that Amana Takaful and BML are performing better compared to STO. One of the main reasons for non-compliance of sections relating to board of members in STO is because majority (81.6%) share is owned by the government (STO, 2012). This is one main reason for not having an effective board in STO. The section of media relation by Amana Takaful is not complied but it is not an issue because it is a voluntary provision. Meantime, it shows that BML has complied with all the sections provided by corporate governance code.

5.0 Conclusion

Corporate governance ensures that companies are directed and managed at board and management level in a fair and transparent manner. Corporate governance code by CMDA in Maldives is divided into mandatory provision and Voluntary Provision. The need for corporate governance arises from the potential conflicts of interest among Stakeholders in the corporate structure.

The shareholders and stakeholders have various roles and interests on the companies. Corporate governance code provides several rights to the shareholders and stakeholders. Since the shareholders are the owners of the company, they have many rights which include communication right, right to participate in annual general meeting, voting rights, dividend rights, right to nominate Board, right to get annual reports, right to appoint the external auditors, right to transfer shares, minority rights and right to participate in the management.

The stakeholders are not the owners but they have stake on the company. The stakeholder include employees, management, company secretary, board of directors, audit committee, customers, media, public, government, press groups, suppliers and competitors. Stakeholders also have rights and roles like right to check annual reports, public disclosure and transparency, risk management, corporate social responsibility, systems to raise concerns, non-financial statements, access to information, training, committees, separation of chairman and MD, board member remuneration disclosure, compliance with legal standards, media relation, customer relation, compliance with ethical standards and investors relation.

There are many advantages of adhering corporate governance code to all the company and all the stakeholders. It helps to improve the management performance, to increase the transparency, to increase the profit of the company, to increase the reputation, to reduce wastage, to reduce risks, mismanagement and corruption and to achieve the trust of the community.

However, there are some restrictions and challenges to implement the corporate governance code in Maldives and in other countries. They include institutionalized corruption, weak regulatory framework, and high unemployment, collapse of moral values, Sox compliance challenges and shareholder challenging issues.

The evaluation of corporate governance compliance in the three public limited companies in Maldives shows there are few issues in compliances of corporate governance in these companies, however the most of the sections in corporate governance code are following by these three companies. It is clear that Amana Takaful and BML are performing better compared to STO. In a nutshell, it has proven that corporate governance code actually guarantees the objectives of the company are achieved, risks are monitored and assessed and performance is optimized by complete adhering to the corporate governance code.

6.0 References

Adekoya, A., A. (2011). Corporate Governance Reforms in Nigeria: Challenges and Suggested Solutions. Journal of Business Systems, Governance and Ethics, 6(1).

Amana Takaful (Maldives) PLC. (2012). Annual Report 2012.

Amana Takaful (Maldives) PLC. (2013). 1st Quarter Report 2013.

Bank of Maldives. (2012). 2012 Annual Report.

Bank of Maldives. (2013). First Quarter Report, January to March 2013.

Best-Practice.com. (2013). Benefits of Practicing Good Corporate Governance Principles. Retrieved October 01, 2013, from http://www.best-practice.com/compliance-best-practices/compliance-management/benefits-of-practicing-good-corporate-governance-principles/

Blume, D. & Oman, C. (2005). Corporate Governance: A Development Challenge. Policy Insights, 3.

Cadbury, A. (2000). The Corporate Governance Agenda. Corporate Governance, Vol.8 (1), pp.7-15.

Corporate Governance Code. (2012). Capital Market Development Authority: Maldives.

Greenbury, S., R. (1995). Directors’ Remuneration: Report of a Study Group Chaired by Sir Richard Greenbury. London: Gee and Co. Ltd.

Pound, J. (1995). The Promise of the Governed Corporation. Harvard Business Review, March-April edition.

State Trading Organization PLC. (2012). Annual Report 2012.

State Trading Organization PLC. (2013). 2nd Quarter Report 2013.

Adam Khaleel

Monday, December 21, 2015

Module Name: Corporate Governance

1.0 Executive Summary