|
|
One of the ICFR’s key lessons from its research in emerging markets is that corporate governance is valued very little when an entire market is rising fast: investors clearly discriminate corporate governance more when returns are either limited or variable. However, when there is more variability among companies or when a market starts to fall, greater attention is paid to issues of corporate governance.
Therefore, it is critical to create incentives for good corporate governance to encourage equity investment and direct foreign investment. Indeed, it is important not to impose constraints which would encourage companies and investors to look more favourably on listing and investment opportunities respectively elsewhere. It is therefore critical to get the balance of corporate governance right.
Furthermore, it is the ICFR's view that general rules seem inappropriate: whatever the fears these days of a ‘principles-based’ approach, it is the only one that makes sense given the diversity of businesses by product, market, size and stage of development. The founding core principle should be that the company’s corporate governance be appropriate and adapted for its size, stage of development, product mix, stakeholders and investor base. It is therefore the case the ICFR lauds the DFSA’s underlying assertion throughout the Consultation that an Authorised Market Institution must have a corporate governance framework, and remuneration structure and strategies, which are both “appropriate to the nature, scale and complexity of its business and structure” (as per the Licensing Requirements, as set out in §7.2.2 of the AMI Module).
While such an approach argues against any kind of homogeneity, the ICFR realises that complete heterogeneity in governance and reporting would make comparison by investors and regulators impossible. Therefore, the ICRF would recommend some standardisation of corporate governance reporting, which would serve the purpose of comparing evaluations of corporate governance within institutions over time, across institutions and across markets. This might be along the line of a ‘ladder of governance’ approach, permitting companies to move up that ladder as they develop.