Non-compliance to the corporate governance code provisions by Maltese listed companies

Abstract

PURPOSE: This study evaluates the non-compliance with the Code of Principles of Good Corporate Governance and analyses the adequacy of the explanations provided thereof, including the overall effectiveness of the existing regulatory framework.

DESIGN: To achieve the objectives of this study, a review of the non-compliance section of the corporate governance statements of each Maltese listed company was carried out for the years 2012, 2014 and 2016. Furthermore, 13 semi-structured interviews were held with members of listed companies, audit firm representatives, and a representative of the MFSA.

FINDINGS: This study finds that a general insufficiency in the explanations provided for non-compliance exists. Some entities give only lip service to the provisions of the Code as they fail to realise the benefits an entity may reap from having good corporate governance structures in place. There is a lack of education and awareness in this regard, and not only on the part of companies, but also on the part of shareholders who seem to make minimal use of the information provided in the corporate governance statements. Nonetheless, prior to the amendment of existing rules, increased enforcement of the current regulatory framework and monitoring by the regulator is required. Furthermore, this study highlights the misconceptions on the auditor’s role in corporate governance.

CONCLUSIONS: This study shows that there is room for improvement in the explanations provided for non-compliance. Increased regulatory involvement and education on corporate governance may contribute towards this.

IMPLICATIONS: This study raises awareness on the need of improving corporate governance practices, as well as education on corporate governance, across Maltese listed companies. It is hoped that the recommendations made may encourage entities to improve in their reporting and the regulator to provide further guidance to entities to do so.