Essay 2 - Leonardo

8/8/2019 Essay 2 - Leonardo

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Corporate Governance: A Remedy for Underdevelopment

Author: Leonardo Correia

Few topics are more central to the international business and development

agendas than corporate governance. 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.1

The apex of bad governance might be identified on the recent global financial

crisis. After all, much of the damage in which this episode resulted was due to the

bankers lack of conformity to corporate governance principles. If fairness,

accountability, responsibility and transparency were present at this process this would

by itself have prevented the banks from operating carelessly

An organization s system of governance need to be designed and operated so as

to facilitate the building and maintenance of trust.2 Corporate governance is one key

element in improving economic efficiency and growth as well as enhancing investor

confidence. Corporate governance involves a set of relationships between a companys

management, its board, its shareholders and other stakeholders. It consubstantiates

practices that should be adopted by the private sector in order to foster development

(See for example, the OECD Governance Principles)

Although corporate governance help us understand what needs to be done to

guarantee ethics in the company and, in a general matter, the functioning of the market

economy, the broader concept of democratic governance will highlight the importance

of the linkages between civil society, market and government in fighting the corruption

and fostering the entrepreneurship process.

Strong democratic governance is a function of institutions that enable broad-based participation of various civil society groups in public life. The need for sound

economic policies is essential for development and requires engaging broader civil

society and private sector in the democratic governance process. Successful market-

1 Instituting Corporate Governance In Developing, Emerging And Transitional Economies - A Handbook.

Center For International Private Enterprise. Available at:

http://www.cipe.org/publications/papers/pdf/IP0804.pdf2 -The Institute of Social and Ethical AccountAbility, the UK,

www.accountability.org.uk
http://www.cipe.org/publications/papers/pdf/IP0804.pdfhttp://www.cipe.org/publications/papers/pdf/IP0804.pdf


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oriented reforms depend on giving citizens an opportunity to participate in

policymaking.3

Building market economies, unleashing entrepreneurship, strengthening

governance, promoting investment, securing property rights, and combating corruption

are some of the reform priorities that have been identified as key to reducing poverty

and moving countries up the development ladder. The UNs own Unleashing

Entrepreneurship report and the Monterrey Consensus are just two of the many

initiatives.4

On the same note, it is possible to, based on the literature about governance,

present an interesting strategy for democratic governance reform to takes place. First,

one should assess the challenges to be faced in terms of fostering democratic

governance fighting corruption and building entrepreneurship environment, for

instance.

Second, it is necessary to build awareness throughout different sectors business

leaders, policymakers, society and create, therefore, a broader public demand for reform.

Collective action is indispensable in combating corruption. When corruption is curbed

and governance improves, development dividend is significant.

After building awareness it is necessary to act against firms and people who

engage in bribery.In this sense, one can note that transparency deters corruption: The

World Bank publishes the names of corporations and individuals involved in corrupt

practices in World Bank-funded projects. International organizations such as

Transparency International can serve as a depository of information on corruption.

Greater transparency increases reputational cost and decreases incentives for corruption

However the importance of the governance concept, there has been little

progress globally on broader governance reforms media freedom is lacking in many

countries; disclosure of assets by politicians is not widespread; political campaign

finance remains an issue.

The impact of many of the smaller initiatives, such as anti-corruption, manuals,

publications, and voluntary codes of conduct, may be rather limited. This perception

leads one to think about more efficient ways of dealing with the problem. Incentives for

3Understanding Democratic Governance and Market Economy. Avaliable at:

http://developmentinstitute.org/topics/understanding/

4

From Sustainable Companies to Sustainable Economies: Corporate Governance as aTransformational Development Tool. CIPE Issue Paper No. 0804
http://developmentinstitute.org/topics/understanding/http://developmentinstitute.org/topics/understanding/


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corruption can be reduced by third-party monitoring with serious sanctions for non-

compliance and high reputational costs. Nonetheless, there are often many vested

interests stacked against the implementation of anti-corruption reform.

The capture of the state institutions, laws, regulations, and policies of the

government by private elites is quite prejudicial to a countrys development, once micro

anti-corruption initiatives make little diference. State capture undermines

competitiveness of medium and small enterprises, as well as public sector governance.

Therefore, without good governance, the entrepreneurship process is also ruined.

That said, one start perceiving that well succeeded governance reform serves as

a condition for an efficient market economy to develop. After all, within an

environment within which corruption rules and within it is practically impossible to

create an enterprise, due to high transactional costs, market economy will serve only

vested interests.

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Essay 2 - Leonardo