Global Corporate Governance ForumBetter Companies, Better Societies

Rachel Kyte, IFC’s Vice President, Business Advisory Services and a member of the

Management Team, underscores the importance of corporate governance principles and

practices following the financial crisis. n The Forum launches a major new initiative

targeted at banks’ board directors to deepen their knowledge and thereby reduce their

institutions’ vulnerability to future financial crises. This project is made possible by

generous contributions from Austria, Luxembourg, and The Netherlands. n The

European Bank for Reconstruction and Development explains the value of its Forum

partnership. n Twenty-five papers were presented at the second biannual conference

to examine corporate governance in developing countries and emerging markets. n

Two members of the international faculty leading “train the trainers” sessions in Africa

share their “lessons learned.” n Bulgaria launches a corporate governance commission

as the scorecard approach gains momentum in its use by the country’s stock exchange

and an investors’ group. n The governments of Japan and Flanders are supporting the

Forum’s work, respectively, in India and Malawi. n The Millstein Center for Corporate

Governance and Performance at the Yale School of Management honored three Forum

partners as “rising stars.” n New Forum publications provoke thinking about the uses

and limits of conventional corporate governance instruments. n

WINTER 2010A PROGRESS REPORT

Participants at the Southern and Eastern Africa Regional Media Training Workshop in Lusaka examine coverage by regional newspapers. The program builds capacities among journalists in reporting on corporate governance.

OUR MISSION:

Established in 1999, the Global Corporate Governance Forum is a multi-donor trust fund facility located in the IFC’s Business Advisory Services. Through its activities, the Forum aims to promote the private sector as an engine of growth, reduce the vulnerability of developing and transition economies to financial crises, and provide incentives to corporations to invest and perform efficiently in a socially responsible manner.

The Forum sponsors regional and local initiatives that address the corporate governance weaknesses of middle- and low-income countries in the context of broader national or regional economic reform programs.

OUR FOCUS:

capacity-building

OUR DONORS:

OUR FOUNDERS:

and Development

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Funds Allocated by Region

Sources of Funds

Funds Allocated by Activity

23% 10%

32%

8%3%

8%

8%

9%

SOUTH ASIA

EAST ASIA

AFRICA

GLOBAL

CENTRAL EASTERN EUROPE

SOUTHERN EUROPE, CENTRAL ASIA

LATIN AMERICA, THE CARIBBEAN

MIDDLE EAST, NORTH AFRICA

27%

22%

15%

7%

9%

6%

5%4%

5%

THE NETHERLANDS

LUXEMBOURG

AUSTRIA

FLANDERS

SWITZERLAND

NOTE: ALL FUNDS REPRESENT CORE FUNDING FOR GLOBAL PROGRAMS, EXCEPT JAPAN AND FLANDERS WHICH ARE BILATERAL, PROJECT-SPECIFIC FUNDING (INDIA AND MALAWI, RESPECTIVELY).

NORWAYJAPAN

FRANCE

TECHNICAL ASSISTANCE, CAPACITY BUILDING

17%73%

7%

3%

DISSEMINATE BEST PRACTICES

RAISING AWARENESS

SPONSOR RESEARCH

FINANCIAL SUMMARYFiscal year 2010

INTERNATIONAL FINANCE CORPORATION

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Rachel Kyte is IFC’s Vice President, Business Advisory Services and a member of the Management Group. She oversees IFC’s advisory business and provides leadership on this integral part of IFC’s strategy.

Ms. Kyte joined IFC in 2000 as a Senior Specialist,

Environment and Social Development, where she led the introduction of new performance standards and IFC’s expanded sustainability and disclosure policies, and showed how IFC can transform standards for business and help develop markets. She helped extend IFC’s reach through better risk management and new business opportunities related to sustainability. She also championed knowledge management and innovation. Most recently, she played a key role in shaping IFC’s approach to climate change.

women, the environment, health, and human rights.

Conservation Union (IUCN). She holds a Master of Arts degree in International Relations from the Fletcher School of Law and Diplomacy and a Bachelor of Arts degree in politics and history from the University of London.

As the work continues worldwide to promote recovery in financial markets and economies, corporate governance is emerging as an important foundation in these efforts. Would you agree? Why?

The financial crisis – in addition to its obvious economic, financial, and labor impacts – also generated a crisis of confidence in private institutions and the private sector’s ability to regulate itself. Trust was destroyed, and I believe corporate governance can be one of the pathways out of crisis into recovery.

The OECD, for one, asserts that boards and corporate governance failed. Cambridge University Professor Brian Cheffins says boards and corporate governance really didn’t. It seems that the lessons learned lie somewhere in between. What is your view?

I do not agree that corporate governance failed, that is, I do not believe that we failed to frame what good corporate governance is. Rather, what failed is the actual implementation of the good corporate governance practices that have

Rachel Kyte: Raising the Bar

been articulated in the recent past, the enforcement, the rigor, the transparency, and the people who play those roles. The principles and notions around what is good corporate governance are not bankrupt.

I also think there was quite some degree

were strong, but obviously we failed to implement good practice in many cases. The ongoing debate on corporate governance has to be global in nature, and corporate governance cannot be seen

must seek convergence internationally around what good practice is, based on evidence that good practice leads to better results – better results for companies but also for states as regulators and people in general. In these efforts, there are key roles for the IFC and the Global Corporate Governance Forum.

The corporate governance debate operates in three different spheres: some people are concerned by the ethical and moral considerations around private firms and

IFC Business Advisory Services and the Forum have extensive material on their Websites. Visit ifc.org/services and gcgf.org.

their role in society; others concentrate on very practical oversight considerations of regulators and shareholders; finally, there is the corporate governance debate around proving that it actually enhances companies’ effectiveness.

These three debates have operated in separate universes, and we now need to bring them together.

What lessons in corporate governance have we learned from the financial crisis that can inform the work of IFC and the Forum to advance corporate governance best practices? What roles are they playing in the recovery process? What roles do you envisage?

have, as with many of the quiet revolutions in investment and private sector growth and development, learned from our own mistakes, from the absence of articulated policies, and from those who have articulated principles in multilateral fora.

need to articulate much more clearly and communicate much more aggressively why we believe corporate governance is fundamental to good business in emerging markets, and what we believe is the benefit

need to do more to take that knowledge into the public sphere and share it with others. And that is something we can do with others who adhere to similarly high standards of corporate governance and understand its value for shareholders, companies, and investors.

What are the Forum’s unique assets?

It became evident, especially in some of the extreme stories about the financial sector that surfaced, that too many private companies had failed to institute corporate governance good practices. Trading firms, financial firms, real sector firms took ridiculous risks. None of this would flow from the kind of corporate governance principles and best practices that have been articulated over the years.

This begs the question of the role of boards, different individuals, and audit committees. This also begs the question of the relationship between the oversight regulatory complex and the firms, of voluntary good practice and regulation. It also begs the fundamental question of the vision of boards and of management around what their company is, what the purpose of the company is, and what the purpose of the company’s success is. And, finally, the question of how returns to shareholders and investors, and long-term sustainability for employees, stakeholders, the community, all coincide.

“ We must seek a convergence internationally around what good practice is, based on evidence that good practice leads to better results – better results for companies but also for states as regulators and people in general. In this effort, there are key roles for the IFC and the Global Corporate Governance Forum.”

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ourselves: what is the role of financial institutions in society; what is the role of the private sector in growing the economy; and, what do we expect of the private sector?

There should be a societal debate around what we want private companies and financial institutions to be. It is those values that will inform the next iteration of good practice in corporate governance. The bar is always rising and that’s how it

Governance Forum can do, with IFC’s help, is to try to articulate the “how to” in order for companies worldwide to meet the standards of that rising bar, because it will make companies more competitive and more attractive to investors in the long term.

HOW THE FORUM WORKS

World Bank

IFC

OECD

AfDB

EBRD

CIPE

Donors, etc.

IoDs

Stock Exchanges

Regulators

Media Distributors (Thomson Reuters, AFP)

IFC CG AS

Academic Institutions

World Bank

EBRD, etc.

Build capacities of sustainable corporate governance institutions to promote corporate governance reforms and best practices that enhance board room competencies and the business climate

New institutes of directors are established and/or existing IoDs are more sustainable in target countries

Institutes/trainers deliver director training programs in a commercially viable manner; Master trainers conduct training to institutes/trainers

Recommendations of the Project accepted by the government regulators and other organizations

Journalists begin to report on corporate governance topics

Institutes become more sustainable with structures, products & services in place

Practitioners and academics realize the importance of research network of corporate governance

sustainable CG training institutions

training capacities

frameworks

institutions to increase private sector awareness of CG best practices

to provide ADR services

effectively report on CG

developing countries

STRATEGIC PARTNERS ACTIVITIES IMPLEMENTING PARTNERS

Monitoring and evaluation and knowledge management

OUTCOMES IMPACT

Helping Financial Institutions Recover from the Crisis

The Forum launched a program to help director training institutes and others in emerging markets provide self-sustaining training programs for non-executive board members of financial institutions. As a result of this effort, the trainees can guide efforts in their institutions to strengthen corporate governance and risk-management practices. Pictured above, Paris Consultation on the Financial Markets Recovery Project, June 19, 2009.

Africa.) It provides comprehensive material and guidance on all key aspects of board leadership, with particular emphasis on strategy formulation, financial controls, supervision and reporting, risk management, and corporate social responsibility.

The Financial Markets Recovery Project will develop and integrate supplemental materials specifically relevant to financial institutions and their specific needs. The new supplement will draw on the latest thinking about bank risk management after the financial crisis.

Since local banking regulation varies, the

will be accomplished with local banking experts, banking regulators, and in-market centers of excellence. These centers will provide direct training of bank directors in their specific markets (such as institutes of directors or higher education institutions).

centers of excellence should help in accomplishing two goals: first, gaining market-wide “buy-in” for the project by the involved regulators and thought

leaders; and, second, creating a local informal network of banking regulators, directors, and the training center counterparties (or reinforcing the network should it already exist) to allow more rapid reaction to any future crisis that may occur.

The Forum will provide training of trainers to the centers. By offering the key elements of a training program in a comprehensive package (the supplement,

regulators and banking thought leaders, and training of trainers), the Forum will help centers to become well positioned to quickly initiate sustainable training programs for non-executive bank directors.

This project will be implemented over three years, beginning with a test of the training materials in 2009 in Southeast Europe and a full pilot in Indonesia in early 2010. Replication beyond the pilot in other countries will be based on risk factors, demand, and funding.

A project advisory group of banking and corporate governance experts has also been established. The members volunteer their time to advise and comment on overall project strategy and milestone products.

They currently include:

, former chairman of the Belgian Banks Association; honorary managing partner of Bank Degroof; director, European Corporate Governance Institute; member of the Private Sector Advisory Group (PSAG)

, global head, products, Access to Finance Advisory Services, IFC

, former vice chairman of the board and director of Bankers’ Trust Company; former president and director of the Financial Services Forum

, professor of strategic management, University of Toronto Business School; member of PSAG (See his commentary on the opposite page.)

This approach evolved from strategy sessions and stakeholder consultations the Forum conducted. The resulting action plan incorporated the views and recommendations of numerous practitioners from banks and financial institutions, regulatory bodies, director training institutes, bank board directors,

IFC, and independent subject-matter experts. An international consultation validated the Forum project’s approach.

The Forum’s Financial Markets Recovery Project is made possible by generous contributions from Austria, Luxembourg, and The Netherlands.

For this initiative, the Forum modified its existing board training program to address the specific requirements of financial institutions, drawing lessons in particular from the global financial crisis in 2007-2009.

The Forum’s Corporate Governance Board Leadership Training Resources has proven to be a major success in its global roll-out. (See article about these efforts in

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Banish Wireless Devices in Boardrooms

AHEAD

Reconstruction and Development (EBRD) and the IFC’s Southeast Europe Advisory Services, the Forum is holding a high-level policy dialogue in Belgrade (December 9-10, 2009) to help improve corporate governance practices for banks in Southeast Europe. This meeting will focus on lessons and best practices in banks’ governance to develop policy recommendations and tools. (See the article about the Forum’s partnership with EBRD.)

A roundtable session involving bank directors from Central and Southeast Europe will be held on December 8, 2009.

PERSPECTIVES

“ Given the seriously disruptive impact of financial sector failures on the wider economy, the Forum was well inspired to launch its Financial Markets Recovery Project, which is aimed at improving capacity in bank boards of emerging countries. The ability of directors to recognize and apply sound principles should reduce the risk of reproducing mistakes that have brought about some of the disasters witnessed recently in even the most developed markets.“

LEO GOLDSCHMIDT Member, PSAG

“ The vogue is for superstars and diversity in boards. In fact, the essential element is to secure a knowledge of financial and banking business issues within your board, starting with a certain minimum level of expertise.”

HALA EL-SAIDExecutive Director

Egyptian Banking Institute

“ The world is moving fast in embracing products without developing the capacity to manage its risks appropriately. There must be a broad-based initiative to build capacity and match it to the risk levels of product innovations taking place”

AIG AIG-IMOKHUEDECEO

Access Bank Plc., Nigeria

Failing to ban such devices may, in principle, represent a breach of a board’s fiduciary duties to shareholders.

David R. Beatty is a professor at the Rotman School of Management at the University of Toronto. He teaches strategy in large diversified

Business Week rated his Executive MBA strategy course third in the world. The graduating MBA classes of 2005 and 2007 voted him “Professor of the Year.” Beatty was the founding Managing Director of the Canadian Coalition for Good Governance from 2003-2008 (see www.

total assets under management of C$1,300 billion. He also helped to found the Directors Education Program at the Rotman School in collaboration with the Canadian Institute of Corporate Directors. Beatty is a director of the

United States, Mexico, and Australia, he has served on 30 boards (and been chair of

Papua New Guinea. In 2006, the Grand Chief Michael Somare at the United Nations awarded him a 30-Year Independence medal. Beatty was educated at Trinity College at the University of Toronto and Queens’ College in Cambridge, U.K. where he was a Nuffield Foundation award winner.

Boards should ban the use of BlackBerries, iPhones, and all other e-mail-enabled wireless devices in their meetings. The distractions they create are undoubtedly contributing to bad decisions. This, of course, is true in meetings all across

directors, failing to ban such devices may, in principle, represent a breach of their fiduciary duties to shareholders.

become a common fixture in corporate boardrooms (and meetings of all kinds). Everyone has grown familiar with the

reach for holsters, heads and shoulders slump semi-prostrate into a “BlackBerry prayer”; and two or three minutes later the supposed guardians of shareholder interests and vigilant governance return

meeting and business at hand.

Attention is a scarce resource. Indeed, some management thinkers have described it as the scarcest resource in

between two tasks is something people simply do not do well.

As René Marois, a neuroscientist and director of the Human Information

Processing Laboratory at Vanderbilt University, puts it: “A core limitation [of the brain] is an inability to concentrate on two things at once.”

In a recent study on split-attention, David Strayer and his colleagues at the University of Utah found that “when drivers were conversing on a cell phone, they were involved in more rear-end collisions ... than when they were legally intoxicated.”

The researchers describe such effects as the result of “inattention blindness.” Most shareholders would like to think that their directors are neither drunk nor blind when doing the company’s business. Usually, for a human being to do two things well at the same time, one of them needs to be habitual or automatic in nature (for example, carrying on a conversation while walking). In a boardroom, however, nothing should ever be habitual or automatic.

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continued on page 6

to an e-mail, which task is receiving attention: the message or the meeting? The most plausible answer is the message, which means that the director who is working on his e-mail is dedicating scarce resources to something other than that for which shareholders are paying. If your lawyer billed you for time spent working on someone else’s project, it would be considered negligent at best.

Although to our knowledge the issue of wireless e-mail device use in boardrooms has not yet been tried in court, it seems conceivable that shareholders might assert that directors who use their smart phones and PDAs in board meetings are failing to fulfill their duties of care to the company and its shareholders.

Under such circumstances, perhaps shareholders might get the wind up and throw such directors out. Further, defending oneself could be difficult. It might be possible to claim that you were not really reading the newspaper in front of you, but your smartphone and the servers it connects to keep a record of

expect an enterprising lawyer to one day subpoena those logs.

It has been well documented by psychologists that people are always looking for evidence of what constitutes “appropriate” behavior and commonly use others’ behavior as a powerful indicator. In the boardroom, perhaps only one director begins to use his device cautiously and, not called to account by colleagues, increasingly boldly. Then a second and a third and the cascade begins. As ubiquitous as wireless technologies are becoming, these are still relatively early days in the social contagion process by which directors learn from one another

during meetings. Taking a stand now may avert (or bring to heel) a devastating epidemic in the world of corporate governance.

In our experience, we are witnessing more and more situations in which board members are expressing outrage at some of their colleagues’ inappropriate use of their

from a client included the comment: “At a recent meeting director X sat next to the

executive presenting a really important matter – he responded to the vibration and within seconds was totally immersed in his e-mails ... this really angers me and I have suggested to director X that he either discipline his behavior or leave the board.”

In the light of such complaints, the preponderance of scientific evidence, the fiduciary responsibilities of directors and the obvious conflicts between reasonable duties of care and multi-tasking, we offer this modest proposal to improve the state of corporate governance worldwide: all boards should disclose that they have a “no wireless device” policy during meetings. Corporations that do not have such policies should be called upon publicly to offer up the reasonable cognitive science upon which they believe permitting their use rests. Failure to have such a policy should result in lost support for the board and its individual members.

Note: This piece was written by Beatty and J. Mark Weber, an assistant professor of organizational behavior at the Rotman School of Management, University of Toronto. The Financial Times published the article on July 26, 2009.

New Research Helps Emerging Markets, Developing Countries Advance Corporate Governance

Second Annual International Conference in Brazil Promotes Studies Supporting Policy and Practice Development

More than 100 persons gathered in

that examined the state of corporate governance in emerging markets, with the objective of supporting policy and practice development in these countries.

The Second International Conference on Corporate Governance in Emerging Markets is one in a series of academic

Markets Corporate Governance Network (EMCGN). The Forum endorses and supports the Network, which was first convened in 2001 by Professor Stijn Claessens, chief of the International Monetary Fund’s Financial Studies Division. The conference was sponsored

the Federal University of Rio de Janeiro

The biannual academic conference focuses on themes that are important to academics and practitioners interested in the role and effect of corporate governance in emerging markets. Leading practitioners and researchers in corporate governance disseminated state-of-the-art research, discussed their findings, and shared ideas from the theory and policy perspectives.

The interaction among conference participants is crucial. It encourages quality research on corporate governance issues in developing countries, which otherwise may suffer from the lack of quality supervision and data. The dialogues created through the conference

“ The conference offered a unique opportunity for the mixing of those in the law and business fields to exchange ideas. It is rare to have a conference about emerging markets and developing countries that brings together researchers and practitioners. The partnership between the organizers permitted this very valuable exchange.”

ÉRICA CRISTINA ROCHA GORGA Professor of Law

Fundação Getulio Vargas

support the theory-building process by encouraging collaborative cross-country research.

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“Banish Wireless Devices” continued from page 5

Many of this year’s sessions focused on comparative research of clusters of countries that share institutional or macroeconomic similarities, such as the

and China).

“Holding such a distinctive academic conference is important for researchers and practitioners worldwide,” said Melsa Ararat, the EMCGN coordinator and a Sabanci University professor. “The conference offered a unique opportunity for local scholars and practitioners to hear first-hand the outcome of cutting-edge scientific research on corporate governance in emerging markets and to discuss the implications on the future of practice. The Forum’s support for the Network is invaluable.”

“This conference provided a unique opportunity to interact with key people in the field, learn about the research, and provide input based on practical experiences,” said Ricardo P. Câmara Leal,

The first keynote session featured Joseph P. H. Fan, Maria Helena Santana, president

Commission (CVM), and Edemir Pinto, president, BM&F Bovespa Exchange. Their presentations framed the questions that would dominate the two-day proceedings. A second keynote session, presented by University of Michigan Law School Professor Vikramaditya Khanna, examined corporate governance in India.

Seven plenary sessions were held. They covered: corporate governance and firm value; foreign listings; stakeholder and cultural values; institutional shareholders; family and political relationships; corporate control; and, ownership and control. Two other sessions held in parallel

experiences.

The conference report provides a brief overview of the 25 papers, which are available online. http://www.gcgf.org

“ Producing an event that mixes the academic universe with research that portrays the cultural differences in corporate governance and the professional experiences of executives contributes to the improvement and dissemination of best practices.

“ Improving management is by and large stimulated and achieved through events that promote a mix of the diversity of subjects addressed

in depth by academic research and the practical experience of professionals. Events such as this should be a continuous exercise of approximation between these complementary realities that still are very distant in the day-to-day affairs of organizations.”

HELOÍSA B. BEDICKSManaging Director

Brazilian Institute of Corporate Governance

AHEAD

The Asian Institute of Corporate Governance will host the next conference in Korea in 2011.

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Corporate Governance Training in Sub-Saharan Africa: Opportunities and ChallengesBy Alison Dillon Kibirige and Brenda Bowman

been engaged in the worldwide roll-out of its Training Resources. By building the capacity of institutes responsible for training board directors, the Forum can help advance adherence to best practices in the public, private, and not-for-profit sectors.

As members of the Forum’s international faculty, Alison Dillion Kibirige and Brenda Bowman conduct workshops to train trainers, directors, and members of governing bodies.

Brenda Bowman works with trainers to build their skills by drawing on years of experience in adult learning and

Saharan Africa.

Alison Dillon Kibirige draws on more than 20 years of working as a company

as Unilever, Barclays, and Smithkline Beecham. She also has experience as a director on several small and medium-

Kingdom and Uganda. More recently she

has been passing on her vast experience as a corporate governance trainer and adviser in sub-Saharan Africa.

The Forum’s training of trainers initiative has involved nearly 60 countries. More than 90 percent of the participants in all regions were “satisfied” or “highly satisfied” with this program. This article describes the opportunities and challenges for participants in this program.

The King Reports articulated how the African world view might influence corporate governance in Africa and developed awareness of the advantages that corporate governance brings in terms of investment, accessing cheaper capital and business sustainability. Throughout sub-Saharan Africa, there is growing interest in corporate governance and its role in improving the performance of all types of business, whether they are small-

The timing could not be better for the Forum’s initiative in providing training materials to develop expertise among trainers of board directors and members of governing bodies. These individuals are now demanding corporate governance training to improve their leadership roles on boards, in senior management, and elsewhere. Hence, the importance of the Forum’s Training Resources and its support for workshops that train trainers on how to pass on the corporate governance message in this region.

As in many parts of the developing world, African trainers tend to be familiar with academic approaches to adult learning that favor lectures and make few allowances for questions and answers. The Forum’s workshops do not follow that approach: trainers learn how to plan sessions and use techniques that provoke dialogue. In training sessions they have opportunities to experiment with a variety of interactive activities and develop skills to facilitate group leadership, handle conflicting views, and build relationships – all while deepening their understanding of what corporate governance is and how it

experience is that the participants are eager to embrace these new techniques, which give them the opportunity to discuss concepts and practices in corporate governance that are often new to them.

Trainers learn to facilitate discussions on “role plays” stemming from real-life case studies identified by the trainers and participants. Discussion topics

Trainers using the Training Resources to prepare their own training sessions based on the program’s interactive approach to adult learning.

generated by workshop participants include understanding and adapting traditional leadership and decision-making models, investigating and developing new paradigms for effective corporate governance, and exploring possibilities for bringing African values into the way corporations and boards of directors are run.

Internet access is very poor in many sub-Saharan African countries with speeds of transmission far slower than those in developed countries. The Forum is very aware of this and the challenges it poses for trainers and institutes of learning who need to download materials through the Internet. The Forum therefore provides a

9

hard copy of the Training Resources and CDs. These CDs also provide trainers with the flexibility to tailor the scheduling and time devoted to sessions and to adapt the power points to the needs and interests of different audiences. The ability to

is essential to ensure that it is appropriate and responsive to a variety of audiences.

The Forum is working with local talented professionals to form a network of trainers that Institutes of Directors and other

call on to run training workshops on corporate governance for boards and

After completing their training, these trainers continue to use techniques and activities that engage adult learners, to design and deliver trainings based on the Training Resources, and to demonstrate their capacity to work with board directors and turn the concept of corporate governance into an integral component of

in sub-Saharan Africa.

“ The Forum’s strong and dedicated support enabled us to establish our institute on a much higher level. The Forum was one of our earliest supporters. Being part of their dedicated network helped us to quickly grow from idea to institute. The Training Resources allowed us to establish the first executive education program for Baltic directors. The value of the Forum’s support to our institute can be measured by the strong involvement by Baltic business leaders and our board members’ executive education.”

KRISTIAN KAAS MORTENSENBaltic Institute of Corporate Governance

“ The Training Resources put much emphasis on effective methodologies and techniques of teaching adults for maximum retention. This will go a long way in aiding delegates to go back to putting into practice what they have learned.”

JOHN CHIKURATrainer , Institute of Directors Zimbabwe

“ As a corporate governance trainer in Ghana, the Training Resources is the treasure I have found. The contents together with training skills learned at the training of trainer program provided me with invaluable knowledge, which will not only enhance my training skills but improve my performance as a non-executive director. Its impact will be immense.”

MARIAN BARNORTrainer, Ghana

“ This course has been a real reawakening for me. As a professional in this business for well over a decade, I have come to this course hungry for something new. I was not disappointed. The knowledge and level of the facilitators was profoundly engaging. The well-prepared Training Resources is a gold mine of knowledge and the Forum’s vision is inspiring. I have learned, I have shared, and I have networked. My expectations have been surpassed. Thank you for this gift.”

KIM ANDERSENTrainer, Mauritius Institute of Directors

The Forum’s Value

Board simulation exercise based on the Training Resources’ case study “Organica Futura.”

Training Program, Other Project Updates in Sub-Saharan Africa

Board Leadership Training Participants Represent 55 Countries

MalawiThe Forum successfully secured bilateral funding from the Government of Flanders to implement the Malawi Action Plan. In August 2009, the first “training of trainers” program was delivered in Blantyre in cooperation with the Institute

participants were very satisfied with the program. A key success factor: the participants were carefully selected and fully informed about the course’s content. They had clear expectations that their training skills would be upgraded after their participation.

intensive course on corporate governance.

them to revise their business plan, develop a marketing strategy, and increase their membership; and, reconvening the Code Taskforce to review its progress.

SenegalAs part of its code development activities,

in the summer to: meet the Ministry of Finance and Conseil Presidentiel de l’Investissement (CPI) and obtain their support of the project; deliver a conference on Governance and Risk Management at the University of Dakar before more than 200 participants, including students, officials, and journalists; and, sign a cooperation agreement between Institute Sénégalais des Administrateurs (ISA) and

(IFA).

Zambia The Forum supported the Institute of

their Corporate Governance National

Minister of Finance, the conference was attended by 60 participants from various sectors. PSAG member Patrick Chisanga presented an overview of corporate governance in Zambia, followed by Mervyn King, another PSAG member, who presented the King III report. The

progress on preparations to develop a corporate governance code.

Flanders for their generous support to implement the Malawi Action Plan.

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“ This is a much-needed initiative that will help us deliver better director development programs. The Forum has a unique approach, one that promotes the sharing of experiences, networking, and interaction with others.”

TIM TAYLORChairman, Rogers & Co., Ltd.

Chairperson, National Committee on Corporate Governance in Mauritius

Total number of countries:55 (IDA: 19)

Country coverage IDA participants

Total number of participants:297 (IDA: 143)

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Meet a Forum Partner

is Senior Counsel with the European Bank for Reconstruction and Development (EBRD), a Forum partner. Alongside, he discusses the value of the bank’s partnership with the Forum in the Legal Transition Program (LTP), which aims to create an investor-friendly, transparent, and sound legal environment.

The Legal Transition Program (LTP) focuses on the development of legal rules and the establishment of the legal institutions and culture on which vibrant market-oriented economies strongly depend. There are eight core commercial legal areas: securities markets and corporate governance; concessions and PPPs; insolvency; judicial capacity and contract enforcement; public procurement legislation; secured transactions; and, infrastructure regulatory reform. These areas are the most relevant to the EBRD’s investment strategies and ones in which the EBRD has accumulated experience.

The program has created excellent synergies with several international

governance issues, and with the Forum it has found a natural partner. LTP and the Forum share the view that good corporate governance is key in promoting private sector growth and in reducing the vulnerability of transition economies to

successful collaboration began, one aimed at strengthening practices of companies and financial institutions in Central Europe and Eurasia.

Governance Codes. (See article below.)

LTP and the Forum are also leading the development of a set of recommendations for strengthening corporate governance of banks in Southeast Europe and implementing the set of recommendations

financial institutions in Eurasia. (See article on the Forum’s Financial Markets Recovery Project.)

Corporate governance in banks differs from that in companies. The nature of the banking business (e.g. dealing with money), the need for protection of the weakest party in the chain (e.g. the depositor), and the systemic risks that a bank failure may cause (as shown by the current crisis) – these and other factors require the development of specific standards and the implementation of tailored corporate governance practices.

In developed economies, the role of promoting good corporate governance

“ With the Forum the Legal Transition Program found a natural partner.”

LTP and the Forum jointly manage several projects. For example, they are working together in building consensus for the development and implementation of the Bulgarian and Armenian Corporate

Bulgarian Corporate Governance Commission Launched

The Forum supported the launch of the Bulgarian Corporate Governance Commission (BCGC) in September, under the auspices of the Bulgarian Stock Exchange and the Financial Supervision Commission.

Based on similar practices in Austria, Germany, and The Netherlands, BCGC will develop, monitor, and encourage good corporate governance practices.

Rumen Radev, the BCGC chairman, said

of the National Corporate Governance Code

recommendations for the improvement of the corporate governance legal and regulatory framework

BCGC members are representatives from

the Bulgarian Stock Exchange, Financial Supervision Commission, business and investors’ associations, academia, and corporate champions; all have proven expertise and interest in corporate governance.

“Corporate governance in Bulgaria is on

there is an excellent basis for quick and lasting improvements,” said Christian

a member of the German Corporate Governance Commission, and PSAG’s deputy chairman.

The new commission furthers the Forum’s work in Bulgaria. The Forum advised a

task force, which developed a corporate

later, a scorecard that assists companies in evaluating their implementation of the code. These practices have been replicated throughout the region.

recently decided to use the scorecard as a benchmark for a new corporate governance index, while the Investor Association used the scorecard for a second year as a benchmark to decide awards to companies with the best corporate governance practices.

AHEAD

Based on Bulgaria’s model, Macedonia, Montenegro, and Serbia will be issuing corporate governance scorecards.

practices is essentially mandated to securities markets regulators and stock exchanges. In Eurasia and Southeast Europe, the banking sector is much more developed than the securities markets. There, banks are in a position to influence their corporate borrowers’ corporate governance and build consensus among financial institutions on the need to adopt better standards.

Media Training Program Update: Launched on Facebook

The Forum’s Global Media Training Program was initiated, in partnership with Thomson Reuters Foundation, with a journalism training workshop in Belgrade

130 journalists have participated in six workshops in Africa, the Middle East, and Central and South Asia.

Developed with feedback from participants, the model program covers different areas important for investigative reporting on corporate governance topics and includes training in writing and publishing. The program also weaves in perspectives on corporate governance from industry leaders, capital markets professionals, regulators, and foreign institutional investors. Coaching sessions help participants develop basic technical skills needed to understand financial reporting, the best ways to “sell” stories to editors, and approaches to investigative journalism based on journalists’ experiences.

The Forum’s Facebook-based “Virtual Press Club” was created as a communications vehicle for those interested in corporate governance reporting, and as a platform for updates on the program’s status. Participants are encouraged to “meet” their peers worldwide and connect with corporate governance experts, including Forum training program participants and PSAG members.

The Facebook page is also a channel for participants to provide comments and

suggestions for the Forum’s Corporate Governance Media Toolkit, which is scheduled to be completed in 2010.

workshop participants and trainers, corporate governance experts, and IFC corporate governance communications officers have joined the “club.”

Following the Forum’s training program on reporting on corporate governance in

Governance Project, in cooperation with the State Committee for Securities of

competition for journalists on “The Role of Corporate Governance in Capital Market Development.”

Participating Journalists File Stories on Novo Mercado, Other Corporate Governance News

“Inspiration for the East,” by Simone Azevedo, Capital Abertoparticipated in the workshop in Mumbai in July 2009.

Novo Mercado, The Philippines and India

to highlighting corporate governance in their own stock exchanges. In The Philippines, the rules for a new listing tier will address concerns voiced by foreign

investors, including the tightening of enforcement and sanctioning processes. In India, alternative approaches are being considered, and while the regulatory framework is sophisticated, any initiatives to highlight companies adhering to the highest standards of governance will need to have true engagement of management and controllers.

Listing,” by Ilakha Khalilova, Trend

Capital. He participated in the workshop

The article explains far-reaching changes to the Baku Stock Exchange (BSE)’s rules for listing, delisting and trading of securities in the interest of enhanced transparency. BSE is now responsible for setting transparency criteria for listed

into various tiers based on the Novo Mercado experience.

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“ The National Institute for Securities Markets (NISM) has been taking initiatives with the active help of the Forum to improve the awareness of Corporate Governance issues in India. Media training and other programs have been organized. The Forum’s help and participation in these initiatives is well appreciated and SEBI is fully supportive of the effort.”

C.B. BHAVEChairman of the Securities Exchange Board of India

(SEBI)

Facebook Participation Spreads Worldwide

Hawkamah, MENA-OECD Corporate Governance Working Group Issue Policy Brief on Corporate Governance of Banks

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November a landmark Policy Brief on Corporate Governance of Banks in the Middle East and North Africa (MENA) region.

The project was implemented with the financial support of the Global Corporate Governance Forum and the Japanese government.

The Policy Brief makes key recommendations responding to corporate governance and lessons learned from the financial crisis globally. The recommendations are targeted at policy makers, banking supervisors, banking associations and individual banks in the region.

The recommendations include the introduction of more detailed governance codes at the national level and that bank regulators should develop their own corporate governance expertise and issue specific guidelines for assessing banks. The document urges bank regulators to outline the criteria for assessing the corporate governance practice of banks; establish corporate governance divisions; and give

representatives of the public and private sectors from across the region including regulators and central banks.

regulatory frameworks, coordination of supervisory responsibilities and sharing of information on bank reviews.

The Policy Brief stresses that board member liability and specification of board member duties should be high on the policy agenda. The document places high importance on developing the skills of directors through training programs that address the professional, ethical and technical demands imposed by increasingly complex industry practices.

Dr. Nasser Saidi, executive director of Hawkamah said: “The Policy Brief ’s recommendations go beyond merely strengthening governance practices within the banking sector and seek to transform banks into agents of corporate governance change in the larger economy.”

The Policy Brief was developed following two years of discussions conducted by the

Improving corporate governance standards in the MENA region is an essential element of corporate sector reform. To maintain financial stability in the region, there is a need to strengthen

standards and to improve its transparency and disclosure.

Banks are especially well placed both to benefit from and to lead efforts to improve corporate governance practices in the region. Banks dominate the financial systems in the region and play a key role in the credit and investment process that is vital to economic development.

Policy Brief

Forum Activities In Latin America

Circle, the Forum helped launch a new publication in September that highlights the challenges, priorities, and tangible benefits of adopting corporate governance practices in Latin America.

The Practical Guide to Corporate Governance: Experiences from the Latin American Companies Circle highlights the challenges, priorities and tangible benefits of adopting leading corporate governance practices in the region. This publication offers a first look at Latin American company results during the recent period of financial crisis, showing that firms

practices suffered less damage than average

a longer period, corporate governance-focused firms had better operational and market results.

governance practices pay off, and today we are encouraged to see this belief supported by the findings of the practical guide,” said Andre Covre, chairman of the

confident that efforts to improve corporate governance practices at our companies and those within Latin America as a whole will foster economic development and sustainability throughout the region.”

In Mexico, the Forum helped the CEGC establish a corporate governance training program, based on the Training Resources.

The training is comprised of 12 modules of four hours each. CEGC is developing

Training Resources’ content. An online course is also being developed, and CEGC trainers are helping our countries in the region conduct training.

The IGC-Panama has held a series of

focused on “Key Issues to a Successful

How Governance Structures Need to Change” while the other looked at “Minority Shareholders in the

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Circle members, who are generally regarded as corporate governance leaders in Latin America, and a broad basket of 1,078 listed Latin American companies (LAC) shows that the companies practicing good corporate governance had an average return on equity of 21.7%, compared to 16.7% for the peer group of LAC companies.

one conference on “Corporate Governance in the Banking Sector” and a second on “Corporate Governance for the Board.”

region. Members provide counsel to help companies implement best practices.

Forum Supports World Bank ROSC Assessments

Europe’s Corporate Governance Oversight Authorities To Meet with Emerging Markets

Reports on the Observance of Standards and Codescontribute to a country’s economic and financial vulnerability.

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Corporate governance is one of twelve core best-practice standards by the international

Principles of Corporate Governance. The assessments are conducted at the invitation

uses a diagnostic tool to gather pertinent information for preparing the corporate

assessment reviews the legal and regulatory framework, as well as practices and compliance of listed firms, and assesses the framework relative to an internationally accepted benchmark. Corporate governance frameworks are benchmarked

Governance.

In Indonesia, the Forum held meetings

in their preparation of a Corporate

Forum’s involvement includes preparation of a training module on board leadership, targeting the financial sector as part of a broader initiative to deploy resources to mitigate or pre-empt financial crises.

The board of the Indonesia Institute for Corporate Directorship, the Forum’s

partner in this project, agreed to the Forum’s plan. The institute will help

the initiative via the training of trainers workshops, and orchestrate a subsequent rollout via training programs conducted by the institute.

The broader plan is to then launch the initiative regionally through IDEA.net from the Indonesian platform.

noted that Indonesia’s “challenge now lies in raising awareness and increasing effectiveness of implementation and enforcement of legislation and regulations to improve the corporate culture and practices.” The Forum’s work in the country is helping to address that need.

In Bangladesh, the Forum participated in a roundtable discussion of the recently

that “a new companies act should be introduced as part of broader reform to make the legal framework for corporate governance more coherent and effective.”

concluded, that Bangladesh could ”strengthen shareholder rights and

AHEAD

The Forum plans to assist in

Bangladesh and Mongolia.

the accountability of directors.” The assessment also advised that “current efforts to improve accounting and auditing should be accelerated, and the disclosure of corporate control improved. The independence and professionalism of boards should be enhanced, and oversight

To assist in implementing these and other

is developing a program of technical assistance in the areas of improving board practices, capacity-building of the media, and expanding the use of alternative dispute resolution mechanisms for corporate governance disputes. To accomplish implementation of the

partnering with the Bangladesh Enterprise Institute. The Forum is also exploring design of a Country Action Plan for the

working with local and international partners.

are underway in Senegal, Malawi, and Zambia.

The U.K. Financial Reporting Council and the Forum are jointly convening a high-level consultation in December in Stockholm between corporate governance oversight authorities from Europe and key emerging markets.

At the meeting, participants will exchange experiences and lessons on topics dealing with the balance between mandatory requirements in law versus best practice in codes, the monitoring and enforcement of corporate governance codes, and the competence of company boards.

Participants will consider some of the challenges facing regulators across

different markets and regions in regulating and enforcing corporate governance standards and rules.

Among the countries participating are

India, Malaysia, The Netherlands, Poland, Portugal, South Africa, Sweden, and the United Kingdom.

The session is particularly timely given the financial crisis and the questions raised about the adequacy of corporate governance best practices and the behavior of boards in mitigating the risks that contributed to the collapse of capital markets and investor’s trust.

QUALIFIED BOARD OVERSIGHT AND ROBUST RISK MANAGEMENT

governance routines did not serve their purpose to safeguard against excessive risk taking. The importance of qualified board oversight, and robust risk management is an essential, but often neglected, governance aspect in large, complex companies.

Lessons from the Financial Crisis

Three Forum Partners Named ‘Rising Stars’

The Millstein Center for Corporate Governance and Performance at the Yale School of

founding member and current president of the Executive Committee of the Institute of Corporate Governance – Panama (IGCP); Evelynne Change, who works for the African Peer Review Mechanism (APRM); and, Nada Abdelsater-Abusamra, a founding member of the Lebanese Corporate Governance Taskforce.

of corporate governance. The nomination and selection process was based on criteria such as past accomplishments and thought leadership, future projects and endeavors, reputation among existing industry leaders, and potential to influence the industry in the future.

young professionals nominated across varying fields – academia, in-house corporate settings, think tanks, pension funds, and investment houses.

Below, each award recipient describes their work.

Julieta Rodríguez MolinaAssociate, Galindo, Arias & Lopez

“The award is a powerful tool to continue the work on corporate governance that I started with the Institute of Corporate Governance – Panama (IGCP) and implement the plans we have for Panama and the region. In Panama, good corporate governance practices are not known by the majority of the business sector practitioners. Reform in the corporation system, to consider the world standards and

to be flexible; you will not find in the law formal rules, responsibilities or rights for minority groups. It is also very difficult, considering what it is in the law, to claim before the court a breach on fiduciary duties

Evelynne ChangeCoordinator for Corporate Governance, African Peer Review Mechanism (APRM) Secretariat, New Partnership for Africa’s Development (NEPAD)

“I was extremely delighted to be named a “Rising Star of Corporate Governance.” My presence at the Yale Corporate Governance Forum 2009, once again brought home the corporate governance challenges that have to be tackled globally — particularly in the context of the global financial crisis. African countries have been drawn into the global recession because of the importance of international trade, official development assistance, foreign direct investment as well as diaspora remittances for the development of their economies. Against this background, Africa has little option but to give urgent and serious attention to the improvement of the quality of corporate governance on the continent so as to participate competitively in the global economic order.”

Partner at Raphaël & Associés

Nada is an international corporate and finance legal advisor admitted to the courts of Beirut and New York.

She recently drafted, in collaboration with Hawkamah, the Corporate Governance Code for listed companies in Qatar recently adopted by the Qatar Financial Monetary Authority. She is also the co-author of the first Lebanese Code of Corporate Governance. She has drafted various corporate governance codes for business associations, private companies and non governmental institutions.

Nada is a founding member of the Lebanese Corporate Governance Taskforce where she co-chairs the Legal and Regulatory Committee and chairs the SME’s committee; the Corporate Governance Consortium advising public and private institutions on corporate governance; and the Lebanese Institute for Excellence in Government. She is also a board member of the Lebanese Transparency Association.

FORUM HEAD HONORED BY DIRECTORSHIP

DirectorshipPhilip Armstrong, the Forum’s head, as one of 100 of the “who’s who of the corporate governance community” for 2009. Armstrong was praised for his expertise and leadership in advancing corporate governance reforms in developing countries and emerging markets.

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Two Personal Journeys

Lopa Rahman, a project director with the Bangladesh Enterprise Institute, recently shared in a Lessons Learned publication how her work with the Forum has helped her country while improving her knowledge of corporate governance to better inform the work she does at the institute.

In 2005, I attended a Training of

Global Corporate Governance Forum for the South Asia Region. Through this workshop, I was able to help BEI build its network regionally and enhance the established training curriculum. BEI’s core

such expertise on board at the institute, we could develop training materials that are applicable to our local context. But, we felt that we did not have access to world-class, robust training tools and materials.

Corporate Governance Board Leadership Training Resources in 2008, I was fortunate to be selected as one of a small group of experts to participate. Not only did I receive first-hand training on this world-class curriculum and training design, but I also benefited tremendously from interacting with experts and champions drawn from around the world.

I was then invited to be a faculty member for two regional workshops: one held in partnership with BEI in Dhaka in May 2008, and the second held in partnership with the Indonesia Institute of Corporate

These gave me the opportunity to apply the skills and knowledge I had acquired while strengthening my confidence to deliver quality training in an international context. The hands-on experience, supported by two co-trainers, was invaluable.

“ The Forum workshops gave me the opportunity to apply the skills and knowledge I had acquired while strengthening my confidence to deliver quality training in an international context.”

incorporation of corporate governance best practices into the listing rules. BEI

100 workshops, roundtables and other awareness programs. Recently, Rashed, my team member at BEI, and I designed and delivered a two-day training program for 20 selected senior officials of the Bangladesh Bank (Central Bank).

All this has been possible because of the training, the Board Leadership Training Resources, and the opportunities for my professional development that the Forum provided.

of Corporate Governance (IBGC), shares his “lessons” in volunteering to help the Forum’s clients.

PSAG members have a unique opportunity to expand the scope of contributions through their volunteer work to an international environment where knowledge and practical experience is needed. The PSAG, too, is a two-way

lessons, as I have done, for example, by

Institute of Corporate Governance

there to teach as much as we are there to learn.

Those in emerging markets and developing countries tell me they appreciate hearing

about success cases in societies other than those of the traditional financial centers. That is what I heard repeatedly in my travels as a PSAG volunteer to Cairo, Maputo (twice), Tunis, and Sarajevo, and through my participation in the Latin American Roundtables in Santiago,

Those experiences, as well as those of IBGC, have been distilled into a Lessons Learned publication that I wrote for the

that is adopting best practices – your activities must exemplify your rhetoric.

It is my hope that the ways in which IBGC confronted its many challenges and

that it is today, as well as my insights, can help make the task of setting up a corporate governance institute far easier in other countries, and then developing that institute, to ensure its long-term sustainability and financial success.

The South-South dialogue is often easier and more motivating, because our experiences are common in many ways, as are our hopes for our regions. If we are going to transform societies and eradicate poverty, we must ensure that good corporate governance principles are well-grounded in the economies of developing countries and emerging markets. Learning from others makes the path ahead more brightly lit.

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conventional corporate governance instruments − transparency, independent monitoring, economic alignment, shareholder rights, and financial liability − and suggests ways to improve their application. Part II recommends how policymakers could approach corporate governance reform generally. The author then suggests a number of concrete

Simon is adjunct Professor of Law at Northwestern University School of Law and a PSAG member. Formerly Head of Corporate Governance at Barclays Global Investors Limited, Simon, alongside his teaching role, is Executive Partner and Managing Director at

Publications

Companies Circle

the private sector that ensures successful implementation on the ground. This is the first guide of its kind produced for Latin American companies and reflects a diverse range of company experience from the region. Its practical, hands-on guidance and tangible, relevant examples should be of enormous help to companies starting on the path to

this publication and the Circle. (The publication will be translated into Spanish and Portuguese in due course.)

Produced by the Centro de Excelencia en Gobierno Corporativo in Mexico (CEGC) with support from the Forum, this guide is aimed specifically at Mexican SMEs that may be contemplating ultimately listing on the Bolsa. Published only in Spanish, the guide provides guidance to companies in applying in practical terms the new securities laws intended to encourage good corporate governance. CEGC is running training courses for Mexican companies and their directors and management based on this guidance, which places a strong emphasis on good corporate governance practices.

FOCUS:

Introduced by Peter Zollinger, a senior vice president with Sustainability, this publication introduces the concept of stakeholder engagement from the perspective of internationally

directors, it explains how stakeholder concerns can inform and enhance boards’ risk management and wealth creation responsibilities. The publication provides practical tips and tools to help navigate stakeholder engagement in a way that strengthens the long-term sustainability of companies and enhances trust and reputation among stakeholders.

Partnerships in India Leverage Strengths for Success

Local business commitment and securities regulator's support can provide a strong foundation for India to move forward with corporate governance. This Lessons Learned introduces how the Forum has been forging innovative partnerships in India that enable institutions to leverage their resources to build capacity, broaden awareness, and achieve progress in gaining broad acceptance by businesses for corporate governance best practices.

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Sustainable Development

Advanced Her Professional Development

The country’s corporate governance supporters are negotiating many economic, political, and cultural hurdles to achieve success. This Lessons Learned demonstrates how the Forum facilitates the Bangladesh Enterprise Institute (BEI) to achieve corporate governance development for economic growth and sustainability by helping BEI

its programs among different stakeholders (including regulators and private sector companies). In the publication, BEI Project Director Lopa Rahman recounts her story of personal development—offering other developing countries many practical lessons.

AHEAD

In December, Lessons Learned will look at the Forum’s media training program. The Resolving Corporate Governance Disputes toolkit is scheduled for worldwide deployment in 2010, as is the Corporate Governance Training for Financial Journalists toolkit.

Customizing Access to Knowledge Management Tools, Publications

Private Sector Experts: A Key Forum Resource

The Global Corporate Governance Forum’s Private Sector Advisory Group (PSAG) brings together more than 75 of the world’s most prominent experts on corporate governance. Business leaders, lawyers, investors, and other professionals volunteer their time and expertise pro bono to help implement better corporate governance practices in developing and transition countries.

The high profile of the PSAG members helps the Forum actively raise awareness on corporate

who are proactively reforming corporate governance practices in their countries.

SECRETARIAT

Global Corporate Governance Forum

Facsimile: +1 (202) 522 7588cgsecretariat@ifc.orgwww.gcgf.org

©2009 International Finance Corporation

By Philip ArmstrongHead, Global Corporate Governance Forum

PERSPECTIVE: What Lies Ahead

No doubt we have encountered one of the worst crises since the great depression.

Virtually every thoughtful analysis of the crisis has cited macroeconomic imbalances, regulatory failure and various flaws in the intersection between economic and regulatory policies — this, as we have observed, has been particularly severe in the banking sector.

To put this in context, the write downs estimated by the IMF are equal to 37 years of official development assistance at its 2008 level. This is 13% of global gross domestic product.

Governments have so far provided upwards of $8,900bn in financing for banks — this, apparently, is less than a third of their needs. In its most recent estimates, the IMF projected 2009 growth of minus 1.3 percent for the world, minus 3.8 percent for the advanced countries - and is predicting a tepid recovery in 2010.

seems to be the start of a recovery, I am not personally convinced that we are through this yet.

Yet again, this crisis demonstrates that regulations do not guarantee ethical behavior and good governance.

Probably most disturbing is that the causes of this crisis are not novel: we’ve seen it in the 1990’s (Asian crisis) and repeated far too often in the 2000’s (Dotcom Bubble and numerous corporate scandals mostly in the U.S. — first Enron and now the banking sector).

Another significant feature is that this crisis started in the very markets that have largely been responsible for setting

the international standards of corporate governance, now followed worldwide.

to be multifaceted, and in some ways complicated, it is also evident that directors and boards have not been

studies (notably GovernanceMetrics in the U.S., which covers a wide range of companies worldwide) is that companies with acknowledged and tested good corporate governance practices have been able to engage the financial crisis gripping the world with much greater assurance.

During the current downturn, companies falling into the category of being better governed have consistently produced shareholder returns in excess of 9%, but

globally, only 90 fall into the highest category of CG ratings.

Corporate Governance principles did not fail — their application was distorted.

A fundamental board role is to provide oversight, direction, and control, but also to challenge where necessary. This does not appear to have happened in many banks, but, I might add, is not necessarily an issue that is unique to banks from my own observations serving in boardrooms and working with boards worldwide.

So, where to from here?

Let me share with you some practical observations for your consideration.

The role of the board chairman is going to become ever more critical, especially in the financial sector where independence alone is not sufficient — he or she has to know something about the business.

Notional independence to accommodate corporate governance rules is no longer sufficient. Boards must think carefully about the qualifications that they require to competently supervise the business.

Non-executive directors are going to have to spend much, much more time on their responsibilities. This not only has implications for more frequent meetings of boards and committees, but also the time for preparation plus going on site to examine the business and meet management.

Boards are going to have to be much more intuitive over compensation, although they should not worry greatly about some of the draconian measures being considered in the US in the banking sector, and the unforeseen consequences of this.

Risk management has been highlighted as a major failing, and will require considerable deliberation. In the financial sector, the establishment of risk committees with appropriately experienced “risk literate’” non-executive directors and advisors will become an imperative, most likely through regulation. There are calls for a separate “risk report” to shareholders annually that will outline the board’s approach to risk management and the steps it has taken to not only manage risks facing the business but also to provide a clear view of identified risks that may impact the business. The role of internal assurance providers has been particularly highlighted, specifically the risk management function and its access to the highest levels of the board and management.

“ A fundamental board role is to provide oversight, direction, and control, but also to challenge where necessary.”