Corporate Governance

Corporate Governance

How can banks in emerging markets actually implement improved Corporate Governance?

The methodology and indeed the benefits of implementing modern corporate governance standards in financial institutions are now generally well understood and accepted. However, the difficulty arises when we seek to apply these standards in difficult environments with different corporate cultures. Banks in emerging markets banks realise that if they fail to apply these standards then they may be deprived of international funding and equity.

This leads to a box ticking exercise. "Yes" the Board of Directors provide direction and oversight,  "yes" the bank operates independently of the shareholders, "yes" internal audit are not influenced by management. Too often the answer is actually "no" but internal whistle-blowers are not normally thanked and  could risk their job or be labelled  as difficult or disloyal, adversely  affecting their career.  

The question is how do you put into place systems and methodologies that push the bank towards understanding, appreciating and wanting to work to higher corporate governance principles? Having good Non-Executive Directors is certainly helpful but you are not going to get a majority of NEDs on the Board of Directors in these markets. The answer probably lies amongst other things in the organisational structure, a fully functioning Audit Committee which is easier to staff independently, an Asset and Liability Committee that does review and report on the major issues and a strategic planning process that is continuously monitored. 

The point is that to get corporate governance actually working requires a lot more than simply telling a bank at the higher level what needs to be done; the information and verification has to flow from a variety of sources from within the bank and this leads to there being no alternative but to follow the agreed decision making methodology.

We would welcome your views on this. What in your experience contributes to the implementation of an effective corporate governance culture in a bank in an emerging market?