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

Transcription

1 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 1

2 Definition of Corporate Governance Corporate governance refers to the structures and processes for the direction and control of companies Shareholders Regular reporting and update Guidance and supervision Management Board 2

3 When to Focus on Corporate Governance? Hazards Prospects Little or no commitment Attitude Strong commitment Weak controls Weak compliance Negative image Financial / Operational Legal Reputation Access to capital / better valuations Model codes/compliance/ documentation Fulfilling IFC s mission 3

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. 4

5 Our Website IO Tools 5

6 Step 1: Core Tool Simple Progression Matrices ATTRIBUTES A client orientation and self-assessment tool Commitment to Good Corporate Governance Structure and Functioning of the Board of Directors Control Environment LEVELS 1. Acceptable 2. Extra Steps 3. Major Contributions P R O G R E S S I O N 4. Leadership Transparency and Disclosure Treatment of Minority Shareholders 6

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

8 Due Diligence Review Steps 1. First Impressions & Level of CG Analysis 2. Due Diligence Review 3. Analysis and summary / Decision Book section 4. Supervision 8

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

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

11 Step 1: FGA or DDR FULL GOVERNANCE ASSESSMENT (FGA) Improvement of Corporate Governance cited as rationale for deal / IFC value-added IFC intends to nominate a director to the Board Equity companies that disclose CG practices as part of comply or explain regime of the national or international securities exchange State-owned enterprises or pre-privatization transactions Equity stake / Debt deals of significant amounts (set by industry department) CG DUE DILIGENCE REVIEW (DDR) Investee is a fully-controlled subsidiary of a large multi-national enterprise or financial group Significant lending operations exposure (under an amount set by industry department) 11 Others

12 Step 1: Tools - Due Diligence Review (DDR) 12 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 Objectives: Step 2: Doing the Review 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 13

14 5 Key Risks 1. No commitment to CG 2. Board of Directors not performing 3. Poor risk management 4. Inaccurate financials 5. Mistreated minority shareholders 14

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

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

17 Management Checklist (Overall) IOs to be able to address 5 key CG risks: 1. The company and its shareholders have not demonstrated a commitment to implementing good corporate governance policies and practices; 2. The board of directors is not up to the task of overseeing the strategy, management and performance of the company; 3. 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; 4. The company's financial disclosures are not an accurate and timely reflection of its fiscal standing; and, 5. Minority shareholders are not treated as equal partners in the business venture and their rights are either unequal or unenforceable. 17

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 18

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

20 Thank you! 20