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Is corporate governce relevant to emerging markets
07-07-2003, 10:24 AM,
Is corporate governce relevant to emerging markets
Hi friends!
I think this topic is quite hot at the moment in North America. Let us start by answering the basic question i.e. what is corporate governance?
As we know from our college freshman days, corporations are legal entities which are seperate from its owners. They breathe on their own and never die a natural death i.e. perpetual existence.
Corporations were originally designed to keep the management and majority owners seperate. In today's world it is not always the case.
There are public corporations whose majority owners are also managers.
However, one thing is undeniable, it is the most democratic form of business organization. It is where a number of stakeholders come together for achieving common goals. This convergence brings about a number of challenges for management. It has the responsibility to steward the resources of corporation in an ethical, moral and efficient manner.
As we can see governance is not just an accounting issue. It covers all aspects of corporate behaviour. How a corporation achieves its sales targets, earnings per share, and in general how it adds value to shareholder investments.
Ironically, CG issues come to surface when two others factors are visible in the economy
1. The stock markets have come off their highs
2. The true potential of a new technology is known to general
public as opposed to hyped potential.
If we know our history, the same problems were talked about after
the crash of 1929 which led to establishment of SEC and Securities Laws of 1934. This was a time, when economy had to work through the excesses of pre-bust era of late 20s.
In the modern context, the corporate misgovernance conincides with the irrational markets after 1996. This was also a period where a new technology was surfacing and was being hyped by vested interests.
I will go as far as to say that there was political connivance at work in those days. As we remember, the president was in very hot waters over his scandalous behvaiour. In fact, it was openly argued that his impeachment in Senate is directly dependent on state of the economy. Would anybody be surprised if the administration pulled all stops for economic prosperity. In fact, it was "irrational exuberance" in the words of Allan Greenspan that gripped quite a few rational human beings. Wall Street was working on "whisper numbers"(numbers floated around by corporation relating to their quarterly earnings). In that atmosphere, corporations have to keep up with the Jones like we do in our ordinary lives. No corporation would committ suicide by releasing true state of affirs. A good account of this is given by ex SEC Chairman Arthur Levitt in his recent book.
The question that we need to ask in our country is Does Corp Governance have any relevance to our economic scenario? Before we indulge in this luxry, do we have an infrastucture that gurantees semi-efficient markets if not fully efficient ones?
I don't presume to know the answers to these questions. But i will love to hear from knowledgeable sources. I will also request that we keep this discussion free from personal matters (Like how does my girl
friend react to my phony English accent?).
Looking forward for a real and substantive debate.

Edited by - Pervez on Jul 08 2003 040040 AM

Edited by - Pervez on Jul 08 2003 041054 AM

Edited by - Pervez on Jul 13 2003 042311 AM

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