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3. Discussion and analysis of jurisdictions studied. Introduction

Purpose

This Section comprises a discussion of the key differences and observations of interest arising out of the study of the four comparative jurisdictions studied.

A considerable amount of detail on each jurisdiction is provided in Appendices I to V. Bearing in mind the primary objectives of this study as described in Section 1, this Section 3 comprises a highly focused and selective discussion that provides a segue between the detail provided in those Appendices and the recommendations made in Section 4. Each of the recommendations in Section 4 provides a cross-reference to the relevant part of this Section 3.

While this Section 3 comprises a discourse on some of the more notable items of interest arising out of the jurisdictions studied, it is not intended that every matter discussed herein is to lead to a recommendation. Many parts of Sections 3.2 to 3.6, serve as groundwork for other Sections, notably Section 3.7, which is concerned with effectiveness and gives rise to the largest number of recommendations in Section 4.

Nor is this Section 3 intended to be a general summary of the Appendices or an overview of the similarities and differences between the jurisdictions studied. Where it is appropriate to do so, a cross-reference to the relevant part of an Appendix is provided for further detail.

As summarized next, this Section 3 first addresses some overarching considerations in Section 3.1 that are relevant to and frame the subsequent Sections 3.2 to 3.7 that provide an analysis of the key observations made by this study.

Overarching considerations

Section 3.1 «Overarching considerations» comprises a discussion of common themes, trends, issues and considerations that are at present highly relevant to the assessment and development of a corporate governance (CG) system.

Section 3.1.1 «Thematic topics» considers a number of common topics that have emerged as themes in the jurisdictions studied, despite the variation across the different jurisdictions' legal and regulatory architecture as well as basic concepts about the nature of the corporation and the relative role of managers and owners in relation to it. This includes the position of CG within the jurisdiction's system, the availability of enforcement and remedies, the role of the board, the role of shareholders, controls on gateways, and the position of non-local companies.

Section 3.1.2 «Trends in regulating CG standards» observes that the different ways in which CG standards are regulated and developed is both driven and constrained by the approach to developing legal and regulatory infrastructure as well as political, conceptual and cultural factors. In addition to the fundamental differences between common law and civil law systems, different jurisdictions also engage different concepts of the nature of the corporation and the role of its managers and owners that impact on the approach to CG.

Section 3.1.3 «The role of culture» introduces the position that culture plays in a CG system. While CG culture has since the 2008 global financial crisis received much more attention, the question of how to measure, assess, regulate or influence CG culture remains under discussion.

Section 3.1.4 «The methodology of assessment» identifies some fundamental issues, and common though possibly mistaken approaches, in relation to measuring the effectiveness of CG. Whether one is considering measures of corporate performance or formulating policy development it will always be relevant to understand how to differentiate between compliance with a regulatory requirement and achieving a desired outcome or objective - two matters that are commonly conflated by mistaking the rules for the objectives they set out to achieve.

Sections 3.1.5 «Cost-benefit considerations» and 3.1.6 «Maintaining competitiveness» discuss interrelated concerns that consider the topic of CG from macro perspectives. Both Sections recognize that CG is ultimately part of a wider market system that a CG system must serve.

Section 3.1.7 «Effectiveness» follows on from the preceding Section to consider the potential disjunct between a right-minded principle, the practice that in fact subsequently evolves in response, and the outcome that eventuates. Closing out such disjuncts should be an objective of any CG system, failing which there is a risk that box¬tick compliance with a CG rule or principle can in effect become a false validator of the behaviour actually undertaken. Similarly, CG policy development must be astute to the real as opposed to apparent effectiveness of CG regulations to ensure they do not operate as a distraction from the objective sought to be achieved. In the absence of addressing the foregoing, it is observed that the imposition of additional CG rules or principles can be counterproductive.

Analysis Sections

The question of how best to group together the key observations made by this study is open to different approaches. It goes without saying that the concerns that drive the CG debate do not fit into a neat and mutually exclusive taxonomy but are fundamentally interactive. For example, the transparency of corporate information to shareholders is essential to the ability of a shareholder to meaningfully exercise their voting rights, which in turn depends on the extent to which applicable laws, regulations and practices in a market empower and protect them. The latter includes the ability, both in theory and in practice, to seek legal redress where there has been wrongdoing. How one divides up the CG discussion therefore to some extent depends on the purposes for which the discussion is undertaken. There is no single «correct» taxonomy.

Section 2.1.1 has set out the approach taken, for the purposes of this study, of how «good CG» is to be understood and the five key variables upon which good CG is dependent. Together with the particular problem of dealing with non-locally incorporated companies, this forms the layout of this section, although in many places it would be open to discuss a particular item of interest under one or another of the following headings.

Section 3.2 «Non-locally incorporated companies» considers the application and enforcement of CG standards to companies that are established in a jurisdiction other than the market on which its shares are primarily traded.

Section 3.3 «Information» considers the mechanisms that promote the timely acquisition and disclosure of CG-related information to shareholders, and to the board itself.

Section 3.4 «Involvement» considers shareholder involvement in decision-making and what circumstances enable or trigger their involvement.

Section 3.5 «Equality» considers the basic voting rights of shareholders in a company.

Section 3.6 «Accountability» considers the mechanisms by which management accountability to shareholders is established.

Section 3.7 «Effectiveness» considers elements of the CG system design relevant to procuring desired behaviour and deterring behaviour considered inconsistent with good CG. Many of the concerns of previous Sections depend on the support of the system in this regard.

The final Section 3.8 «Coda» serves to wrap up the analysis as a segue to Section 4 «Recommendations».