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New Approaches to Corporate Governance

The concept of corporate governance has taken on a new meaning in recent years, as established and up-and-coming businesses around the world adjust their leadership strategies in order to cope with new market challenges. Implementation of sound corporate governance principles has become critical to worldwide efforts to stabilize and strengthen global capital markets and protect investors.

What is Corporate Governance

Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and also to require accountability for the stewardship of those resources. The aim is to align as closely as possible the interests of individuals, corporations and society. The term "corporate governance" has become a new phenomenon that has been broadly discussed, especially over the past fifteen years. However, theories dealing with this topic (agency theory, stakeholder theory, stewardship theory, managerial hegemony theory, balance of power theory, etc.) had been developed much earlier and were inspired by a variety of disciplines, including finance, accounting, law, management and human capital. The basic principle all theories address is the issue of separation of ownership and managerial control. They also argue over the relationship between corporate managers, directors and the providers of equity, and discuss how corporations realize their corporate objectives, protect shareholder rights, and meet legal requirements, in addition to being transparent and accountable.

Dynamic development of governance codes can be observed over the last few years as a consequence of the downfall of companies such as Enron and Barings Bank. Each country tries to set up and introduce a concept of good governance that fits its market situation, enabling their companies to compete in the global market. Also, multinational organizations have developed their concepts of good corporate governance to help guide individual countries towards a broadly accepted concept.

New Rigor in Director Search and Non-executive Directors

"No longer should a director position be filled by the relative of a board member or CEO. New governance codes for director appointments, the nominating committees, which should be comprised of independent directors, now stipulate the rules for selecting new directors and for the adoption of more methodical and professional processes for Board Searches and Internal Nominees Assessments'," says Radomír Mako, Managing Partner of Amrop Jenewein Group (AJG), and Member of the Central European Corporate Governance Association (CECGA). The risks and benefits associated with each directorship should be weighed more carefully for each prospective board member. As a result, new director's searches have become more professional and thorough, albeit a more difficult process, than in the past. But this new rigor certainly delivers benefits to the organization. Since there is a more careful consideration of the matrix of skills and experience needed on the board, recruiting directors best suited to the position and having the desired skills and experience deliver the desired added value to the boardroom, making the organization more competitive. Therefore, it is more effective to involve specialized Corporate Governance Consultants in the search process, as well as in the strategic board issues advisory. The quality of Boards and corporate governance in Slovakia will significantly improve through establishing thoughtful and precise targeted board member searches and assessments. "Over the past few years, AJG has noticed a dramatic increase in the number of independent Non-Executive Director searches for our clients within the Family Owned Business (FOB) Practice Group, where the main goal was to get the Board to the required balance of experience and skills necessary for restructuring and further growth and expansion of the company to the EU market," points out Radomír Mako. The growing demand" for independent nonexecutive directors will be one requirement of the new governance code. Boards must recruit directors who match the newly strengthened definition of "independence" and have the necessary skills and experience to serve on the Board and its committees (audit, compensation, nominating committees, etc). AJG itself has lately been more engaged in searches for directors with specific sets of skills, such as strategic financial expertise, so the Board will be able to fully comply with the Governance Codex of the Central European Corporate Governance Association.

EU Reforming Corporate Governance Model

Strengthening shareholders rights, reinforcing protection for employees and creditors, and increasing the efficiency and competitiveness of businesses are the main aims of the action plan on Modernizing Company Law and Enhancing Corporate Governance in the EU just presented by the European Commission. "The Action Plan devotes special attention to a series of corporate governance initiatives aimed at boosting confidence of investors on capital markets: introduction of an Annual Corporate Governance Statement, development of a legislative framework focused on helping shareholders exercise various rights, and adoption of a Recommendation designed to promote the role of (independent) non-executive or supervisory directors and Recommendation on Director's Remuneration," says Peter Bachraty, European Affairs Officer of AJG's European Office in Brussels and Head of the EU Office of EPPP - European Partnership for Personnel Policy. The European Commission does not believe that a European Corporate Governance Code would offer new significant added value, but would simply add an additional layer between international principles and national codes. However, a self-regulatory market approach, based solely on non-binding recommendations, is not sufficient to guarantee sound corporate governance. In capital markets, the European Union should introduce a few essential rules and principles of corporate governance and should also ensure adequate coordination of national corporate governance codes.

Public Governance

Many countries, such as the US and UK, implemented the principle of Corporate Governance in the public sector, which has enabled them to reach a higher effectiveness and efficiency of activities and initiatives. By bringing the needed experience and dynamics from various different organizations of the society to public governance, it has also provided for better connections with the goals of the corporate sector, NGO organizations and the academic community. Implementation of this principle to the public sector is often realized through appointment of official Advisory Boards comprised of deputies from public administration, the corporate sector, non-governmental organizations and the academic community. These Advisory Boards are then designed to address and solve various specific problems and initiatives at the level of central, regional or municipal governments. "We predict, in the near future, an upturn in the implementation of a modern Public Governance in Slovakia, because the professional creation and balanced composition of Advisory Boards for public sector entities are one of the most effective ways to achieve the strategic objectives of the recently approved Lisbon Strategy for Slovakia," envisages Peter Bachraty. Overall, corporate governance should ensure that the board of directors is accountable to the pursuit of corporate objectives and that the corporation itself conforms to laws and regulations. The efficiency and accountability of the corporation is now a matter of both private and public interest and should therefore be applied within both private, as well as public, organizations. Good governance is a source of competitive advantage and critical to economic and social progress. Whether the corporation is publicly or privately owned, needing domestic or international capital, governance is critical.

On April 7 and 8, 2005, Bratislava will become the meeting point for representatives of member societies of TAHG from countries in Central and Eastern Europe. The 2005 CEE Executive Search Forum will be part of the CEE TAHG Conference dedicated to the 15th anniversary of Jenewein & Partners presence in the Slovak Republic, as well as 15 years of presence in Executive Search services established by Jenewein & Partners in the Slovak Republic. The conference will also be joined by the world's most widely quoted analyst of the global Executive Search consulting business, Joseph Daniel McCool, Vice President and Editor in Chief of Executive Recruiter News at Kennedy Information, Inc. Mr. McCool will give an introductory speech entitled "The End of Executive Search Consulting and Management Succession As We Know It". The 2005 CEE Executive Search Forum will be a session dedicated to CEOs, HRs specialists, journalists and other prominent guests. The day will end with a prestigious 15th Anniversary Celebration Event from AMROP JENEWEIN GROUP.