In August 2000, USAID awarded CIPE a two-year $499,522 grant to support program work under CIPE's "Corporate Governance Initiative for the Transition Economies". This USAID grant was augmented in August, 2001 by $225,000 for increased program activities including an international conference on corporate governance, anti-corruption and competitiveness; and additional capacity-building small grants in CEE and Eurasia. The grant was augmented again in July, 2002 by $435,000 (current value $1,159,522) to support sustainable institution building on corporate governance education and shareholder rights promotion through improved networking, support grants, and access to up-to-date information on corporate governance. Recognizing the timeliness of corporate governance to the economic transition progress in the former communist states, the project has examined corporate governance models throughout the region and identified workable approaches for adapting corporate governance principles in a transition economy. A primary focus of the program has been on identifying and promoting workable corporate governance standards, and providing support for training and advocacy projects in key countries. Project activities focus on the following major areas:

• Establish Local Working Groups on Corporate Governance - Led by the local partner organizations, working groups on corporate governance were established to examine local conditions of corporate governance, and to identify possible approaches to promoting corporate governance standards appropriate for regional realities. Working groups are made up of members of the business and financial communities, policy experts, economic journalists, and government representatives.
  
• Small Grants and Training - Hessel Program, Additional Grants
  
• Corporate Governance Outreach - Budapest Conference, March 2002 & website, Romania Corporate Governance Conference (OECD)

1. Program Activities to Date

Marek Hessel Competitive Grants Program (6 awards) near completion

• Albania - Corporate Governance Training for Journalists
• Bulgaria - Corporate Governance Awareness and Best Practice
• Poland - Corporate Governance Code and Ratings Model
• Russia - Local Corporate Governance Awareness and Training (Ryazan)
• Ukraine - Shareholder and Investor Promotion of Corporate Governance
• Uzbekistan - Building Business Community Awareness

Additional Operational Grants completed

• Romania - Bucharest Stock Exchange support for OECD Roundtable
• Bulgaria - Building CG Advocacy Capacity Through the Media
• Russia - IPA, Board of Directors Survey

Supplemental Grants (3 awards) active (link to the Additional.php page again)

• Serbia - Corporate Governance Survey
• Slovak Republic - Building Stakeholder Support
• Russia - Russian Institute of Directors (RID)

Regional Conference: Building Competitive Advantage in Nations

The March 2002 conference in Budapest, Hungary explored the linkages between competitiveness, corporate governance and anti-corruption efforts. During this reporting period there were 11,598 hits on the CIPE/USAID conference website.

2. Program Review/Strategy

In review of efforts to promote corporate governance in transition economies, CIPE confirms the importance of creating a supply and demand situation, in which local stakeholders work to build business awareness of corporate governance and its contribution to investment promotion and competitiveness. This in turn creates demand inside companies and within stakeholder groups for improved transparency and corporate accountability. CIPE has identified a four-step process in which demand is created and supply generated; phases one and two generally reflect the demand-building aspects of corporate governance promotion, while phase three works towards improving the supply of advice and the building of capacity.

1. Initial Assessment and Advocacy - This period represents the first efforts at assessing the nature of corporate governance failure. The OECD principles become an effective tool for measuring status and for building awareness. Local stakeholders are identified and efforts initiated at creating broader public awareness and empowerment.
   
2. Outreach and Institutional Development - An extension of stage one, this phase concentrates on improving the range of domestic corporate governance stakeholders and their ability to participate in corporate governance activities.
   
3. Capacity and Institutional Development - In this stage efforts are put into place to create sustainable institutions that will protect shareholder rights, and improve boardroom professionalism.
   
4. Consolidation - continued support, monitoring and evaluation of program activities.

In reviewing program outcomes over the last two years, it is clear that most participating transitional economies are entering stages three and four of this process, and two trends in corporate governance promotion have emerged:

• The need for education on corporate governance both within companies themselves but also within the stakeholder and regulatory communities. As general acceptance of corporate governance principles moves into the mainstream of the business community, corporate managers and directors must grapple with how such practices can be implemented at the board room level.
  
• The growth of shareholder rights initiatives. Changing the policy and regulatory environment, and challenging companies which actively abuse shareholder and investor rights are emerging as the complement to corporate governance education.
  
  

3. Year Three - Building on Best Practice

As per the trends mentioned above, continuation of the project during the extension period will focus on two main areas of activity:

1. Targeted Networking
   CIPE's third year activities will target the development of knowledge networks in the areas of education and investor rights, and will coordinate with existing USAID/Mission efforts and other organizations to strengthen corporate governance networking in two key areas:
   
   
• Corporate Governance Training - The program will link NIS-based corporate governance education efforts in Russia (RID), USAID's Ukraine program, and activities CIPE has completed in Kazakhstan (and if possible other Central Asian countries). It will provide for exchanges of best practice, approach and materials through person to person exchanges, at least two regional workshops, and use of the World Bank video-conferencing network for regularized information exchanges.
  
• Shareholder/Investor Rights - The program will link shareholder/investor rights groups such as Russia's Investor Protection Association with counterparts throughout CEE/NIS. The focus on shareholder rights programs will strengthen the institutional capacity of existing shareholder rights organizations and enable such groups to change the policy environment surrounding corporate governance. Members of this networking group will include investor protection organizations as well as other groups undertaking shareholder education/advocacy and watchdog projects. Linkages would be based on person to person exchanges, internet-based information, and regional workshops.

In addition to the methods of information exchange mentioned above, twinning arrangements between specific organizations will be utilized as a means of East-East assistance. CIPE will also explore the establishment of a mentoring program on corporate governance in which international investors active in the region provide their insights to local counterparts.

2. Support Grants
   CIPE will provide small grants in support of the targeted networking effort to allow local groups to implement best practices and exchanges with other groups in the region. Approximately six grants of $20,000 will be made available for both education and advocacy efforts, and will be awarded through a competitive application process. Grants will require a local partner match to increase impact, and all recipient organizations will be expected to develop sustainability action plans for follow-up work after completion of the grants.