Tag Archives: corporate governance

Linking Growth and Governance for Inclusive Development and Effective International Cooperation

FSmarch31Academics and development practitioners have long sought out commonalities of sustainable economic growth in different economies around the world. While there is no one formula for achieving economic growth and stability, inclusive growth and accountable governance have been central components of progress. Effective governance, while not traditionally thought of as part of an international development agenda, has come to be seen as an essential component of international economic development.

In the latest Economic Reform Feature Service article, consultant James Michel explores the complex relationship between good governance and economic development around the world. He looks at the ways in which academics and practical experience shape these two intertwined factors of development.


Current Trends in the Relationship Between Boards and Compliance Officers

boardrelationshipBy Hyeji Kim

Any corporate compliance program needs a strong relationship between the board of directors and the compliance and ethics officer in order to be effective. In 2010, the Society of Corporate Compliance and Ethics (SCCE) and the Health Care Compliance Association (HCCA) conducted a study which showed that the relationship between the Chief Ethics and Compliance Officers (CECOs) and boards of directors was much weaker than it should be. In 2013, SCCE conducted the study again to see if there were any changes.

The recently published 2013 study, based on over 600 responses from compliance and ethic professionals in the SCCE and HCCA database, seems to be on a much brighter note with generally positive findings.


Why Transparency Matters for Emerging Market Companies

Markets thrive on transparency. (Photo: Wikimedia Commons)

Markets thrive on transparency. (Photo: Wikimedia Commons)

Many of the world’s largest and fastest-growing companies now come from emerging markets. But according to a recent report, these companies lag behind their more established peers in transparency — a handicap that could prevent them from becoming true global leaders in their fields.

Looking at 100 large multinational companies from 16 emerging market countries, Transparency International found an average transparency score of just 3.6 out of 10. A 2012 report on the world’s largest companies using the same methodology found an average score of 4.7. And while only one in five of the emerging-market multinationals had a transparency score above 5.0, just under half of the largest companies did.

These results should be deeply concerning for the executives of these companies, their investors, and the governments and citizens of countries where they operate.


The Corporate Governance Implications of Concentrated Ownership

By Andrew Wilson and Marc Schleifer


Last month in Karachi, CIPE’s Deputy Director for Strategic Planning and Programs Andrew Wilson and Pakistan Country Director Moin Fudda took part in a conference organized by the Pakistan Institute for Corporate Governance, together with CIPE and the Association of Chartered Accountants, on the corporate governance implications of concentrated ownership in listed firms. Wilson was invited to give the keynote address and provide an international perspective at this event, which received coverage by the local press in Pakistan. To help spur discussion, we wanted to share Wilson’s remarks on the CIPE blog, since concentrated ownership is an issue that firms, shareholders and regulators grapple with worldwide.

Some of the basic theories of corporate governance start with an idealized picture of a firm with widely dispersed ownership, but in practice, the theoretical model of diffuse ownership faces problems. When a company is owned by numerous small shareholders, it can be difficult for them to get information about the firm’s operations, meaning that a great deal of the real control rests with management; the principal-agent problem arises and company performance can suffer, to the detriment of the owners (the shareholders). This would seem to argue in favor of a more concentrated ownership system, and in fact, around the world we see that diffuse ownership is indeed the exception, not the rule.

In most countries, the dominant organizational form is concentrated ownership, with control of most firms either in the hands of a family, a larger holding company, major institutional investors, or in some cases the state. This is true even in developed economies with robust capital markets and a high level of private ownership, where individual listed corporations are often part of a complex network of international or domestic holdings, which themselves in turn may or may not be listed. There are various reasons why this might be the case.


India Improves Corporate Governance, But Also Mandates CSR

Corporate Affairs Minister Sachin Pilot (Photo: The New Indian Express)

Corporate Affairs Minister Sachin Pilot (Photo: The New Indian Express)

Last week, after nearly 12 years of debate, India’s parliament finally passed a sweeping new piece of corporate legislation. The 2012 Companies Bill replaces the previous 1956 law and introduces some major reforms to bolster corporate governance in the world’s largest democracy, which has faced questions about its potential for continued growth. According to Indian Corporate Affairs Minister Sachin Pilot, the law “aims at plugging loopholes in the system for a better… business environment,” and will “enhance transparency and ensure fewer regulations, self reporting and disclosure.”

Among other measures, the law defines the concept of “fraud” and empowers a new agency to investigate it; strengthens checks and balances in companies’ governance systems; makes board decisions more transparent; and seeks to increase the accountability of a company’s directors and auditors. The law also establishes that at least a third of directors should be independent, requires companies to rotate auditors, and tightens oversight of companies that take public deposits and of loans among a company and its subsidiaries.

At the same time, some of the reasoning behind other well-intentioned measures in the law is less clear-cut. For instance, certain classes of companies will now be required to have at least one woman board member. The overall goal here is important: to make boards more representative, thus building a more gender-equitable economy. Yet the effectiveness of such quotas has not been universally accepted, particularly because of the risk of creating “token” board slots.


Survey Asks Corporate Leaders about Anti-Corruption Efforts


Surveys attempting to measure illegal or frowned-upon behavior are notoriously difficult to execute in a useful way. This is especially true when it comes to surveys asking global corporate leaders how well they are following anti-corruption laws.

On the one hand, such surveys can end up underestimating the problem when companies are reluctant to acknowledge behavior that can result in multimillion dollar fines. On the other hand, surveys can overestimate corruption issues or give a false sense of a growing problem simply because awareness is growing as more and more executive and managers undergo mandatory training on all the different ways to run afoul of U.S., UK and Canadian anti-corruption laws.

Such surveys become even more problematic when the organization conducting the survey stands to benefit from results that highlight whatever problem the organization is in the business of solving.

So, with all those caveats out of the way, it is worth noting that Ernst & Young’s 2013 Europe, Middle East, India and Africa Fraud Survey is quite useful, both for its scope and for its findings. The recently released survey is based on anonymous interviews, conducted in late 2012, with 3,459 people from companies in 36 countries. Interview subjects ranged from employees to board members, directors, and managers. The majority of the companies surveyed employed more than 1,500 workers. For sheer breadth, the survey is noteworthy. The results are, too.


CIPE Pakistan Releases 2012 Activities Report


With the commitment to strengthen democratic and market reforms in Pakistan, CIPE, with the support of its partners, continues to provide tools to serve as a catalyst for institutional reform for private sector and state owned enterprises. The 2012 Activities Report highlights the impact of CIPE programs and the achievements of our partners in Pakistan.