56
magazine
ALRAQABA
The author explained that governance is noth-
ing beyond a set of basics and principles that
ultimately aims to emphasize the capitulation of
the owners wealth, which can only be achieved
if the interests of other parties involved in the
company are taken into account by creditors,
suppliers, clients, employees, the administra-
tion, and the community as a whole.
The lack of governance rules has caused
many disasters and scandals, and the practice
has revealed the separation of the manage-
ment from ownership, which paved the way
for the management to seizes the opportunity
to tighten its control over the company's ca-
pabilities in order to maximize its wealth at the
expense of the owners. Corporate governance
has internal and external regulations, and the
importance of the internal ones arises when
the external regulations are inadequate or in-
appropriate.
The author explained that the culture of finan-
cial management can be categorized into three
groups. First: the capital market culture or the
so-called open system, and second that pre-
vails in the United States of America, England
and Canada, the financial institutions culture
or the so-called closed system, and prevailing
in Europe except Britain, and the rest of the
world except South Korea and Japan. Finally,
the industrial groups culture that prevails in
South Korea and Japan.
The basis for the classification is the main
source of funding on which enterprises depend
in each culture. In the culture of the capital
market, dependence on the offering of shares
and bonds for sale to the public. Meanwhile in
the culture of financial institutions, the funding
is dominated by the banking sector, and finally
the industrial groups funding, which depends
on the mutual financing of the companies that
represents the groups. As well as the com-
mercial bank which is also one of the groups
components, since it is classified as an insti-
tution specializing in finance. Each culture has
its characteristics, which are linked to the legal
form of the company, the structure of owner-
ship, the efficiency of the market, the availabil-
ity of legislation to protect investors, especially
the small-sized ones, and the legislation to en-
courage competition and reduce monopoliza-
tion. It is worth noting that each culture has its
advantages and disadvantages.
The author explained that corporate gover-
nance is linked to two sets of tools, one de-
pends on persuasion and the other on coer-
cion and compulsion, and the presentation of
their respective tools. In addition to the before-
mentioned, there is the supervisory role exer-
cised by the General Assembly on executive
management through the Board of Directors.
Also, the control role that is exercised through
the external financial controllers, and the ac-
quisition market that is a tool to pressure the
management to improve the performance.
The profitability of the establishment depends
on the asset ability to reache the sales that
shall make profits, and within a certain size of
the investment in the assets and the efficien-
cy of their operation. Making profits could be
achieved through the successful controlling of
the costs, and it is better to combine these two
sources, i.e. the efficient operation of the as-
sets and the ability to control the costs, to de-
termine the management's ability to achieve an
adequate return for their shareholders. Since
the realized return represents only one side of
the picture, the risk to which the return is ex-
posed must be taken into account. It has be-
come necessary to identify the so-called return
for each risk unit, meanwhile the risk evaluation
is to be realized either through the standard
deviation or the degree of the total lift.
The author added that the analysis of the finan-
cial position of the establishment is the starting
point for analyzing the circumstances likely to
be faced by the establishment in the future.
Nevertheless, it is necessary to take the results
of the analysis of the financial position lists with
some caution, for many reasons including the
diverse accounting procedures that can be fol-
lowed while the preparation of those lists , as
well as to the fact that the data listed are mere
historical data, while history does not neces-
sarily repeat itself.
In cases where the company relies on opera-
tionally leased assets, the financial statements
should be re-photographed prior to their anal-
ysis. As well as the need to consider whether
or not the stockholder’s equity method or cost
method is used to prepare the combined fi-
Issue Book
