World Bank ROSC Corporate Governance Assessments

As part of the ROSC initiative, the World Bank has established a program to assist its member countries in strengthening their corporate governance frameworks. The objec­tives of this program are to accomplish the following:

• Benchmark the country’s corporate governance framework and company practices against the OECD Principles for Corporate Governance.

• Assist the country in developing and implementing a country action plan for improving institutional capacity with a view to strengthening the country’s corpo­rate governance framework.

• Raise awareness of good corporate governance practices among the country’s public and private sector stakeholders.

Participation in corporate governance ROSC assessments is voluntary, and the World Bank conducts the assessments at the invitation of country authorities, sometimes in the context of an FSAP assessment. The World Bank has developed a template to gather per­tinent information for preparing the Corporate Governance ROSC as a diagnostic instru­ment. The template gathers both quantitative and qualitative information on ownership and control structure of listed companies, capital market structure, legal and institutional factors affecting corporate governance, rights and obligations of listed companies, inter­mediaries and investors in a given country, relevant disclosure practices, and functions and responsibilities of governing bodies of the corporation. Although the assessments are relevant to all countries, they are particularly pertinent in middle-income countries seeking to build strong capital markets. They are also a useful instrument for transition economies, where mass privatization has created a large pool of listed companies with

The World Bank has developed a questionnaire in the form of a template that is available on its Web site.* An updated template, following the 2004 revi­sion of the OECD principles, has been prepared and will be available on the same Web site to assist in assessments. It is structured along the six chapters of the OECD Principles and seeks to gather both quantitative and qualitative information on capital markets, listed companies, and enforcement of securi­ties and corporate laws. The objective of the updated template is to facilitate the gathering of information necessary to formulate a diagnosis of the institutional framework underlying corporate governance, as well as the prevailing practices and enforcement. For each OECD Principle, a set of questions has been prepared to assess the compliance of the country under assess­ment.

The updated template includes a section on the ownership structure of the assessed country because this structure is an important determinant of corpo­rate governance practices. It endeavors to identify pyramid structures, cross-shareholdings, and business groups, and it gathers information on the divergence between cash flow rights and voting rights. Although the OECD Principles are mainly concerned with the rights of shareholders and stakeholders, disclosure, and responsibilities of insiders, the updated template also addresses the issue of institutional capacity.

A first template was produced at the beginning of 2000 as a pilot template, and it was revised into a second version in the same year and was vetted by the OECD, IMF, and SEC. Consultation took place for the preparation of the third generation expanded template in 2003. The fourth and current version, reflecting the revisions to the OECD Principles in 2004, is being finalized. In addition, special template modules have been developed that focus on financial institutions’ governance, including governance of banks and non-bank financial institutions (insur­ance companies, pension funds, and mutual funds),

thousands of shareholders, and for low-income countries seeking to attract international portfolio investors.

The assessments are also a tool for communication between policy makers and domes­tic and international investors to reach a common understanding in an environment where countries are grappling with the establishment of a market for corporate control and are competing to attract capital. Assessments do not advocate a single model of cor­porate governance but do promote choice for issuers and investors.


Box 10.9 Methodology and Format of Corporate Governance Assessments


drawing on lessons learned from previous assess­ments. The modules have been pilot tested in the Czech Republic (mutual funds, bank, and insurance modules), and the Slovak Republic (pension funds). A new module is under development to assess the governance of state-owned enterprises (SOEs); the module is based on the OECD Guidelines on the corporate governance of SOEs.

The format of the assessment reports is elaborated in the operational guidelines for ROSC reports issued by the World Bank and the IMF. The content has evolved over time. It started with a 15-page narra­tive describing corporate governance practices of the assessed country, plus a matrix benchmarking the adherence to each OECD Principle. In a second phase, policy recommendations were added. The latest format attempts to differentiate between com­pliance of the legal and regulatory framework and actual practices of market participants and includes a chapter on institutional strengthening. For FY2005, the format was enhanced with the multiple goals of (a) enhancing readability and clarity, (b) adding fur­ther standardization, and (c) developing themes that cut across the various OECD Principles. The new format has (a) a short (5-page) discussion that focus­es on key issues and policy recommendations and is in a form similar to commercial brokerage research and (b) a 15-page principle-by-principle assessment that presents the issues in more detail.

The corporate governance country assessment is conducted as an “external” assessment. The World Bank is responsible for researching and drafting the assessment. A local consultant is typically commis­sioned to complete a “template” (questionnaire) that was designed to capture a country’s corporate governance legal and regulatory framework, as well as information on corporate governance practices. World Bank experts then visit a country to meet with government officials, market participants, investors, and issuers, and to draft an assessment report.




* A copy of the template can be downloaded from http://www. worldbank. org/ifa/CGTemplate_0603.doc.


The assessment team works closely with stakeholders and makes recommendations that can lead to a country action plan. The World Bank publishes the ROSC report on its Web site with permission of the country authorities.18 The published reports are acces­sible at http://www. worldbank. org/ifa/rosc_cg. html. The procedures and format of the corporate governance assessments are further explained in box 10.9.

The format of the assessments allows for systematic benchmarking across countries and regions. It is divided into five parts: (a) an executive summary, (b) a report on key corporate governance issues and major recommendations, preceeded by a capital markets profile, (c) a table of assessment ratings by principle, (d) a principle-by-principle review, and (e) a set of specific technical recommendations.

Each OECD principle is evaluated on the basis of quantitative and qualitative stan­dards. “Observed” means that all essential criteria are met. “Largely observed” means that only minor shortcomings are observed—deficiencies that do not raise any questions about the authorities’ ability and intent to achieve full observance within a reasonable period of time. “Partially observed” means that, although the legal and regulatory framework may be fully compliant with the OECD principle, practices and enforcement diverge. “Materially not observed” means that, despite progress, the shortcomings are sufficient to raise doubts about the authorities’ ability to achieve observance. “Not observed” means that no substantive progress toward observance has been achieved.

Подпись: 10The assessments are complementary to private sector rating activities in this field. The World Bank assessments focus on country analysis, whereas some rating agencies have started to focus on corporate governance of companies. Standard & Poor’s and Moody’s have begun rating companies in emerging markets. Other similar exercises are carried out by specialized firms such as Pensions Investment Research Consultants in the United Kingdom or Deminor in Belgium and France. New rating companies for corporate gover­nance have emerged in Russia and South Korea.

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