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Fran Brahimi*, Rezart Dibra, Geraldina Prodani, Kesjana Halili, Ines Dika



“We are talking about the governance of financial institutions… into the future, and we are dealing with a situation in which the American people and peoples around the world have lost confidence in major financial institutions”- Governance of financial institution, November 9, 2009, The University Club, NY. Governance has proved an issue since people began to organize themselves for a common purpose. How to ensure the power of organization is harnessed for the agreed purpose, rather than diverted to some other purpose, is a constant theme. The institutions of governance provide a framework within which the social and economic life of countries is conducted. Corporate governance concerns the exercise of power in corporate entities. The OECD provides the most authoritative functional definition of corporate governance: "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance." However corporate governance has wider implications and is critical to economic and social well being, firstly in providing the incentives and performance measures to achieve business success, and secondly in providing the accountability and transparency to ensure the equitable distribution of the resulting wealth. The significance of corporate governance for the stability and equity of society is captured in the broader definition of the concept offered by Sir Adrian Cadbury (2002): "Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society."
Corporate governance in financial institutions is the set of standards and principals used to create a system of checks and balances over the management of banks and financial intermediaries. It establishes the way financial institutions are directed and controlled, ordinarily through standards set for the conduct of the board of directors and senior management. Countries have different political and regulatory environments, business standards and customs. Additionally, independent legal systems varying from country to country cause significant differences in corporate governance practices. There is, however, an international movement toward universal standards for all multinational financial institutions that has been gaining traction since the late 1990s. The topic of corporate governance of financial institutions and its role in stabilizing the industry has reached new levels of importance since the mid 1990s as a result of the globalization of financial markets, deregulation and technological change. These positive factors, together with the poor management, corruption and fraud that resulted in multiple financial crises in major industrialized countries over a number of years brought the role of corporate governance in financial institutions to the forefront in many countries and in the international economic community.
The Corporate Governance in banks is one of the most important discussions overall the world, being reinforced especially after the crises period. It is related with the sensitive situation and the stage of developments of the local economy and moreover with the impact of the crises that is still ongoing. As an answer, during late 2008 and beginning 2009, it has been noticed a fast reaction and total focus from all banks on building (if missing) and improving their structures of Corporate Governance. The liquidity problems suddenly affecting the banking sector constrained Banks to enlarge their activities /operations and forced them in better evaluating their investments. This paper (discusion in conference) aims to evaluate the impact of corporate governance on financial performance, in the same time we are analyses corporate governance with focus in financial institution buth with importance of corporate governance in all aspects as a part of transition economies that has implement this CG.

Keywords: Corporate Governance, Banking Sector, Financial Institution, Board of Directors

How to cite this paper: Brahimi, F., Dibra, R., Prodani, G., Halili, K. & Dika, I. (2013). Corporate governance in financial institutions on transition economies. Corporate Ownership & Control, 11(1-2), 223-232.