The board/management relationship aspect of corporate governance in Maltese listed companies

Abstract

This study examines the corporate governance relationship between board and management of Maltese listed companies. The research objectives are to analyse the adequacy of the corporate governance regulatory framework and the level of adherence to it. This includes an evaluation of the role of management and its interaction with directors and shareholders, the locus of corporate control and the governance issues of a small island economy. The research methodology involves an analysis of both the Maltese code of corporate governance as well as the annual reports of the companies with shares listed on the Malta Stock Exchange as at end 2010, backed up by the findings from seven semi-structured interviews with relevant experts. The work points to a number of incongruences within the regulatory framework and to weak areas of governance relating to the performance evaluation of the board, the disclosure of director and executive remuneration, the level of explanations being provided for non-compliance with the Code and the attention being devoted to shareholder communication and corporate social responsibility. Recent amendments to the framework have diluted some measures introduced earlier - merely resulting in the accommodation of ongoing practices. The existence is also highlighted of lengthy and multiple directorships and of their negative implication on the board's independence from management. Owner control is found to be predominant in Maltese listed companies with major shareholding blocks dominating boardrooms and management. Finally, the companies under study bear the hallmarks of a small island economy, with their governance exacerbated by the reluctance or inability of shareholders to exercise their voting rights and powers of control and by poor practices