Poor rule more likely in emerging markets

NEW YORK – A long-held perception that companies based in emerging economies have poor corporate governance is mostly true, according to a survey released yesterday of 3 800 publicly traded companies worldwide.

For the first time GovernanceMetrics International examined 321 companies from 25 countries in emerging markets, and found their average rating of 4,3 was below par, the corporate governance research and ratings firm said in a statement. “Investors have long perceived that emerging market companies have relatively poor governance attributes,” said GMI Chief Executive Gavin Anderson, “and our research shows that for the most part perception is reality.”Only two emerging market companies – Taiwan Semiconductor Manufacturing and Gold Fields Ltd of South Africa – rated above average at 7,5.The average rating ranged from 6 to 7, GMI said.The country with more than one surveyed company that had the lowest average score was South Korea, at 2,31, followed by Greece at 2,52, China at 2,94 and Brazil at 3,23.Only 35 per cent of emerging market companies have a majority of independent directors, compared to 75 per cent for industrialised markets, the survey said.Twenty-seven per cent of companies in emerging economies do not disclose an audit committee, and only half have a compensation committee.In comparison, only 13 per cent of companies in developed economies do not have audit committees, while 86 per cent have compensation committees.Ratings for companies in Australia, Canada, the United Kingdom and the United States were higher still, with more than 90 per cent of them holding audit and compensation committees.Ninety-three per cent have majority independent directors.”They have all got a legal system based around British common law, which features strong protection of property rights,” Anderson said.However, overall country ratings should not be a guide to corporate governance.At Apollo Group Inc., a Standard & Poor’s 500 company, the chairman, his son, related family trusts and a former chief executive control the company’s voting stock, and the board, Anderson said.Nampa-Reuters”Investors have long perceived that emerging market companies have relatively poor governance attributes,” said GMI Chief Executive Gavin Anderson, “and our research shows that for the most part perception is reality.”Only two emerging market companies – Taiwan Semiconductor Manufacturing and Gold Fields Ltd of South Africa – rated above average at 7,5.The average rating ranged from 6 to 7, GMI said.The country with more than one surveyed company that had the lowest average score was South Korea, at 2,31, followed by Greece at 2,52, China at 2,94 and Brazil at 3,23.Only 35 per cent of emerging market companies have a majority of independent directors, compared to 75 per cent for industrialised markets, the survey said.Twenty-seven per cent of companies in emerging economies do not disclose an audit committee, and only half have a compensation committee.In comparison, only 13 per cent of companies in developed economies do not have audit committees, while 86 per cent have compensation committees.Ratings for companies in Australia, Canada, the United Kingdom and the United States were higher still, with more than 90 per cent of them holding audit and compensation committees.Ninety-three per cent have majority independent directors.”They have all got a legal system based around British common law, which features strong protection of property rights,” Anderson said.However, overall country ratings should not be a guide to corporate governance.At Apollo Group Inc., a Standard & Poor’s 500 company, the chairman, his son, related family trusts and a former chief executive control the company’s voting stock, and the board, Anderson said.Nampa-Reuters