Despite the efforts of national governments
and international organisations to improve corporate governance in emerging
markets, the response of the companies themselves has been underwhelming. Many
companies ignore the initiatives - which primarily involve reform of boards of
directors - or just pay lip service to them. Little attention is paid to the
directors' qualifications, even when reforms are mandated, as they are in South
Korea, where 25 to 50 per cent of a company's directors (depending on its size
and sector) must now come from the outside. Could the problem be that the
would-be reformers are focusing on the wrong reforms?
This raises some interesting questions,
where for example some may argue that corporate reform is required in first
world countries, let alone emerging markets; where Board structure has been
debated for years and yet actual change is taking a lot longer than it should.
But as mentioned below, many first world countries may also need to look at
political reform, where ‘governments’ need to change their priorities from
‘selfish re-election’ policies to actually putting their country’s development
first.
Paul Coombes and Mark Watson mention
that “over half of the respondents in a recent McKinsey survey of private
equity investors said that reform of the institutional context – reform driven
by governments, local stock exchanges, and regulatory watchdogs - was at least
as important as reform of companies. Within the institutional context, the two
main concerns were weak enforcement of legal rights and the management of the
economy,” (p.91).
What’s particularly interesting about
this 2001 article is that they state that “the corporate-governance model
usually prescribed is the one that prevails in the United States and the United
Kingdom. Its emphasis on shareholder value reflects the environment in those
two countries, where a very large, dispersed class of investors, with no prior
connection to the companies listed on the public exchanges, insists on boards
that are similarly independent. These investors also demand a high level of
financial and business disclosure,” (p.90).
Yet we see ten years on from this
article that the governance models of the United States and the United Kingdom
have not responded to the advice and rhetoric; and where some emerging markets actually
responded quicker to institutional problems, for example, enforcing credit
controls prior to the global crisis – in the process showing strong and
intelligent leadership, which though rarely spoken about in ‘the West’, made
these emerging markets much stronger than their first world counter parts.
It’s as if some first world governments
and their industry advisors, were so caught up in their own invincibility, that
they didn’t believe they could be affected by a ‘global crisis’ in such a
catastrophic way, compared to their ‘lowly’ counter-parts around the world - proving
once again that arrogance is the worst predictor of future success.
Like it or not, financial control is a
basic requirement of an economic system and the global economic crisis still
holds many unanswered questions, including how first world countries managed
their failure during this time and what can be learnt by it? Governments and
industry leaders seem to have a magical power to be able to sweep embarrassing
mistakes under a very large carpet – often arguing that it’s better for the
‘countries’ economic standing to ‘forget and move on.’ But without proper
analysis and review there is a real danger that lessons will never actually be
learnt.
Unfortunately embracing proper and good
governance is still lacking within politics and industry on a global scale.
Board composition is just one part of this important ‘equation’ which still
needs a lot of attention – but pressure must be put on governments to focus
beyond their tenure and to focus on sustainable national growth – where the
stakeholders of a nation aren’t just its citizens today but are the generations
to come.
The selfish pursuit of short term power
and fame in politics and industry has done enough damage to the economies of
too many countries already, including the US, Greece, Ireland, Portugal, Spain,
Italy and numerous other countries.
So where are the leaders of the future
who are going to put organisations and countries back on a ‘real’ sustainable
path of growth and success, rising above the game playing both with their respective
organisations or the lives of their citizens?
References
Coombes, P. and Watson, M. (2001).
Corporate Reform in the Developing World. The McKinsey Quarterly, No. 4, p.
89-92.