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7. Project partners National Approaches to Governance

Ireland

 

The Irish Governance Code for Community and Voluntary Organisations is interesting in that it recognises the different types and designs of organisations which may be involved. It categorises these into three types – essentially based on size – and notes that the role of the Board or Committee is likely to range from primarily being devoted to strategy and oversight in the larger organisations to some hands-on, operational activities also in the smaller organisations.

 

The principles which are suggested by the Governance Code in Ireland for all organisation types are –

 

Principle 1. Leading your organisation

Principle 2. Exercising control over your organisation

Principle 3. Being transparent and accountable

Principle 4. Working effectively

Principle 5. Behaving with integrity

 

While not designed specifically for social enterprises, these principles would apply well to such organisations and would provide an understandable framework within which the organisation might consider its governance.

 

Romania

In Romania, the conceptual approach to corporate governance and the regulatory framework for its implementation is disheartening since 2000. In 2001, the Organisation for Economic Cooperation and Development (OECD) formulated a set of recommendations to improve corporate governance in our country. A revised Corporate Governance Code has been published by the Bucharest Stock Exchange, based on the recommendations of the World Bank, in 2007. The applicability of the principles of governance developed by the OECD in the national governance codes has been achieved difficultly in the context of cultural and economic differences, of the obstacles faced by Romanian companies.

Romanian companies with low levels of corporate governance practices do not perceive the benefits and therefore do not take steps to implement them on the ground that they have a very high cost. On the other hand, Romanian companies avoid interacting strategic advice to disclose certain information for fear of losing their comparative advantage. A major difficulty of the Romanian entities is represented by the agency problems, respectively the managers’ interest to maximize the personal profit, which creates a lack of transparency to current or potential investors.

The legal framework for the implementation of corporate governance in Romania is: L31/1990R Companies Law, as amended, the Capital Market Law (L 297/2004, as amended), regulations of the National Securities Commission (CNVM), Code of corporate Governance SC BSE S. A.

In 2008-2009, BSE revises existing governance code to align with European regulations and thus the actual code of governance issue which requires mandatory reporting statement “clearly applies.”

This governance Code contains 19 principles and within these, several recommendations. Concrete Governance Code issued by BSE includes the following sections:

  1. a) Shareholders’ rights:

–             Principle I: “Companies traded on the BSE regulated market are obliged to respect the rights of shareholders and to provide them fair treatment”;

–             Principle II: “Companies traded on the BSE regulated market shall endeavour to achieve effective and active  communication with their shareholders.”

  1. b) The role and duties of the Administrative Board:

–             Principle III: “The companies listed on the BSE regulated market are headed by a Board of Directors which meets regularly and makes decisions that allow to fulfil the duties of an effective and efficient manner”;

–             Principle IV: “The Board of Directors will act in the interests of society and protect the general interests of the shareholders by ensuring a sustainable development of the company in question.”

  1. c) The structure of the Administrative Board:

–             Principle V: “The structure of the Administration Council (CA) will ensure a balance between executive and non- executive directors (and in particular independent non-executive directors) such that no individual or small group of persons can dominate the decision making process;

–             Principle VI: “An adequate number of members of the Board will be independent directors, in the sense that they do not have or have recently had, directly or indirectly, any business relationship with the issuer or persons involved, of such importance as to influence the objectivity opinions “;

–             Principle VII: “The Board of Directors has a membership which guarantees efficiency of its ability to monitor, analyze and evaluate the work of the executive directors and the fair treatment of shareholders.”

  1. d) Appointment of Directors Board:

–             Principle VIII: “The appointment of board members will be a formal, rigorous and transparent procedure”;

–             Principle IX: “The Board of Directors will evaluate whether it is possible the formation of a nomination committee consisting of its members, composed mainly of independent directors.”

  1. e) Remuneration of Directors Board members:

–             Principle X: “Companies traded on the BSE regulated market shall provide the services of directors and CEOs quality through adequate remuneration policy, consistent with the strategy and long-term interests of these companies.”

  1. f) Transparency, financial reporting, internal control and risk management:

–             Principle XI: “The corporate governance structures must ensure an appropriate and regular reporting on all important events related to the society, including the financial situation, performance, ownership and direction”;

-Principle XII: “The Board of Directors will adopt strict rules to protect the company’s interests in the areas of financial reporting, internal control and risk management.”

  1. g) Conflict of interest and transactions with related parties (“Transactions with himself”):

-Principle XIII: “The Board of Directors shall adopt appropriate operational solutions to facilitate the identification and resolution of the position in which a director has a material interest in its own name or on behalf of others”;

-Principle XIV: “BC members will make decisions in the interests of society and will not take part in any deliberation or decision that creates a conflict between their personal interests and those of society or of controlled subsidiary company”

-Principle XV: “CA will determine, after consultation with internal control structures, approval and implementation procedures for transactions entered into by the issuer or its subsidiaries, with the parties”.

  1. h) The regime of corporate information:

-Principle XVI: “Managers and directors will maintain the confidentiality of documents and information received during their office and shall comply with the procedure adopted by the issuer for the internal and disclosure to third parties of such documents and information.”

  1. i) Corporate Social Responsibility:

-Principle XVII: “The corporate governance structures must recognize the legal rights of stakeholders, stakeholders, and to encourage cooperation between the company and the creation of wealth, jobs and sustainability of businesses financially sound.”

  1. j) Corporate governance structures:

-Principle XVIII: “Companies traded on the BSE regulated market will adopt clear and transparent corporate governance structures that will adequately disclose the general public.”

  1. k) The dual and unified system of management and control

-Principle XIX: “If it is adopted a system of management and control, dual or unitary, the items above will apply properly adapting their system of uniform, fully consistent with the objectives of good corporate governance, transparency and investor protection information and the market, followed by the Code and in accordance with this article.

Since 2010, companies listed on the stock exchange are required to apply the “Comply or Explain” that voluntarily complete information about the extent of application or non-application of the 19 principles and associated recommendations of the Corporate Governance Code.

Specifically, for each principle, for all its related guidance, the company listed on the Stock Exchange completes the “Yes” (applying principle, the recommendation in question) or “No” (you do not apply the principle of the recommendation and explain the non-compliance).

ITALY

The problem of governance in NPO (No Profit Organization) is important for several reasons, ss described by Adriano Propersi and Marco Grumo in their publication: Models and governance mechanisms in social enterprises and non-profit companies: an international analysis

In the new context, it seems to be a significant lever for the competitiveness of these subjects, an aspect that today is not yet fully understood by the institutions.
Furthermore, governance, together with accountability, are increasingly important factors for lenders. The governance structures, and in general institutional structures, which the individual institutions provide, are rarely also the result of adequate reflections and analyzes of an economic-business nature. The governance systems of the “third sector” institutions are extremely varied and characterized by different levels of complexity. Consider, for example, the case of some foundations (not only Italian): despite the finalism of public utility, in some circumstances they present almost hermetic and self-perpetuating governance structures.

With reference to these types of subjects, some increasingly current questions arise even in our country: what mechanisms ensure that these subjects are governed in the interest protected by the mission? Does the foundation risk becoming an instrument aimed at the pursuit of typically “private” purposes? And, again, what will happen in the hypothesis of change of the figure of the founder?

The problem of an existing agency between the foundation and the community is evident. This requires study (and the road of institutional set-ups is an important one – although not the only one), of adequate mechanisms of coordination between the needs of the community and the operation of the foundation.

The relationship between the founder and his descendants can also generate an agency problem over time. In the absence of “natural” forms of control of non-profit activities, exercised by the financial markets and by the proprietary interests typical of commercial companies, the design of adequate governance structures, and institutional in general, constitutes a precondition for the realization of an action more effective and efficient governance, but also transparent towards subjects outside the institution, in particular lenders and donors. In fact, in the NPOs, governance and financing tend to constitute increasingly correlated aspects, as well as governance and social and economic performance.

For these reasons, the existence of:

authoritative, competent and operational board of directors, appointed according to transparent procedures capable of attracting and motivating high-level individuals and experience;
b) governance systems in which adequate distribution of responsibilities and powers are realized, but also a correct balance between management and control;
c) effective control systems able to identify, prevent and manage financial and operational risks, as well as fraud to the detriment of the organization and external parties (primarily lenders);
d) the existence, for the participatory NPOs, of adequate channels of communication and involvement of the members. Particular is the case of small NPOs, for which it is necessary to study conditions of governance and forms of accountability that are less demanding and burdensome.

In the NPOs, the paths of decline, but also the scandals often arise from “ghost”, “sleepy” administrative boards and in any case not sufficiently competent and informed.
Hence the need to introduce, even in the non-profit sector, at least in the larger NPOs, the independence conditions and governance responsibilities of directors, but also adequate control systems, in the interest of the outside, but above all in the interest ofbalanced and prospective development of the company.

Even in the non-profit world, the choice of the right people in the governing bodies constitutes a fundamental precondition of an inevitably more complex government process, in which the figure of the president stands out, the theme of disclosure, but also the “weights” system. “Counterweights” within the governance structures: an aspect that is not always adequately considered in the non-profit sector, but which is the basis of many cases of non-functioning of these institutions. Talking about corporate governance in the NPOs means first of all talking about the way in which the organization and the activities are managed by the board: a topic that directly calls into question the following critical aspects: integrity, skills and professionalism of the directors; external and internal accountability; but also conflict of interests.

As already mentioned, in Italy the governance systems of the NPOs are extremely varied and characterized by different levels of complexity. They can be ordered in relation to a “continuum”: from the more “open” models (associations, social cooperatives, voluntary organizations and other participatory bodies) to the more “hermetic” ones (foundations of banking origin, corporate foundations, other bodies not participations based on heritage). In the foundations, the governing and controlling bodies are appointed directly or indirectly by the founder or his descendants. Depending on the statutes, the members of the governing body are nominated for limited periods of time or for the whole life of the person. The control body is also appointed directly by the founder. In some cases, foundations in the foundations of agency between the governing body and the community, which require the study of tools that can encourage greater convergence of interests between these two actors. Moreover, these agency problems can become particularly problematic during the generational transitions of the founder and the governing bodies. The solutions to these problems are inevitably a function of the type of activity, size and structure of each non-profit organization, and it is not necessarily said that they must necessarily be solutions that directly or solely invest the institutional set-up. On the contrary, the case of the associations is different, or in any case constituted and managed in a participatory form (eg associations, voluntary organizations, social cooperatives). In these NPOs the members of the governing body are appointed directly by the assemblies of the associates / partners, and then named “from below” and not “from above”, as in the case of foundations. In these assemblies there is the principle “one head one vote” and the decisions are taken by majority.

In these NPOs, the main governance problems can be summarized as follows: – the first, is represented (especially for large NPOs with a large number of associates and / or locations), by the limited capacity of the shareholders to promote effective turnover of the governing bodies, which in many cases become the “strong” organ of the institution, perpetuating its existence over time; – the non-perfect capacity of the assembly to favor the appointment of organs of government technically capable of managing the difficult processes of development / change of the body: often in fact the assemblies tend to appoint “continuity”, “wide” governance bodies consent “, but with low technical skills. In some cases, the assemblies of the members present the characteristics of “passive” assemblies, called one or at most twice a year, with little information and a high rate of absenteeism. All this makes the governing body totally free of controls, increasing the risks for the mission, the patrimony and the user community.

 

Concluding remarks The governance framework is a central theme for the proper functioning of the NPOs. A topic that will become more and more critical in the near future. Moreover, the governance systems of the NPOs are extremely varied and characterized by different levels of complexity.

At present, in Italy there are no well-defined rules regarding the composition, functioning and responsibilities of the governing and controlling bodies of these companies. The national analysis, and especially international analysis, shows how, above all with regard to the larger institutions, with a low level of participation, or which carry out important operations towards the public and the public administration: – the theme of the quality of the governing bodies of the NPOs but also the “counterweights” (internal and external to the governing body) constitute increasingly critical and necessary aspects for the correct development of the NPO; – has now become indispensable: a) to promote, on issues of governance and external transparency, the drafting of self-regulatory codes emerging directly from the sector; b) regulate the transactions between the non-profit organization and the so-called “insiders”: directors, managers, volunteers, donors, etc. and in general about the issue of the effective independence of the governing bodies; c) to regulate, in a flexible way, the functioning and the responsibilities of the board of directors of non profit organizations, but also the figure of the administrator and of the president, so as to guarantee a responsible and coherent operation of these organs with respect to the wider scope institutional, without however complicating and discouraging the recruitment of these tasks; d) regulating the composition and responsibilities of the control body, at least for larger institutions or those that have significant relations with the public and the public administration.

A new theme that increasingly requires a systematic and high contribution of study and reflection on the economic-business plan.