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Corporate Governance Advisory Service Programs

Corporate Governance Advisory Service Programs

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Published by IFC Sustainability
This report takes a look at the role IFC has played in the development and promotion of good corporate governance practices in emerging markets, and the results of those efforts.
This report takes a look at the role IFC has played in the development and promotion of good corporate governance practices in emerging markets, and the results of those efforts.

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Published by: IFC Sustainability on Jul 15, 2011
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 Measuring development results in IFC 
Corporate Governance Advisory Service Programs
IFC has played a pioneering role in the development and promotion o good corporate gover-nance practices in emerging markets as part o its Advisory Services (AS) eorts. Over the pastdecade, IFC has directly assisted 9,325 companies through its corporate governance AS projects.Since its rst large scale corporate governance project in Ukraine in 1998, IFC has implemented29 corporate governance AS projects in 18 countries. Currently, 15 projects are being imple-mented covering 20 countries. Key program results achieved since 2000 include adoption o 25legislative acts, and a total direct investment o $683 million US dollars or assisted clients, o  which, $134 million is rom IFC, at an approximate total input cost o $16 million.
In 2006, IFC commissioned an external review o its cor-porate governance AS work by the London-based rmTriple Line Consulting Limited. The objective o thisstudy was to evaluate project design and eectiveness andprovide orward-looking guidance on monitoring andevaluation (M&E) or corporate governance AS projects.The study prepared the ground or the internal develop-ment o an advanced indicator and logic ramework orcorporate governance by IFC’s corporate governance andresults measurement teams. This note summarizes themain ndings rom the review and expands upon someo the lessons rom IFC’s corporate governance AS experi-ences.
“IFC is in a very strong position to be the market leader” 
The overall conclusion o the review was that IFC, giv-en its decade o hands-on experience and accumulatedknow-how, is uniquely positioned or global leadership inthe eld o corporate governance AS. Corporate gover-nance is one o IFC’s core AS products . This work, at itsessence, involves the transormation o a company’s in-dividual corporate culture including the distribution o powers and authorities amongst its various governancebodies. According to the study, IFC’s wealth o experiencein this eld, coupled with its ability to provide nancing,dierentiates IFC rom other multilateral and bilateralorganizations. The IFC brand was considered to be animportant success actor and the consultants suggest thatthis should be urther capitalized upon or IFC to cementits leadership position as a global provider o corporategovernance AS.The study looked at three IFC corporate governance AS program models being implemented in the EasternEurope and Central Asia (EECA), Middle East and North Arica (MENA), and Southeastern Europe (SE) regions.The review noted that the programs in MENA and SE were at early stages o implementation and that it is toosoon to draw any conclusions about their ultimate eec-tiveness, however, the report does comment on the ap-proach used to develop these programs.
“IFC has learnt that a comprehensive approach to CG is es-sential. It is not possible to work on the business case or CG in the absence o an adequate legal ramework.” 
The review looks at the rontier markets o EECA andconcludes that the comprehensive approach taken by IFCin Ukraine, Russia, Armenia and Georgia was key to thesuccess o those projects. The projects engaged a variety o stakeholders in order to eect change. The basic elementso project design are (1) direct assistance to companies; 2)awareness raising eorts to educate the entire economy about the benets o good corporate governance; 3) en-
Monitor shares key fndings rom in-depth reviews o IFC programs and projects conducted by external evaluators. Thereviews address the relevance, efciency, eectiveness and sustainability o these programs. For more inormation aboutthe evaluation o IFC programs visit http://www.ic.org/results.
ISSUE NO. 12, MARCH 2007
   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d
couraging governments to improve the legislative and regula-tory ramework to quicken the pace o corporate governancedevelopment; and, 4) working with educational institutionsto ensure that the next generation o lawyers, investors, CEOsand journalists would have a rm understanding o the valueproposition surrounding good corporate governance prac-tices in the modern corporation. The projects also work withappropriate local counterparts such as NGOs and instituteso directors where they exist.The study noted that there was knowledge sharing acrossregions on this account, and stated that in rolling out proj-ects in MENA, IFC incorporated lessons rom ormer EECA projects. An example o the benet o a comprehensive ap-proach is that projects have been able to engage regulatorsand lawmakers armed with specic inormation about thepractices, prejudices and struggles o corporations. As a re-sult, IFC was able to suggest policy approaches that wouldencourage good corporate governance practices in the givenenvironment. Another example is the eorts made to transerknowledge to educational institutions. AS projects were ableto use real-lie examples o problems aced by company own-ers and mangers to develop educational materials with a localfavor that have reached some 20,000 students to date.
“Results in CG AS take time to be realized. A key lesson has beento ensure that the AS should be long term (i.e. 4-5 years, not 1-2  years). Tis experience was brought out in both Ukraine and Rus-sia. IFC needs to have the condence to not just be catalytic inintroducing CG A, but to create a lasting legacy.” 
The consultants urther indicated that another lesson romthe EECA region was the need to engage in long-term pro-grams. In EECA, IFC recognized that the cultural changeassociated with introducing new laws, policies and practicesat the heart o corporations is a long-term process with many starts and stops along the way. In a booming economy whereinvestment and credits are widely available (such as China)there is relatively little commitment on the part o owners andmanagers to improving corporate governance, as the businessbenets are blurred by excessive liquidity. In other, less ortu-nate economies, it may take years to produce the “change o heart” necessary to generate true commitment to the rigors o good governance. In these markets the absence o demand orcorporate governance dictates a comprehensive approach overa sustained period. As a case in point, IFC’s projects in Rus-sia, Ukraine and Georgia all had sucient demand and needor additional reorms to require extensions o their originalproject timelines. Further, the absence o local corporate gov-ernance proessionals requires IFC to hire and train youngproessionals who are willing to commit to the corporate gov-ernance eld. These individuals then go on to develop theirown careers, oten in the corporate governance eld.The Triple Line report cites the Armenia Corporate Gov-ernance Project as being less than ully successul because itdid not ollow the lesson described above. The eort was ashort term and underunded intervention in a market which was not ully ready to embark on corporate governancereorms. Further, the report states that this lesson shouldbe taken into consideration in MENA and SE where thecurrent three-year projects may be “too short to have any last-ing impact.”
“In the case o CG [AS], the IFC has in many instances been in-troducing the concept to the market. Relevance in this case needs to be assessed by some scoping or the specic CG barriers in the country” 
IFC has successully adapted the program model across di-erent regions, but the report highlighted the need or a moreormal market needs assessment beore designing an inter-vention. IFC has regularly used needs assessments in plan-ning its corporate governance work, but must do so moreconsistently especially when planning a rst CG project in anew region. These assessments are important to be able to tai-lor and ocus the AS eort to the specic country and market.Understanding the level o maturity o the market, whethercredible and capable local consultancies exist and the state o the legal ramework should all eed into the design o the ASproject.Good scoping o a country’s individual needs and thedevelopment o its regulatory ramework allows the projectdesigner to provide the appropriate balance o individualcompany and legislative advisory work as well as determine whether or not it makes sense to try and partner with ex-isting institutions. It also helps prevent IFC AS teams romduplicating the eorts o or-prot entities and other donorunded initiatives in emerging markets.For example, in the EECA region there has been a greaterneed or early stage interventions with a comprehensive ap-proach to corporate governance. In MENA, markets and in-stitutions are more mature and thereore the program couldrisk partnering with a ew existing local entities to deliver AS.In the more developed markets o Latin America, IFC hasound that, given the generations o private ownership, rela-tively well developed capital markets and dierent culturalnorms, local conditions do not support the need or a com-prehensive model o corporate governance AS such as thatdeployed in EECA. In these countries, corporate governanceconsultancies have been developing over the last ten years andIFC employs these nascent providers to work with its invest-ment clients where possible. As a result, IFC does not havecorporate governance AS projects in this region.
The report recommended that IFC place more emphasis onbeing a market acilitator rather than directly providing AS
Issue No.12, March 2007 MONITOR: Measuring development results in IFC
to clients to lower the cost o these interventions and developthe local consulting market. The study also recommendedthat the projects provide direct assistance to ewer clients, butpursue more intensive promotion o success stories to mini-mize costs and deepen impact. To date, dierent approachesto delivery have been used in dierent regions. In EECA, IFChas hired and trained local sta to deliver corporate gover-nance AS directly to clients. In SE, the projects have takenmore o a acilitator’s approach by attempting to provide ASthrough local consultancies.It is important to note that the appropriate deploymento dierent approaches will depend upon the stage o devel-opment o corporate governance policies and practices in themarket in question. Only airly mature equity and debt mar-kets spur real demand or commercial CG services. This isnot to say that improving corporate governance is not key in these early stages, just that it takes a back seat to acquir-ing more basic business skills and may well be poorly under-stood as a actor o longer term business success and marketdevelopment. I IFC were to only support local commercialconsulting providers, it would be necessary to delay any in-terventions until airly late in the spectrum o market devel-opment, even to the point where it would not be clear whatIFC’s value-added would entail.In mature markets, such as Latin America, where localconsultancies exist, a market acilitator role might be easible,but would not make sense as the market clearly grasps thevalue o improving corporate governance. In EECA, whereno one knew what corporate governance was, let alone wasable to provide consultations on even basic business topics, amarket acilitator approach would likely be met with ailure.Although a market acilitator approach has been selectedin SE, the market there is still developing – local businessconsultancies exist, but with no expertise or delivery capac-ity in corporate governance. As a result, project managementhas been unable to nd local consultants able to deliver CGservices and has been orced to turn to expensive oreign con-sultancies which, in turn, requires the project to subsidizea substantial percentage o the costs o assessments, not tomention any ollow-on assistance to the project’s clients. Inturning to oreign consultants, IFC has escalated its cost perclient (ranging rom $45,000-90,000) and eectively elimi-nated the possibility o leaving behind trained corporate gov-ernance expertise upon project completion.
“All welcomed the proessionalism o the IFC advisory services and seminars. Tus, the strength o the IFC brand is perceived as being a very important actor in participating in the [AS] and IFC’s stamp o approval was perceived as a key means o attract-ing investors.” 
Further supporting the case or direct intervention is that thestudy recognizes the quality o assistance delivered by dedi-cated IFC corporate governance sta as a key strength o theprojects. Local IFC sta, experts in local laws and traditionsas well as international best practice, are ideally suited to per-suade and guide companies wanting to pursue improved gov-ernance as a path to economic development and investmentattractiveness. A key benet is that working with local sta,providing them with targeted training and access to knowl-edge, adds to the sustainability o the AS eort, as many proj-ect sta go on to become true corporate governance expertsand leaders o change or their market. In PEP MENA, IFC istraining the sta o the Egyptian Institute o Directors. Thisapproach o training sta members o new and existing insti-tutions and even consultancies may be a good way orward,allowing experts to join the project or a period o time andgain in-depth expertise, and then returning to their previouspost at the end o the AS project.In assessing the motives o Russian banks or working with IFC AS, an important consideration was the chanceto improve their image by association with the IFC brand– something one would not see when using the market a-cilitator approach. The report also indicates that banks them-selves cited the valuable practical advice (as IFC has practicalexperience as compared to advisory rms who have pickedup on the corporate governance trend) provided by the in-house proessionals as the rst key reason or working withthe project. A acilitator approach would, as the study notes,only be appropriate in more developed markets where thereis reasonable market demand and sucient local consultingcapacity available. While there are cost savings rom adopt-ing this approach , there is a risk o possibly limiting IFC’sinstitutional capacity and its ability to work across regions. Incontrast, the direct stang approach allows or better quality and a more comprehensive approach to AS delivery as thesame proessional sta advising clients can use their skills andlessons learned rom the private sector to advise governmentson policy reorm, develop case studies and curricula or edu-cational institutions and provide success stories to the mediato increase public awareness. In the longer term, this may prove to be more cost-eective. Again, more developed mar-kets will call or a mixed approach, with the most developedmarkets being ertile ground or an outsourcing approach.
“It is more eective to ocus on the advocacy or change in legisla-tion and institutional strengthening rather than on direct sup- port to Government and the legislature.” 
IFC has experienced both success and ailure in directly drat-ing legislation and has learned a great deal about advocatingor change at the legislative and regulatory level. The success-ul development o corporate governance codes is a case inpoint. Where IFC has ocused on a broad-based consulta-tive process towards the development o a country code, bothgovernment and business have readily accepted the code. InMENA IFC has taken just such an approach and in a 2 yearperiod has helped to launch our national CG codes and is working in eight other countries in the region to develop sim-ilar CG codes or guidelines or the domestic market. Where
MONITOR: Measuring development results in IFC Issue No.12, March 2007

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