DFIs Corporate Governance Practices

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					DFIs Corporate Governance
        Practices:
   Where Do We Stand?


  DFI Working Group on Corporate Governance
                Tunis, Tunisia
               October 21, 2008



                                              1
               Outline
• Introduction
• DFIs Approach Statement on Corporate
  Governance
• DFIs Practices in Corporate Governance
  – Current Initiatives
  – Future Improvements
• Conclusion & Next Steps

                                       2
Introduction



               3
    DFI Corporate Governance
      Network Background

1st Conference: Paris- June 2004
  – Hosted by: IFC
  – Objectives: Highlight the importance of
    corporate governance in the DFIs work
  – Outcomes: Introduction of the DFIs work on
    CG (including the IFC Corporate Governance
    Methodology) & an increased collaboration
    among DFIs: FMO, IFC, SIFEM
                                             4
    DFI Corporate Governance
      Network Background

2nd Conference: Amsterdam- March 2007
  – Hosted by: FMO & IFC
  – Objectives: Proposal of a common Approach
    Statement on corporate governance among DFIs
  – Outcomes:
     • Acknowledgement of the importance of corporate
       governance to DFIs
     • Signature of the “Corporate Governance Approach
       Statement” (Washington, DC – October 2008 by 31
       DFIs)
     • Creation of the “DFI Working Group on Corporate
       Governance”
                                                   5
DFI Working Group on Corporate
          Governance
An open group, currently including:

  – AfDB, Mohamed Bourenane
  – CAF, Gabriel Duque
  – EBRD, Gian Piero Cigna
  – FMO, Frederik Van Pallandt
  – IFC, Sanaa Abouzaid
  – IsDB, Julio Estrada

                                      6
    DFI Corporate Governance
      Network Background

3rd Conference: Tunis- October 2008
  – Hosted by: AfDB
  – Organized by: the DFI Working Group on Corporate
    Governance
  – Objectives:
     • Assessment of where DFIs stand (and where they’re
       heading) in their corporate governance evaluation practices
     • Sharing lessons learned on implementation of the Approach
       Statement
     • Strengthening collaboration & synergies among DFIs
                                                                 7
DFI Approach Statement on
  Corporate Governance




                            8
Common Corporate Governance
        Definition
Corporate Governance is the system        by which
companies are directed and controlled.
Cadbury Code, UK, 1992

Corporate governance involves a set of relationships
between a company’s management, its board, its
shareholders and other stakeholders.
Corporate governance also provides the structure
through which the objectives of the company are set,
and the means of attaining those objectives and
monitoring performance are determined.
OECD Principles, 2004
                                                   9
     DFI Approach Statement on
       Corporate Governance
5 Approach Statement Elements focusing on:

1. Development of corporate governance guidelines
2. Corporate governance training
3. Observance of local corporate governance codes
4. Use of Internationally recognized financial
   reporting standards
5. Collaboration with other DFIs

                                               10
      DFI Approach Statement on
        Corporate Governance
1- Each signing DFI endeavors to:
“Develop or adopt guidelines, policies or
procedures on the role of corporate governance
considerations in its due diligence and
investment supervision operations; these could
cover aspects such as: commitment to good corporate
governance, the rights and equitable treatment of
shareholders, the role of stakeholders, disclosure and
transparency, and the composition and responsibilities of the
Board of Directors”

                                                           11
    DFI Approach Statement on
      Corporate Governance

2- Each signing DFI endeavors to:
“Provide or procure training on corporate
governance issues to its investment and
supervision staff”




                                       12
    DFI Approach Statement on
      Corporate Governance
3- Each signing DFI endeavors to:
“Encourage companies where it invests in
(whether directly or indirectly) to observe local
codes of corporate governance in the spirit of
best international practice.
Engage company management and board
members in a dialogue to foster improvement in
those cases where corporate governance
practices are weak”
                                               13
    DFI Approach Statement on
      Corporate Governance
4- Each signing DFI endeavors to:
“Promote     the use of internationally-
recognized financial reporting standards
and encourage investee companies to adopt
or align their accounting principles and
practices to such standards”



                                       14
    DFI Approach Statement on
      Corporate Governance

5- Each signing DFI endeavors to:
“Collaborate   with other DFIs on an
ongoing basis, and when appropriate with its
partners, to further advance the cause of
good corporate governance”



                                          15
   DFI Approach Statement on
     Corporate Governance
The following 31 DFIs signed the Corporate
Governance     Approach     Statement   in
Washington on October 19th, 2007:

AfDB; ADB; AWS; BIO; SBI-BMI; BSTDB;
BCIE; CAF; CDC; Cofides; DBSA; DEG;
DFCU; EBRD; EIB; EADB; IADB/IIC; PTA
Bank; Finn Fund; FMO; IDC; IBRD; IFC;
IFU; IsDB; NORFUND; OPIC; Proparco;
SIFEM; SIMEST and SWEDFUND          16
DFIs practices in Corporate
       Governance




                              17
    DFIs Corporate Governance
            Practices
Methodology:
•   Requested “profiles” from signing DFIs
•   Response rate of about 75 %
•   Analyzed the received information and
    made an approximate evaluation of the
    practices of each DFI according to the
    5 components of the Approach
    Statement
                                        18
          Statement 1: Corporate
           Governance Policies
Current Practices:
                     Basic CG aspects included
   AS I               in the general investment
                         appraisal framew ork
                                 59%




                                                     Specific methodology
                                                  (developed/adopted) used to
                                                       assess clients’ CG
                 No CG Guidelines                             18%
                      23%




                                                                                19
       Statement 1: Corporate
        Governance Policies

Work in Progress:
  – 61% of DFIs with basic/no specific corporate
    governance policies in place are preparing or
    planning to adopt guidelines in this area
  – All DFIs with existing corporate governance policies
    are planning further refinement


Leading DFIs:
  – DBSA; EBRD; IADB; IFC

                                                      20
 Statement 2: Training of Staff &
       Nominee Directors
Current Practices (staff training):

   AS II
                                           No t raining f or st af f
                                                    36%




                                                                       Occasional t raining f or st af f
                                                                                   50%

           Regular Training f or st af f
                     14%




                                                                                                           21
 Statement 2: Training of Staff &
       Nominee Directors
Current Practices (director training):

  AS II                           No training for
                                 Board nominess
                                       70%




          Regular Training for                       Occasional training
             Nominees                               for Board nominees
                 15%                                        15%




                                                                           22
 Statement 2: Training of Staff &
       Nominee Directors

Work in Progress:

 • 32% of DFIs are interested in organizing
   training for their staff/directors
 • Most DFIs are interested in cooperating with
   each other in this area

 Leading DFIs:
   – ADB; DBSA; EBRD; IFC
                                             23
Statement 3: Encouraging Clients
  to Improve their Governance
Current Practices:
   AS III



                                 No encouragement
                                    mechanisms
                                       27%



            Some encouragement
               mechanisms
                   73%




                                                    24
Statement 3: Encouraging Clients
  to Improve their Governance

Current Practices:
Some of the encouragement mechanisms used:
• Conducting CG assessments and preparing
  Improvement Programs for clients
• Encouraging clients to adopt CG codes and
  best practice
• Incentives (funds /TA) to clients improving
  their CG
• CG training for clients                   25
Statement 3: Encouraging Clients
  to Improve their Governance

Work in Progress :

• 32% of DFIs would like their support to
  clients in improving their corporate
  governance to become more systematic

Leading DFIs:
   – AfDB; BIO; CAF; FinnFund; SIFEM

                                       26
Statement 4: Promoting the Use of Internationally-
 Recognized Reporting & Accounting Standards

 Current Practices:

       Encouraging use of Internationally
         recognized financial reporting                          Requiring the use of
                  standards                                   internationally recognized
                     36%                                  financial reporting standards on a
                                                                 case by case basis
                                                                          18%




                                                             Requiring use of Internationally
                                                              recognized financial reporting
                                                                       standards
                                      No encouragements                   23%
                                             23%




                                                                                                27
Statement 4: Promoting the Use of Internationally-
 Recognized Reporting & Accounting Standards


 Work in Progress :

 • None

 Leading DFIs:
    – EIB; FinnFund; SIFEM; SWEDFUND




                                               28
  Statement 5: Collaborating with other
     DFIs in Corporate Governance

Current Practices:

 AS V
                        Existing collaboration
                                 79%




                     No collaboration yet
                             21%




                                                 29
  Statement 5: Collaborating with other
     DFIs in Corporate Governance

Work in Progress:

Areas of interest for further collaboration among
  DFIs:
• Sharing experience in CG with other DFIs
• Developing CG guidelines
• Staff and nominees training


                                                    30
Conclusion & Next Steps




                          31
    Conclusion & Next Steps

So far, a lot has been achieved, especially in
  the areas of:
• Adopting general CG guidelines
• Encouraging clients to improve their
  CG
• Collaborating with other DFIs

                                            32
    Conclusion & Next Steps
More still needs to be achieved, especially in the
  areas of:
• Further defining CG guidelines
• Training of staff and directors
• Strategic client encouragement mechanisms
• Encouraging/requiring the use of
  internationally recognized reporting
  standards
• More effective collaboration among DFIs
                                                 33

				
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