A country strategy on how to improve upon corporate governance: from form to substance. Sebastian Molineus Practice Manager, Capital Markets Practice The World Bank Presented on May 14, 2012, in Chisinau, Moldova. Objective and outline. Objective.
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To provide inputs on how to improve upon corporate governance practices in Moldova
Defining what good corporate governance is and why it matters
What are the lessons from over 10 years of World Bank experience
A potential roadmap for Moldova
To begin with, it is important that we are all on the same page as to what good corporate governance means
Source: OECD Principles of Corporate Governance
What is “bank governance”? How is it different? page as to what good corporate governance means
The manner in which banks are governed by
their boards and senior mgmt, which affects how they:
Set corporate objectives
Operate the bank on a day-to-day basis
Meet their accountability to shareholders and interests of stakeholders
Operate the bank in a safe and sound manner, and in compliance with laws and regulations
Protect the interests of depositors
Source: Basel Committee on Banking Supervision - Enhancing corporate governance for banking organisations
The following illustration offers a ‘look & feel’ of the key themes corporate governance touches upon
Strong enforcement regime
Good board practices
Robust control structures
Strong disclosure & transparency regime
Protection of (minority) shareholder rights
Robust legal & regulatoryenvironment
… in the end, corporate governance is about whatpeople in privileged or responsible positions actually do (or don’t do) withother people’s (e.g. shareholders’ and depositors’) money!
A change in behavior!
McKinsey Global Investor Opinion Survey on Corporate Governance, 2002
Clapper and Love, World Bank, 2002
Optimizes Operational and Financial Efficiency
Improves Access to Outside Capital
Improves Valuation and Lowers the Cost of Capital
Builds/Improves the Company’s Reputation
And also brings benefits to the public performance & lower capital expenditures
For regulators and supervisors
The World Bank has carried out 90 governance assessments or reviews in 70+ countries, including the ECA region, with the following set of lessons learned
The World Bank’s Corporate Governance Group carries-out country-level corporate
governance ROSC assessments, and reviews for SOEs and financial institutions
Training & evaluation
Key control functions
“Shareholder boards” are focused on growth, dividends, and market share, but not on the bank’s risk/return dimension
Controls are under-resourced and under-staffed
Legal & regulatory reforms
Short term(<1 year)
Medium term(years 2-3)
… it is up to the private sector to demonstrate its commitment to real reforms!
More specifically, in building a corporate governance framework, Moldovan financial institutions will need to…
Create a professional, vigilant, and independent board
In practice, this means that board need to:
2. Improve disclosure practice!
In practice, disclosure means:
To control = to check, test, or verify framework, Moldovan financial institutions will need to…
4. To create a robust control environment.
In practice, building a robust control framework means :
To protect = to shield from injury or damage, save from financial loss
4. Protect shareholder rights
In practice, protecting shareholder rights is to: