Corporate governance relates to the system of rules, relationships and processes within and by which authority is ruled and controlled inside corporations. It covers the mechanisms by which companies and those in control are held to account, Commission, A.H.R. and Owen, N.J. (2003).
According to Becht at all (2003), whenever outside investor wishes to exercise power and control differently from the manager that is in charge of the company, the problem of corporate governance arises. The authors say that as the ownership is spread over many shareholders this problem becomes bigger due to many different interests. This can be partly mitigated by partial concentration of ownership and control in the hands of one or a few large investors. Analyzing the ownership structure of Makedonski Telekom, it can be seen that two shareholders have together dominant ownership, whereas Deutsche Telekom with 51% and the state with 35%, while the rest are minority shareholders. This implies that the company has concentrated ownership. When a company has controlling shareholder it makes the firm to focus on long-term perspective of the company by maximizing the long terms value of the shareholders Albert H. Choi (2017).
Makedonski Telekom has one-tier management system in place and consists of Shareholders’ Assembly and Board of Directors. The board has fourteen members, out of which twelve are nonexecutive and two are executives as Chief Executive Officer and Chief Operating Officer. Four members from the nonexecutive are independent members. The members of the Board of directors are elected by the Assembly and the president of the Board is elected from the non executive members of the board. There are two standing committees established by the Board of Directors, which are Audit Committee and Remuneration Committee. Their members are appointed and released by the Board of Directors of Makedonski Telekom (Telekom, 2018).
One of the advantages of one-tired compared to two-tiered board can be categorized as: (1) having a superior flow of information, (2) faster decision making and (3) better understanding and involvement in the business by the board. On the other side, according to same study the as major disadvantage is that it may be jeopardizes the neutral position of the board in regards to particular decisions since at the same time the same person makes and monitors the decisions Block, D. and Gerstner, A.-M. (2016).
Considering the board composition of Makedonski Telekom, the presence of outside members can be observed as positive since an outsider can bring in important knowledge and expertise, link the company to other important stakeholders, assist access to resources such as capital Desender, K.A. (2009). This author says that according to many empirical studies there is no evidence what is proper insider-outsider ratio on boards members that enhance better performance of the company, but suggests that pushing too far to remove inside directors in favor of outside may hurt firm performance due to industry-specific knowledge the insiders provide.
However, there still might be some challenges that the company should consider in regards to its corporate governance in order to improve its performance. According to Bhagat and Bolton, (2008) board members with appropriate stock ownership will have the incentive to provide effective monitoring and oversight of important corporate decisions about the investment policy, management compensation policy, and board the governance itself