World Bank ROSC Corporate Governance Assessments
As part of the ROSC initiative, the World Bank has established a program to assist its member countries in strengthening their corporate governance frameworks. The objectives of this program are to accomplish the following:
• Benchmark the country’s corporate governance framework and company practices against the OECD Principles for Corporate Governance.
• Assist the country in developing and implementing a country action plan for improving institutional capacity with a view to strengthening the country’s corporate governance framework.
• Raise awareness of good corporate governance practices among the country’s public and private sector stakeholders.
Participation in corporate governance ROSC assessments is voluntary, and the World Bank conducts the assessments at the invitation of country authorities, sometimes in the context of an FSAP assessment. The World Bank has developed a template to gather pertinent information for preparing the Corporate Governance ROSC as a diagnostic instrument. The template gathers both quantitative and qualitative information on ownership and control structure of listed companies, capital market structure, legal and institutional factors affecting corporate governance, rights and obligations of listed companies, intermediaries and investors in a given country, relevant disclosure practices, and functions and responsibilities of governing bodies of the corporation. Although the assessments are relevant to all countries, they are particularly pertinent in middle-income countries seeking to build strong capital markets. They are also a useful instrument for transition economies, where mass privatization has created a large pool of listed companies with
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The World Bank has developed a questionnaire in the form of a template that is available on its Web site.* An updated template, following the 2004 revision of the OECD principles, has been prepared and will be available on the same Web site to assist in assessments. It is structured along the six chapters of the OECD Principles and seeks to gather both quantitative and qualitative information on capital markets, listed companies, and enforcement of securities and corporate laws. The objective of the updated template is to facilitate the gathering of information necessary to formulate a diagnosis of the institutional framework underlying corporate governance, as well as the prevailing practices and enforcement. For each OECD Principle, a set of questions has been prepared to assess the compliance of the country under assessment. The updated template includes a section on the ownership structure of the assessed country because this structure is an important determinant of corporate governance practices. It endeavors to identify pyramid structures, cross-shareholdings, and business groups, and it gathers information on the divergence between cash flow rights and voting rights. Although the OECD Principles are mainly concerned with the rights of shareholders and stakeholders, disclosure, and responsibilities of insiders, the updated template also addresses the issue of institutional capacity. A first template was produced at the beginning of 2000 as a pilot template, and it was revised into a second version in the same year and was vetted by the OECD, IMF, and SEC. Consultation took place for the preparation of the third generation expanded template in 2003. The fourth and current version, reflecting the revisions to the OECD Principles in 2004, is being finalized. In addition, special template modules have been developed that focus on financial institutions’ governance, including governance of banks and non-bank financial institutions (insurance companies, pension funds, and mutual funds), |
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The assessment team works closely with stakeholders and makes recommendations that can lead to a country action plan. The World Bank publishes the ROSC report on its Web site with permission of the country authorities.18 The published reports are accessible at http://www. worldbank. org/ifa/rosc_cg. html. The procedures and format of the corporate governance assessments are further explained in box 10.9.
The format of the assessments allows for systematic benchmarking across countries and regions. It is divided into five parts: (a) an executive summary, (b) a report on key corporate governance issues and major recommendations, preceeded by a capital markets profile, (c) a table of assessment ratings by principle, (d) a principle-by-principle review, and (e) a set of specific technical recommendations.
Each OECD principle is evaluated on the basis of quantitative and qualitative standards. “Observed” means that all essential criteria are met. “Largely observed” means that only minor shortcomings are observed—deficiencies that do not raise any questions about the authorities’ ability and intent to achieve full observance within a reasonable period of time. “Partially observed” means that, although the legal and regulatory framework may be fully compliant with the OECD principle, practices and enforcement diverge. “Materially not observed” means that, despite progress, the shortcomings are sufficient to raise doubts about the authorities’ ability to achieve observance. “Not observed” means that no substantive progress toward observance has been achieved.
The assessments are complementary to private sector rating activities in this field. The World Bank assessments focus on country analysis, whereas some rating agencies have started to focus on corporate governance of companies. Standard & Poor’s and Moody’s have begun rating companies in emerging markets. Other similar exercises are carried out by specialized firms such as Pensions Investment Research Consultants in the United Kingdom or Deminor in Belgium and France. New rating companies for corporate governance have emerged in Russia and South Korea.
