1	Value Enhancing for Corporate Governance Impact of Global Developments on Corporate Governance Varsha Marathe The World Bank September 2006
2	Overview Why corporate governance? Impact of Global Developments on Corporate Governance Common trends and lessons learned World Bank’s role in corporate governance From diagnostic to implementation
3	Why corporate governance? Protection of shareholder rights Public policy rationale Access to finance Crisis prevention and financial stability Protection of pension savings for retirement
4	Universal Views on the Importance of Corporate Governance
5	Impact of Global Developments on Corporate Governance Crises and Bankruptcies East Asian and Russian Financial Crisis Scandals involving major corporates in the US and Europe Response Financial Stability Forum (1999) Review and changes to company law have tightened audit functions, increased transparency, and improved the role of shareholders Stringent requirements from regulators on compliance e.g. SOX Codes of corporate governance
6	Impact of Global Developments on Corporate Governance- contd Drivers of Corporate Governance Corporate Scandals Increased focus on Compliance From compliance it is now a business imperative Globalizing forces speed of globalization of corporate governance practices with a lot of ‘copy-cat’ tactics” globalization of corporate governance also holds implications for regulators and governments, especially in developing markets.
7	Implications for corporates and governments/regulators Corporates Recognize the global pressure to raise corporate governance practices, often to standards that are higher than those prevailing in the issuer’s home market Build on best practice to attract and expand international shareholder base and lower cost of capital Improving the skills mix to respond to the requirement of global governance Government/Regulators As markets compete for global capital, corporate governance standards is an important driver. Governments and regulators are encouraging higher corporate governance standards to make their markets more attractive to international investors.
8	OECD Principles of Corporate Governance: International Consensus The Corporate Form is universal - limited liability, unlimited life, legal personality, separation of ownership and control Certain basic principles apply in all countries: I) The Rights of Shareholders; II) The Equitable Treatment of Shareholders; III) The Role of Stakeholders; IV) Disclosure and Transparency; V) The Responsibilities of the Board. International and Regional Dialogue use OECD Principles as Conceptual Framework (Codes, Roundtables; FSF)
9	Common trends and lessons learned: Overall impressions and stylized facts On the one hand… Acceptance of corporate governance and OECD Principles Large amount of reform activity over the past 3-5 years Lowered thresholds for shareholder action Greatly improved disclosure rules, standards, and formats Concepts of “independent director” and audit committee Efforts at improving director training More active regulators and exchanges
10	Common trends and lessons learned: Overall impressions and stylized facts On the other hand … Understanding ownership remains difficult in many countries Reforms are just beginning to penetrate business cultures Disclosure and approval of related party transaction Quality of financial reporting still mixed True board independence remains rare; “rubber stamp” boards “Reform fatigue” Enforcement remains key challenge
11	Corporate Governance and World Bank Strategy Investment Climate One of the World Bank’s strategic pillars Macro-stabilization and micro policy reforms Laws, regulations, public institutions and civic habits Importance of diagnostics – investment climate assessments, doing business database, corporate governance assessments èA conducive investment climate is crucial for economic growth and poverty reduction
12	Overview of Corporate Governance ROSC Assessments Country participation is voluntary Assessments are benchmarked against the OECD Principles of Corporate Governance Standardized and systematic diagnostic, including policy recommendations Updates: measure progress over time Publication (voluntary) at: http://www.worldbank.org/ifa/rosc_cg.html
13	Overview of World Bank Corporate Governance Assessments
14	Overview of World Bank Corporate Governance Assessments
15	India-Key Findings What has been achieved in corporate governance? Significant legal and regulatory reforms Improvements in the level of responsibility/accountability of insiders, fairness in the treatment of minority shareholders and stakeholders, board practices, and transparency Key challenges in implementing corporate governance reform agenda Stricter enforcement by the regulators and stock exchanges Improved delisting rules Clarification of responsibilities on the regulatory architecture Creation of a credible director training institution Active institutional investors Way forward Corporate governance of banking institutions and state owned enterprises Corporate governance of non-listed companies Reforms to deal effectively with director liability in case of conflict-of-interest situation benefiting a controlling shareholder-director
16	From diagnostic to implementation
17	Thank-you