This article recognizes the important role of boards of directors in the implementation of modern corporate governance standards in emerging markets. As internal monitors of management, independent directors are uniquely positioned to protect the rights of shareholders. In a properly functioning corporate governance system, independent directors have access to detailed information, are informed about a company’s strategic direction and are supported by effective internal control systems to guide and monitor management. Boards of directors and the systems in which they operate have their limitations, however.
Following high profile scandals in Western financial markets, trust in directors is low, the effectiveness of corporate governance systems is heavily debated and increasing responsibilities and personal liability make it difficult for companies to attract qualified directors. Although new legislation and self-regulatory initiatives are essential for developing effective boards of directors, transplanting Western corporate governance systems to emerging markets requires a substantial understanding of a country’s history, culture and business practices. The successful introduction of modern corporate governance standards calls for an in-depth understanding of standards and how they can be introduced to local markets most effectively.
While coercive corporate governance reform strategies may be useful, participatory reform is more effective in markets with poor enforcement and low acceptance of new standards. Although more legislation may be warranted to guide directors in their role as agents of investors and shareholders, this article concludes that the focus in private sector reform in emerging markets should shift from legislative development and legal transplantation to innovative forms of self-regulation, implementation and education.
Reform Strategies for Boards of Directors in Emerging Markets:
How the Private Sector can be Involved in the Development and Implementation of Modern Business Standards
Working Paper - December 2006
Rotterdam School of Management
Department of Strategy and Environment
Burg. Oudlaan 50
P.O. Box 1738
3000 DR Rotterdam
Keywords: Corporate Governance, Boards of Directors, Regulatory Reform, Developing Countries
© 2006 Dr. Gregory F. Maassen and Patrick van de Coevering
Disclaimer: Contents of this publication are intended for educational purposes only and should not be relied upon for any legal or financial decisions. Any opinions expressed in this publication are the opinions of the authors and not necessarily of those of the Rotterdam School of Management or its affiliates. The authors make no representations about the suitability, reliability, timeliness, appropriateness, or accuracy of the information in this publication. The authors will not be liable for damages of any kind arising from the use of information in this publication, including, but not limited to, direct, incidental, punitive, and consequential damages.
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