Anti-corruption law goes global
AS EMERGING MARKETS attract ever-greater investor interest, the corporate governance practices of companies in the sector are likely to face sharper scrutiny from investors. This reflects three trends. First, emerging market companies are increasingly turning directly to western capital markets to seek secondary or even primary listings; second, western companies are buying up strategic stakes in these companies; and, third, companies based in emerging markets are themselves expanding, by organic growth or acquisition, into western markets.
As a result, emerging market companies not only face heightened shareholder demands but are also coming into the ambit of western securities and anti-corruption law. What has this meant so far for standards of corporate governance? The best that can be said is that emerging market governance is still a party where not all shareholders get to join in the fun – but matters are set to change.
A unique feature of emerging capital markets is that national governments play a pervasive role in business: the largest listed companies tend to be former state enterprises, and the state usually still retains a large stake. Business relationships are permeated by ties with the government, and commercial success often rests on the strength of these connections.