From Sustainable Companies to Sustainable Economies: Corporate Governance as a Transformational Development Tool

For democracy to deliver, reform efforts must focus on improving economic institutions as well as political structures. Despite some impressive growth figures, many fragile democracies continue to face pressing economic and social problems of poverty, infrastructure decay, limited access to basic resources, and lack of private sector jobs. The emerging energy and food crises are only exemplifying these problems, resolving which should be on the top of the agenda for everyone involved in development, as unaddressed citizen concerns undermine the legitimacy of governments and lead to reversals from the course of democratic and market reform.

The economic and political landscape of the world has certainly changed over the past several decades. Building on their recent success, whether from export-driven growth or natural resources, emerging markets are set to overtake developed countries in terms of overall economic wealth in the coming decades. Much of the attention to growth and development in emerging economies, however, has been confined to BRIC countries – Brazil, Russia, India, and China. Although not without their own set of problems of unequal income distribution and still poor social conditions, these four countries have certainly redefined

the power nexus and are becoming major players in the global arena.

But what about the rest of the developing world? What prospects do smaller countries have going forward? As dozens of other emerging markets outside of BRIC continue to struggle to attract investment, create jobs, and achieve functional democratic governance, the need for working approaches to reform remains pressing. How can the rest of the world address the socio-economic challenges that persist despite an unprecedented rise in the number of electoral democracies over the past several decades?

Of course, there is no one source of and no one answer to the many of the issues facing emerging economies today. In countries exhibiting strong macroeconomic growth, it is not uncommon to see the benefits out of reach for the poor because of the unequal distribution of income and opportunity. In countries struggling to break out and reduce poverty through sustainable economic means, much of the economic activity remains trapped in the informal sector, where entrepreneurial survival rather than business growth and development best describes the private sector. Many of the fragile democracies exhibit governments that are seldom accountable to their citizens beyond elections. In such countries, day-to-day decision-making processes remain opaque, unpredictable, and impenetrable for outsiders, while economic systems are being tailored to benefit the insiders.

Corporate governance is a viable solution to many of these problems. Traditionally, it has been viewed as the domain of large companies in developing economies – something of interest to investors and CEOs. However, as experiences of the past several decades show, corporate governance is much more than that. It helps to clean up the governance environment, exposing insider relationship and injecting values of transparency and accountability in both private and public transactions. Corporate governance is also an effective means of building up a functional small and medium-sized enterprise sector which can be capable of generating jobs and attracting investment – recognized sustainable solutions to poverty. In all, as good governance in the private sector is inseparable from good governance in the public sector, corporate governance can be viewed as one of the important tools to make democracies deliver for all segments of society. This paper explores these linkages in more detail.

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CIPE

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