The Development Challenges
The Corporate Governance Team within the Financial Markets Integrity Group provides policy advice on corporate governance related to the financial sector and capital markets.
Corporate Governance (CG) concerns the system by which companies are directed and controlled. It is about having companies, owners and regulators become more accountable, efficient and transparent, which in turn builds trust and confidence. Well-governed companies carry lower financial and non-financial risks and generate higher shareholder returns. They also have better access to external finance and reduce systemic risks due to corporate crises and financial scandals. Reliable financial reporting, timely disclosures, better boards and accountable management also facilitate development of stronger capital markets. They improve a country’s ability to mobilize, allocate and monitor investments and help foster jobs and economic growth. Better supervision and monitoring can detect corporate inefficiencies and minimize vulnerability to financial crises.
The World Bank’s Response
The Financial Market Integrity (FMI) group is located in the Finance and Markets Global Practice in the World Bank Group. Corporate governance (CG) is part of the FMI group’s mandate. The CG group within FMI focuses on improving corporate governance in emerging market countries. It does so by providing technical assistance, thought leadership, and support to the World Bank Group’s advisory service programs and lending/investment operations and through global engagements with standard setting bodies such as the Organization for Economic Cooperation and Development (OECD), Financial Stability Board (FSB), and the Basel Committee on Banking Supervision.
The demand for good corporate governance is growing in emerging market countries in order to help companies and financial institutions improve their performance, access affordable external financing, and lower the cost of capital with the broader goals of advancing financial stability and economic growth. Governance of listed companies has a direct impact on capital markets development and investor protection. In the case of financial institutions, both state-owned and private institutions, governance is crucial to the sustainability of the banking sector and the development and growth of pension funds and insurance companies. Governance is also important to microfinance institutions as they scale up, and to medium and high growth companies as they seek to access finance for investments and expansion.
In carrying out its corporate governance works, the CG group has four focus areas: (i) developing the legal and regulatory foundation for corporate governance of listed and unlisted companies; (ii) improving the governance of banking institutions, in particular state-owned banks (development and commercial banks); (iii) improving the governance of micro-finance institutions and financial cooperatives; and (iv) strengthening the capacity of regulators and supervisors to implement and enforce reforms. In each of these areas, the group works closely with client countries to carry out diagnostics and roadmaps for reform, and support implementation through strengthening of legal and regulatory frameworks, building capacity of regulators and supervisors, and providing advisory services, training, and knowledge sharing. In addition to supporting policy level reforms, the group also supports corporate governance diagnostics and improvements at the institution specific level. The group works closely with the Corporate Governance Group of the IFC and interacts closely with other WBG global practices, such as Trade and Competitiveness, Governance, and Macro Fiscal Management. The group represents the World Bank Group in international fora such as the OECD and ICGN.