Building the institutional framework for better companies and better societies is a learning process, where the public, private, and civil society sectors share mutual responsibility to strengthen good governance, particularly in the context of developing countries. All stakeholders must ensure that the rules of the game are written and applied for the benefit of all of society and not for the private gain of the few. If that is not the case, corruption can take its most extreme form: state capture, where a country is run for the benefit of political elites colluding with narrow private interests at the expense of the society at large.
This Feature Service article is based on the report of the International Consultation on the “Role of the Private Sector in Ethics and Corporate...
The world has undergone enough banking crises that some useful lessons might be gleaned from past experience. A working paper from the IMF attempts to do just that with a database of all system banking crises between 1970 and 2007 - a total of 42. Systemic Banking Crises: A New Database offers up a few guidelines on what to do when faced with a crisis:Our preliminary analysis based on partial correlations indicates that some resolution measures are more effective than others in restoring the banking system to health and containing the fallout on the real economy. Above all, speed appears of the essence. As soon as a large part of the financial system is deemed insolvent and has reached systemic crisis proportions, bank losses should be recognized, the scale of the problem should be...
A colleague and I were talking about corporate governance promotion this morning. We were lamenting the difficulties that could lie ahead as skepticism over Wall Street’s recent collapse spreads through emerging markets. Surely the failure of financial markets and investors to adequately appraise risk detracts from the arguments we make about the role corporate governance plays in encouraging investment, we asked ourselves. However, an alternative scenario quickly came to the mind; the importance of sound corporate governance is now going to be more vital for than ever.
The financial crisis has not only tightened up available funds on global financial markets but also has caused shrinkage in bank lending (traditionally the first port of call for local companies seeking finance in...
Get ready to hear it ad nauseum: creative destruction! If you're an ardent supporter of the free market, there is little else to fall back on in the face of today's events on Wall Street. In fact, one might even be pleased about the turn of events, given that financial authorities allowed Lehman Brothers to fail. Avinash Persaud sums up this perspective in an op-ed today in the Financial Times:[T]here is the subject of moral hazard. While central banks have been offering liquidity on generous terms and stopping institutions from going bankrupt, some banks were not engaged in hard restructuring but gaming the system. They were busy hoarding liquidity and pushing risky instruments into the hands of the authorities... the game is not about luring sovereign wealth funds to invest before...
Here at CIPE we are often asked: “How does good corporate governance contribute to building functional democracies?” While I understand why good corporate governance is key, I still find it difficult to explain it in simple terms to those that question the relationship.
Today I came upon a chart put together by Philip Armstrong (now head of the Global Corporate Governance Forum) several years ago. This chart, in my view, is one of the better illustrations of how corporate governance is more than intra-company owner-management relations tool.
It clearly illustrates the relationship between internal/external stakeholders, the board of directors, management, and, most importantly, civil society. This chart captures the complex interaction between company-level...
About 20 elephants in the Samburu-Laikipia ecosystem currently wear Save the Elephants GPS collars. The latest model delivers one positional point from each elephant every hour. The technology of the new collars is not only intricate but also economical: To save expense, conserve battery power, and minimize weight, the collar mechanisms receive positional information from GPS satellites but then transmit that information by way of low-cost SMS (short message service) blurts on Safaricom, Kenya’s leading cell phone network. In other words, everybody in Kenya has a mobile phone, even the elephants. Read the rest of this article from National Geographic Magazine>>
From 2000 to 2005, mobile phone subscribers in developing countries grew fivefold, reaching almost 1.4 billion....
This summer international business leaders gathered in China to discuss the most recent developments in corporate governance in China and America. A brief video summary of the topics discussed during the conference can be found on the Business Week web-site.
The conference focused on data collected by Risk Metrics Group which surveyed 300 global investors and found that 93% will focus on corporate governance developments in China over the next three years. The primary reason for investor focus on corporate governance in Chinese businesses are the overlapping roles of regulators, policymakers, and owners. Meanwhile, for Chinese firms the incentives of looking at corporate governance have much to do with deep aspirations to be viewed as world-class businesses and desire to better...
In yesterday’s International Herald Tribune, Brook Horowitz (executive director of the Russian office of International Business Leaders Forum) penned a very interesting article - Just say ‘Nyet!’ - about Russia’s new President Dmitri Medvedev’s first decree as president to to create and chair an anti-corruption committee. It has caused quite a stir in a country that has been persitently dropping in Transparency International’s Corruption Perception Index. Horowitz notes:
Largely unnoticed, many Russian companies are beginning to do something about corruption even before new legislation is put into place. They are starting by getting their own houses in order. They are strengthening corporate governance by creating clearer separation of board...
The sky is falling???or so the head of Gazprom, the state-owned Russian energy giant, would have us believe. Today???s FT reports that Alexei Miller has predicted oil will hit $250 per barrel in 2009. Should we believe such a prognostication? Before you throw all your money into investments in oil companies, let???s remember the backdrop for such a prediction: Russia is courting foreign investors concerned about the security of their investments at the same time as BP and a group of Russian shareholders are fighting over control of the TNK-BP joint venture oil company. Medvedev, Russia???s new president, has been attempting to convince foreign investors that Russia is a safe bet, but Russian shareholders in TNK-BP have been making this look questionable with the trouble they???ve been...
In just the last two days, two articles have pointed to growing pressure for greater state control of energy resources. In Brazil, the state-owned oil company Petrobras (subscription required) has been pressuring the country???s Congress to change the rules of the game to its benefit. Currently, foreign oil companies bid in auctions for exploration rights, paying a combination of an upfront fee and royalties on any discoveries. However, a huge discovery last year by Petrobras has upped the stakes. Petrobras wants to force all new explorations to be carried out as joint ventures, a la Venezuela and Nigeria.
A case in Russia is also pointing to continuing pressure for state control of the energy industry (subscription required). TNK-BP, a joint venture of British Petroleum and...
The Financial Times and IFC announced shortlists of potential winners for the 2008 Sustainable Banking Awards. The awards recognize financial institutions that have led the way in integating their policies with social, environmental, and corporate governance objectives. Below is a sample the categories and the shortlisted candidates, the full list is available here.
Sustainable Bank of the Year
Banco Real, Brazil
Citi, US
HSBC, UK
Rabobank, Netherlands
Standard Chartered, UK
Sustainable Deal of the Year
BlueOrchard Finance, Switzerland/Morgan Stanley, US (microfinance loans)
Calyon, France (solar thermal power plants)
Citi, US (financing for rural housing)
Glitnir Bank, Iceland (geothermal power generation)
Merrill Lynch, US (carbon finance to reduce...
In Tunisia recently for a workshop with business journalists on corporate governance issues, I witnessed a generational divide that gives me hope. The key moment in the training came in a debate between an older journalist writing for a state-owned newspaper and younger journalists writing for web-based economic journals about the role of the media in investigative reporting on corporate behavior. The state-owned newspaper journalist challenged why reporters should dig their noses in private businesses if there is nothing wrong. The others protested, saying they must be active in their reporting in order to uncover failures before they become scandals. The split in their views was clear, and I was encouraged by the younger clan who want to shape a new culture that values good...
With the world’s eye squarely focused on Iraq, much less attention is being paid to the challenges – and opportunities – for democratic and market reform elsewhere in the Middle East. Yemen, for instance, has recently come into the media focus because of an attempted Al-Qaida attack against the U.S. embassy that injured 13 students leaving a nearby school. But the domestic context of this attack remains poorly understood.
Yemen has an important choice to make. If the entrenched disfunctionalities in its political and economic systems persist, it will be headed toward anarchy or even a failed state. But if reforms continue, it may well become a regional example of progress in building democratic and market institutions.
Yemen is facing significant internal security problems...
An academic paper just came to my attention by Najib Harabi, of the University of Applied Sciences of Northwestern Switzerland (November 2007) that poses an important question: What is the state of corporate governance as a major factor affecting the growth of the private sector in MENA countries? Although Mr. Harabi doesn’t answer the question fully, he makes some assumptions that are worth evaluating. With corporate governance gaining steam in the MENA region, it is a critical that we have good answers to such questions about how corporate governance can foster better investment climates.
The study looks at the World Bank assessment tool on corporate governance (ROSCs) used in Egypt, Jordan and Morocco, as well as a series of regional roundtables from 2003 to 2006 that were...
Microfinance professionals, who responded to a new survey by the Center for the Study of Financial Innovation, identified poor management skills as the main risk the industry faces. Poor corporate governance is also seen as a great risk, but more so by investors and analysts than by practitioners.
According to the report "[m]icrofinance institutions tend to be dominated by 'visionaries' who are strong on charisma but less so on management skills and strategic flexibility."
More than 300 respondents from 74 countries contributed to the survey. It focused on institutions with more than $5m in assets which are profitable and capable of commercial growth.
Do you have any insights to share? Feel free to leave your own "two-cents"....
Ceres, a coalition of investors, environmental groups and other public interest organizations, believes that the financial services industry – with nearly $6 trillion in market capitalization – should play a role in combating climate change.
Most recently, Ceres released a first comprehensive assessment of how the world's 40 largest banks fulfill their commitments to the reduction of greenhouse gas emissions.
The study found that, despite an overall widespread positive trend, only 12 banks made climate change a governance priority; only 6 said they were calculating carbon risk in their portfolio and "no bank has set a policy to avoid investments in carbon-intensive projects such as coal-fired power plants." Cares' recommendations:
Elevate climate change as a governance priority...
A recent Foreign Policy article makes some interesting comments on the prospects of democratization in China. The author points out that democracy has been an aspiration of the Chinese people for a long time, but an understanding of what democracy is has been shifting and the ideals professed by the country’s revolutionary leaders all too often failed to live up to the reality of their policies.
China’s leaders have held out the promise of some form of democracy to the people of China for nearly a century. After China’s last dynasty, the Qing, collapsed in 1911, Sun Yat-sen suggested a three-year period of temporary military rule, followed by a six-year phase of “political tutelage,” to guide the country’s transition into a full constitutional republic....
Recently, I made a trip to Russia, where I had a chance to participate in a number of events on corporate governance. In all, it must be noted that Russians academics and practitioners have made a tremendous leap forward - the quality of analysis of corporate governance is quite impressive compared to several years ago. There were, however, a few issues that were quite interesting in terms of a Russian view of things.
One of them is the relationship between CSR and corporate governance. This is a difficult question not just in the Russian context, many countries struggle to realign these two seemingly similar but in reality two different concepts. In Russia it has a special meaning, as during the chaotic 1990s private sector became associated with opaque dealings and insider...
While few people may realize it, China is rapidly catching up with the U.S. in terms of the number of billionaires. The NYT talks about this unprecedented phenomenon, pointing out that only a year ago there were 15 billionaires in China, but today – depending on the source of estimates – there are already 66 or maybe as many as 100. Most of them found their fortunes in real estate speculation and manufacturing, and amazingly many of them are only in their 30s.
What’s the source of this incredible new wealth? Two words: “shang shi,” of initial public offering.
Thanks to the capitalist stock mania sweeping the Communist mainland, Chinese private and state-owned companies issuing stock for the first time are becoming the most valuable companies in the world — at least on paper...
Alexis Sampson and Michael Jarvis sum up this year's International Business Forum:
The lights dimmed in the Preston Auditorium and the tension rose as the results were calculated. Having generated and then prioritized host of recommendations over the course of the IBF, delegates voted to rank their final top ten. Despite the risky reliance on electronic voting machines, the system worked and the results were reassuringly conclusive.
The number one priority? Step up collaboration and coordination between business associations, civil society, and governments to make all parties more accountable to reduce corruption. The most achievable action in the short term? Press public and private sectors to increase knowledge sharing around adaptive strategies in preventing climate change with...
According to a new research, time is worth more, if you're paid an hourly wage rather than a salary....
What drives entrepreneurship across countries? What is the effect of entrepreneurship on economic development? Important questions, but up to now little data to answer them.
The 2007 World Bank Group Entrepreneurship Survey helps fill this gap with data for 84 developing and industrial countries. A first analysis of the data shows that countries with better governance and fewer licensing procedures have more entrepreneurs. Political turmoil seems to hurt entrepreneurship....
Pakistan was one of the few countries that had adopted a Code of Corporate Governance in 2002. As president of the Management Association of Pakistan and the Overseas Investors Chamber of Commerce & Industry, I was extensively involved in its development. The code was enforced through the stock exchange listing rules when I became managing director of the Karachi Stock Exchange in August 2002.
The inclusion of adherence to the code in the listing standards had the unintended consequence of causing companies to de-list from the stock exchanges, rather than comply with good governance structures. The code looked good on paper – but the companies didn’t understand why or how good governance could affect their business. So instead of making changes that could improve investment and...
It wouldn’t be a stretch to say that good corporate governance is important for development - as illustrated by financial crises and corporate collapses as well as countries’ ambitions to attract investment and build a competitive private sector. As we have learned, making corporate governance work, however, is a much more difficult task than agreeing on its importance or adopting some set of standards or copying the OECD Corporate Governance Principles.
One issue that we’ve seen gain increased attention in corporate governance reform is follow up and enforcement. Simply put - it is not enough if companies agree to some set of principles. You have to make the corporate governance process works beyond articles on paper.
How do you ensure that principles are...
From moving meetings with top managers to 8:30am, expanding the trading floor – which manages $65 billion portfolio - to providing risk-reducing derivative products, such as swaps, President Zoellick wants the bank to adopt more private sector practices....
The critics of the Sarbanes-Oxley Act (SOX) say that the regulation has made the U.S. less competitive, causing an exodus of companies to less-regulated stock exchanges in London and Hong Kong. The authors of a new paper defy this common wisdom. They find that when firms' characteristics such as size and type are factored in, the listing gap disappears.
"Before you jump to the conclusion that this is evidence of New York losing market share, remember most of those firms wouldn't qualify for the listing in New York. It's apples and oranges" says George Karolyi, one of the co-authors. In general, whether they list on the NYSE or NASDAQ, firms are subject to SEC oversight, they are exposed to class action lawsuits, and face additional monitoring by market participants, such as analysts and...
Major conferences inevitably generate a plethora of documents. Corporate responsibility events seems particularly prone to this trend, so it should be no surprise that the gathering of around a thousand of the great and the good at the United Nations Global Compact Leaders Summit in Geneva earlier this month witnessed the launch of a daunting set of proclamations, new initiatives and reports.
Highlights include the Goldman Sachs report suggesting firms that are leaders on good environmental, social and governance policies have outperformed the stock market 25% over the past two years.
The State of Responsible Competitiveness 2007 report from the NGO AccountAbility lets you see how your country compares among the 108 analyzed in terms of their progress on boosting competitiveness...
Not everything that works in developed countries works in developing countries, but here is an example of the reverse – while the Sarbanes–Oxley (SOX) Act might not have had the expected impact in the U.S., similar reforms have had a positive impact in India, including on the share prices of Indian companies.
These governance reforms could have net benefits in a poor-governance country, like India, but net costs for companies that are already well-governed, like the U.S....
Transparency International focused its newly-released Global Corruption Report 2007 on judicial systems: There is […] a correlation between levels of judicial corruption and levels of economic growth since the expectation that contracts will be honored and disputes resolved fairly is vital to investors, and underpins sound business development and growth. An independent and impartial judiciary has important consequences for trade, investment and financial markets, as countries as diverse as China and Nigeria have learned. This 400-page-long volume adds new country-specific case studies, compares Russia with Brazil as well as other emerging economies. John Bray's section on measuring the impact of corruption on international business shows that 40 percent of surveyed firms believe to...
Daniel Yankelovich is a key figure in the creation of public-opinion research and a long-time promoter of ethical integrity in business. In an interview, he challenges Milton Friedman's view that social good comes about automatically when companies make a profit.
How does the public want its business leaders to act? Should they increase short-term value or make contributions to a public good?...