Corporate governance in ASEAN

Sunday, 01 February 2015

Chris Razook photo
Chris Razook
Corporate governance lead, East Asia Pacific at the International Finance Corporation

    Ensuring high corporate governance standards will be critical to the capability of Southeast Asian countries, according to Chris Razook, corporate governance lead, East Asia Pacific at the International Finance Corporation.

    The formation of the Association of Southeast Asian Nations (ASEAN) Economic Community, which will allow goods, services and investments to flow more freely across the borders of Southeast Asian countries is expected to bring more foreign investment to member countries and help unlock the potential in the region, but Razook stresses that this will present both opportunities and challenges for companies in those markets.

    In an article titled, Corporate Governance Challenges Facing Southeast Asia, he notes that the ASEAN countries have a combined per capita gross domestic product (GDP) of just $3,800, only slightly more than half of China’s $6,600 and a fraction of developed East Asian countries, such as Japan ($38,000), South Korea ($23,000) and Taiwan ($20,000).

    However, comparisons across the six primary ASEAN markets – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam – reveal a significant asymmetry of governance standards and practices, he says.

    Razook notes that Indonesia, the Philippines and Vietnam  need to continue pushing for corporate governance reforms, with common themes emerging in these countries, which together represent around 70 per cent of ASEAN’s total population.

    Some of the common challenges for individual companies include:

    • Levels of transparency, particularly the disclosures of non-financial information and price-sensitive or insider information.
    • The functioning of corporate boards, including the level of independence, stewardship and oversight roles, and procedures.
    • Risk management, internal control and audit functions.
    • Conflicts of interest and related-party transactions.
    • Shareholder rights and practices, including formal shareholder meeting procedures and stronger protections for minority shareholders.

    Razook adds that at a market level, there is still much work to be done, with regulators and governments continuing to strengthen and harmonise corporate governance codes and regulations.

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