Corporate Governance
GOVERNANCE: A CENTREPIECE IN CAPITAL MARKETS Author: Mark Azzopardi
If an investment portfolio is akin to an art collection, then investors are the art collectors who are constantly on the lookout for their next centrepiece and in this day and age, companies with robust and effective corporate governance are considered the masterpieces. A new era in asset management is sweeping through the global capital markets. This new concept in investment is characterised by ESG (Environmental, Social and Governance) investing criteria which are setting new standards for companies who want to attract investment. The third pillar ‘Governance’, underscores the importance of a robust governance framework which, is not only valued by investors but also by other stakeholders, employees and customers alike and plays a significant role on the company’s reputation. Capital markets exert considerable influence on the corporate governance practices of listed companies or potential future market participants that can be both direct and indirect. Direct measures that are imposed on listed companies include: tighter listing requirements, controlling insider trading, imposing disclosure
and accounting rules and ensuring investor protection. The major indirect way that markets exert influence on listed companies is through the pricing mechanisms. Such mechanisms allow investors to express their opinion on the issuer’s established corporate governance practices and performance by buying or selling the respective security. An effective corporate governance environment is built on a national-level and a firm-level approach. The combination of both approaches is conducive to sustainable economic growth, transparency and market integrity. National-level corporate governance
is made up of a cohesive legal, regulatory and institutional framework which, allows market participants to establish private contractual relations. The primary elements of this framework include legislation, regulation, self-regulatory arrangements and voluntary commitments. These elements are implemented together with governance codes on a ‘comply and explain’ principle to allow flexibility for the multitude of different types of participants. Stock exchanges have a central role in a country’s corporate governance framework >>
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