The Role of Stock Exchanges in Corporate Governance

1. The Traditional Contributions of Stock Exchanges to Corporate Governance The Role of Stock Exchangesin Corporate Governance Abdalla Alsharji – Jerry Uwakwe

2. Corporate Governance Codes • 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

3. Comparing the Codes • 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

4. Variation of the Codes • Belgian code on corporate governance • Intensive coverage of issues • Intensive interpretation and concrete guidance • TSE Principles of corporate governance • Broad on issues • Less concrete on recommendations • NYSE corporate governance guidelines • Incomprehensive on issues • Detailed and thorough on recommendations

5. Compliance with the codes • Although conforming to the code may be important, it is not always required • Approaches to disclosure: • Comply or Explain (Most popular) • Mandatory Disclosure (Nasdaq-NYSE-TSX) • Hybrid (Tokyo) • Stock exchanges can usually enforce compliance only to the extent of listing requirements

6. Table of Codes & Exchanges’ Role

7. Listing and Disclosure • 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 standards

8. Listing and Disclosure • 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

9. Other initiatives by stock exchanges to improve corporate governance • 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 globally

10. Other initiatives by stock exchanges to improve corporate governance • 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