The importance of corporate governance

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A public consultation seminar on the ‘Corporate Governance Code’ was held in February.

What is corporate governance?

According to the Organization for Economic Co-operation and Development (OECD), corporate governance (CG) refers to the processes and procedures with which an organisation is directed and controlled. The CG structure specifies the distribution of rights and responsibilities among the different participants in the organisation – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making.

The purpose of CG is to facilitate entrepreneurship, efficiency and prudence in managing a company, as well as to ensure the long-term success of the company through transparency and accountability.

The importance of good CG

The implementation of good CG provides many benefits and enhances the investment environment of companies and investors. It does this is such ways as:

• Maintaining the confidence of investors, and as a consequence helps companies in raising capital efficiently and effectively;

• Helping companies deliver long-term corporate success and economic growth;

• Having a positive impact on the price of shares and strengthen shareholders’ trust in the market;

• Helping to generate wider brand image and improve reputation;

• Ensuring the management of a company considers the best interests of investors;

• Giving guidance to the owners and managers towards following the company’s strategies and achieving its goals.

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SECC director-general HE Sou Socheat.

Corporate governance in Cambodia for listed companies

There are currently 13 listed companies (seven for equity and six for bonds) on the Cambodia Securities Exchange (CSX). To ensure the implementation of good CG for listed companies through the establishment of mechanisms as to protect shareholders’ rights, the arrangement of the listed companies’ structure and the development of controlling system and risk management policy, the Securities and Exchange Commission of Cambodia (SECC) has adopted the Prakas on Corporate Governance for Listed Companies regulation. This stipulates that the CG requirements are as follows:

1. Rights and equitable treatment of shareholders: Shareholders are the owners of the company. The basic rights of shareholders are to elect members of the board, amend the company’s article of association and approve material transactions. Therefore, shareholders need to be treated equally regardless of any occurrence.

2. Board of directors: The board of directors is elected by shareholders at a general shareholders’ meeting, which means that the board shall practise in the best interests of the company and its shareholders.

With professional performance from the board of directors, the company’s vision can be expanded in ways that help the company to achieve its long-term goals and strategic objectives.

3. Risk management: Having a risk management plan or policy in place can help a company in minimising potential threats and impacts. Moreover, a risk management plan or policy can help the company reach their goals with certainty.

4. Internal control: Systems and internal audits: The board should establish an internal control system and internal auditing to check the correctness of both financial and non-financial operations, as well as to ensure that the company is running properly to achieve its goals.

5. Disclosure and transparency: Disclosure helps companies build and sustain a soundly open relationship with the investment community, and thereby make the right decisions. For listed companies, disclosure is required by the law, in which they are obliged to disclose financial and non-financial information to investors.

Prepared by: Securities and Exchange Commission of Cambodia Securities Issuance Supervision Department
E-mail: [email protected]
Phone: 023 885611