Industry Update /
CSB Group

Corporate Governance: The Role of Different Stakeholders

August 24, 2022

Corporate governance refers to the relationship between key individuals of companies and the manner in which companies are controlled and directed.[1] For a company to maintain good corporate governance it must have a sound legal, regulatory, and institutional framework on which to rely – in this respect governments, regulators, and pressure groups play a key role as stakeholders.When implementing good, transparent, responsible, and ethical corporate governance policies, a company would need to take into account legislation and regulation, self-regulatory arrangements, voluntary commitments, and accepted business practices.[2] Companies are expected to maintain adequate financial resources, abide by all disclosure requirements applicable and ultimately cooperate with regulatory authorities and abide by all the applicable acts, rules, regulations, guidance notes and best practices.[3]An important guidance document setting out the principles of corporate governance is the ‘G20/OECD Principles of Corporate Governance’. In order to better guide Maltese entities on the applicable corporate governance rules, on the 5th of August 2022, the MFSA launched its ‘Corporate Governance Code’ (hereinafter also referred to as the “Code”). The MFSA’s Corporate Governance Code is aimed at setting out the best practices applicable to authorised entities within the Maltese financial services sector ultimately, therefore, improving the relationship between the said entities and their stakeholders.[4] The MFSA’s Corporate Governance Code mainly focuses on the decision-making processes of boards of directors with the aim of ensuring adequate oversight, internal controls, risk assessments, and corporate and compliance standards.[5]In providing the list of guiding principles for good corporate governance, the Code is categorised on the basis of the following essential core principles:

  1. The Effective Board
  2. Internal Controls
  3. Stakeholders’ Engagement
  4. Corporate Culture, Corporate Social Responsibility and Environmental, Social and Governance.[6]

The MFSA’s Corporate Governance Code applies to all entities authorised by the MFSA to provide financial services in or from within Malta, as well as authorised entities which are not limited liability companies.[7] The MFSA specifically excludes the application of the Code to natural persons.[8] Rather than implementing rigid rules, the applicability of the Code is based on the principle of proportionality, with entities being required to apply the principles on a ‘best-effort basis’.[9] Whilst entities regulated by the MFSA’s Corporate Governance Code are required to abide by same, this Code should not be deemed to override the applicable laws, regulations or rules which regulate such entities and where more onerous or mandatory provisions are prescribed in the applicable regulatory framework, these would apply.[10]From a generic corporate governance perspective, companies are expected to conduct business with integrity, due skill, care and diligence, with proper management of conflicts of interests coupled with organisation and control of affairs.[11] Corporate governance allows for financial stability, integrity, investor confidence, and capital growth through the interplay between a Company’s board of directors, management team, shareholders, and other stakeholders.[12]


Primarily, good corporate governance should ensure that both minority and majority shareholders are treated equitably and their rights safeguarded. Shareholders should have the right to elect board members, request changes to the company’s internal documents, and approve any extraordinary transactions that the company may need to undertake.[13] Shareholder participation and equitable treatment of all shareholders are two key elements of good corporate governance and therefore shareholders must always be given full and timely information on their right to approve or otherwise participate in decisions relating to corporate changes or other actions undertaken within the company, including for example changes to the memorandum and articles of association of a company, increases in share capital, voting rights, and procedures during shareholder meetings, nomination and election of members of the board of directors and information as to their remuneration, transfer of company assets and shares, profit distribution, and other extraordinary transactions that may take place.[14]Additionally, shareholders should also be allowed to enquire and make proposals with the board on certain aspects such as auditing, items to be placed on general meeting agendas, resolutions, and other issues that may concern their shareholder rights. Minority shareholders should also have a right to cooperate with other shareholders to elect board members and propose items on the agenda of board meetings. Naturally, such shareholder rights need to be ascertained, subject to reasonable limitations for the smooth running of a company. A company should maintain full transparency concerning arrangements that allow certain shareholders to have control or influence that might be disproportionate to their shareholding.[15] To instil investor confidence, good corporate governance practices should deter any abusive practices from board members, corporate managers, or controlling shareholders, who try to use the company to advance their interests. Timely redress, at reasonable costs, should be ensured for shareholders to be able to seek remedial action when their rights are infringed.An important policy to be implemented for effective corporate governance is the conflict of interest policy, addressing any conflict of interests that might arise within a company and also determining how related-party transactions should be monitored, regulated, and disclosed, and this to avoid and curtail any abusive behaviour, insider trading, and market manipulation.


Apart from shareholders, other company stakeholders have a role in ensuring effective corporate governance; in particular employees. Policies and procedures of companies should encourage constant dialogue between the company and its employees. Employees must be well informed, allowed to negotiate, and must be able to give their feedback and opinions on important decisions. The MFSA’s Corporate Governance Code requires Boards to encourage active employee cooperation for the purposes of contributing to an entity’s growth and success.[16] Employees should also be allowed to freely voice concerns to board members and authorities, regarding any company practices which may breach policies, laws, or ethics. For such a right to be effective employees should be assured that they are protected at law, and redress for any right violation should be available to them.[17]


Company creditors are also important stakeholders within the corporate governance framework, such that their rights should be protected and duly enforced. In this respect, insolvency proceedings and creditor right enforcement proceedings should be effective and available. The importance of creditors stems from the fact that the volume and type of credit they would afford companies would be highly dependent on whether their rights are protected and enforced.[18]


Company auditors must be given access to information, including accounting records, accounts, and general meeting communications and notices, should be entitled to ask questions and require explanations, and must be allowed to attend and participate in general meetings.

Compliance Officers and Risk Managers

Compliance Officers and Risk Managers (where applicable) play a vital role in maintaining good corporate governance as they monitor and assess compliance, conduct tests, ensure policy implementation, manage risks and report accordingly. Through Compliance monitoring plans compliance officers assist companies in monitoring their effective implementation and compliance with legal and regulatory obligations.[19] For Compliance Officers and Risk Managers to conduct their functions properly companies would need to provide them with the necessary resources and information.[20] Moreover, companies must always ensure that their Compliance Officers and Risk Managers where applicable; have sufficient knowledge, skills and experience and are entirely independent of the performance of the services and activities which they are tasked to monitor.[21] Finally, the manner in which Compliance Officers and Risk Managers are remunerated should not compromise their objectivity and independence.[22]

Board of Directors

The board of directors has a duty of care and loyalty towards the company such that it should act diligently, honestly, fairly, professionally, ethically, and in the best interest of the company and its clients.[23] A board of directors should be composed of individuals who are fit and proper and equipped with sufficient knowledge to perform their functions.The Board of Directors should be appointed in a transparent manner and subsequently monitored and held accountable, for corporate governance structures to be effective. Ultimately, however, the responsibility to ensure adequate corporate governance of companies lies with the Board of Directors.[24]The MFSA’s Corporate Governance Code states that Boards of Directors have the first level of responsibility in ensuring:“i. accountability;

  1. oversight and monitoring;

iii. risk management;

  1. transparency;
  2. legal and regulatory compliance;
  3. strategy formulation; and

vii. policy development.”[25]The board of directors must have in place proper internal control mechanisms aimed to assess, expose and manage risks accordingly. The board should exercise objective and independent judgment on the company’s affairs.[26] Transparent board of directors’ nominations and elections are important elements of good corporate governance. For a board of directors to be independent it must necessarily be separate from management and must be composed of a number of non-executive directors.Importantly, the MFSA’s Corporate Governance Code distinguishes between independent directors and non-executive directors, such that, non- executive directors are defined as directors who are not engaged in the daily management of a Company and are responsible for overseeing and monitoring management decision-making within the company. An independent director is then defined as a “non-executive director who is free from any present and past business, family, or other relationship of any nature – with the entity, its controlling shareholder/s or the management of either –that could influence the Director’s objective and balanced judgment and reduce the member’s ability to take decisions independently”.[27]Independent non-executive directors play an important role in ensuring good corporate governance such that they are tasked with constructively challenging and developing strategy proposals, performance reporting, monitoring, and scrutinising management performance, ensuring the financial integrity of the company, and ensuring that proper financial controls and risk management systems are in place.[28] Non-executive directors must have the necessary access to information as key management of the company would. In exercising their independent judgment, independent non-executive directors exercise vital roles in financial and non-financial reporting, review of related party transactions, board and key executive nominations, and remuneration thereof.The board must seek to implement all policies, including and importantly conflict of interest and remuneration policies, and oversee the proper functioning of risk management systems. It is also possible for companies to set up committees to help the board perform its functions, in particular in relation to auditing, risk management, and remuneration.[29] Directors must also ensure a company follows and implements all legal obligations ranging from tax, competition, labour, environmental, equal treatment and opportunity, and health and safety laws.[30] In undertaking their functions directors must also keep in mind the fair treatment of shareholders and other stakeholders such as customers, supplies, creditors, and employees.Of particular importance are the involvement disclosures, such that board members should not take on conflicting roles or too many roles thereby being unable to commit enough time to fulfil their responsibilities as board members. The board of directors must set-out performance objectives and ensure the accounting and financial reporting systems of the company are intact. The board of directors must also fulfil the function of overseeing and improving corporate governance practices, disclosure practices, and communication channels of the company.Additionally, with the aim of enhancing sustainable finance activities and long-term value creation for stakeholders, as outlined by the MFSA in its Corporate Governance Code, boards of directors should embrace environmental, Social and Governance standards and Corporate Social Responsibility principles in their strategies.[31]Companies must have in place accurate and timely disclosure and transparency practices on material matters; thereby promoting good corporate governance.[32] This helps protect shareholders in exercising their rights, ensure investor confidence, influences a company’s actions, and ensures policy implementation.For a company to be successful and have an effective corporate governance structure, all stakeholders including members of a company and board members, need to work together and be clearly regulated. Corporate governance principles must be given their due importance to enable corporations in different jurisdictions to function properly. The aim is to achieve an environment of trust, transparency, and accountability, so that long-term investment, stability in the financial sector, and integrity of business could be ensured.[33]

About the Author

This update has been authored by Dr Rachel Pecorella Genovese, Manager – Shipping, IP & Commercial. For additional information, kindly contact us on[1] UK Corporate Governance Report – Cadbury Committee, 1992.[2] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 13.[3] Ibid.[4] MFSA (2022), New MFSA Corporate Governance Code – Enhancing the Governance, Culture and Conduct of MFSA Authorised Entities.[5] Ibid.[6] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 4[7] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 3[8] Ibid.[9] Ibid.[10] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 4[11] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 5[12] ECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 7.[13] Such matters would normally be safeguarded through company law and the memorandum and articles of association of each particular company.[14] MFSA (2019), Appendix 5.1 The Code of Principles of Good Corporate Governance,[15] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 39.[16] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 32[17] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 34.[18] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 36.[19] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 29[20] Ibid.[21] Ibid.[22] Ibid.[23] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 5[24] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 4[25] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 9[26] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 45.[27] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 8[28][29] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 52.[30] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 45.[31] MFSA (2022), Corporate Governance Code, Enhancing the Governance, Culture, and Conduct of MFSA Authorised Entities, 34[32] Matters would be deemed material when they relate to the ownership structure and finances of the company, the objectives and foreseeable risk factors of the company, employee and other stakeholder information, remuneration of board members, governance structures and company policies, related party transactions, and other information regarding the board such as their qualifications, other involvements, selection process and whether they are independent or otherwise.[33] OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris., 7.