Centralized ownership 'contributed to crisis'

Centralized ownership 'contributed to crisis'

MANILA (AFP): The concentration of corporate ownership in many
Asian countries contributed to the Asian economic crisis that
broke out in 1997, the Asian Development Bank (ADB) said
Thursday, citing a study of five affected countries.

The ADB study of Indonesia, South Korea, Malaysia, the
Philippines and Thailand said ownership concentration had given
the "family-based owners and their affiliated companies excessive
power to pursue their own interests to the detriment of minority
shareholders, creditors and other stakeholders."

This weakened mechanisms for shareholder protection such as
the boards of directors and the voting powers of shareholders and
affected transparency and disclosure at these firms, the study by
the Manila-based ADB said.

The Asian crisis, which plunged several countries in
recession, broke out in mid-1997. Much of the blame has gone to
the huge bad loans incurred by many companies in these countries.

The quality of corporate governance varied in the five
countries -- in Malaysia the government was trying to strengthen
and modernize corporate laws and regulations even before the
crisis, the ADB said.

It also said that in most countries, the basic elements of a
proper corporate legal and regulatory framework were in place
"but compliance and legal enforcement are weak in all five
affected countries."

More competition would have helped remedy the problem of over
concentration of power, the ADB said, but capital markets in all
five countries were still underdeveloped and market competition
weak.

Additionally, banks failed to exert the proper discipline on
corporations due to "their own interlocking relationship" with
some firms as well as the weak supervision and "implicit and
explicit government guarantees" to these firms.

In order to address this problem, the ADB called for the
strengthening of banking supervision and regulation and
improvement of financial reporting standards and enforcement.

Banks could provide "the most effective external control
mechanism in the short to medium term" the study said.

It also called for improved standards of accounting and
auditing.