In developing the framework of laws, regulations, s standards and codes of bets practice relating to corporate governance countries have adopted three main approaches

Consists of a mandatory set of laws, regulations, standards and codes

Failure to obey in a rules based system may result in a company suffering sanctions and/or fines

Directors of companies in breach of the rules may also be fined, imprisoned and/or disqualified from holding the position of director for a period of time

The benefits of such a system is that it sends a message out to owners, potential investors and other stakeholders that the country takes seriously for their protection from nefarious practices by those managing and overseeing the organisations they are investing in or dealing with

The challenges faced by companies under the purview of the regulation are substantially similar, justifying a common approach to common problems

The rules and their enforcement efficiently and effectively direct, modify or preclude the behaviours they are aimed at affecting

It is the enforcement of the rules that achieves this and in many countries, enforcement is weak

A voluntary set of best practices usually contained in a code of best practice

These codes of best practice which were developed originally for listed companies protect shareholders and potential investors

A code based on general principles of best governance practice, rather than detailed rules and guidelines. A principle-based code may include some practical provisions or guidelines but these are not comprehensive

Based on the presumption that shareholders will self-regulate the companies within which they invest

The codes being voluntary often adopt a 'comply or explain' or 'apply and explain' approach

The principles based approach allows companies and their shareholders to choose which principles and practices of corporate governance they believe are appropriate for their company at a particular time

The approach recognises the need for flexibility due to the diversity of circumstances and experiences within companies and the fact that non-compliance may at that time in a company's lifecycle, be in the organisation's bets interests

It was also hoped that the approach would restrict the regulatory burden on companies

For the principles-based approach to work, institutional shareholders have to take a more active role in the governance of those companies in which they invest

It is argued that institutional shareholders hold funds on behalf of many individuals and are therefore investing indirectly on behalf of those individuals. They thus have a responsibility on behalf of those individuals to make sure that the boards of directors of the companies in which they invest are made property accountable and govern their companies responsibly

Many business leaders say a principles-based approach, allowing for discretion based on the circumstances of the company is far preferable to what is perceived as a rigid-rules based approach

They claim that evidence suggests that long term economic development is best achieved when business leaders are permitted to exercise judgement

The catalogue of business scandals over the last 20 years seems to indicate that some sort of regulation may be needed to ensure that good governance prevails in organisations and stakeholders and stakeholder interest are protected

Evenin the UK, questions ar being asked as to whether current market structures which are very different from those in place in the early 1990s are still Abel to regulate listed companies in the way envisaged

The concern is that with limited resources and time are UK investors going to be deviating their energies to monitoring the corporate governance performance of UK listed companies, evidence has also shown that in addition to time and resource overseas investors face practical barriers to direct engagement with UK companies

Many countries are now adopting a hybrid approach to corporate governance combining mandatory laws and regulations with voluntary principles-based codes of best practice

Laws: company, insolvency, directors disqualification and disclosure of directors remuneration

Regulations: listing authority rules, such as UK Listing Rules and Disclosure and Transparency Rules

Voluntary codes of best practice: UK Corporate Governance Code, Good Governance: A Code for the Voluntary and Community Sector

Many developing and emerging countries struggle with the issue of how to encourage the adoption of good corporate governance practice

The organisations that provide products and services in these countries are often unregulated coming mainly from the public and not-for-profit sectors

Private sector businesses tend to be family owned and small in size

Many stakeholders are looking to the media to fill the regulation gap by reporting on good and bad practices of corporate governanance, despite training, many journalists are ill quipped to fill this role

Comply or else refers to a company's obligation to abide with a mandatory rules based system of corporate governance. Failure to abide with the rules usually results in some form of sanction for the company and/or its directors

Comply or explain refers to the system whereby a company is asked to comply with a voluntary principles-based code of best practice. Where the company believes that it is not in its best interests to comply with a provision of a code, it is required to explain to shareholders why they have not complied. The shareholders and shareholder representative bodies are then expected to assess whether the explanation is acceptable or not

Companies should apply the principles of a code or explain why they have not done so

Applied to all types of entities regardless of their form of establishment or incorporation, as many of the entities were not listed companies which the corporate governance practices had originally been designed for, it was felt that regime would put off many entities rom adopting good corporate govenrnace

Asking them how they were applying the principles within the code was less harsh way of reporting on what they were doing as they did not have to give a yes or no answer, they could tell a story of how corporate governance was being adopted in their organisations

To avoid a mindless response to the corporate governance recommendations contained within the code.There was a feeling among many stakeholders that the comply or explain regime was leading to companies adopting a tick box approach to corporate governance, adopting the provisions without considering whether they were suitable for their companies or not

The required explanation allows stakeholders to make an informed to decision as to whether or not the organisation is achieving the good governance outcomes required

Organisations need to introduce policies to govern how they conduct their operations. The policies to be introduced depend on the type of organisation and the sector within which it operates

Insider trading: Dealing in the shares of a company by an 'insider' such as a company director or professional adviser on the basis of knowledge of price sensitive information that has not yet been made available to the public