WORLD NEWS
Development banks agree emerging market governance policies.
By JEREMY GRANT and KRISHNA GUHA
396 words
19 October 2007
Financial Times
Asia Ed1
Page 2
English
(c) 2007 The Financial Times Limited. All rights reserved

Development banks representing collective assets of Dollars 1,000bn will today agree a common set of corporate governance policies to tackle corruption and promote the private sector in emerging economies.

The agreement between 31 so-called development fi-nance institutions (DFIs) is intended to hammer out an approach on how to weave corporate governance into investment criteria.

Corporate governance benchmarks are still applied piecemeal by each DFI, and have generally taken a back seat to environmental and social considerations when such institutions set conditions on companies in which they invest. Arthur Arnold, chief executive of The Netherlands Development Fi-nance Company, known by the Dutch acronym FMO, said corruption was "development's biggest enemy".

"The only effective way to fight it is through good governance. Whenever there is a problem in development finance and investments in developing countries, in nine out of 10 cases it is due to bad governance," he told the Financial Times.

Anti-corruption policies were a priority for former World Bank president Paul Wolfowitz, and current president Robert Zoellick has promised to continue to emphasise the issue while integrating efforts with the broader development agenda.

The effort has been spearheaded by the International Finance Corporation, a World Bank member, and FMO - a public-private partnership akin to Britain's CDC Group, formerly known as the Commonwealth Development Corporation.

The policies and guidelines could cover securing commitments to good corporate governance; the rights and equitable treatment of shareholders; the role of stakeholders; disclosure and transparency; and "the composition and responsibilities of boards of directors".

When DFIs invest in companies in developing countries at present there is often no clear separation of responsibilities between shareholders, the board of directors and management.

Mr Arnold said signatories would commit to developing guidelines to make sure that such functions were "clearly separated" in the companies targeted for investment. Training would be provided to this end.

Asked about countries where business cultures might prove resistant to attempts to improve transparency, Mr Arnold said: "This is going to take time. There is a new generation of younger entrepreneurs that wants to participate in the global market. I foresee that there will be rising pressure from the private sector in developing countries on the public sector to change."

Additional reporting by Krishna Guha