Key Findings from Country Assessments
The work of Fremont and Capaul (2002) reviews the lessons of corporate governance assessments and its findings are discussed in this section. None of the assessed countries comply with the OECD principles in all respects. Yet all countries surveyed have undertaken or are currently undertaking reforms to bring their legal and regulatory frameworks in compliance with the OECD principles. In most countries surveyed, there is a growing interest toward improving corporate governance practices. A large number of countries, including Brazil, Croatia, the Philippines, and Romania have developed their own corporate governance codes of best practice. The World Bank corporate governance assessments also have been a catalyst to trigger interest and reform.
Some of the key policy issues that have arisen in corporate governance assessments include the following:
• A Code of Corporate Governance should be developed at the country level to provide more detailed guidelines to complement existing laws and regulations, and foster good practices.
• Director-training facilities should be promoted.
• Further legal reforms are needed to ensure additional rights to shareholders, particularly protection of minority shareholders, and to promote more comprehensive governance policy, including effective exercise of voting rights by institutional investors acting in fiduciary capacity.
• Institutional framework for corporate governance requires further strengthening to avoid duplication and overlap (and to promote better coordination) among multiple regulators with oversight responsibilities for listed companies (e. g., overlap and coordination issues could arise among agencies overseeing company law enforcement, securities regulatory agencies, and other law enforcement and regulatory agencies).
• Enforcement of corporate Governance Laws needs to be strengthened in several areas, including listing rules, content of disclosure, shareholders’ rights and equitable treatment of shareholders.
In most countries surveyed, business transactions have traditionally taken place on the basis of personal relationships and trust, and little attention has been paid to publicly available information. Corporate governance reform is a way to extend this trust to all market participants by enforcing shareholders’ rights, as well as other rules and practices underlying good corporate governance. The OECD principles assume that countries have an efficient legal and regulatory framework in place and that securities regulators have the means and capabilities to enforce the rules and regulations of their capital markets. However, experience from the countries surveyed demonstrates that this assumption is often not the case. Typically, courts are underfinanced, unmotivated, unclear as to how the law applies, unfamiliar with economic issues, or even corrupt. Moreover, securities regulators have little direct power to enforce penalties. Enforcement of prevailing rules and regulations is mostly the responsibility of the courts, which consequently leads to poor enforcement of the rules and regulations underlying corporate governance. In countries with weak judicial enforcement, concentrated enforcement through the market regulators may be preferable to enforcement through the courts.
The legal framework and corporate governance arrangements should recognize various forms of organizing companies when incorporating and policy makers should offer issuers different corporate governance options (in terms of disclosure and governance standards). This “menu of options” approach to corporate governance standards would facilitate reforms and enhance the relevance of the OECD principles for developing countries and transition economies. This approach provides a means for issuers and investors to choose the markets and the companies that are most appropriate to their specific risk profile. At the same time, standardization of options is desirable to lower transaction costs for issuers and investors alike.