The Critical Appraisal of Limited North European Corporate Governance Standards after Global Crisis, Corporate Scandals and Market Manipulation

This paper mainly analyzes principles and standards of some international and North European corporate governance frameworks which are issued during or after the global crisis.First, it looks at the United Nation Good corporate governance practices and analyzes its strengths and impacts on corporate governance model of a company.Second, it compared the UN standards to generally accepted governance standards of Sovereign Wealth Funds. The paper finds out that during the global crisis time 207-2008, despite taking care of risk management, there still lacks of certain governance standards in these 2 Codes. Then, it analyzes some relative good corporate governance standards in a few North European countries including: Norway and Finland.Third, this paper provides with a short summary of evaluation of these above 2 corporate governance principles in 2 groups which can enable corporations tocompare to their current codes.Last but not least, it aims to realize a limited general set of standards of corporate governance and give proper recommendations to relevant governments and organizations. Additionally, it includes a section for recommending corporate governance for developing countries including Viet Nam. 



Introduction
There are, in fact, three (3) main periods which are signaling the improvements made in the worldwide countries' corporate governance policies. The first period is the time during 1999-2003 after the Asian financial crisis taking place in 1997-1998, the second period is years from [2005][2006][2007][2008], and the third period is the current time, after the financial crisis 2007-2009 with impacts from US and Europe large economies. OECD and ICGN also offered good recommendations on corporate governance standards for most of countries in the world. This research paper is trying to take an implementation -oriented writing style and focus on some international corporate governance practices and issues during and after impacts from scandals and crises. They are United Nation (UN) and Sovereign Wealth Funds (SWF) governance practices in 2006 and 2008. Furthermore, The Norwegian Code 2010 also tried to provide good corporate governance to enhance confidence in companies.
Besides, this research paper aims to provide a writing style to adapt to an understandable reading to most of readers in academic field who is both familiar and not familiar to the corporate governance subject.
Research literature review Until now, there are many researches in corporate governance field. Berle and Means (1932) identified that the problem of governance of managers comes from the ownership separation to a disciplinary function and a decisionmaking function. The Russian Code (2002) stated corporate governance influences economic entities and their ability to attract capital. Cremers and Nairs (2003) finds external governance, i.e., market of corporate control, and internal governance, i.e., shareholder monitoring, are strong complements. Gerard Chareaux (2004) said the objective of corporate governance theory is not about how managers govern, but about how they are governed. Malek Lashgari (2004) mentions corporate governance is concerned with managing the relationship among various corporate stakeholders, and common stockholders have the right to elect members of the Board. Abu-Tapanjeh (2008) pointed corporate governance has different meaning to different organizations. Li Wei An (2008) in a research of corporate governance said it is urgent matter to seek which governance model is more suitable for the governance environment where Chinese listed companies survive. Haslinda., & Benedict (2009) stated the corporate governance theory began with agency theory, transaction cost and ethics related theories.
As Kirkpatrick, Grant., (2009) pointed out that even OECD corporate governance, short-called CG, principles needed to be review in key areas, including boar composition and competencies, remuneration issues, etc., after the financial crisis. Lambert, Caroline., and Sponem, Samuel., (2010) research in France with a conclusion that management controllers play an important role in profit manipulation and the shareholder pressure influence the nature of the management controller's task such as reporting and budgetary control. Last but not least, Thomas Wuil Joo (2010) explains "corporate governance" is mainly concern the internal governance of corporation, i.e., the relationship among participants in the enterprise.
A short summary or evaluation of a few global governance Codes has not been done yet.
Theory of Corporate Governance, Scandal and Market Manipulation Theory of manipulation Aggarwal, Rajesh K., Wu, Guonzu (2003) found out that potential manipulators can be corporate insiders, brokers, underwriters, large shareholders and market makers and stock prices rise throughout the manipulation period, prices higher when liquidity greater, and then fall in the post-manipulation period despite unclear evidence. They found that in a market with manipulators, more information seekers makes it easier for a manipulator to enter the market and potentially worsen the market efficiency.
Besides, Mei, Jianping., Wu, Guojun., and Zhou, Chunsheng (2004) shown the manipulator is a large investor who is a price setter, rather than a price taker. He or she can pump the stock price by a series of buying orders, then, dumps the stock to make profit.
Theory of corporate governance and financial crisis For simplicity, corporate governance is a set of processes, customs, policies, rules directing and controlling an organization. Allen, Franklin., and Gale, Douglas., (2002) identify that Good corporate governance in US and UK means firms pursuing the shareholders' interests while it involves pursuing the interests of all company's stakeholders including customers and employee as well as shareholders, in Japan, France and Germany. Moreover, Grant Kirkpatrick (2009) states in the OECD CG report that the financial crisis, for example 2007-2009, can be an important factor to failures of the CG system and the OECD CG principles need to be reviewed.

Theory of Corporate scandals
Cadette (2002), Madrick (2003) and Schwartz (2003) indicate that to gaudy earnings, options created outrage when top management or executives allow manipulation on quarterly report, resulted in short-term movements in stock prices, allowing sizeable personal profits despite probable future restatements of company earnings. In scandal examples of Enron, Qwest, many executives sold their stock when its price is high, while employees could not do so, because of access to privileged performance information.
Hence, corporate scandals may derive partially from false actions or manipulations of management or executives. In the scandal examples of Xerox or Worldcom, false accounting practices were taken into account when recognizing booking earnings for counterfeit transactions. Or in the case of Arthur Andersen, one of the Big Five, the auditing technique and procedures and professional responsibilities are main issues which cause failures in auditing Enron Corp which is filed for bankruptcy in 2001.
Research methodology First, we select 2 international corporate governance practices including: 1) UN governance standards; and 2) SWF governance practices; we call this is group 1.
We also use international standards of corporate governance for reference such as: OECD and ICGN's corporate governance principles and standards.
Then, we choose Norway and Finland which are representative for a limited North European group to analyze these countries' governance standards. We call this is group 2 "a relative group".
Second, we perform a qualitative analysis on each group code, then build general standards for corporate governance in two (2) above groups. These standards represent common understanding and principles in each group.
Third, we compare and provide a short summary of evaluation of the 2 groups' standards.
Finally, we make a suggestion on what so-called a short general corporate governance principles for Russia and a few North European nations.
Additionally, it can be considered as the recommendation to relevant countries' government and other relevant organizations for further steps, public policy and necessary evaluation.
Empirical findings A-Findings on Corporate governance issues after financial crisis, corporate scandals and market manipulation First of all, we found out that there is a lack of code of ethics or code of conduct.
The second important corporate governance issue is that the corporate governance mechanisms is not complete and perfect in the aspect that some codes mention mainly certain sides of governance such as disclosure and omit other sides.
Third, in the company, who has the right and how to prevent and control the manipulation actions which may come from either manipulators or executives and management team.
Last but not least, one major corporate governance issue exsiting as the main cause to corporate scandals of these companies is that who are qualified board members or management team members.

B-Findings on Ways of Manipulation during Corporate Scandals
Several Manipulation Techniques found out during corporate scandals involve, but not limit to: B.1 -The manipulation techniques in the income statement: The use of inappropriate companies to inflate the company's revenues with a hope to inflate the company's stock price is done by a family corporation such as Adelphia in the late 1990s, which leads to its collapse in 2002.
Another case, Livedoor co. in Japan, shows us that the management cooks its book and transfer profits from its consumer -related firm; so, the firm has earnings, not loss, and manipulate stock price.

B.2 -The manipulation techniques in both the income statement and balance sheet:
The technique is used by the famous company in Japan, Xerox, in the year 2001-2002. It manipulates its revenues or earnings by inappropriately classifying equipment rentals as long -term leases, by which it could accelerate the revenues instead of spreading out the rent. By manipulating its earnings, Xerox overstated its revenues up to $2 billion. During the period 1997-1999, the firm has experienced the effect of the manipulation while its stock price increased up to a peak of $60 per share, then, falling down.
B.3 -The manipulation techniques relevant to international accounting practice code: We can refer here the case of Nortel Co. in Canada, in which the co. has violated the Canadian GAAP and changed its revenues recognizing policy. This helps the firm to manipulate its books. It also violated the Principle of Conservatism of GAAP by overstating the post-dot com earnings.
B.4 -The manipulation techniques not relevant to all the above: We can refer here the famous case of AOL Time Warner fraud, in which the top executives of the firm used the money of the corporation for affecting stock price collapse, i.e., trick transactions, and then get large benefits by liquidating their shares in 2000-2001. C-Findings on Actions to Prevent or Control Negative Market Manipulation Among proper actions to prevent and control negative market manipulation is taking from the example of Olympus Co. in Japan. This case shows us that if the firm has had the qualified internal auditing, it could avoid the accounting fraud.
Moreover, The Corporation, generally, might consider changing its management team or executives. Once the management cooks its books and reports inappropriate profit figures, the team can be replaced. Last but not least, the company might consider using GAAP principles of recognizing revenues or of conservatism, and of recognizing long-term leases for avoiding negative manipulation in accounting and in the stock market.
D-Findings on Construction of a Limited General Corporate Governance standards These findings will be shown in a detailed analysis of a model indicated in the later sessions.
<D.1> -Group 1 -Some International Corporate Governance standards <a> The United Nation governance standards analysis One of major different features in the 2006 UN Code is that it identified independent leadership of Board of management and focus on many aspects of information disclosure.
Besides, the Code emphasizes the two tier system of the Board organization including Board of management and Board of supervisory.
Additionally, The Code pays a lot of attention on disclosure roles and functions of the Board, which forms a new term "corporate governance disclosure". Additionally, The SWF governance principles had paid attention to the organization of SWF (funds) and relevant public disclosure.
Despite of more details in investment governance, the SWF principles cover limited issues, compared to the UN Code. Comparison between UN and SWF Corporate governance standards Based on the above information, we can see the UN Code shows a lot of information on disclosure such as disclosure of Board and of selection of external auditors, as well as scope of work of internal audit function. While, the SWF Code, many times, confirm the roles of risk management and control activities in SWF.
Another advantage in the UN Code is the consideration of Internet voting in meetings of shareholders. The Code encourages some voting technologies.
Last but not least, one different point in The SWF Code, compared to the UN Code, is that it connects risk management functions with investment activities. It means that, the Code specifies roles of risk management in more details.

The Establishment of a so-called Limited International Corporate Governance standard
With the selection of UN and SWF as two governance codes which represent in the construction of general corporate governance principles and standards, we build the below table with the following criteria: Firstly, it should have some attributes which enable the corporation or its Board to share and disclose better information with its stakeholders and shareholders.
Secondly, it focuses on risk management functions and roles.
Thirdly, it includes contents that enable corporations to identify gaps or differences with their existing codes. Therefore, the below table D.1 is trying to summarize what are short general corporate governance standards. It is also constructed in the way that being the better understandable criteria. One advantage of the Code is that it pays attention to duties of the nomination committee. For example, it stated the committee should note the Board's report on performance.
Furthermore, it also shows the connection b.t the Code and the Public Company Act (PCA) or Securities Trading Act or Auditing and Auditors Act. For example, the 21-day notice deadline in PCA for general meeting. Also, while the relevant regulation allows 4-year term for Board, the Code suggests max 2 years term.
In the Norwegian Code 2010, it specifies that the Code may a little more restrictive than the Public Company Act in a sense that it allows 1 class, whereas the Act permits different classes of share. This can be considered as another advantage.
However, it would be better if the Code mentions more about qualities of CEO and compliance officer or secretary. Not mentioned clearly in the Code

Note
The underlined part is describing some more works needed to be done for relevant subjects and parties.
<b> Finish Code of Corporate Governance 2010 One of its distinctions is mentioning information on board and committees and supervisory board that a firm needs to disclose in 5 years.
Besides, the Code addressed its view of taking 2 statements: CG and remuneration statements of the company. It emphasizes the web disclosure on these. But, it still needs more information on corporate secretary or compliance officer. On the other hand, the Finish Code considers many descriptive information of the firm need to be disclosed.
After making comparison, the following table is constructed in the way that creates the better understandable criteria, or at least a few. Before we come to set up a set of general limited standards of corporate governance, we need to review the standards combined in the previous two (2) groups: The advantages of Group 1, but not limited to, disclosure standards, shareholders and supervisory board, though it still works more on duties of corporate secretary.
On the contrary, the Group 2 including 3 above countries has certain strong features. For example, the Russian code considered the company as a whole which could establish the easy to understand dividend payment policy for shareholders. Whereas the Finnish Code 2010 needs the company issues its own CG statement on matters such as: information on managing directors and duties, etc…Generally, both groups need more information on Supervisory board to management.
Based on the above analysis, we consider building comparative standards as below.

Conclusion
In efforts to prevent failures and control the corporate governance issues after crisis, the 2006 UN Code and the 2008 SWF Governance Principles were formed. Both Codes describes many aspects of disclosure.
As analyzed, the UN Code gives more information on committees and supervisory boards.
On the other side, SWF Code has a detailed description of recommendations to risk management in investment field.
On the other hand, in group 2, the Norwegian Code 2010 pays attention to take-overs and relevant duties of corporate employee.
In general, both Codes of 2 groups promote long term sustainable value for the corporation and emphasizes roles of audit committee and internal control.
In consideration of corporate governance issues analyzed in the previous sessions, we proposed the main and sub quality factors in this paper a set of general limited North European corporate governance standards in a limited global model with selected 2 above groups of Codes. It has some implications for further research and proper recommendations to relevant government and organizations.

Suggestion for developing countries including Viet Nam
The above incorporated standards need to be re-evaluated before any organization in emerging markets including Viet Nam wants to use them for their own operation. It means that these standards are flexible, not strict. And they have to pay attention to quality factors relating to employee, management, and the company.