Corporate governance in emerging market economies (EME)

Prime aim:•Describe corporate governance in Eastern and Central Europe (ECE)•Define common characteristics of EME:s•Examine if ideas about corporate governance contribute to the understanding of EME:s

The corporate governance system in ECE

Characteristics of national systems:• Ownership structure and financial market characteristics• Investor protection characteristics• Importance of stock exchange and market for corporate

control• The role of banks• Lawfulness• Degree of compliance or similarity with EU laws and

directives

Pressure on the new members in the ECE to conform to EU rules

• The European Bank for Reconstruction and Development (EBRD) was established in 1991 to support the transformation of the economies in ECE.

• A Framework for a New Company Law in Europe

• EU subsidarity principle applied: guidelines for the national governments

• Europe needs well managed companies, with strong corporate governance records to generate employment and higher long term sustainable growth”

• Disciplinary role to the suppliers of finance but also the need to achieve efficient protection of “third parties”

Crony capitalism

Banks do not resist pressure from firms to finance investments that cannot stand market competition: banks promote "soft budgets”

“Great divide”: • ECE:s where the bank sector is able to resist this pressure• Countries (Bulgaria, Romania, Russia and Ukraine) which have

not yet successfully reformed their banking system.

A separate notion of EME?

Is it fruitful with a separate notion of EME and examine if existent corporate governance theory can contribute to the understanding of this type of economy?

Postulate: The development of EME:s is served by efficient financial

markets, high productivity founded and competitive firms

Issues common to EME and to corporate governance models:

• Redesign of ownership and control Companies in EME:s usually controlled by one owner

• Investor protection Need to attract foreign investors and need of strategic

investors to restructure firm

• How to stimulate growth of family-owned firms? Concern about the succession

Incompetent managements not replaced

Conflicts within families

• Few listed firms

Issues common……..

• Interaction between corporate governance and the political system

Privatisation counteracted by managements ”Crony capitalism” Changes in corporate governance channelled through

international political strategies (involving governments)