Corporate governance ensures that companies are directed and managed at board and management level in a fair and transparent manner. It provides guidance on how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized. Good corporate governance structures encourage companies to:
- Create value (through entrepreneurism, innovation, and development)
- Implementation of effective control systems commensurate with the risks involved
- Provide accountability and transparency
Why Implement a Corporate Governance Code?
Maldives had enjoyed high economic growth for several years and was indeed on the verge of being elevated to the ranks of middle income countries when the Asian tsunami of 26 December 2004 destroyed the nation’s economic and social infrastructure close to around 62 percent of GDP. As a result of this disaster Maldives would remain an LDC until about 2011.
Our challenges at this point are particularly in terms of improving the investment climate, attracting international capital, expanding the industrial and trade base of the country along with appropriate strengthening of the infrastructure; and ensuring environmental quality, equitable and sustainable development.
Corporate Governance, in our perspective, is a critical tool in addressing these challenges. In the case of Maldives, the attention to corporate governance has not come about because of any financial crisis, systemic failures or corporate scandals. The attention to Corporate Governance has been a natural evolution alongside the new aspirations and challenges such as those mentioned earlier.
Further, CMDA believe that Corporate Governance is based on the universal principles which are close to democratic values that we cherish. The principles of fairness, transparency, responsibility and accountability are indeed common to democratic values, good governance and indeed our religious tenets.
The Capital Market Development Authority, which has been established in 2006, is the prime mover of promoting corporate governance in the Maldives. Corporate Governance is not a new word in the Maldivian vocabulary now. CMDA has been steadfast in promoting its development agenda and has been conducting director training and corporate governance awareness programmes Furthermore, the Government of Maldives announced a National Award for Excellence in Corporate Governance starting from 2009.
The Code that the CMDA has issued contains the essential features of Maldives’s initial approach to corporate governance. It has a vision and framework that recognizes the shareholder’s rights and ownership functions, the role of stakeholders, disclosure and transparency standards and critical duties and responsibilities of the Board.
CMDA believe that by promoting the awareness of the Corporate Governance Code and advocating quick compliance, will be able to soon meet the important challenge of improving the investment climate and reducing the cost of capital in our country. Currently only a handful of companies are listed. Obviously, the Code addresses such companies in the first instance and hopefully they will demonstrate the enormous benefits accruing from good corporate governance to all others in the country. By appropriate awareness, advocacy and demonstration, it is hoped there will be a dramatic increase in the number of companies listing in the stock exchange in the coming years and attendant surge in international capital and domestic investments.
Corporate governance is indeed central to the listed companies, but the principles, best practices and standards are relevant to different entities such as the SOE’s, family businesses, SME’s, Co-operatives departmental undertakings and public service providers. They will be of particular significance while we attempt to enact new laws and reform the existing ones.
In the view of CMDA, the corporate governance agenda for Maldives should be different from those of the large market economies. The agenda must be far wider to include such other entities that are not yet part of stock exchanges.
In this effort, institutions such as the media, parliamentary committees, judiciary and civil society orgnisations are important. It is their understanding, amplification, analysis and advocacy that corporate governance standards can be improved and propagated quickly. These institutions must become part of the corporate governance agenda for Maldives. By understanding the principles and logic for corporate governance and the critical elements of the Code, such entities would be better positioned to make coalitions for promoting fairness, transparency, responsibility and accountability on all fronts.
If corporate governance becomes a widespread agenda, there will be a discernable impact in the growth of capital market, improvement in investment climate and opening of various developmental channels such as public-private partnerships in infrastructure and deepening of financial markets.
Maldives, being a small island nation has the typical challenges facing such class of countries. Yet, because of its size and homogeneity, it would be possible to pursue the corporate governance agenda earnestly, widely and with a demonstrable impact. CMDA hopes to make the CMDA corporate governance implementation plan a success.
Code on Corporate Governance (English)
Code on Corporate Governance (Dhivehi)
