Developing trust

Corporate Governance in Development: The Experiences of Brazil, Chile, India, and South Africa
OECD Observer

We all now know that weak corporate governance can have a real impact on investors, savers, retirees, creditors, employees and consumers, as well as on entire economies. Corporate failures from the US to Italy have demonstrated this. But what would the effects be on developing countries?

Significant, according to Corporate Governance in Development. The report highlights the institutional characteristics of developing countries that tend to impede the transparency, accountability and enforcement needed to implement effective corporate governance.

Four countries are examined in detail – Brazil, Chile, India and South Africa – addressing the corporate governance challenges they all face towards achieving long-term development.

In OECD countries, the interest in corporate governance has grown in conjunction with globalisation, as well as with the growth of cross-border portfolio investment. In light of this, the OECD’s recently revised Principles of Corporate Governance (see article by Bill Witherell, page 41) aim to improve not only corporate accountability, but also the legal, institutional and regulatory framework for corporate governance around the world.

Corporate Governance in Development stresses that development is closely associated with the need for adequate corporate governance enforcement measures – judicial and regulatory – and a simultaneous shift in political governance, one of the greatest challenges facing developing countries today.

Corporate governance is central to increasing the flow and lowering the cost of financial capital in both developed and developing countries alike. Its importance is further warranted as corporations’ needs for new sources of financing expand. As Corporate Governance in Development highlights, this is no less true in developing countries, where a gap is being left from the retrenchment of state-sponsored financing.

This means more private investment, both domestic and from abroad. But financiers and shareholders are increasingly demanding better boardroom behaviour. Better corporate governance improves credibility and gives companies a chance not only to attract investment, but to hold on to it in the long run. That means the economic stability which development depends on.

©OECD Observer No 243, May 2004

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