Daniel Cassar

Good corporate governance at the forefront of The Malta Chamber’s policy

BY DANIEL CASSAR – POLICY EXECUTIVE AT THE MALTA CHAMBER

Good governance is one of the fundamental pillars of The Malta Chamber and is a key area of focus in our policy drafting. In recognition of this fact, and The Malta Chamber’s role as the voice of ethical business, we have setup a Corporate Governance Committee within The Malta Chamber.

While The Malta Chamber has always kept principles of good corporate governance at the forefront of its policy proposals, “The Manifesto for Good Governance” published in 2020 is The Malta Chamber’s landmark document in this area, setting out 68 recommendations for the improvement of Malta’s governance including a focus on the implementation of proposals in the field of corporate governance. This document has paved the way for the introduction of the new Corporate Governance Committee at The Malta Chamber, a committee sponsored by Credit Info, with the ultimate aim of growing our strong voice in this area. The Committee has established its priorities for the coming year, chief amongst them is their commitment to engaging with policy makers on strategic areas such as due diligence and KYC processes, promoting a culture of Good Corporate Governance amongst the Maltese business community and strengthening the cause of anti-bribery and anti-corruption.

In March this Committee was focused on its first task, responding to a consultation document on the MFSA’s new Corporate Governance Code. This response, in conjunction with the Financial Services Business Section of The Malta Chamber, took a comprehensive and holistic view of the proposed code, proposing a number of recommendations for the MFSA’s consideration. The Malta Chamber itself had called for the introduction of this Corporate Governance Code in its previously mentioned “Manifesto for Good Governance”, referencing a similar model in the United Kingdom. The MFSA’s proposed code is expected to apply to all MFSA authorised entities who are not listed entities and is to be applied on a “best-effort” basis. The code deals with a number of matters related to the functioning of an effective board and lays out issues related to the appropriate role and function of the board of directors, as well the structure and composition of the Board including the manner of its appointment and the succession of directors. The code also sets out the expectation of transparency and fairness in setting the remuneration for the board as well as senior management and stipulates that this process should preferably be overseen by non-executive directors forming part of a “Remuneration Committee”. In addition to these, and other board related concerns, the Code deals with the establishment and monitoring of internal controls including risk management, compliance, internal audit, security risk management and business continuity. The proposed code will also apply good corporate governance principles in the remit of stakeholder engagement, particularly engagement with shareholders and employees, and covers a broad range of provisions related to Corporate Culture, Corporate Social Responsibility, and Environmental, Social and Governance Standards. The Malta Chamber highlighted some key issues in relation to the proposed code, starting with the issue of the lack of clarity in the document. The Code is to be applied on a “best effort basis” in line with the “principle of proportionality”. It is The Malta Chamber’s view that the nature of these metrics allows for a strong element of subjectivity in the proposed code which could hinder its efficacy when adopted by MFSA Authorised Entities. This issue of clarity ties into the enforceability or otherwise of the provisions in the code. For this reason, The Malta Chamber sought clarification on whether the code will now, or at any point in the future, be given an enforceable status. The current absence of clarity in the proposed code could lead to companies finding themselves in a situation where they are notified that they are in breach of the Code due to an incongruency between the principle of proportionality as applied by the regulator versus the ex-

The proposed code will also apply good ercise carried out by the Authorised Entity. Given that these breaches could have a serious monetary or reputational impact on the company in question corporate governance The Malta Chamber believes it is incumbent upon the MFSA to clearly denote which provisions are principles in the remit of enforceable, if any, and to which types of compastakeholder engagement, nies. In order to address the above mentioned conparticularly engagement with shareholders and cerns The Malta Chamber proposed the introduction of a size matrix in order to allow companies to identify themselves under different categories. employees, and covers a These categories would reflect the metrics identified by the MFSA under its proportionality princibroad range of provisions ple. This tool would allow for a clear identification related to Corporate of which provisions apply to which categories of companies, thus creating an objective interpreCulture, Corporate Social tation of the proportionality principle. The Mal-

Responsibility, and ta Chamber called for a distinction to be made between recommendations which are merely Environmental, Social and good practice and others which form an essential element of good corporate governance. The

Governance Standards. Malta Chamber also called for a number of other amendments to be made to specific areas of the Code, most notably to the composition of the proposed Audit Committee as well as to the consideration of the role of Executive Chairperson within the Board of Directors. Through its response to MFSA’s consultation on the Corporate Governance Code the newly formed Corporate Governance Committee has already started to set out the direction it will take in carrying out its workplan; an approach focused on transparency, cooperation and delivering tangible results. This direction will continue to inform the Committee’s work as it strengthens The Malta Chamber’s proven credentials in this field. n