Corporate Governance – The Intersection of Public and Private Reform

09.04.2009 | Guides & Tools | Eric Hontz, Aleksandra Shkolnikov

Introduction: The Linkages between Corporate Governance and Development

Successful development efforts demand a holistic approach, in which various programs and strategies are recognized for their important contributions to progress and prosperity. In this regard, linkages between corporate governance and development are crucial.
Corporate governance is traditionally thought of in the framework of large corporations, shareholders, and broad private sector issues in developed economies and some of the major emerging markets. Many of these issues may seem to bear little relevance to broader development concerns, that deal with day-to-day issues of poverty, job-creation, anti-corruption, education, media, and political reform.

Yet, corporate governance and development are strongly related. Just as good corporate governance contributes to the sustainable development prospects of countries, increased economic sustainability of nations and institutional reforms that come with it provide the necessary basis for improved governance in the public and private sector. Alternatively, corporate governance failures can undermine development efforts by misallocating much needed capital and resources and developmental fallbacks can reinforce weak governance in the private sector and undermine job and wealth creation.

The linkages between corporate governance and development are explored further in this publication. The authors focus on several distinct themes.

They highlight the differences that exist in corporate governance frameworks between developed and developing countries. This helps put corporate governance reforms in the context of institutional change in developing countries, stressing the need for structural changes required for good governance to take root in the private sector.
In addition, they explore in detail fairness, transparency, responsibility, and accountability as the core values of corporate governance and core principles of democracy. This is absolutely crucial to understanding the interplay between public and private governance institutions, which should not analyzed in isolation.

The authors also discuss how good corporate governance contributes to combating corruption, which remains one of the greater threats to development around the world. Simply put, good corporate governance makes bribes harder to give and harder to conceal, and it also contributes to the broader climate of transparency and fair dealing.

These and other issues related to corporate governance, job creation, poverty reduction, and democratic reform are discussed in the pages that follow. Many of the arguments often lead to the point that corporate governance cannot exist in a vacuum – it depends as much on the country’s overall institutional development as much as it relies on the internal practices of companies. Therefore, in order to strengthen private sector governance, it is imperative that efforts also focus on the reform of the judicial systems, property rights, freedom of information, and other institutions vital to democratic market economies.