The Traditional Contributions of Stock Exchanges to Corporate Governance

Abdalla Alsharji – Jerry Uwakwe

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Set of principles and recommendations on corporate governance of listed companies

Cadbury Code in U.K. - 1992

Issuance of corporate governance codes by stock exchanges has increased

50 codes in 2004 – significantly higher in recent years

Shapes corporate governance nowadays

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Usually codes address issues such as shareholder treatment, operation and accountability of management, and disclosure requirements

Some vary in their topical coverage and concreteness of recommendations

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1. Belgian code on corporate governance Intensive coverage of issues Intensive interpretation and concrete guidance

2. TSE Principles of corporate governance Broad on issues Less concrete on recommendations

3. NYSE corporate governance guidelines Incomprehensive on issues Detailed and thorough on recommendations

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Although conforming to the code may be important, it is not always required

Approaches to disclosure:1. Comply or Explain (Most popular)

2. Mandatory Disclosure (Nasdaq-NYSE-TSX)

3. Hybrid (Tokyo)

Stock exchanges can usually enforce compliance only to the extent of listing requirements

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Listing standards may or may not address governance issues directly

and/or compliance with an applicable governance code may well be part of

individual listing agreements.

In some instances, listing standards incorporate elements of the governance

code

In Other jurisdictions, additional governance standards (over and above

the governance code), have been introduced as part of the listing

requirements

For Example, the Stockholm Stock Exchange and the TSX both impose such

standards as part of their listing requirements.

Likewise, NYSE’s and Nasdaq market’s corporate governance requirements for

listed issuers are part of their listing standards7

The application of listing standards to

prospective issuers in many instances is

subject to the discretion of the stock

exchanges, which find themselves facing

intensifying competition for issuers

NASDAQ OMX Nordic Exchanges explicitly state that they

retain the right to approve the listing even if a company

does not fulfill all the requirements for listing

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The establishment of Novo Mercado20 by the

Brazilian Stock Exchange. It provides an incentive for already listed companies motivated

by the prospect of index-trading to improve their governance

Stock exchange alliances and increasing

collaboration is acting to improve governance

standards globally. Through exchange alliances and initiatives to attract dual

listings, exchanges are also helping to spread good governance

standards globally9

Exchanges have been actively involved in

increasing the awareness around the

value of good corporate governance Warsaw Stock Exchange has decided to establish a

group of educational partners from across the country

to co organize training sessions and other educational

projects in order to increase the awareness of good

governance practices and the recently amended Code

of Best Practice for WSE Listed Companies

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