corporate governance1. Few topics a

corporate governance
1. Few topics are more central to the international business and development agendas than that of corporate governance, which is typically perceived by academic literature as dealing with "problems that result from the separation of ownership and control". A series of events over the last two decades have placed corporate governance issues as a top concern for both the international business community and the international financial institutions. Spectacular business failures such as the infamous BCCI scandal, or the United States’ savings and loan crisis. More recently, several high profile scandals in Russia and the recent Asian crisis have brought corporate governance issues to the fore in the developing countries and transitional economies. Further, national business communities are learning and re-learning the lesson that there is no substitute for getting the basic business and management systems in place in order to be competitive internationally and to attract investment.

2. The fall of the Berlin wall and the drive to rapidly privatize the entire business structure of the post-communist economies began to increase interest in corporate governance as a development topic. As a start, state owned firms had to be corporatized, i.e. converted from a governmental type structure to a corporate form. Second, the whole body of commercial law had to be put into place including bankruptcy, laws on property, accounting systems, and a host of other rules of the game. Most dauntingly, talent had to be nurtured. Few individuals had any experience as members of a board of directors.

3. When the subject of corporate governance arises in the context of transitional or developing countries, it involves a much wider range of issues. The recent Asian economic crisis, the continuing turmoil in Russia, and the recent experience of the Czech economy have combined to push the issue of corporate governance from the sidelines to center stage. In Asia, what began as a financial crisis is now viewed to be a crisis of corporate transparency involving relationships between government and business, between holders of debt and equity, and the legal remedies for bankruptcy and cronyism. Further, as seen in the daily papers, the lack of adequate institutions in Russia have resulted in several highly publicized cases involving allegations of asset stripping, stock register manipulation, and fraud. The Czech Republic privatization program has demonstrated the weakness of the voucher method in the absence of sound corporate governance mechanisms since it resulted in a lack of corporate restructuring and a consequent decline in competitiveness.

4. How often has it been said that, "the government should get out of the way and let the market function?" Of course, that idea is a myth. Government is absolutely essential in setting up the framework of a market economy. Without rules and structures of a binding nature, anarchy results. Under such conditions business becomes nothing but" casino capitalism" where investments are simply bets: bets that people will keep their word, bets that the firms are telling the truth, bets that employees will be paid, and bets that debts will be honored. What corporate governance is all about in larger terms is how a structure can be set up that allows for a considerable amount of freedom within the rule of law. Ultimately, these arrangements provide the basis for the establishment of trust, one of the most important ingredients in business.

5. A strong system of corporate governance can be a major benefit to society. Even in countries where most firms are not actively traded on stock markets, adopting standards for transparency in dealing with investors and creditors is a major benefit to all in that it helps to prevent systemic banking crises. Taking the next step and adopting bankruptcy procedures also helps to ensure that there are methods for dealing with business failures that are fair to all stakeholders, including workers as well as owners and creditors.

6. Corporate governance is also directly related to another topic that has emerged to a position of great prominence world wide – combating corruption. The recent signing of the OECD anti-bribery convention is the beginning, not the end, of a concerted global anti-corruption campaign. Creating sound corperate governance system is now a top concern for international development organizations, think tanks and business associations throughout the developing world and in the transitional economies.