The revision of board practices and the exercise of shareholders rights in companies in light of the crisis on corporate governance

Abstract

The recent mayhem in financial establishments is often labeled as the most serious financial crisis ever since the Great Depression. It is thus essential to analyze the condition in the finance area and consider the key lessons for which this had on corporate governance overall. Corporate Governance relates to the methods by which a company is regulated and managed by its investors, managers, and employees. The particular system of governance identifies the extent of the authority and duties of various members in the company both within the company and to external parties. Such laws usually concern the boards of directors, managers, investors, creditors, legislators, and other stakeholders. The market and macroeconomic environment after the turn of the millennium required the utmost out of corporate governance procedures: boards had to be precise regarding the plan and policies of the corporation and to reply in a timely way, while demanding competent auditing structures. They also had to supervise risk management and compensation schemes consistent with the company aims. Nonetheless, indications suggest that grave flaws existed in what were generally believed to be highly-developed organizations. There seems to have been in numerous circumstances a stark discrepancy between the incentive system, risk management and internal control systems. Much of the corporate governance practices and alterations in developing economies are founded on corporate governance guidelines and structures of industrialized nations, but neglect to determine their suitability and adaptability to these economies. In Malta, most corporate governance systems were and still are to an extent being influenced by British customs. While as will be seen in this research there are specific laws and bodies that monitor corporate governance in Malta, this area is still mostly made up of voluntary codes which allow corporations and businesses to establish their own internal corporate governance strategies thereby allowing substantial freedom of choice in their application. The ownership arrangement of Maltese businesses is distinguished by a high occurrence of family based ownership thereby implying that ownership is concentrated, similar to the features of the relationship-based model of corporate governance. Consequently, the use of corporate governance practices deriving from common law countries which normally involve disseminated ownership not concentrated ownership generates many compatibility problems potentially upsetting general effectiveness of corporate governance structures in Malta. Nonetheless, no previous study has analyzed these issues before. This study will try to satisfy this gap through an analysis of the corporate governance structure in Malta. This study examines the nature and the extent which Maltese law and MFSA codes of practice effects level of compliance with corporate governance best practices.