Corporate Governance

16 MARCH 2023
in Emerging Markets:
11:00 NEW YORK | 15:00 LONDON | 19:00 DUBAI
KEY RED FLAGS
to Watch Out For
Red Flags in Corporate Governance
in Emerging Markets

Board composition Board independence Purpose of the board

One controlling shareholder or Board is not truly independent Is the Board just a rubber stamp
too much power concentrated in and non-executive directors are for decision-making or are they
the hands of one individual not able or willing to challenge considered a strategic asset by
(Chairman and CEO) constructively management?

Board diversity and Board competency

groupthink
Incompetent members focusing
Board directors are easily in
on headline-grabbing topics, local
agreement or remain neutral as
board members hired to fulfil
they want to be seen as team-
quotas in some EMs
players

Source: Impact Boards EM. Based on discussions at members’ event on 16 March 2013 - Corporate
Governance in Emerging Markets: Key Red Flags to Watch Out.
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Red Flags in Corporate
Governance in Emerging Markets
(cont.)
Regular board evaluation Board responsibility

Boards with a “check-list Some board members

approach” to decision-making, as contributing more than others,
they may be using this to justify delicate balance between a
their decisions detached vs micro-managing
board

Information asymmetry / gap Trust and confidence

Discussions taking place outside Is board interested in

boardroom, information sharing understanding the company’s
insufficient or non-timely to aid culture / dynamics, is there trust
decision-making between board / management?

Source: Impact Boards EM. Based on discussions at members’ event on 16 March 2013 - Corporate 3
Governance in Emerging Markets: Key Red Flags to Watch Out.
 Actions that Boards can take to mitigate financial
manipulation
2 3
1 Engage with employees to understand
corporate culture and dynamics
Encourage management to improve
organizational structures

Engage with management to Are they open / willing to have a discussion?

gain transparency
Who is responsible for the financials
(is it the CFO or someone else)?
Are they on top of the numbers?
Is decision-making completely in the hands
Is information being hidden or are there
of one individual, family member or an
signs of corruption?
entity?
4 5
Discourage “close” relationships with Challenge data disclosure and / or
government / regulators regulatory reporting

Can they be challenged? Has sufficient information been disclosed,

Is there political influence that can insulate
above what may be required for regulatory
wrongdoings?
reporting? 4
Source: Impact Boards EM. Based on discussions at members’ event on 16 March 2013 - Corporate Governance in Emerging Markets: Key Red Flags to Watch Out.
 Fiduciary Duties: Key takeaways for Board Directors

Applicable regulations and Financial protection: lack of Corporate insolvency: Conflicts of interest: as
definition/scope of duties knowledge and Ignorance is not a defence shareholder employee vs
differ across jurisdictions understanding of rules board member to company

Board members should have a Board members must Board members must remain Board members should
deep understanding and remain understand jurisdictional informed in order to understand their duties in both
educated either through differences and ensure that a demonstrate that they have contexts. Moreover, in the case
external consultants or formal framework is in place applied sound judgement and of financial distress, they must
management / internal (structured process, regular protect themselves against a consider a wider base of
specialists meetings with sufficient claim from the company, stakeholders, including creditors
information disclosure, etc.) shareholders and potentially
third parties depending on the
jurisdiction

5
Source: Impact Boards EM. Based on discussions at members’ event on 16 March 2013 - Corporate Governance in Emerging Markets: Key Red Flags to Watch Out.
Thank you for your attention

info@iboardsem.com
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