Chapter 4: Disclosure and Transparency in Corporate Governance môn Principles of Management | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

CHAPTER IV: DISCLOSURE AND TRANSPARENCY I. Five elements of good CG: 1. Good board practice - Board practice:
+ How many times is the board meeting ?
+ Is there a CEO duality? (Is the shareholder and management are the separate subject?) + Gender in shareholder + Audit/accounting commitee
2. Appropriate control environment and process:
- Leadership & ethical tone at the top:
+ Clear communication from senior management about importance
of integrity and ethical behavior
+ Establish and reinforce (củng cố) corporate code of coduct
+ Senior leadership leading create a culture of accountability and transparency - Risk management framework:
+ Implement formal risk management strategy to identify, assess and mitigate risk
+ Regulary update risk framework based on change in business environment
+ Conduct regular risk assessment and integrate into strategic descion making - Intenal control system:
+ Establish policies and procedure to prevent fraud and ensure
acccuracy in financial reporting
+ Segregation duties to prevent conflicts of interest and fraud
+ Create independent audit committee to oversee financial and operational contro
+ Perform regular internal audits to identify weakness and ensurre compliance standards
+ Change the audit position for 5 years per once
3. Strong regime of disclosure and transparency:
- Financial reporting and audit transparency:
+ Publish quarterly and annual financial statements in line with
international standards (IFRS, GAAP)
+ Provide detailed explanation of financial results, include revenue
streams, profit, costs. Where it come from, what company use in
some activities cause expense?
+ Disclosure accounting policies and any change in recording process in financial reports
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- Board structure and independence:
+ Disclose composition BOD (executive, non-executive and independent director).
+ Reveal how director are selected, qualification
+ Check the relationship past performance of BOD in company, if
yes -> Need to change another person
4. Protection of (minority) shareowner rights: - Equal voting rights:
+ Ensure all shareholder have the right to vote on important corporate matter
+ Prohibit creation dual-class share (Cấp cho một loại cổ phiếu
quyền biểu quyết cấp trên hoặc quyền biểu quyết duy nhất, trong
khi loại cổ phiếu còn lại có quyền biểu quyết cấp dưới hoặc
không có) structure giving disproportionate voting power to certain shareholders
+ Allow minority shareholder propose resolution at general meeting
- Board representation & nomination rights:
+ Allow minority shareholder to nominate candidate for BOD
+ Ensure minimum number independent director on board to
represent interest minority shareholder
+ Implement cumulative voting to give minority shareholder a better
chance of securing board representation - Preemtive rights:
+ Grant minority shareholder the right to participate new share
issuance to prevent dilution their ownership
+ Offer newly issued shares to existing shareholder before sell them to external investor
5. Strong commitment to CG reforms
- Make adjustment on FS → Impact of stock would be civil II. Disclosure:
1. Ensuring access to information for all interested parties, regardless of
the purpose of obtaining the information, through a transparent
procedure that guarantees information is easily found and obtaine 2. OECD Priciples:
- “Timely and accurate disclosure should be made on all material
matters regarding the corporation, including the financial situation,
performance, ownership, and governance of the company.” → Key point:
Timely, accurate disclosure and materials matters
CHAPTER IV: DISCLOSURE AND TRANSPARENCY
- Why would boards want or need to disclose information to
shareholders and stakeholders ? Because if the CG of a company is good, the
boards want to disclose information to attract more funds with the lowest cost of capital. - Why disclose? - Who interested parties: + Financial institution. + Investor - share owner. + Potential investor + Customer + Supplier + Employees
+ Government, regulator/ Joint venture and partnership - Channel of disclosure:
- Benefit of disclosure, transparency:
- Accountability through disclosure: They
should be consider which information
should be disclosure (giống dạng đẹp
khoe xấu che nhưng cũng vừa vừa vì
nếu xấu che hết thì sẽ gây niềm tin xấu
CHAPTER IV: DISCLOSURE AND TRANSPARENCY
và không tin tưởng với các thằng bondholder, customer, banks,... khi cho vay, mua bán sp công ty)
- What information should be disclosed:
+ Financial: BS, IS, CFS, Note for the financial statements
Non-financial: Company objective, major share ownership, voting rights,
directors’ and key executives’ evaluation, remuneration Material
foreseeable risk factors, Corporate responsibility, control environment,
material issues, governance structures, policies
- OECD Disclosure obligations:
III. Insider trading:(miễn là thông tin nội bộ chưa đc công bố)
- Definition: Company securities are bought or sold based on information
not publicly available. Create unfair advantage in market and undermine
investor confidence and market integrity - Impact:
1. Market manipulation and loss investor trust:
2. Unfair advantage & inequality:
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3. Damage corporate reputation:
IV. How to Prevent Insider Trading
1. Establish a Strong Insider Trading Policy
Develop a clear and strict insider trading policy that applies to all employees and board members.
Define what constitutes "material non-public information" (MNPI).
Prohibit trading on MNPI and provide examples to clarify. Example:
A tech company’s insider trading policy prohibits all employees from
trading shares from 30 days before the quarterly earnings announcement until two days after.
2. Implement Trading Blackout Periods
Prohibit insiders from trading company securities during sensitive periods
(e.g., before earnings reports, mergers, or regulatory filings).
Ensure that blackout periods apply to directors, executives, and key
employees with access to confidential information. Example:
A financial services company imposes a trading blackout from two weeks
before the earnings announcement until 48 hours after the report is published.
3. Require Pre-Approval for Insider Trades
Require executives and board members to seek pre-approval before buying or selling shares.
Set limits on the volume and timing of trades. Example:
A CEO submits a request to the compliance department before selling
CHAPTER IV: DISCLOSURE AND TRANSPARENCY
shares, and the request is reviewed to confirm that no material non-public information is involved.
4. Establish a Whistleblower Protection Program
Create an anonymous and secure platform for employees to report suspected insider trading.
Protect whistleblowers from retaliation.
Investigate all reports thoroughly and take corrective action when needed. Example:
A compliance officer receives a whistleblower report about suspicious
trades made by a board member. An internal investigation confirms the trades
were based on inside information, and the board member is terminated.
5. Educate and Train Employees
Conduct regular training sessions on insider trading laws and the company's policies.
Provide examples of what constitutes material non-public information.
Explain the consequences of insider trading for individuals and the company. Example:
A retail company holds quarterly training sessions where employees are
shown real-life insider trading cases and are tested on identifying insider information. 6. Monitor Trading Activity
Use automated systems to monitor trading patterns of insiders and large shareholders.
Flag unusual trading volumes before major announcements.
Investigate any suspicious trades promptly. Example:
A financial institution's compliance team detects a spike in insider trades
before a major acquisition announcement and investigates the trades for possible insider activity.
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7. Require SEC Form Filings for Insider Trades
Require executives and major shareholders to file Form 4 with the SEC
when buying or selling company shares.
Ensure the filings are made publicly available to provide market transparency. Example:
A CEO buys 100,000 shares of company stock and files a Form 4 with the
SEC within two business days, ensuring the public has access to the information.
8. Enforce Strict Penalties for Violations
Set clear disciplinary measures for employees found guilty of insider
trading (e.g., termination, legal action).
Cooperate fully with regulatory authorities in any investigation.
Recover any illicit profits gained from insider trading. Example:
A company's CFO is found guilty of insider trading and is immediately
dismissed. The company reports the violation to the SEC and works with
regulators to recover the funds.