Volume 12 Issue 4 Article 1 12-31-2010 The backbone of European corporate governance standards after financial crisis, corporate scandals and manipulation Dinh Tran Ngoc Huy Dinh Tran Ngoc Hien Follow this and additional works at: https://www.ebrjournal.net/home Recommended Citation Huy, D., & Hien, D. (2010). The backbone of European corporate governance standards after financial crisis, corporate scandals and manipulation. Economic and Business Review, 12(4). https://doi.org/ 10.15458/2335-4216.1254 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. 215 ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010 | 215–240 * School of Business, Eastern International University, Binh Duong, Viet Nam ** University of Technology, Ho Chi Minh, Viet Nam THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS AFTER FINANCIAL CRISIS, CORPORATE SCANDALS AND MANIPULATION DINH TRAN NGOC HUY* DINH TRAN NGOC HIEN** ABSTRACT: Th e paper concentrates on several comparative standards in Europe, so-called a limited European set of standards on corporate governance. First, it looks at some groups of fi ndings on corporate governance subjects in the post-crisis period. It found out that companies in these periods need to oversight their legal or compli- ance activities, besides suitable policies. Second, it identifi ed diff erent points in latest corporate governance standard principles and systems in fi ve (5) countries in European region: Germany, Th e UK, Denmark, Sweden and France. Th ird, this paper provide with a summary of evaluation of current corporate governance systems in these above countries which may enable relevant organizations in re-evaluating their current ones. Last but not least, it aims to illustrate a limited comparative set of standards of European corporate governance, so-called backbone, and give proper recommendations to relevant governments and institutions. Key Words: corporate governance standards, board structure, code of best practice, fi nancial crisis, corporate scan- dals, market manipulation, internal audit JEL Classifi cation: M00: G01; G3 1. INTRODUCTION Th e Danish 2010 Recommendation of Corporate Governance mentioned aft er fi nancial crisis, there comes to a need to look at shareholders’ and institutional shareholders’ roles and rights. Th e Exhibit 1 shows us that recently there have been many changes in defi ning and controlling confl icts of interests, as well as clarifi cations of independence. In the light of diff erent views on Corporate Governance and Company Acts, which are among interests ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010216 of many organizations, aft er fi nancial crisis 2007-2009, this paper mainly concentrates on analysis of Code of Best Practices for Corporate Governance in selected European coun- tries and separates it from the analysis of relevant Company Act and Accounting regula- tions, which can be used as reference for further scopes. Despite of trying to select an easy- reading writing style, there is still some academic words need to be explained in further. Th is paper is organized as following. First (1st) session is Research literature review, which gives us a summary of what has been done in this fi eld. Next, second (2nd) session provides some theories in corporate governance and manipulation. Th e third (3rd) ses- sion handles with empirical research fi ndings and performing a comparative analysis among diff erent Codes. And fi nal (4th) session turns to the conclusion and policy suggestion. Last but not least, a reference and web resources are introduced for further research and analysis. At last, there are exhibit session which covers some summary of this paper’s analysis and com- parison. And a glossary notes is provided with information for reference. 2. RESEARCH LITERATURE REVIEW Many researches so far are done in the corporate governance area in Europe. Hopt, Klaus J., and Leyens, Patrick C., (2004) pointed recent development trend in Europe Corporate Governance is specialized rules for listed companies and indicate growing convergence in internal control mechanisms independent of board structure. EU (2002) also issues the Code of Best practices and the 2006 Directive requires that each listed company should publish an annual corporate governance statement to what extent the company can comply with that code. Among its key principles is the separation of roles between the CEO and the Chairman as it stated “Th e Chairman and CEO roles should be separate and the CEO should not immediately become Chairman of either a unitary or a supervi- sory board”. Noia, Carmine Di., (2009) at ECIIA Conference shows aft er the crisis 2009 in Europe, there is no defi nition of shareholder due to national jealousy of company law; no harmonization of record date; and no shareholder identifi cation. And OECD (2009) confi rmed that the fi nancial crisis can be an attribute to failures and weaknesses in cor- porate governance system, including risk management system and executives salaries. Aft er crisis 2007-2008, Erkens, David., Hung, Mingyi., and Matos, Pedro., (2010), found out that during crisis, fi rms with more independent boards raised more equity capital, which partially caused them to experience worse stock returns. Last but not least, AFG 2010 Corporate Governance (CG) Code, France, stated the European code should be completed so that basic CG guidelines were defi ned to encourage best CG practices in every fi eld for all listed companies in European Economic Area. Furthermore, Exhibit 6 shows us diff erent parties and components, internal and external, should be involved in a policy or system of corporate governance. But, what is the backbone of European corporate governance standards? Th eory of Corporate Governance, Scandal and Market Manipulation D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 217 Th eory of manipulation Diff erent ownership structure aff ects manipulation. In dispered ownership regime, manager may have incentives to do some stock market manipulation. Baik, Bok., Billing, Bruce K., and Morton, Richard M., (2005) expressed SEC’ concerns that managers can manipulate non-GAAP measures to mislead investors. Th eory of corporate governance and fi nancial crisis After the financial crisis 1998 and G7 meeting, World Bank said corporate govern- ance involves a set of relationships between a company’s management, its board, its shareholders and its stakeholders. Moreover, it is only part of the larger economic context such as macroeconomic policies and the degree of competition in product markets. The UK Financial Reporting Council (2010) stated corporate governance is about what the board of a company does and how it sets the values of the com- pany, and is to be distinguished from the day to day operational management of the company by full-time executives. We can see, therefore, different approaches on corporate governance. 3. RESEARCH METHODOLOGY First of all, we perform a comparative analysis of European corporate governance prin- ciples in each of two (2) diff erent groups including: 1) European representative Corpo- rate Governance group, here, we select two countries: Th e UK and Germany which have many modifi cations in their history of issuing corporate governance principles; and 2) Relatively good Corporate governance group including Sweden, Denmark and France; We also use international standards of corporate governance for reference such as: ADB and OECD’s corporate governance principles as reference. Aft er that, we make a suggestion on what so-called common corporate governance prin- ciples for Europe which is aiming to create a basic background for relevant corporations interesting in corporate governance subject. Additionally, it can be considered as the recommendation to relevant countries’ government and other relevant organizations for public policy and necessary evaluation. For a summary of our standards, see Exhibit ses- sions and the below table D.3. 4. EMPIRICAL FINDINGS A - Findings on Corporate governance issues aft er fi nancial crisis, corporate scan- dals and market manipulation Th ere are several popular issues including: the appraisal of following code of ethics of the company and industry in specifi c markets is not done with full of responsi- bility or is done just on the business surface. Or in another words, there still lacks of the appraisal of the role of the legal division in the company which contributes to the bad results on the corporate performance and scandals. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010218 We can point it out another CG issue. It is, the internal and external committee au- dit showed disadvantages and weak points during the audit process which lead to rooms for managers using manipulation tools to create an unreal fi nancial picture of scandal companies. Continuously, there is an issue of legal and compliance with international account- ing standards which is being used improperly by companys executives. In another word, it points a failure in the internal control system of the corporation. Also, there involves a matter of a sound process for decision-making which fails in some cases. B - Findings on Ways of Manipulation during Corporate Scandals Several Manipulation Techniques found out during corporate scandals involve, but not limited to: B.1 - Th e manipulation techniques in the income statement: Here, the managers of company use accounting practice to transfer some profi t that over shareholder’s expectation to the next fi scal year. Or the company’s rev- enues are recorded when the company is not completing all services committed. B.2 - Th e manipulation techniques in both the income statement and balance sheet: Th e corporation in this case tends to use more debt than equity when the positive Net Present Value (NPV) of its projects arises. Or Lehman Brothers (2008) is ac- cused of using another company, Hudson Castle, for its accounting manipulation which means transferring its asset and risks. B.3 - Th e manipulation techniques relevant to international accounting practice code: We can see two (2) below diff erent popular accounting rules on treatment “impair- ment” term which may mislead the company. In IFRs: Impairment is recorded when an asset’s carrying amount exceeds the higher of the asset’s value-in-use (discounted present value of the asset’s expected future cash fl ows) and fair value less costs to sell. And in GAAPs: Impairment is recorded when an asset’s carrying amount exceeds the expected future cash fl ows to be derived from the asset on an undiscounted basis. B.4 - Other manipulation techniques net belong to above classifi cations: Manipulation can happen when the individual or company sells share when the price is high and buy back when low price to maximize the return. C - Actions on Preventing or Controlling negative manipulation Necessary actions to prevent or control negative market manipulation are, but not limited to, periodically re-evaluation of Code of Best Practices, reviewing reports of corporate governance and enhance internal system and mechanisms. D - Findings on Construction of a Limited Common European Corporate Govern- ance standards Th ese fi ndings will be shown in a detailed analysis of a model indicated in the later sessions. D.1 - Group 1 – Europe representative corporate governance standards analysis D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 219 In Th e UK It is said that Th e UK Code of Corporate Governance has aff ected the US principles in Sarbanes Oxley Act (SOA) 2002. Th e Code is modifi ed and reviewed several times since its fi rst version in 1992, and up to now the latest modifi cation is from the combined Code 2008 to the Code 2010. Its goal is to enhance the eff ective and prudent management to deliver long term success and its role is critical in guiding UK corporations toward a sustainable business. One of its main characteristics is enhancing the roles of shareholders in appointing di- rectors and auditors. Also, it pays attention roles of the 2nd party in any business, the board of directors, especially in the leadership role. Among its advantages include the interaction between the Chairmen and the company’s investors which is encouraged to increase transparency. And it stated the leadership role of the Chairmen in leading the Board eff ectively. It is a good point in the Code that the board’s decision should not be taken by individual or small group. Especially, the 2010 Code emphasizes the role of the Chairmen, com- pared to and more than, the CEO. Diff erent from most of Asian Codes, there is a job specifi cation for Chairman appointed by nomination committee. Besides, one of its distinguished features is to describe the features of the annual report with “comply and explain” requirements, for example, the number of meetings of board and its committee and director’s attendance. On the other sides, it still needs to clearly identify several matters such as: the basic and advanced rights of shareholders, the clear border among leadership roles of Th e Chair, Th e CEO and Th e Board, the suffi cient size of the Board. Also still there is a matter of how the chairman realizes the strengths and weaknesses of the board. In general, the 2010 Code has a “comply and explain” style with the attention paid to the way the Code is built itself. In addition to, it also functions as the helpful guidelines for the relevant companies to take into action. And it suggests additional part to cover in the Code relevant to institutional shareholder treatments. For more information such as key overlaps between the 2010 Code and other disclosure rules, please see Exhibit 8. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010220 TABLE C.0 – The UK Corporate Governance general standards (a short summary evaluation) Subjects or parties Main quality factors Sub quality factors Responsibilities Objectives Note Audit committee At least three independent non- executive directors Not mentioned clearly in the Code Monitor eff ectiveness of internal audit and integrity of fi nancial report; review internal fi nancial controls and external auditor’s independence; recommend to board to remove or reappoint external auditor Monitor objectivity and eff ectiveness of audit process, with relevant UK regulations; Two members in small co Nomination committee Majority of independent non- executive directors Not mentioned clearly in the Code evaluate the balance of skills, experience, independence and knowledge on the board; process to nominate board; appointment of chairman; Not mentioned clearly in the Code Compensation or Remuneration committee At least three independent non- executive directors (might involve chairman) Avoid rewarding poor performance; Avoid pay more than necessary Judge where to position their co compared to others; Suffi cient Numeration levels to attract, retain and motivate directors Two members in small co CEO Not mentioned clearly in the Code Should not go on to be chairmen Support the Board; Contact shareholders; Not mentioned clearly in the Code decided by board to be chairmen and consult in advance with shareholders The Chair Ensure adequate time to discuss all agenda items; promote a culture of openness and debate; Enhance interaction with investors, shareholders, as understood from the Code; Job specifi cation; Ensure formal, full induction for new director joining on board; Leadership of board; report personally in annual statements how the principles relating to the role and eff ectiveness of the board; Member of the Board Committees; Meeting with non-executives and senior independent director; Set board’s agenda; regularly review director’s training and development need; discuss governance and strategy with major shareholders; Eff ectiveness leadership and communication; Ensure directors receive accurate and timely information; Ensure views of shareholders communicate with board; CEO and The Chair relationship Should not be the same individual Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Corporate Secretary Not mentioned clearly in the Code All directors have access to advice and services; Appointed and removed by board; Ensure good fl ow of information among the board and its committees and between senior management and nonexecutive directors; facilitate induction; advise the board through chairman Not mentioned clearly in the Code Compliance offi cer Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Board of Directors appropriate balance of skills, experience, independence and knowledge of the company Thinks deeply, thoroughly about tasks on a continuing basis; half of board is non-executive, independent directors; Enhance interaction with shareholders; frankness and openness in issues discussion; update and refresh skills and knowledge Set company’s strategic aims; leadership; Supervise management, report to shareholders; Support the CEO; Ensure necessary fi nancial and human resources in place to meet co’s objectives; In accordance to laws, regulations and shareholders; Maintain mutual respect and openness; Act in the best interests of the company D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 221 Executive director Continuing and high quality eff orts, time allocation; update and refresh skills and knowledge Formal and transparent remuneration policy Not mentioned clearly in the Code Maintain mutual respect and openness; Act in the best interests of the company Understood from the Code Non- executive director Continuing and high quality eff orts, time allocation; update and refresh skills and knowledge Develop proposals on strategy; scrutinize management performance; determine appropriate remuneration for , appoint, and remove executive directors; Maintain mutual respect and openness; Act in the best interests of the company Understood from the Code (Senior) Independent director Continuing and high quality eff orts, time allocation; update and refresh skills and knowledge Member of the Board Committees; senior acts as intermediary between chairmen, board and shareholders Act in the best interests of the company; A sounding board; CFO/Finance Director Not mentioned clearly in the Code Not mentioned clearly in the Code Contact shareholders; Not mentioned clearly in the Code Management team Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Supervisory board Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Internal control Not mentioned clearly in the Code Transparent arrangements between board’s risk management principles and auditor Maintained by Board; Review of fi nancial, operational and compliance controls conducted by board; Not mentioned clearly in the Code Internal audit Not mentioned clearly in the Code Not mentioned clearly in the Code Eff ectiveness of Activities Monitored by audit committee; Not mentioned clearly in the Code External audit Not mentioned clearly in the Code Relevant ethical guidance on non-audit services; Policy of non audit services implemented by audit committee; Not mentioned clearly in the Code Disclosure and transparency Formal, transparent procedure to appoint the new director to Board; CG states main feature of risk management and internal control relating to fi nancial reporting process; Communicate by AGM between Board and investors; AGM Notice sent to shareholders 20 days before meeting The Chairman interact with investors through annual report; annual report states how board operated and which decisions taken by board and which delegated to management Not mentioned clearly in the Code Shareholders and Minority Stockholder Enhance interaction with the board; mutual understanding of co’s objectives Remember the purpose of good corporate governance Appoint directors and auditors; Remember the size and complexity of the co and risks it faces; Not mentioned clearly in the Code Accountability A balanced and understandable assessment of company’s position and prospects Nature of business and risks understood by Board Annual re-election for all directors; Maintain sound risk management and internal control by Board Not mentioned clearly in the Code Encouraged for small fi rms Leadership Clear division between operating the board and operating the business Not mentioned clearly in the Code Performed by the Board, CEO and Chairmen, understood from the Code Not mentioned clearly in the Code Note The underlined part is describing some more works needed to be done for relevant subjects and parties. Smaller listed companies can ignore some provisions. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010222 In Germany Germany has lots of changes in their Code annually since 2007, 2008, 2009 and the latest version in 2010 aims to make it, the governance system, understandable and transparent. It includes roles of diff erent stakeholders in setting the goals of its 2010 Code. A short summary and evaluation of this revised Code is shown in the Exhibit 3. Diff erent from UK Code, the 2010 Code emphasizes the participation of employees in the Board of Supervisory (SB). Besides, it pays attention to analyze the operation of GM and how it adds value to the company, as well as the involvement of fi nancial service providers. Another diff erent point is the function of review MB compensation regularly is al- located to SB. Th e Code highlights the compensation oriented toward sustainable growth of enterprise. However, the CEO’s qualifi cation and responsibilities are not well and clearly defi ned, in regarding to the Chair’s duties. Additionally, another matter is the organization of the Audit committee in the company. Th ough it provides a good description on the duties of committee, it still had an overlap with SB or might probably cause confusion between the roles of compliance and the roles of the audit. (see Exhibit 8). In short summary, Strengths of the German 2010 Code are, but not limited to, analyz- ing roles of the supervisory Board in enterprise, as well as recommendations for proper criteria of compensation structure, both for MB and SB. Th ough the Code mainly guides listed corporations, it involves recommendations to non-listed fi rms as well. Comparison between German and the UK Corporate governance standards Based on the above information, we can see diff erent stakeholders and related parties when the Commission or Council tries to enhance its code. It is in the 2010 German Code that the term “social market economy” is used in generating the Corporate Gov- ernance standards. While, the 2010 UK Code take into account of roles of leadership, separated, and ac- countability. Another advantage in the German 2010 Code is the criteria for pay out of compensation of MB members noted with common level compared to peer companies. On the contrary, the UK Code illustrates roles of Th e CEO, Chair in more details. While Germany enhances roles of SB’s chair. Another strong feature of the German Code is pointing Corporate Governance Report to cover, in an understandable way, compensation system for MB members. Next, German made a good point when it clarifi es duties and roles of not only SB but also MB. While UK Code put more emphasis on executive directors. And Germany also mentions extra functions of SB such as its approval of extending loans in its revised 2010 code (see Exhibit 3). Both Codes has same “comply or explain” element as stated directly in the UK Code. In German Code, it requires that the MB and SB has to comply with proper corporate management. On the other hand, both Codes do not describe roles of Secretary and Compliance offi cer in details. D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 223 Th e 1st Establishment of a so-called Limited European Representative Corporate Governance standards With the selection of Th e United Kingdom and Germany as two European countries (limited) which represent in the construction of general corporate governance principles and standards, we build the below table with the following criteria: Firstly, it includes contents that enable fi rm to encounter corporate governance is- sues aft er the corporate scandals and fi nancial crisis. It also functions as a summary of general corporate governance standards from these two European representative countries. Th erefore, we use the term “Limited European Representative Corporate governance standards” to represent for the common criteria. Th e term “limited” here means the cri- teria mentioned below is better in the light of the author’s appraisal, which is considered in the context that the fi nancial crisis and the corporate scandals caused many errors in the system of Corporate Governance in Europe. It is also constructed in the way that be- ing the better understandable criteria. TABLE C.1 – A summary of A Limited European Representative Corporate Governance general standards Subjects or parties Main quality factors Sub quality factors Audit committee At least three independent non- executive directors, and one or two members in smaller co. specialist knowledge and experience in application of accounting principles and internal control process CEO and The Chair Should not be the same individual Eff ectiveness leadership and communication; Ensure views of shareholders communicate with board; Corporate Secretary Ensure good connection and fl ow among the board and its committees and between senior management and non- executive directors; Ensure directors receive accurate and timely information; Compliance offi cer N/A (for further research and implementation) N/A (for further research and implementation) Board of Directors cooperate closely to Supervisory Board (strategy) in writing and electronic; independently managing; N/A (for further research and implementation) Independent director Continuing and high quality eff orts; refresh skills and knowledge; N/A (for further research and implementation) Supervisory board to the Management Respect diversity; take necessary training; Participation of selected employees Supervisory to the Board of Directors Respect diversity; take necessary training; N/A (for further research and implementation) Internal control Transparent arrangements between board’s risk management principles and auditor N/A (for further research and implementation) ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010224 Internal audit Eff ectiveness of Activities Monitored by audit committee; N/A (for further research and implementation) External audit Policy of non audit services implemented by audit committee; N/A (for further research and implementation) Disclosure and transparency Accounting standards refl ect “true and fair” view; Open discussion between Board and Supervisor; Using Internet in communication with investors and shareholders Shareholders Mutual understanding company’s objectives; Remember the size and complexity of the co and risks it faces; Enhance communication with Board and Chair The corporation as a whole entity (enterprise) Explain how its actual business practices consistent to the principles and contribute to governance; Provide necessary resources for developing its directors’ knowledge and capabilities Directors acts in the best interests of the company; equal shareholders treatment C.2 - Group 2 – Relative Good Corporate governance group analysis During the fi nancial crisis 1997-1998 and 2007-2009, France, Sweden and Denmark are among good countries with little impacts from the crisis storm and have many improve- ments in their Corporate governance Codes. France’s Corporate Governance standards analysis: France has several movements in adjusting their Code of Corporate governance from 1997, 2001, 2003, 2008 and here we concentrate on its latest version, the 2010 AFG, so- called French, Code. Good recommendations involved in the 2010 Code include, but not limited to, careful attention to the shareholders’ rights and general meeting, in which video conference and e-means can be used for distant communication. Also, it suggests a few criteria, in detail, which enables shareholders to vote for a candidate in BD or SB. Besides, it is more directly than other Codes that the Code states the Executives should include the environmental and social policies of the company in their report delivered to GM. In addition to, it make, compared to other codes, another distinguished point of not sup- porting cross-management duties and cross-shareholdings in order to maintain trans- parency and independent managing. Another minor point is the exclusion of CFO and CEO and Chair’s descriptions. For a summary on corporate governance factors, please refer to the Exhibit 4. In summary, the description of diff erent types of compensation and clarifi cations of in- dependence and free from confl icts of interest are among good sides in the French Code 2010 while it does not analyze well roles of compliance offi cer or CEO. Sweden’s Good Corporate Governance principles analysis: Th e Sweden Corporate Governance Board has modifi ed the Code over years 2005, 2008, 2009 (consultation) and now, the 2010 version, with an attention to shareholders and D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 225 board’s duties. (See Exhibit 9). It states the decision making made by simple majority vote at the GM. Besides, there are three (3) decision making bodies mentioned, which provides a better view than other Codes. One of its advantages is the direction of making it applicable and provide clear norm for good corporate governance in Swedish listed companies. Diff erent from the French Code, here, the CEO roles are presented. For example, CEO must present issues outside the scope of day-to-day management to BD. According to the code, the clarifi cation of CG report such as division of tasks among BD members is another good point. Generally, Th e 2010 Sweden Code strengthens the roles of BD and shareholders in creat- ing values for the company. And same as the UK Code, the 2010 Sweden Code provides a comply or explain approach, which allows the company to select alternatives and explain it. It is in the Code that it requires the BD composition suitable to appropriate develop- ment phase and the company’s operation. On the other hand, it still needs to clarify the leadership of the Chair diff erent from CEO and compliance offi cer’s roles for better understanding. Please see the Exhibit 7 for more information. Danish’s Good Corporate Governance principles analysis: Th e Danish Committee on CG has updated the new version, which is in compliance with OECD’s principles, in April 2010 from previous ones, in 2008, 2003 and 2001, the original one. Its purpose is to enhance practical tools and useful recommendations for companies. It enables shareholders to facilitate their rights by giving their views and decision at GM. And besides clarifying the duties of the chairmen, it also mentions another person, the deputy chairman who is able to act in case the chairmen’s absence. Diff erent from Sweden Code in which it describes the independent director, the Dan- ish recommendation clarifi es the independent SGB, or Supreme governing body whose members are elected by employees. Last but not least, it refers to a remuneration policy which needs to indicate the reasons for remuneration. In short, the Danish Code let the company decide whether to establish internal audit and other important issues and it clearly describe two (2) governing bodies. However, it would be better if it explains roles and relationship of CEO and compliance offi cer and between the Chair and CEO. 5. COMPARISON Th e 2010 French Code mentions several good points such as: electronic voting, clarifying rights of shareholders and note them about right to regroup to send resolution at the GM and a GM operation means of allowing answers to shareholders’ questions written on co.’s web as a way to operate the GM, as well as criteria for voting. (see Exhibit 11). It also mentions an executive committee which is regularly forgotten in other Codes. Same as the French Code, 2010 Sweden Code emphasizes the role of shareholder’s meet- ing or GM and it encourages active involvement from shareholders. Besides, it clarifi es ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010226 roles of CEO in the aspect that he or she might be diff erent from the BD’s Chair. It also enhances the task of statutory auditor in examining whether BD or CEO carry out any action resulting in liability for damages. Among its diff erent points includes the intro- duction of board procedures. On the other hand, the Danish 2010 CG Recommendation, which is infl uenced by Brit- ish models of executives and non-executives, comes up with the structure of “supreme and central governing body”. Diff erent from the Sweden Code, the day to day manage- ment task is delivered to Board of Director, BD, not CEO. Th erefore, based on above analysis, here we try to build a set of common standards. Th e 1st Establishment of a so-called relatively Good Corporate Governance standards Th is following table is built with the consideration of comparative analysis of three (3) selected above countries. TABLE C.2 – A relatively Good Corporate Governance standards Subjects or parties Main quality factors Sub quality factors Audit committee At least one third (1/3) free from confl icts of interest; Majority independent of management, with at least one (1) independent of major shareholders; CEO and The Chair CEO Appointed, evaluated and dismissed by BD, GM and Chair; Separated functions; Chair ensure BD’s work well- organized and effi ciently conducted; Corporate Secretary N/A (for further research and implementation) N/A (for further research and implementation) Compliance offi cer N/A (for further research and implementation) N/A (for further research and implementation) Board of Directors Day to day management; Diversity of boards in education, gender, background; No fewer than three (3) members; at least two (2) members be independent of company’s major shareholders; Independent director Independent opinion on tasks covered; Acquire knowledge of operation and market; N/A (for further research and implementation) Supervisory board to the Management N/A (for further research and implementation) N/A (for further research and implementation) Supervisory to the Board of Directors ensures high standard information sent to public Act in the best interests of company Internal control Adequacy of Internal control ensured by BD; N/A (for further research and implementation) Internal audit Independent, competent and thorough; Audit report in accordance with relevant legislation; Not be governed by Board or executive MGT; External audit Audit report in accordance with relevant legislation; Independent, competent and thorough D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 227 Disclosure and transparency cross-management duties in contradiction with transparency and independent decision making; Clear and understandable remuneration policy; Shareholders Decide on appropriation of profi ts and losses; Elect board and auditor; right to submit resolution; Well- informed of the company situation; The corporation as a whole entity Be interested in CSR Maintain good relationships with stakeholders; D.3 - Th e 1st Establishment of a so-called European Limited Comparative Corporate Governance standards Comparison of corporate governance standards between and group Before we come to set up a set of general limited standards of corporate governance, we need to review the standards combined in the previous two (2) groups Th e advantages of European Representative Corporate Governance standards are, but not limited to, clarifi cations roles between Chair and CEO, and secretary and views from the corporation as the entity. On the contrary, the relative Good Corporate Governance Group standards states board of directors’ tasks and its operation, as well roles of the chairmen. A so-called European Limited Comparative Corporate Governance Set of standards Based on the 1st Establishment of a so-called relative Good Corporate Governance standards and Th e 1st Establishment of a European Representative Corporate Govern- ance standards (above establishments), we consider to build comparative standards for a limited European Corporate Governance system. TABLE C.3 - Th e European Limited Comparative Corporate Governance standards Subjects or parties Main quality factors Sub quality factors Audit committee with specialist knowledge and experience in application of accounting principles and internal control process Majority independent of management, with at least one (1) independent of major shareholders; Nominating committee evaluate the balance of skills, experience, independence and knowledge on the board; process to nominate board; Evaluate skills, knowledge of governing bodies, BD members; Numeration or Compensation Committee Numeration policies to attract and retain competent members; Propose decisions electoral and numeration matters to GM; CEO and The Chair Eff ectiveness leadership and communication; Ensure views of shareholders communicate with board; CEO Appointed, evaluated and dismissed by BD, GM and Chair; CFO N/A (for further research and implementation) N/A (for further research and implementation) Corporate Secretary Ensure good connection and timely fl ow among the board and its committees and between senior management and non-executive directors; ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010228 Compliance offi cer N/A (for further research and implementation) N/A (for further research and implementation) Board of Directors or Management Board cooperate closely to Supervisory Board (strategy) in writing and electronic; independently managing; day to day management; Diversity of boards in education, gender, background, experience; Independent director Continuing and high quality eff orts; refresh skills and knowledge; Continuing and high quality eff orts; refresh skills and knowledge; Supervisory board to the Management Respect diversity; take necessary training; Supervisory to the Board of Directors Respect diversity; take necessary training; ensures high standard information sent to public Internal control Transparent arrangements between board’s risk management principles and auditor Review of fi nancial, operational and compliance controls conducted by board; Internal audit Eff ectiveness of Activities Monitored by audit committee; Audit report in accordance with relevant legislation; Independent, competent and thorough External audit Independent, competent and thorough Policy of non audit services implemented by audit committee; Disclosure and transparency Accounting standards refl ect “true and fair” view; Open discussion between Board and Supervisor; Clear and understandable remuneration policy; Using Internet or electronic GM; Shareholders right to submit resolution; Well- informed of the company situation; Elect members of Supervisory Board and auditors; Stakeholders Maintain satisfactory engagement between Board and investors; stock options’ resolution of executives diff erent from that of employees Accountability Nature of business and risks understood by Board; BD ensures independent judgement; Leadership Separate and clearly descriptions of leading business operation diff erent from leading board Belongs to Chair, CEO, SGB and SB The corporation as a whole entity Business is a going concern; Explain how its actual business practices consistent to the principles and contribute to governance; Provide necessary resources for developing its directors’ knowledge and capabilities Co.’s sustainable value creation in conformity with a social market economy approach The Code Take an ‘’Explain or Comply and understandable” approach N/A (for further research and implementation) (Note: source are based on corporate governance standards of group and and the appraisal of these standards) 6. CONCLUSION Among several key corporate governance issues is the setting of a compensation policy, and therefore, a sound organization of compensation and numeration committee. As we see from Exhibit 10, though guidelines for compensation pay out are referred to, the op- D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 229 eration of numeration committee may be diff erently organized to achieve sound results (see our above analysis and table), or stated clearly proper criteria as in German Code. To do this, the Code should have certain characteristics, so-called Code’s backbone, that we summarize above such as an “explain and understandable” attribute. While the Sweden 2010 Code tries to create good and clear descriptions of roles which are diff erent among owners, board and management. And the Danish Code leaves an optional decision for Supreme governing body of the company on issues of establishing internal audit function. Besides, the UK and France Code also identify diff erent and separated roles and functions between CEO and the Chair. In consideration of corporate governance issues analyzed in the previous sessions, we proposed the main and sub quality factors in this paper a set of general corporate gov- ernance standards in a limited European model with selected countries. It has some implications for further research and proper recommendations to relevant government and organizations. Please see Exhibit 5. REFERENCES Baik, B., Billing, B. K. & Morton, R. M. (2005). Manipulation, Increased Transparency, and Value Relevance of Non-GAAP Disclosures for Real Estate Investment Trusts (REITs). FARS Meeting Paper. Baker, R. M., (2010). Corporate Governance, Competition and Political Parties: Explaining Corporate Govern- ance Change in Europe. Oxford: University Press. Bauer, R., Guenster, N. & Otten, R. (2003), Empirical Evidence on Corporate Governance in Europe- Th e Ef- fects on Stock Returns, Firm Value and Performance. EFMA Basel Meetings Paper. Carriere, G. et al. (2002). European Corporate Governance: A Changing Landscape?, MIT Sloan 50th An- niversary Project. Enriques, L. & Volpin, P. F. (2007). Corporate Governance Reforms in Continental Europe, Journal of Eco- nomic Perspectives, 21 (1), 117-140. Erkens, D., Hung, M. & Matos, P. (2010). Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide. SSRN Working paper series. European Confederation of Institutes of Internal Auditing (ECIIA) (2007). Th e Role of Internal Audit in Cor- porate Governance in Europe: Current Status, Necessary Improvements, Future Tasks. Berlin: Erich Schmidt Verlag. Germany Corporate Governance Code, Commission, 2007, 2008, 2009, 2010. Hopt, K. J. & Leyens, P. C. (2004). Board Models in Europe – Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France and Italy. ECGI Law Working Paper , No. 18/2004. Hopt, K. J., (2005). European Company Law and Corporate Governance: Where Does Th e Action Plan of Th e European Commission Lead ?. ECGI Law Working Paper , No.52/2005. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010230 IFRs and US GAPP (2007). Deloitte. Kirchmaier, T., Owen, J. & Grant, J. (2005). Corporate Governance in the US and Europe- Where Are We Now. SSRN Working Paper Series. OECD Corporate Governance Guidelines (1999). OECD. Tran Ngoc Huy, D. (2010). A Set of Limited Asian Pacifi c Corporate Governance Standards Aft er Financial Crisis, Corporate Scandals and Market Manipulation. SSRN Working Paper Series OTHER WEB SOURCES 15. www.thecorporatelibrary.com 16. www.fi c.wharton.upenn.edu 17. www.ecgi.org/codes 18. http://www.eciia.eu/ GLOSSARY AND NOTES AGM Annual General Meeting, (and GM, in which can be facilitated by Internet tools) AFG Association Francaise de la Gestion fi nanciere CGB Corporate Governance Board GM General Meeting (see above) or Shareholders’ Meeting AGM Annual General Meeting CG Corporate Governance DG Directorates Governance SB Supervisory Board BD Board of Directors SGB Supreme Governing Body (SB and BD) CGB Central Governing Body (SB and BD) CEO Chief Executive Offi cer, or Chief Executive CFO Chief Financial Offi cer, or Finance Director MB Management Board AC Audit Committee CNC Compensation or Numeration Committee NC Nominating Committee SEC Th e Securities and Exchange Commission MGT Management BM Board Meeting AR Annual Report IA Internal Audit RM Risk Management IC Internal Control D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 231 EXHIBIT EXHIBIT 1 – Changes in Company Law and Regulations recently ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010232 EXHIBIT 2 – Th e Model of Construction of A So-Called Comparative European corporate governance standards EXHIBIT 3 – Evaluation of German 2010 Code Corporate Governance Subjects or parties Main quality factors Sub quality factors Responsibilities Objectives Note Audit committee Set up by SB; chairman with specialist knowledge and experience in application of accounting principles and internal control process The chairman diff erent from Chairman of SB Examine consolidate fi nancial statements; as understood from the Code; handles issues of risk management, accounting and compliance; Not mentioned clearly in the Code Nomination committee Formed by SB; Compose Exclusively of shareholders’ representatives Not mentioned clearly in the Code Not mentioned clearly in the Code Compensation or Remuneration committee Belong to the SB, , as understood from the Code Belong to the SB, , as understood from the Code Belong to the SB, , as understood from the Code Belong to the SB, , as understood from the Code CEO Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code The Chair Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code, or the chair of SB, as understood from the Code Not mentioned clearly in the Code CEO and The Chair relationship Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Corporate Secretary Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Compliance offi cer Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Board of Directors Not mentioned clearly in the Code Not mentioned clearly in the Code A single body; Not mentioned clearly in the Code Possible Alternative, by European Company D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 233 Executive director Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Non-executive director Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Independent director Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code CFO Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Management team (Board) Inform to SB important matters: business development, risk management cooperate closely to SB (strategy) in writing and electronic; independently managing; age limit; Managing enterprise; Submit fi nancial statements to GM; provide suffi cient information to SB; Good corporate governance; Act in the best interests of company, as understood from the Code A Chairman of MGT Board Supervisory board Members of Supervisory Board elected by shareholders; cooperate closely to Management Board one-third (1/3) or one half (1/2) are employees; respect diversity; take necessary training; age limit; Appoint, supervise Management Board; decisions of fundamental importance of enterprise (changes of asset, earnings situation); approve extending loans to members of MB and SB; review MB compensation system; Examine consolidate fi nancial statements; Good corporate governance; appropriate compensation levels; Act in the best interests of company, as understood from the Code A Chairman of Supervisory Board is a shareholders’ representative in enterprise with more than 2000 employees Internal control Not mentioned clearly in the Code Not mentioned clearly in the Code Risk management and risk controlling ensured by MB Not mentioned clearly in the Code Internal audit Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code Not mentioned clearly in the Code External audit Not mentioned clearly in the Code Not mentioned clearly in the Code Send statement to SB or AC about where and which business, fi nancial and personal relationship exist between auditor and executives; mainly contact with SB; Not mentioned clearly in the Code Disclosure and transparency Not mentioned clearly in the Code Open discussion between MB and SB; Internet for communication with investors and shareholders Accounting standards refl ect “true and fair” view; MB discloses confl icts of interests to SB; insider information disclosed by MB; interim, half year, quarterly and annual fi nancial reports informed to shareholders; Not mentioned clearly in the Code Shareholders and Minority Stockholder Not mentioned clearly in the Code Send notifi cation of GM by electronic means; use Internet for GM; Elect members of Supervisory Board and auditors; one vote each share; resolve appropriation of net income at GM, inter- company agreement; Not mentioned clearly in the Code No share carry multi votes Accountability Not mentioned clearly in the Code Not mentioned clearly in the Code Belongs to MB and SB, as understood from the Code Not mentioned clearly in the Code Leadership Not mentioned clearly in the Code Not mentioned clearly in the Code Belongs to MB and SB, as understood from the Code Not mentioned clearly in the Code Note The underlined part is describing some more works needed to be done for relevant subjects and parties. Either dual-board or single board can be successful with intensive interaction. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010234 EXHIBIT 4 – Evaluation of French Code of CG 2010 Subjects or parties Main quality factors Sub quality factors Responsibilities Objectives Note Audit committee At least one third (1/3) free from confl icts of interest; One (1) BD or SB member with Financial and accounting expertise; Risk analysis; Assessment of external auditor’s work; control fi nance and accounting information; Not mentioned clearly from the Code There is a chairman Nomination committee At least three (3) members of BD or SB At least one third (1/3) free from confl icts of interest Appoint board members, directors; join in assessment of board’s performance Not mentioned clearly from the Code Compensation or Remuneration committee Chairperson and majority of members free from confl icts of interest Not mentioned clearly from the Code Design compensation types with fi xed and variable pay; examine compensation of executives; Not mentioned clearly from the Code Management and employees may not be member CEO Separated from the chair; Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code The Chair Separated from the CEO; Not mentioned clearly from the Code Report internal control procedures to GM; full discretion to vote as proxy; Not mentioned clearly from the Code CEO and The Chair relationship Separated functions; Free confl icts of interest lead director appointed if they are same Not mentioned clearly from the Code Not mentioned clearly from the Code Corporate Secretary Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Compliance offi cer Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Board of Directors Diversity of boards in education, gender, background; board members with executive duties outside limited to two and fi ve for non- executive directorships; Directors representing employee shareholders’ nominated by shareholders; regular board member training; one third (1/3) of board free from confl icts of interest Answer shareholders in GM how they function; supervise compensation decision making; formal annual assessment of board’s performance; Determine future of company; board’s strategy and action consistent with sustainable development of the co.; Executive/ Representative director Limited to two for non- executive directorships in BD Not in favor of executives with cross-management duties and cross- shareholdings; Inform to GM key issues: co.’s medium and long term strategy, debt and dividend distribution policy; attending GM; keep large amount of company shares or stock options (at risk); fully delegate their shareholdings’ management; There is an executive committee, as understood from The Code Non-executive director Limited to fi ve for non- executive directorships in BD Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code There is non-executive chairperson; Independent director Not mentioned clearly from the Code Independent judgement Be informed about the rights and duties for their position; Not mentioned clearly from the Code As understood from the Code CFO Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 235 Management team Investment manager be independent; Documents published in advance of board meetings Supply BD with information useful for his or her duties (strategy, compensation); Not mentioned clearly from the Code Supervisory for the board Not mentioned clearly from the Code Not mentioned clearly from the Code supervise compensation decision making; ensures high standard information sent to public Not mentioned clearly from the Code As understood from the Code Supervisory for the managers Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Internal control Not mentioned clearly from the Code Regular communication between board head and risk depart.’s head Procedures Reported in GM by the chairperson of the Board; AC oversight it; Not mentioned clearly from the Code Internal or statutory audit Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code External audit Not mentioned clearly from the Code Assessment made by AC; Not mentioned clearly from the Code Not mentioned clearly from the Code Disclosure and transparency Transparent compensation; Avoid use of ambiguous language; cross-management duties and cross-shareholdings in contradiction with transparencyand independent decision making; Not mentioned clearly from the Code Not mentioned clearly from the Code Shareholders and Minority Stockholder As many shareholders attending GM as possible; they be informed as soon as possible; can use electronic means or videoconference for GM; GM can dismiss BD or SB; summary and full reports needed in GM; right to submit resolution; not in favor of anti takeover measures (minority shareholders’ interests); Not mentioned clearly from the Code Accountability Board ensures independent judgement; Board noted about their duties and rights; SB and BD ensures high standard information sent to public Not mentioned clearly from the Code Leadership Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Not mentioned clearly from the Code Note The underlined part is describing some more works needed to be done for relevant subjects and parties. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010236 EXHIBIT 5 – Th ree (3) Factors Corporate Governance Decision Making model in Th e 2010 Sweden CG principles (source: 2010 Sweden Code and Company Acts) EXHIBIT 6 – Corporate governance parties (Source: Loh Leong Hua & Ragayah Haji Matzin, Corporate Governance: Th eory and some insights into the Malaysian Practice, 2007) D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 237 EXHIBIT 7 – Evaluation of Sweden Corporate Governance Principles 2010 Subjects or parties Main quality factors Sub quality factors Responsibilities Objectives Note Audit committee No fewer than three (3) members; Majority independent of management, with at least one (1) independent of major shareholders; Procedures written by board, if applicable; Not mentioned clearly in the Code; Nomination committee At least three (3) members, one is committee chair; At least one (1) member be independent of largest shareholders; can have BD member; Nominate a chair for GM; Propose decisions electoral and numeration matters to GM; Propose candidates for the post of chair, BD member; Ensure the co.’s has access to the competence at appropriate cost; Compensation or Remuneration committee BD chair may be remuneration’s chair; Not mentioned clearly n the Code; Prepare principles of remuneration; monitor and evaluate remuneration programs; Not mentioned clearly n the Code; CEO Appointed, evaluated and dismissed by BD; May be member of BD but not BD’s chair; One key decision making body; Charge of liability decided by GM; day-to-day MGT; Obliged to follow BD’s instructions; right to attend and speak at BM; Evaluated by BD; Not mentioned clearly in the Code; The Chair Not mentioned clearly in the Code; Ensure BD update and develop its knowledge from co.’s operation; Organize and lead work of board; ensure new BD member receive training; in consultation with CEO; Ensure BD’s work well- organized and effi ciently conducted; The chair of the BD CEO and The Chair relationship Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Corporate Secretary Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Compliance offi cer Not mentioned clearly n the Code; Not mentioned clearly n the Code; Not mentioned clearly n the Code; Not mentioned clearly n the Code; Board of Directors No fewer than three (3) members; at least two (2) members be independent of company’s major shareholders; Delegate tasks to individuals or non member of boar; written Rules of Procedure; Devote necessary time and care; One key decision making body; Board fee and Charge of liability decided by GM; Organization and business management duties; May delegate decision making to committee; written instructions to CEO; guidelines to govern co.’s ethical conduct; Ensure external communication open, accurate and reliable and relevant; ensure satisfactory process of monitoring co.’s compliance with laws; As understood from the Code; Executive/ Representative director Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Non-executive director Engaged entirely / predominantly in board Devote necessary time and care; Independent opinion on matter covered; Acquire knowledge of operation and market; Not mentioned clearly in the Code; Independent director Whether he/she has signifi cant business relationship with company; Whether has been CEO or employee or auditor; Devote necessary time and care; Independent opinion on matter covered; Acquire knowledge of operation and market; Not mentioned clearly in the Code; CFO Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code;; Management team Not mentioned clearly in the Code; No member of executive MGT is board member; Not mentioned clearly n the Code; Not mentioned clearly in the Code; Supervisory for the board Not mentioned clearly in the Code; Not mentioned clearly in the Code; The committees, as understood from the Code Not mentioned clearly in the Code; Supervisory for the managers Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010238 Internal control Not mentioned clearly in the Code; Not mentioned clearly in the Code; Adequacy of Internal control ensured by BD; Company’s fi nancial reports in accordance with legislation and accounting standards; Internal or statutory audit Not be governed by Board or executive MGT; Review MGT of board and CEO; Appointed by GM; be a controlling body; Examine accounting practices; report to owners at GM; Audit report in accordance with relevant legislation; whether AR refl ects accurate co.’s position External audit Not mentioned clearly in the Code; Not mentioned clearly in the Code; Auditor fess decided by GM; Not mentioned clearly in the Code; Understood from The Code Disclosure and transparency Minutes of GM posted on web; formally and openly remuneration processes; GM meeting information posted on web in conjunction with 3rd quarter report; Announce nomination committee members’ names on web; Post CG report on co.’s website; Create maximize transparency to shareholders, capital market and society; Shareholders and Minority Stockholder GM held in 6 months of fi scal year end; Active shareholders’ participation; major shareholders hold 10% or more share votes GM is One key decision making body; Vote by proxy or by no of shares owned; Decide on appropriation of profi ts and losses; Elect board and auditor; A healthy balance of power between board, owner and executives; Minority Shareholders Protection by The Company Acts Accountability Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Leadership Not mentioned clearly in the Code; Not mentioned clearly in the Code; By the BD, as understood from the Code; Not mentioned clearly in the Code; Note The underlined part is describing some more works needed to be done for relevant subjects and parties. EXHIBIT 8 – Summary of Key Overlaps in the UK Code of Corporate Governance Disclosure and Transparency rules 2010 Code D.T.R 7.1.1.R Provision C.3.1 D.T.R 7.2.5.R Provision C.2.1 EXHIBIT 9 – Summary of Key Changes in the Sweden 2010 Code of Corporate Governance Items 2010 Code Internal Audit Requirement to explain lack of internal audit (removed) Internal Control Production of an internal controls report, rule 7.4 (Source: Sweden Code 2010) D. TRAN NGOC HUY | THE BACKBONE OF EUROPEAN CORPORATE GOVERNANCE STANDARDS ... 239 EXHIBIT 10 – Some Sound Compensation Policies Items Recommendation Factors of pay out Payout of compensation incentives should be based on risk-adjusted and cost of capitaladjusted profi t and phased, where possible, to coincide with the risk time horizon of such profi t. (III) Factors of pay out Incentive compensation should have a component refl ecting the impact of business unit’s returns on the overall value of related business groups and the organisation as a whole. (IV) Transparency of pay out The approach, principles and objectives of compensation incentives should be transparent to stakeholders. (VI) (Source: Institute of International Finance (2008b), Final Report of the IIF Committee on Market Best Prac- tices: Principles of Conduct and Best Practice Recommendations, Washington, D.C). EXHIBIT 11 – Summary of Criteria when shareholders vote on BD or SB member in the AFG Code of Corporate Governance Criteria Note CV Current functions, appointment Free of Confl ict of interest relationship between the company where the candidate is principally employed and the company he/she is a candidate. EXHIBIT 12 – Evaluation of Danish Recommendation on Corporate Governance 2010 Subjects or parties Main quality factors Sub quality factors Responsibilities Objectives Note Audit committee (Board committees) Not suffi cient if SGB acts as audit committee; Not mentioned clearly in the Code; Monitor and report to SGB on accounting and risk matters; Increase effi ciency and improve quality of the SGB’s work Understood as Board Committees, from the Code Nomination committee Not mentioned clearly in the Code; Established by SGB; Describes qualifi cations of two (2) governing bodies; Evaluate skills, knowledge of governing bodies members; report to SGB; Not mentioned clearly in the Code; Compensation or Remuneration committee Not consult with the same external advisers as BD; Established by SGB; Proposals for remuneration policy; Attract and retain competent members; CEO Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; The Chair Evaluated by diff erent person; Effi cient communication between SGB and BD and sharehodelrs; Scheduling of meeting for the year; Ensure members update knowledge of the co.; Ensure knowledge and skills of individual member used in the best manner for the co.; CEO and The Chair relationship Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Corporate Secretary Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Compliance offi cer Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 4 | 2010240 Board of Directors (the supreme and the central ) SGB assess whether its composition and skills of its members refl ects, or needed to be update, demands posed by the co. Know shareholders’ attitude, interests and views; independent SGB; Day to day management; supervise the executive board; Evaluate whether capital structure is in interests of shareholders; SGB approve procedures for BD; Maintain overall MGT and control; Identify most important business risks; Ensure ongoing communication with shareholders; Ensure follow-up on the co.’s strategic goals; Ensure fi nancial report in accordance with current legislation and applicable standards; Italic words for the BD in central governing body Executive/Representative director Not mentioned clearly in the Code; Not mentioned clearly in the Code; All be present at GM; Not mentioned clearly in the Code; As understood from the Code Non-executive director Not mentioned clearly in the Code; Not mentioned clearly in the Code; All be present at GM; Not mentioned clearly in the Code; As understood from the Code Independent director Not mentioned clearly in the Code; Not mentioned clearly in the Code; Mentioned in independent SGB, as understood from the Code; Not mentioned clearly in the Code; CFO Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Management team Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Supervisory for the board Not mentioned clearly in the Code; Not mentioned clearly in the Code; A body involved in SGB and CGB; Not mentioned clearly in the Code; Supervisory for the managers Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Internal control (risk committee) Not mentioned clearly in the Code; Not mentioned clearly in the Code; SGB decided whether there is a need for risk committee Eff ective RM or IC; Internal or statutory audit Independent, competent and thorough Not mentioned clearly in the Code; AC decides whether there is a need for Internal Audit; Not mentioned clearly in the Code; As understood from the Code External audit Independent, competent and thorough Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; As understood from the Code Disclosure and transparency Openness and transparency of important remuneration matters; risk management included in annual reports; No. of SGB’s Meetings and some personal information disclosed in annual report; Annual report disclose special skills of SGB member; Clear and understandable remuneration policy; Not mentioned clearly in the Code; Shareholders and Minority Stockholder Well-informed of the company situation; Make it easy for dialogue with management The ultimate decision maker (public co.); exercise rights at GM; GM as forum for communication and discussion; remuneration policy accepted by GM; Co. To be competitive and value-added; Minority Shareholders Protection by The Company Acts Accountability Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; Not mentioned clearly in the Code; As understood from the Code Leadership Not mentioned clearly in the Code; Not mentioned clearly in the Code; SGB be responsible for; Not mentioned clearly in the Code; Note The underlined part is describing some more works needed to be done for relevant subjects and parties. Its 2010 involves mainly recommendation .