INFLUENCING GOOD
CORPORATE GOVERNANCE
The IFC Perspective
on Implementation Issues
3rd Asian Roundtable on Corporate Governance
April 4-6, 2001, Singapore
Vipul C. Prakash
Country Manager, Philippines
International Finance Corporation
Discussion Points
 Background and fit of CG initiative in IFC
 Status of CG initiative in IFC
IFC & Corporate Governance (CG)
 Good CG important like any institutional
investor…...however,
 Objective is to provide more than financing
– Development focus as a multilateral (mission)
– Catalyst to attract partners, other investors
– Source of information on environment, other
issues such as corporate governance
Strategic Perspective
 Good Fit with Triple bottom-line approach
– Financial
– Economic
– Social/environmental
 Necessary to achieve Sustainability
objective
Status of the CG Initiative in IFC
 Collaboration with OECD on best principles
and dissemination
 Pilot stage of implementing CG in IFC work
 Knowledge gap & training issues being
addressed
Implementing CG in IFC Work
At due diligence stage
 Using a scorecard to measure CG
– Issues of comparability
– Initially expected to be another subjective input
 Evaluate the country environment for CG
 Derive a composite score combining the external
and company specific CG score
Implementing CG in IFC Work
CG at Project Implementation stage
Covenants that can be included
Structure of the Board (focus on independent members)
Responsibilities of the Board
Adoption of a Code of Conduct
Protection of Minority Shareholders and Tag Along Rights
Education of the Board
Covenants on Financial Reporting and Disclosure
Issue- Implementation in its Essence
Implementing CG in IFC Work
IFC Board Nominations
 Change in the role of IFC board nominees
– Training
– Background & value-added
– Limitations on board memberships
– Performance evaluation as board member as
part of overall evaluation
 Change in approach to board position
– Shareholder role vs. creditor role
THANK YOU
Using a Scorecard to measure Corporate Governance
1. Commitment to Corporate Governance (10%)
1.1 Does the bank/company have a written corporate
governance (CG) code or manual?
1.2 Does the CG code or manual specify the major
stakeholders, whose interests must be taken into
account?
1.3 Is the CG code or manual easily available to the
regulators and the general public?
1.4 Is there a compliance officer tasked with the
responsibility of ensuring compliance with laws and
regulations, and does this compliance officer report
directly to the compliance committee or sub-committee
of the Board?
1.5 Are penalties actually imposed in the case of noncompliance?
Weight Score
30%
0
15%
0
15%
25%
0
15%
0
Score
continued...
Using a Scorecard to measure Corporate Governance
2. Board Governance (30%)
2.1 Does the Board have a sufficient number of
independent directors?
2.2 Does the Board have a written code for the guidance of
directors regarding their rights and duties, their
prerogatives and responsibilities? Does the Board have a
Code of Ethics for the entire corporation?
2.3 Does the Board have an Audit Committee, composed
of independent directors, that chooses the external auditor,
receives the reports directly from the external auditor,
oversees the work of the internal auditor, and makes sure
that audit and Central Bank (for FIs) findings are duly and
properly acted upon?
2.4 Does the Board have other committees or subcommittees (compliance, nomination, compensation, risk
management), composed mainly of independent directors
that ensure the the proper and dutiful performance of key
Board functions?
2.5 Does the Board have a performance evaluation
system, which is applied to the Board itself and also to top
management of the company?
2.6 Is the Board provided with all relevant information,
made available with sufficient time for study and analysis,
to enable the directors to exercise their duties of guiding
corporate strategy and providing oversight to top
management?
Weight Score
30%
0
10%
0
20%
0
20%
0
10%
0
10%
0
Score
continued...
Using a Scorecard to measure Corporate Governance
3. Shareholders Rights (30%)
Weight Score
3.1 Are all shareholders treated equally for subscription
30%
0
rights or repurchases?
 Can companies issue shares with varying voting rights
(e.g. founder of shares, non-voting shares, multiple
voting rights, removable voting rights and options)?
 Do shareholders have the right to register and freely
transfer shares?
3.2 What is the history of the Company in dealing with
30%
0
minority rights?
 Are shareholders allowed to participate and vote at the
shareholder meeting?
 Are minority shareholders able to pool their votes for
certain candidates to the board (e.g. through
cumulative or block share voting)?
 Are there provisions negotiated under shareholders
agreements to protect minority shareholders or nonvoting shareholders during changes of control?
3.3 Are all shareholders given regular disclosures reports,
40%
0
issued on time, with accuracy and adequacy in line with
international disclosure standards?
Score
continued...
Using a Scorecard to measure Corporate Governance
4. Transparency and Disclosure (30%)
4.1 Is an internationally recognized accounting and auditing system in
place, consistent with the International Standards of Auditing?
4.2 Does the company publish meaningful quarterly reports, containing
segment reporting as well as results per share, consistent with IAS
form?
4.3 Does the Annual Report specifically discuss the company's risk
management system and its corporate governance practices?
4.4 Is the company's annual financial statement published no later than
3 months and the quarterly report no later than 2 months after the end
of the reporting period?
4.5 Does the company's Annual Report contain information on
significant cross shareholdings (say 5% or more)?
4.6 Are conflicts of interest fully revealed through a clear and wellestablished mechanism, approved by the regulatory authorities? Are
conflicts of interest disclosed due to the multiple involvement of auditing
companies?
4.7 Are all investors and financial analysts treated equally regarding
information dissemination (is there fair disclosure)? Are regular analyst
meetings held (e.g. quarterly or semestrally)?
4.8 Is this information, along with the financial calendar, readily and
regularly available? Is it put on the internet?
4.9 Is there a detailed analysis of any deviation from previously
announced earnings targets and strategic goals?
Weight
15%
Score
Score
0
15%
0
10%
0
10%
0
10%
0
10%
0
10%
0
10%
0
10%
0