1 of 26

Corporate Governance Study in Financial Sector of Iran

By: Afshin Ashofteh

2 of 26

Why corporate governance?

Corporate Governance

Finance Stability

Access to Finance

Corporate Governance Matters for Banks Themselves, and Economic Development

Corporate governance:

1. Builds/restores a bank’s reputation Build trust between CBI, banks and their stakeholders, including governors,

shareholder, investors, regulator, depositors, employees – key in weak external environment

2. Less and better managed risk Fewer defaults, fewer financial crises brings Economic and financial stability

3. Increases access to finance

Investment, growth, employment opportunities

4. Lowers cost of capital and improves valuation Investment & growth opportunities

5. Improves operational performance Better allocation of resources & better decision-making creates wealth

The Goal of study

1. Measuring the social awareness about Corporate Governance in financial sectors of Iran.

2. Knowing the key elements in Corporate Governance, which we would need to focus on while proposing an implementation’s solutions for Vision of financial sector.

3. Prioritise the required tasks to move from current situation to target situation.

5 of 26

How corporate governance?

Principles • Discipline

• Transparency

• Independence

• Accountability

• Responsibility

• Fairness

• Social awareness

• Organizational Success

• The Internal Control of Processing

• Structure of Board of Directors

Analyzing Methods: • First draft questionnaires • Pretest • Finalize questionnaires • Posttest • Statistical Analysis • Conceptual Analysis • Final report

1-Literature review

• Method proposed and used by Credit Lyonnais Securities Asia (CLSA)

• “Methodology for Assessing the Implementation of the OECD Principles of Corporate Governance”, OECD, 2007.

• “Template for Country Assessment of Corporate Governance”, The World Bank, 2007.

• “Enhancing Corporate Governance for Banking Organisations”, Basel Committee on Banking Suptervision, BIS, Feb. 2006.

• A meeting with Dr Sepahvand and talking about his research on Sanat va Madan Bank.

• A meeting with Mr Arjmand Nejad and talking about the researches which has been done in Central Bank of Iran.

2- CG Principles of study

• Extracting the principles according to the references

• Localization of the principles by changing some concepts and adding two principles to the study

• processes and Internal control factor

• Structure of Board of Directors

processes and Internal control factor

There is a proper internal control appropriate for the organisation and in a documented applicable manner.

The independent auditor reviews the internal control system periodically.

The organisation has designed and implemented a suitable framework for risk management.

Appropriate reporting lines have been designed to control risk management processes.

The organisation has designed and implemented a suitable framework for audit committee.

Audit and risk committees are authorized to ask all managers and organisation departments for reports and data.

Organisation management supports the internal audit unit and its reports so as to maintain and promote the effectiveness of the

internal control system.

Based on the approvals of the assembly, the independent audit of the organisation will be replaced on certain dates or (if

impossible) its members will be replaced.

Independent auditors cannot accept any other role (e.g. consultant) in the organisation.

Internal control cannot assist the organisation in the achievement of its business objectives.

Board structure factor

The board of directors supervises the effectiveness of processes and operational instructions of the organisation and make sure that they

comply with the specified strategy and the comprehensive plan.

The combination of the board of directors is qualified enough to perform its leadership and supervisory duties. It also provides a clear

understanding of the role of corporate governance.

The board of directors has officially introduced a set of key performance indices and assesses the organisational progress as well as

performance of the administration team accordingly.

The board includes a risk committee with a structure approved by the supervisory authority of the organisation.

The board includes a wage and payment committee with a structure as approved by the supervisory authority of the organisation in order

to determine the amount of remuneration and rewards of board members, senior managers, and managing director.

The board includes an audit committee with a structure as approved by the supervisory authority of the organisation

Board members assess the effectiveness of their corporate governance plans such as appointment of managers and dealing with the

conflict of their interests. They also identify the weaknesses and make the required changes.

Board members and the audit committee are in regular contact with the internal auditor to review the methods and supervise the

movements towards objectives.

The board of directors receives sufficient and continuous training about corporate governance.

3- Three forms for assessing the CG according to the real situation

• In these forms, a representative of the organization will send us the documents, which represent the existence and the quality of CG principles in his/her organization.

• One form is designed for Central Bank of Iran adopted to its structure.

• One form for Banks

• And finally one form for Securities and Exchange Organization, Chamber of Commerce and Insurance company

4-Three questionnaires for asking the people about CG

• These questionnaires will be completed by:

• Managers

• Knowledgeable employees

These questionnaires and the Forms let us to analyze the gap between what the situation is,

what the manager thinks and what the employees feels!

5- The Control Questions

• Forms and questionnaires include some open and close form questions. For evaluating the accuracy of the responses, we design a question in each principle which has two characteristics:

• It’s meaning is highly correlated with the concept of principle.

• The answer of the question should be the opposite of the other questions in the same principle.

It could help to discover the responders who put the answers randomly or without enough accuracy.

6- Pretest analysis

• Cronbach's Alpha is more than 0.9

• Identification of the questions with no response or less response and investigating the main results.

• Make an estimation for the total time of response by using descriptive statistics of the recorded time of each questionnaire.

• Testing the missing imputation methods

• Solving the high level of item redundancy by: • Kaiser-Meyer-Olkin test

• Measure of Sampling Adequacy

• Bartlett's Test

• Factor analysis

• Reliability analysis

14

of

26

Thank You for Your Attention

Conclusion

Analysis and Transition

plan

Theories & Principles

Comparative Study

Statistical Analysis

Discipline

Transparency

Independence

Accountability

Responsibility

Fairness

Social awareness

Organizational Success

Internal Control of Processing

Structure of Board of Directors

Corporate Governance

establishment action plan

Accurate understanding of

CG

The same understanding of

CG

Gap analysis

The Situation should be …

The Situation is … How …

Corporate Governance in Financial Sector of Iran

16 of 26

Thank You for Your Attention

And One Final Remarkable Feature

“Knowing the corporate governance of system is similar to self-scrutiny

for a human being”