"PBEC-APEC Joint Workshop on Corporate Governance"
Tuesday, March 21, 2000, 11:40-16:30
Remarks by Amb. Serbini Ali
Executive Director, APEC Secretariat
Ladies and Gentlemen. It is an honor and a pleasure to be with
you today at the 33rd International General Meeting of PBEC,
and not only because the meeting is being held in beautiful
Hawaii. PBEC, which is more than two decades older than APEC,
has long played a key role in bringing together representatives
from business, academia, and government in trying to bring the
economies of the Pacific closer together. APEC benefits from
the thoughtful analyses and recommendations which come to APEC
from PBEC from meetings such as these.
I welcome the opportunity today to participate
in the PBEC-APEC Joint Workshop on Corporate Governance. It
comes as no surprise that corporate governance is on the agenda.
A two-day symposium, sponsored by APEC’s Economic Committee,
in Tokyo last December under the theme "The Future of Asia
Pacific Economies" concluded that lax corporate governance
in Asia had, indeed, been a major cause of the crisis, through
over-investment, excessive conglomeration of businesses, and
over-indebtedness. The failure of corporate governance systems
to provide sufficient accountability to investors and regulators,
many have argued, led to the imprudent financial and business
practices which in the final analysis must take at least some
of the blame for the financial crisis.
Many APEC economies have realised that development
of better corporate governance systems should be a key component
of the policy and structural reforms essential for a sustained
recovery. There is now an appreciation that improving corporate
governance practices is vital to :
Restore investors’ confidence and investment flows
to the region; and
Improve the competitiveness and performance of Asian firms,
especially through increased efficiency in the allocation and
use of investments.
In its broadest definition anything that contributes to an improvement
in the accountability of the corporation and its efficiency
can be described as an element of a corporate governance system.
Just some of the specific elements of corporate governance include
:
the corporate regulatory and supervisory measures
that governments put in place, - and the effective legal infrastructure
that is required to ensure that these measures are enforceable;
the market setting in which a corporation operates (in) – whether
the corporation is driven to efficiency by having to compete
in its market;
the competitiveness of the financial market which the corporation
depends on for credit and raising capital;
the level of shareholders consciousness of their role in monitoring
the management of the corporation; and
the ability and commitment on the part of professionals such
as corporate regulators, accountants, auditors and company directors
to develop their capacity to carry out their functions in monitoring
and managing companies as best as possible.
Recognizing the importance of the issue and the needs of its
member economies APEC has put a high priority on its work on
corporate governance. Like in much of its work, however, APEC’s
focus has been on exploring ways to be a catalyst of reform
and to add value to its members own efforts in improving corporate
governance, including by bringing together the work already
being done in this area by other regional and international
institutions.
The participants at the Tokyo Symposium, I have
just mentioned, felt that the answer is not necessarily the
adoption of corporate governance rules but rather the effective
implementation of rules already in place. There was agreement
that improving corporate governance should be seen as an ongoing
structural reform process which will bring long-term benefits.
APEC Finance Ministers Process
While APEC's work on corporate governance has
been carried out across a number of fora - reflecting the broad
scope of the issue - APEC Finance Ministers, not surprisingly,
have been the major contributor of ideas and initiatives. Specifically
the work in the Finance Ministers process has included the following:
The APEC Initiative on Corporate Governance
Launched by Finance Ministers at their 1998 meeting
in Kananaskis, Canada, this has been a long term and on-going
project. Its first phase involved the preparation of the report
"Strengthening Corporate Governance in the APEC Region"
which contained a comprehensive analysis of the key corporate
governance issues for the region and importantly a series of
recommendations for APEC. The report was endorsed by Finance
Ministers at their 1999 meeting in Langkawi, Malaysia.
Some of the recommendations of the report have
already been implemented.
One initiative has been the commencement of a
voluntary reporting process within the Finance Ministers meeting,
whereby economies are encouraged to report on progress they
have made in implementing corporate governance reform measures.
This self-reporting process will provide an important role in
keeping the momentum for reform.
The report highlighted the importance of good accounting and
disclosure standards to provide the necessary transparency for
good corporate governance. In response APEC Finance Ministers
have formed a Taskforce on Financial Statement Disclosure -
as of March 2000 the draft terms of reference for the taskforce
were being drawn up.
Prior to the finalisation of the report there were two other
activities which contributed to the discussion on corporate
governance in the APEC context:
the symposium "Corporate Governance in APEC:
Rebuilding Asian Growth" held in Sydney in November 1998
brought together business leaders, investors, corporate regulators,
government officials and representatives from the World Bank
and the ADB. The symposium was very useful in laying the foundation
for APEC's work in the area of corporate governance
the APEC Economic Governance Capacity Building Survey – an initiative
of the Australian Government – published in October 1998 looked
at what several of the crisis hit economies had done vis a vis
improving economic and corporate governance and set out suggestions
for additional capacity building activities. The survey has
been a useful information tool both for domestic policy makers
as well as a source of ideas for more international collaborative
work.
The APEC Business Advisory Council is also working on corporate
governance issues. At its recent meeting in February in Bangkok,
one of its working groups explored the issue of corporate governance
in the area of capacity building for Boards of Directors. It
is likely that recommendations in the area of corporate governance
will be included in its Report to APEC Economic Leaders which
will be presented to the Leaders in Brunei in November.
Next Steps
At their meeting to be held in Brunei in September
2000 Finance Ministers will consider a forward work program,
including the implementation of proposals contained in the "Strengthening
Corporate Governance" report.
Capacity Building - Developing Skills
An important component of corporate governance
is the ability of professionals such as accountants, company
directors, auditors, corporate regulators and those in the judicial
sector to carry out their function. Recognising this, the Finance
Ministers have implemented various initiatives aimed at developing
the skills of such professionals in the region. The most ambitious
of these has been the APEC Financial Regulators Training Initiative,
a program of training development for bank supervisors and financial
market regulators of APEC economies. The program, which has
a secretariat based at the ADB in Manila, is focused on improving
training processes for these key regulatory sectors. Importantly
the work in this Initiative avoids duplication of other training
initiatives by international and regional financial institutions.
There is now support for the development of more such programs
for key sectors in the corporate governance system.
Development of bond and equity markets in the region
The over-reliance on debt financing by the private
sector in the region was a major contributory factor of the
financial crisis. Debt financing often does not encourage corporations
to be as efficient as they could be. In order to make the region's
corporate sector more efficient, competitive and resilient to
future external shocks, APEC Finance Ministers have been looking
at ways to encourage the development of deep and liquid domestic
bond markets. To date the publication of a "Compendium
of Sound Practices" and information sharing, including
through the internet, has given member economies a foundation
on which to develop bond markets. Finance Ministers have agreed
that more work should be done in this area.
Other APEC Fora
Activities of other APEC fora also have very important
implications for corporate governance. These include:
APEC's work on competition and regulatory reform,
building on the "APEC Principles to Enhance Competition
and Regulatory Reform" which were agreed to in Auckland
APEC's work to strengthen market infrastructure, in particular
in the area of legal infrastructure development (including proposals
put forward at the recent SOM in Bandar Seri Begawan by Japan)
APEC's ECOTECH projects in support of institutional and capacity-building
in the area of "strengthening markets".
Renewed Commitment in Auckland and at the First
APEC Senior Officials Meeting
At their summit in Auckland in September 1999
APEC Leaders made a strong commitment to the reform of corporate
governance in the region. In their statement, the Auckland Challenge,
Leaders stated that they would work to strengthen markets, including
by " Providing greater transparency and predictability
in corporate and public sector governance". They also tasked
their Finance Ministers to take forward the corporate governance
agenda, including by "Developing and applying agreed corporate
governance principles". At the recent Senior Officials
Meeting held in Brunei, marking the start of Brunei's tenure
as chair, support for corporate governance related activities
was again reiterated, including its importance in the overall
theme for APEC 2000 :
" Delivering to the Community", and
in particular the sub theme "Building Stronger Foundations".
The strong commitment from Leaders and Ministers
augurs well for the future of APEC's work in this very relevant
area. Most importantly APEC must now look towards the implementation
of some of the good proposals that have already been put on
the table.
I want to thank you again for giving me a chance
to talk to you briefly about corporate governance and bring
you up to date about how APEC is working on improving corporate
governance regimes in the APEC region. I look forward to seeing
the recommendations that come out of this workshop and the results
from the PBEC meeting as a whole. As I said earlier, we in APEC
value the contributions which PBEC has made, and undoubtedly
will continue to make, to economic growth and development in
the Pacific region.
--------------------------------------------------------------------------------
Questions and Answers
In listening to your discussion of APEC’s on-going work on corporate
governance, I wonder whether any businesspeople are concerned
about the official process doing, in a sense, too much on corporate
governance. I guess the main fear would be officials imposing
too many restrictions on corporations in the wake of the financial
crisis. Can you comment?
Ans.: Personally, I would not be too worried that
such developments might come out of what APEC is doing. Business
provides input to what APEC does at all levels, from the Leaders
down to the working group level. Thanks to this and the fact
that APEC works on a consensus basis, it would be highly unlikely
for APEC to endorse steps in the area of corporate governance
which would not be supported by most businesses themselves.
Is there a concern that, now that most economies
are recovering well from the 1997-98 crisis, the push for reform
might slow?
Ans.: I think it is important to note that some
of the calls for progress in corporate governance are coming
from the businesses themselves. I think many businesspeople
realize that weak systems of corporate governance pose a danger
both to weak and to strong businesses. Improving corporate governance
is to the benefit of all: the economies, the shareholders, the
consumers, and the workers who stand to lose their jobs when
companies fail.
Throughout the region, there is widespread interest
in doing everything possible to prevent such crises from recurring.
Improving corporate governance is not only one way to do that,
it is also a way to improve the efficiency of the economies
themselves. In a real sense, the crisis merely exposed a serious
structural problem in the system which always needed fixing.
Not only APEC, but the economies themselves, realize that reforming
the system should not be delayed. Investors, both domestic and
foreign, will demand these changes before bringing back their
capital.
Shouldn’t corporate governance be something that
businesses and business organizations work out themselves?
As I mentioned earlier, APEC’s view at this point is that there
is a need to enforce governance systems already in place, not
to propose new layers of regulation. APEC officials are also
looking to themselves to improve their own skills in enhancing
governance. The variety of projects under the Finance Ministers
Process address that very need. The projects accept that, in
these days of high technology, e-commerce, and cutting edge
financial instruments, the officials who monitor these sectors
need training so they can carry out their jobs effectively and
handle the new challenges they face in today’s rapidly changing
world.
|