Introduction to corporate governance What is Corporate Governance?

Corporate governance is a means whereby society can be sure that corporations and family businesses are well-run institutions to which investors and lenders can confidently commit their funds. Corporate governance creates safeguards against corruption and mismanagement, while promoting fundamental values of a market economy in a democratic society. Fairness, transparency, responsibility, and accountability are the core values of corporate governance. In light of the Asian financial crisis, high profile scandals in Russia and Latin America, and the increased focus placed on governance practices in the Middle East and North Africa, corporate governance has been brought to the forefront and has become a major issue for businesses in the increasingly globalized economy. National business communities are learning and re-learning the lesson that there is no substitute for getting the basic business and management systems in place in order to be competitive internationally and to attract investment. At its most basic level, corporate governance deals with issues that result from the separation of ownership and control. But corporate governance goes beyond simply establishing a transparent and responsible relationship between managers and owners. The presence of strong corporate governance standards provides increased access to capital and thereby aids economic development. Good corporate governance attracts investors by assuring them that the business environment is fair and transparent; that companies can be held accountable for their actions or lack thereof; and those investments can be protected and contracts enforced.

Why do we need Corporate Governance?

With increased global competitiveness, the growing market in Bahrain is faced with the challenge of attracting and retaining investment in order to participate more fully in the global economy and address mounting demographic concerns. Increasing awareness and implementation of good corporate governance practices can improve the investment climate and promote the development of a vibrant private sector and capital market.

The interest in corporate governance is due to globalization, as investors are now reaching out to foreign countries to establish businesses. Foreign investors are depending on corporate governance because it is building legal protocol that is ensuring businesses to be accountable.

Businesses are becoming aware of the benefits corporate governance and responsibility provides their company and their nation. The regions demographic demonstrates that 50% of the Arab population is between the age of 15-20, making them the future labor force. By creating effective corporate governance and responsibility in the region, businesses are ensuring that future generations will have jobs as well as protecting their economies.

 Developing the role of the board of directors is a strategic tool for sustainable business development to overcome obstacles in the MENA region along with corporations' responsibilities and issues related to sustainable development.

Effective corporate governance and responsibility are becoming central to achieving success in the global business environment and the development of the MENA region economic structure.

Following on the concept that business environment in the MENA region is unique in the sense of cultural structure and needs, global concepts such as corporate governance and responsibility, developed and implemented abroad need to be localized to be effective tools.

Benefits to Companies

Benefits of Adopting Corporate Governance PrinciplesIn addition to benefiting the national economy applying effective corporate governance practices can benefit both the company and its shareholders.

Compliance with Corporate Governance principles can benefit the owners and managers of companies in the following ways:

Improve access to capital and financial markets;

Help to survive in an increasingly competitive environment through mergers, acquisitions, partnerships, and risk reduction through asset diversification;

Address succession issues in family-owned businesses with the transition from one generation to another, as well as reducing the chance for conflicts of interest to arise.

Leads to a better system of internal control, thus leading to greater accountability and better profit margins.

 Paves the way for possible future growth, diversification, or a sale, including the ability to attract equity investors

Reduce the cost of credit because lenders are assured of good management practices.

Avoids the pressure of undertaking serious corporate governance reforms at a high cost and upon the demand of outsiders, often in a time of crisis.

Increases the confidence of investors and potential partners to invest in or expand the companys operations.

Benefits to Shareholders:

Provides the proper incentives for the board and management to pursue objectives that are in the interest of the company and shareholders, as well as facilitate effective monitoring.

Provides shareholders with greater security on their investment.

Ensures that shareholders are sufficiently informed on decisions concerning fundamental issues like amendments of statutes or articles of incorporation, sale of assets, etc.

http://www.moic.gov.bh/MoIC/En/Commerce/DomesticTrade/Corporate+Governance/Introduction +to+Corporate+Governance/

The United States and the united Kingdom The so called Anglo- American model also known as the unitary system emphasises a single tiered Board of Directors composed of a mixture of executives from the company and non-executives directors, all of whom are elected by shareholders. Non executives directors are expected to outnumber executives directors and hold key posts, including audit and compensation committees. The US and UK differ in one critical respect with regard to corporate governance. In the UK, the CEO generally does not serve as chairman

of the Board, whereas in the US having the dual is the norm, despite major misgivings regarding the impact on corporate governance.

Continental Europe Some continental European countries, including Germany and the Netherlands, require a twotiered Board of Directors as a means of improving corporate governance. In the two-tiered board, the executives board made up of company executives generally runs day-by-day operations directors rations while the supervisory board, made up entirely of non-executives who represent shareholders and employees, hires and fires the member of executives board, determine their compensation, and review major business decisions

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