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Corporate Governance – why all the fuss?


In February of 2020, the MFSA (Malta Financial Services Authority) launched a stakeholder consultation outlining several proposals for the setting-up of a comprehensive principles-based Corporate Governance Code.

This document would be applicable to all entities authorised by the MFSA and Listed Companies, which would then be supplemented by sector-specific rules and complementing guidance notes. It was formulated based on the new MFSA 2019-21 Strategic Plan to enhance Company Management & Compliance issues.


The ubiquitous question: ‘What is Corporate Governance?’’ continues to grapple with most company officers and managers – since there is no set criteria as to what constitutes a proper ‘Corporate Governance Code’. In some ways, what the MFSA will try and introduce is a set of ‘minimum standards’ similar to what already exists with Listed Companies here on the island.

Whilst ‘Corporate Governance’ is a concept as old as the company itself, the study of corporate governance has however gained momentum only recently – as an indirect result of increased AML and Compliance requirements that most licensed companies are already faced with.

Moreover, in light of the 2008 Financial Crisis, Companies have also been forced to upgrade their Risk Management and Dual Control functions (also considering MIFID principles) – which inadvertently have led to most Managers revisiting their Corporate Governance Frameworks to include beefed-up but manageable procedures.

Inasmuch as the subject offers an array of interpretations and different process management techniques, this article will try and outline a couple of key elements that will serve every Company in good stead. For the purposes of this analysis, external sub-committees will not be mentioned but will be tackled in a future piece.


 The G20/OECD Principles of Corporate Governance state that ‘Corporate Governance involves a set of relationships between a Company’s management, its board, its shareholders and other stakeholders. It provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined’. The definition sounds impressive but what does this mean in practice?

Corporate Governance includes formulating a system of checks and balances with clear and tangible objectives which ensure that the ‘best interests of the company’ are at the core of all Policies and Procedures.

To put it bluntly, all short-term goals should complement the overarching long-term objectives which should primarily focus on sustainability, effective management & protection of investors/shareholders. More importantly, Corporate Governance should lay-out an effective framework in pursuit of a set of commercial objectives.


 The interoperability between the Dual Control Principle and Corporate Governance cannot be overstated. In most jurisdictions, especially Malta, the local Regulator emphasises the need to have proper ‘Dual Control’ principles in place.

The notion of ‘Dual Control’ basically means that for every policy and procedure under the control of a designated person, a second person will monitor said decisions and executions (in an oversight and monitoring capacity) – offering guidance and constructive criticism whenever needed.

Company Policies and Procedures should clearly stipulate which Company Officers are responsible for each process and that such decisions are properly documented accordingly to ensure an evidentiary trail of such decisions – and the applicability thereof of Corporate Governance. In most cases, the Regulator will request licensed companies to provide evidence that major decisions were actually vetted by more than one director.


 Shareholders and Directors have two completely different sets of roles and responsibilities within a Company. Whilst it is generally understood that the Shareholders own the Company, the Directors are in charge of the management of the company. This segregation between Management and Ownership forms the basis for effective Corporate Governance.

The OECD Principles on Corporate Governance go one step further and recommend that a distinction is made between both the ‘Board’ and the ‘Management’ itself. From a practical perspective, the Board would normally be composed of experienced individuals capable of approving major policies, setting strategy and establishing Objectives. In major Companies, the Board also nominates and appoints a Chief Executive Officer (CEO) who oversees the ‘Management’ section. Management is generally involved in the Day-to-Day running of the Company and is tasked with the provision of Products & Services to clients.

The aforementioned set-up not only ensures that Management of the Company is structured and coherent (ensuring shareholders are afforded the most onerous form of governance) but the ‘Dual Control’ principle is satisfied holistically – across all forms of the entity.


 It is generally understood that there are two principal models of Governance – 1) the Anglo-American Model and the 2) Continental Model.

Whilst the Anglo-American model advocates a market-oriented approach, the Continental System is primarily geared towards a stakeholder-oriented approach (and is prevalent across the majority of continental Europe).

To put it simply, the Anglo-American model seeks to compensate for minimal shareholder participation (especially in large companies) by placing emphasis on the Board of Directors to act with the duties of care and loyalty whilst ensuring member/shareholder protection.

On the other hand, the Continental Model involves greater shareholding control and involvement – complemented by the participation of other key stakeholders such as Customers and Suppliers. To note that there is a responsibility on the majority shareholders to keep the managerial officers in check.

Whilst there is no ‘right’ and/or ‘wrong’ system, the style of Governance is normally commensurate to the Quantity and Quality of Human Resources available and the long-term objectives which the company decides to establish prior to commencing its business operations.


 Every Company is effectively managed by a Board of Directors. This organ should be of sufficient size such that the balance of skills and experience is appropriate for the requirements of the business and that changes to the Board’s composition can be managed without unnecessary disruptions. Moreover, the Board should be composed of personnel who, collectively, have the required diversity of knowledge, judgment and experience to properly execute their tasks to the best of their abilities.


 The Board of Directors is usually composed of Executive and/or Non-Executive Directors. To note that the Maltese Companies Act does not provide a distinction between the two – and in the eyes of the regulator, both are treated as ‘Directors’. In fact, the Courts of Malta have often found Non-Executive Directors also liable for wrongful and/or fraudulent trading.

Notwithstanding the aforementioned, Non-Executive Directors are generally not engaged and involved in the daily management of the company. Their role is generally restricted to overseeing the executive or managing directors and dealing with situations involving any potential Conflicts of Interests.


 The Corporate Governance principle is largely dependent on the Good Conduct and Character of the Directors. Within this context, a couple of important principles should be raised to reinforce key traits that will ensure the Company is as closely aligned to this onerous principle as possible: –

  1. Directors must act within their Powers. The Board of Directors should act ‘intra vires’ – that is, within the scope of the Company’s objectives and Statutory Provisions rather than ‘ultra vires’ – whereby the Directors go beyond the scope of their powers.
  2. Directors have a duty to act honestly, in good faith and in the best interests of the company. Their duties extend towards all facets of the company and should not be restricted to any individual shareholders.
  3. Directors must use their own judgment – and should not enter into contracts, either between themselves or with third parties, on how they are to vote at important meetings. In this connection, there must therefore be ‘unfettered discretion’ in the course of their tasks and duties.
  4. There is also a duty of care, diligence and skill- wherein directors must exercise a degree of maturity which one would expect a reasonably diligent person to exercise.
  5. Conflicts of Interest should be avoided. Conflicts can range between the interests of the company and the interests of a director or the duties a director has towards a company and the duties he/she has towards another third-party. Conflicts must always be disclosed and properly recorded in a Register.
  6. Directors must also refuse any form of 3rd Party Benefits. They should not take ‘bribes’ from anyone and refuse favours and any other form of compensation which might inhibit their ability to act in an independent and impartial manner.
  7. Moreover, Directors should not make secret or personal profits without the consent of the company and should not benefit from any form of personal gain using confidential company information.
  8. Finally, Directors have the duty not to compete with the company. In this connection, they should not carry out businesses on their own account which directly compete with the company nor form any enterprise/business association which directly acts in competition with the Company.


Most Boards unfortunately fall into the pitfall of discounting the importance of Corporate Governance and perceive it as a burdensome compliance-forced exercise which must be implemented on a ‘tick-box’ approach basis.

The Companies that succeed are those that are not only driven by profit-making endeavours but are committed to create a ‘Culture of Compliance’ whilst ensuring that appropriate checks and balances exist throughout the organisation.

Here at Dr. Werner & Partner, our qualified personnel will be more than willing to offer consultation based on our experience and help you draw up your Corporate Governance structure as per local legislation.

You can contact us accordingly by sending an email to:


The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.

Keywords: Corporate, Governance, Framework, Company, Compliance.








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Author of the post

Dr. Michael Calleja

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