A summary of paper titled "Corporate governance in developing transition and emerging-market economies"

1. “CORPORATE GOVERNANCE
IN DEVELOPING,TRANSITION AND
EMERGING-MARKET ECONOMIES”
CHARLESOMAN,STEVENFRIESAND WILLEM BUITER
Le c t ure r: Phan Ng oc Anh, MBA

2. GROUP MEMBERS
• Trịnh Hoài Minh Hiếu
• Nguyễn Song Bảo Giang
• Phạm Thị Thanh Mai
• Lê Thị Minh Thúy
• Phan Từ Như Ý
• Trần Việt Anh

3. CONTENT
Introduction
What i s Corporate
Governance?
Corporate Governance
and Development
Forces in Improving
Corporate Governance
Implications for Action
Conclusion

4. WHA T IS CORPORATE
GOVERNANCE?
“Corporate governance comprises a country’s private and public institutions, both
formal and informal, which together govern the relationship between the people
who manage corporations (“corporate insiders”) and all others who invest
resources in corporations in the country”.
Stimulate firm performance by motivating corporate
insiders to maximize firm’s
operational efficiency, return on assets and long-
term productivity growth
#1
#2
#3
Limit insider's abuse of power
Provide the means to monitor manager and provide
protection for investors .

5. CORPORATE GOVERNANCE
AND DEVELOPMENT
From“Relationship-
Based” to “Rule-Based”
Governance
Almost countries in the
Central European transform
to democratic reforms and
market-friendly economic.
The developing countries
have been in the middle of
the development although
they often find this process
much more difficult.
Expropriation Problem
It is important to
implement CG to monitor
and control firms and their
majority shareholders.
Company doesn't have any
documented CG codes and
the laws, which create
expropriation.
Vest ed Int er est
Comes from a small power-
control group, in political or
economic power to the
operation and governance of a
company.
It is difficult to promote good
CGpractices in the face of
determined opposition from
such vestedinterests.

6. Wrong perception:
More important to: publicly
traded share company >
unlisted share firms, family,
state-owned…
Relationship based- rule
based, more effective
WHY CORPORATE GOVERNANCE MATTERS?
Insider’s ability
to exploit other
investors &
conporate
control rent –
“expropriation
problem”
Damaging effect
of rivalry among
powerful interest
group

7. RELATIONSHIP– RULEBASED GOVERNANCE
• Build brand awareness within 3
months after the launch date.
• Enter new markets internationally or
locally
• Increase online following by 200%
by the end of first quarter

8. THE EXPROPRIATION PROBLEM
• Agency Problem– shareholders protected by CG
/others by contractual relations with corporate
• Ownership concentration- less protection of
the minority shareholders

9. FORCES WORKING FOR AND AGAINST
IMPROVED CORPORATE GOVERNANCE
Interest groups
benefit from
corporate-control
rents
• Institutional
investors
• Demands for fund
FO
R
AGAINS
T

10. 05
Institutional
investors
Demand for
Funds
The needs for extra- f i
rmsources of f inance
to respond to the
growing competitive
pressures caused by
globalization
A decrease in the
supply of funds f rom
traditional domestic
sources
Improve corporate
governance to attack
investments.
Invest inactions
ofstrategic
rivalry
Consume
significant
resources ->
wastage and
misallocation of a
country’s
resources
Destructive
strategic
behavior ofrival
distributional
cartels
Interest groups
benefit from
corporate-control
rents
Therapid growth
ofinternational
portfolio
investmentby
OECD-based
institutional
investors
Establishment and
growthof domestic
pension funds

11. IMPLICATION

12. 05
Liquidity of stock
market
Banks and markets
• Measures to strengthen
corporate governance system
should be a compliment to
measures to strengthen
banking sector
• Important role of bank
supervision, prudential
requirements, bankruptcy rules
and procedures
Expand the pool of
qualified managers and
develop a reasonably
competitive market for
management
competencies
Professionalisation
of Management
• Firms are able to
mobilize a huge
amount of capital from
multitude of small
investors
• Individuals are also
able to diversify their
equity holdings,
reduce level of risk
exposure, which
results in a more liquid
stock market.
=> More efficient
financial system and
enhanced process of
national development

13. IMPLICATION
ENFORCEMENT REAL SECTOR
IMPLICATION
POLITICAL
GOVERNANCE
• Voluntary vs.
Mandatory
• Mechanisms
Judicial vs.
Regulatory
Means
• Institution
corporate
governance
• Market
competition
• The regulatory
institutions which
are required in
specific sector
• Regulatory and
judicial
• Distributional
cartels
• Enforcement
issues

14. Roles of CG in DTE
countries
1. Improve transparency
• Increase capital flow, lower cost
• More external finance than traditional
sources ( state-controlled)
2. Stabitilize int’ financial markets

15. How DTE
countries
benefit from
improved CG?
1..Economy liquidity, as a
whole country. Especially,
support SME.
2.Sustainable productivity
• Create long-term
growth
• Limit bad behaviours:
distributional cartels,
insider dealing
• Gradually remove
relationships-based
system

16. The Downside of
Corporate Governance More efforts and measures
(policies) to give close
attention
1. Finacial sector:
strengthen banking system
2. Non-financial sector
 Enforce competition
policy
 Customize and reform
regulations

17. T h e demand and supply of portfolio
equity flows
1. Demand side:
• Corporations in need of
financial tools to boost growth
• Goverments in reducing burden
of financing everyone in the
country
2. Supply side:
• Major institutional
investors increase in
n u mb er and size
• E B R D and O E C D invest more in
D T E countries
“Give lip service” (realize but do
nothing) to the interest group
problems
• Dominant shareholders,
corporate insiders
• Distrbutional cartels: “together we
fix price”
• Matrix ownership structures
(cross, pyramid)
• Multiple shareclasses
Favorable Forces
In Improving CG
Infavorable Forces
In Improving CG

18. T H AN K Y OU
Go o d c o r p o r a te g o v e r n a n c e r e q u i r e
s
g o o d p o l i ti c a l g o v e r n a n c
e AND V I CE V E R SA