During its more than 30 years of strengthening democracy around the world, CIPE has learned time and again that sound corporate governance practices and principles improve economic performance and have a significant democratic dividend.
According to CIPE’s Corporate Governance Toolkit, “The shift to better private governance accelerates the move toward more democratic public governance.” By improving transparency, corporate governance reduces corruption and cronyism that inhibit the democratic process. Corporate governance principles strengthen the democratic values of fairness, accountability, responsibility, and transparency. In transitioning economies where state-owned enterprises dominate key industries, sound corporate governance practices can improve budget management and service delivery, thus building public trust in the government.
In Kyrgyzstan, state-owned companies play a significant role in the economy, especially in the banking, mining, and transportation sectors. According to the Index of Economic Freedom, government expenditure accounts for 38 percent of Kyrgyz domestic output. Cronyism and corruption within these companies presents a major obstacle to Kyrgyzstan’s market- economic transition. In many cases, elected officials appoint company board members based on political loyalty rather than professional skills and corporate governance knowledge. The positions on boards of directors are frequently used as rewards for political support. This dynamic only reinforces a patronage system—the antithesis to democracy—resulting in poor economic performance and public service delivery.
To reduce such overt political influence in corporate management and increase board independence, CIPE and its local partner, the Corporate Governance School (CGS), are educating board members from state-owned enterprises about the principles of corporate governance. During 56 hours of lectures, discussions and case studies, participants learn the fundamentals of corporate governance, including the function and responsibilities of boards of directors.
CGS’s experts present on the role of public companies in a market economy as well as how to evaluate the effectiveness of a board’s management. Participants have responded positively to the program; for example, a board member from a state-owned bank remarked, “It is important to continue these educational seminars. I will actively support CGS and recommend this program to my colleagues.”
CIPE and CGS are leading the way in strengthening corporate governance practices within Kyrgyz state-owned enterprises. To date, CGS has established Kyrgyzstan’s only grassroots-led private sector program aimed at improving board management, transparency, and independence by educating board members about corporate governance and its importance in building a market-based democracy.
Nathaniel Oppenheimer is an intern for Eurasia at CIPE.