Asia needs stronger corporate governance

Asia needs stronger corporate governance

SINGAPORE (Dow Jones): Many Asian firms have taken steps to strengthen corporate governance in the wake of the region's financial crisis, but standards in Asia still fall far short of those in leading countries, officials said on Wednesday.

"The argument for reform in Asia remains strong," Seiichi Kondo, Organization for Economic Cooperation and Development secretary general, said in opening a conference on the subject.

Good corporate governance is essential to ensure the smooth flow of capital that Asia needs to weather the current global economic slowdown, he told participants at the conference sponsored by the OECD, World Bank and Asian Development Bank.

Corporate governance, a term that covers a wide range of subjects such as the appropriate roles of directors, executives and shareholders; accounting and financial reporting standards; and managerial performance and is considered weak in many Asian companies.

Achieving such reform in Asia will be tough because it not only require changes in regulations, but "a change in the mindset of companies," Kondo added.

In Singapore, where standards for corporate governance are arguably the strongest among the world's emerging markets, the city-state must do more, Finance Minister Richard Hu said.

"We know that we must not rest on our laurels. I believe the corporate governance standards in Singapore are still not comparable with those in leading jurisdictions, such as the U.S., UK, and Australia," he said.

Olivier Fremond, a member of the World Bank's corporate governance unit, said it was the 1997-98 Asian financial crisis that highlighted just how weak corporate governance standards were in the region.

"Corporate governance has become a central issue of concern for the World Bank," he said.

The conference is the third in a series of five in the region aimed at producing reforms that can be carried out in Asian countries through programs administered by the World Bank and ADB, Kondo said.

Some observers have noted that the prospects for corporate governance reforms in Asia are "rather gloomy" given some of the deeply entrenched practices, such as the dominance of family shareholders, said Jamie Allen of the Hong Kong-based Asian Corporate Governance Association.

"It's a fair point," he said. "People say they see a lot of form but not much substance in the area of reform."

There are signs, however, that Western-style corporate governance practices are beginning to filter through to Asia, he added.

Allen cited the example of pension funds in Japan starting to vote their shares following years of poor returns from companies.

In South Korea, elections of outside directors are now being contested in some cases, and in Hong Kong investors are forming a group to represent the interests of minority shareholders, he said.

"We're also seeing more shareholder activism in Indonesia that wasn't there before," he said.