1. Interpreting the Value of Corporate Governance
3rd Asian Roundtable on Corporate Governance
Singapore, 4 April 2001
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2. Investor Opinion Survey respondents’ characteristics
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Three surveys covering Asia, Europe, Latin America and the U.S.
Views sought from local and international investors
Investors range from money managers to pension funds
Aggregate assets under management are approximately US$3.25 trillion
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3. Quality of governance is a key concern when evaluating investments
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“In evaluating Asian companies for potential investment, how important is the quality of board practices relative to financial issues?”
More
Same
Less
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4. Investors’ views on the quality of governance in Asia
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Quality of corporate governance Scale
Japan
Taiwan
Korea
Thailand
Malaysia
Indonesia
Very good
Very poor
U.S. (estimate)
Premium investors are willing to pay for a well governed company %
U.S. 18%
Asia 24%
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5. Average premium investors would be willing to pay for a well-governed company
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Average % 30 28
Latin America
Chile
Argentina
Mexico
Brazil
Columbia
Venezuela
Taiwan
Asia
Japan
Indonesia
Korea
Thailand
Malaysia 26 24
Continental Europe
Italy
Switzerland
Germany
France
Spain 22 20
Anglo-Saxon US UK 18 16
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6. Investors’ views on how to improve board performance
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Majority of independent outside directors
Negative impact -1 1 2 3 4 5
Negligible impact
Moderate impact
High impact
n/a
Formal CEO evaluation by the board
Separate CEO from chairman position
Formal annual evaluation of board
Formal annual evaluation of directors
Higher proportion of outside director compensation paid in stock/options
Have a ‘lead’ director
Greater use of board committees
Outside directors’ meeting with large investors
Latin America
Europe/U.S.
Average response
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7. Asian business leaders are wary of the benefits
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“I do not need to raise capital anytime soon. Why should I worry about corporate governance?”
– Chairman, $2b market cap listed company
“I would rather have a higher cost of capital than the higher taxes that I would be forced to pay under greater disclosure.”
– Chairman, listed multi-business company
“More transparency means more opportunity for the government to favour my crony competitors.”
– CEO, listed family-owned company
“We’ve tried. We’ve placed the best independent directors on our board. But they would not dissent”
– Chairman, tightly-held listed company
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8. The Anglo-Saxon governance system
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Dispersed ownership
Highly developed institutional investment
Non- executive majority boards
Aligned incentives
Active market for corporate control
Active private equity market (incl. IPOs)
Clear lines of accountability
High disclosure
Shareholder environment
Independence and performance
Capital market liquidity
Corporate context
Institutional
context
Transparency and accountability
OECD
Principles
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9. The Asian governance system
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Concentrated ownership
Reliance on family and state finance
‘Insider boards’
Incentives
aligned with core shareholders
Limited market for corporate control
Under-developed and illiquid investment market
Inadequate minority protection
Limited disclosure
Shareholder environment
Independence and performance
Capital market liquidity
Corporate context
Institutional
context
Transparency and accountability
OECD
Principles
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10. Managing the transitional challenge
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Anglo-Saxon governance system
Asian governance system
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