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IFC CORPORATE GOVERNANCE METHODOLOGY EMBEDDING CG INTO THE INVESTMENT AND ADVISORY ACTIVITIES

Department of Corporate Advice Corporate Governance Unit Roman Zyla October 23, 2008 Tunis, Tunisia. IFC CORPORATE GOVERNANCE METHODOLOGY EMBEDDING CG INTO THE INVESTMENT AND ADVISORY ACTIVITIES. Definition of Corporate Governance. Shareholders. Corporate governance refers

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IFC CORPORATE GOVERNANCE METHODOLOGY EMBEDDING CG INTO THE INVESTMENT AND ADVISORY ACTIVITIES

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  1. Department of Corporate AdviceCorporate Governance Unit Roman Zyla October 23, 2008 Tunis, Tunisia IFC CORPORATE GOVERNANCE METHODOLOGYEMBEDDING CG INTO THE INVESTMENT AND ADVISORY ACTIVITIES

  2. Definition of Corporate Governance Shareholders Corporate governance refers to the structures and processes for the direction and control of companies Represent and report to Provide transparent reportingto Elect and dismiss Provide capital to Regular reporting and update Guidanceand supervision Management Board

  3. When to Focus on Corporate Governance? Prospects Hazards

  4. What is the IFC CG “Methodology”? • Support to investment staff • A set of tools to be used by investment staff in assessing corporate governance practices in companies. • A series of steps that fit into existing appraisal/due diligence process • Value added resource materials for clients.

  5. Our Website IO Tools Why CG? Resources IFC’s Approach http://ifcnet.org/ifcint/corpgov.nsf http://www.ifc.org/corporategovernance

  6. Step 1: Core Tool – Simple Progression Matrices A client orientation and self-assessment tool LEVELS ATTRIBUTES P R O G R E S S I O N

  7. Meeting needs – developing new tools • Full CG Assessment • CG Progression Matrix • Due Diligence Review • Report Generator

  8. Due Diligence Review Steps • First Impressions & Level of CG Analysis • Due Diligence Review • Analysis and summary / Decision Book section • Supervision

  9. Step 1: First Impressions • Objectives: • Form an IMPRESSION • Identify probable CG issues • Determine FGA or DDR • Tools: • Trained IFC Staff & common sense

  10. CG assessment of IFC clients Two tier approach Full Governance Assessment CG Due Diligence Review • FGA • In-depth • Output: Full CG report including recommendations and improvement program (CGIP) • CCGCP staff – full team member • Site visit • DDR • Less detailed • Lead actor : IO / Investment team CG Unit supporting • Output: decision book CG section • No site visit required How to decide which approach to use…

  11. Step 1: FGA or DDR …Others

  12. Step 1: Tools - Due Diligence Review (DDR) • CG matrix • Report Generator Tool • Document request list (abbreviated) • Meeting request list (abbreviated) • Interview questions list • Sample decision book sections • OUTPUTS • Section for decisions book (key focus issues) • Development impact indicators • Questions the team must be able to answer at the decision meeting

  13. Step 2: Doing the Review • Objectives: • Inform the client – discuss using CG Matrix • Follow the report generator tool • Seek out the information • Tools: • Matrix • Report generator • Company documents – your own notes

  14. 5 Key Risks • No commitment to CG • Board of Directors not performing • Poor risk management • Inaccurate financials • Mistreated minority shareholders

  15. Using the tool: Report Generator Client Feature that Mitigates CG Risk Questions to ask Answer source Sub Risks Client Feature that Mitigates CG Risk Key Corporate Governance Risks Client Feature that Mitigates CG Risk Sub Risks Sub Risks Questions to ask Answer source Client Feature that Mitigates CG Risk Result: Decision book section on Corporate Governance

  16. Step 3: Decision book section • Brief • ID Risks or Opportunities • Be able to answer key risk questions

  17. Management Checklist (Overall) IOs to be able to address 5 key CG risks: • The company and its shareholders have not demonstrated a commitment to implementing good corporate governance policies and practices; • The board of directors is not up to the task of overseeing the strategy, management and performance of the company; • The company's risk management and control functions are not sufficient to ensure compliance with relevant laws and regulations and sound stewardship of the company's assets; • The company's financial disclosures are not an accurate and timely reflection of its fiscal standing; and, • Minority shareholders are not treated as equal partners in the business venture and their rights are either unequal or unenforceable.

  18. Step 3: Decision book section • Brief • ID Risks or Opportunities • Be able to answer key risk questions • Make basic recommendations develop CGIP • Seek CG Unit support & review

  19. Step 4: Implementation and Supervision • Recommendations • Improvement plans • Making changes • Follow up

  20. Thank you! www.ifc.org/corporategovernance

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