Corporate governance is defined as the structures and processes by which companies are directed and controlled. Good corporate governance helps companies operate more efficiently, improve access to capital, mitigate risk and safeguard against mismanagement. It makes companies more accountable and transparent to investors and gives them the tools to respond to stakeholder concerns. Corporate governance also contributes to development. Increased access to capital encourages new investments, boosts economic growth, and provides employment opportunities.
What we do
IFC works with firms to attract and retain investment by promoting the adoption of good corporate governance practices and standards.
How we do it
IFC and the World Bank are building on their successful track record with the aim of delivering targeted corporate governance support to more clients and stakeholders for even better results by:
Promoting Corporate Governance Practices in Investee Companies
IFC is the first development finance institution to require corporate governance analysis for every investment transaction as part of its due diligence process. This analysis has been part of our appraisal process since July 2011. In this analysis, we make use of IFC's Corporate Governance Methodology, a system of evaluating the corporate governance risks and opportunities of client companies. The methodology helps to uncover these risks and opportunities, while offering direction on solutions that will address the issues and enable improvement. Focus is on commitment to good corporate governance practices, shareholder rights, accountability and the board of directors, the control environment, and disclosure and transparency.
Corporate Governance Toolkits and Manuals:
IFC Corporate Governance Group
The Group brings together staff from investment support and advisory operations into a single, global team.
The Year in Review
In fiscal year 2017 (FY17) IFC’s corporate governance program continued to deliver on its mandate to improve the governance practices of firms in key emerging markets. In addition to direct engagement with firms, the program works with partners and regulators, building the local infrastructure to promote the broader benefits of good governance. The program operates across all six IFC regions with focused programmatic interventions in selected countries. This work is bolstered by tools, publications, and guidance provided by the global knowledge management team, as illustrated in the following examples.
Working With Partners
Our work to build capacity of local partner intermediaries remained central to our program. During the year IFC signed agreements with 37 partner intermediaries to collaborate on promoting better practices in local markets. We provided 67 workshops for our intermediary partners and trained 466 trainers in our methodology and tools. In FY17 our partners delivered 198 workshops, reaching nearly 2000 firms and over 5000 training participants, with the support of IFC projects, tools and materials.
Partners generated over $2 million in sales revenue from providing these services, indicating a certain level of viability of their ongoing operations. We also continued the roll out of the partner capacity measurement tool, sponsored primarily by Switzerland’s State Secretariat for Economic Affairs (SECO) and rolled out across the global program. Of note: as of the end of FY17, more than 80 IFC partners around the world have improved their capacity, generating more than $6 million in corporate governance-related sales revenue, due to IFC support.
Working with Regulators
A key part of IFC’s corporate governance work involves helping to improve the regulatory environment for corporate governance. Building on our frontline experience as an investor, we collaborate closely with the World Bank to ensure that new governance regulations and codes in emerging markets are based on international best practices.
In FY17, IFC provided guidance on 17 newly adopted laws, regulations, codes, and scorecards. For example, in the Philippines, the project team supported the country’s Securities and Exchange Commission in the adoption of a new corporate governance code, effective as of January 1, 2017. The new code is focused on board practices and on reporting, with an emphasis on fuller disclosure.
Working with Firms
In FY17, IFC provided in-depth advice on improving governance practices to 65 firms. Of this number, 25 firms implemented recommended changes, all of which reported positive impacts on performance: more than $900 million in financing facilitated, along with improvements in productivity, accountability, operations, and loan terms or valuation. IFC’s rich experience has led other development banks and investors working in emerging markets to look to IFC for leadership on corporate governance strategies. Through the Corporate Governance Development Framework, 34 development finance institutions have adopted IFC’s Corporate Governance Methodology, a process of analyzing corporate governance structures and policies.
In collaboration with the World Bank, we are working to improve the governance of state-owned enterprises in a number of countries, including Colombia, Egypt, Pakistan, Peru, Serbia, Turkmenistan and Vietnam. Our governance work also extends to firms in fragile and conflict-affected states, including Bosnia and Herzegovina, Iraq, Kosovo, Lebanon, Liberia, Myanmar, Sierra Leone and Yemen. Further, in FY17 IFC launched a new initiative to accelerate the pace of female board appointments and increase the number of women in corporate leadership positions, ultimately helping to strengthen the private sector in emerging markets.
From an overall results and impact perspective, the firm-level advice provided by IFC’s CG Group to date has helped companies access more than $7.6 billion financing, including $1.7 billion from IFC.
Integrating Environment, Social and Governance Issues
Corporate governance is a paramount consideration in investors’ decision making. But investors are increasingly paying equal attention to the way companies behave on a variety of environmental and social indicators. Investors see businesses’ management of environmental and social issues as a test of how they would handle all strategic and operational challenges.
It’s essential, therefore, to assess environmental, social and governance practices in an integrated fashion. In FY17, IFC developed comprehensive market guidance and practical tools to do this in the context of emerging markets, drawing on our track record in applying our Performance Standards and CG Methodology.
One tool—our ESG Progression Matrix—guides companies, investors, regulators, corporate-governance evaluators, and other stakeholders in assessing and improving a company’s environmental, social, and governance framework. It emphasizes the importance of continuing progress—rather than static minimum standards—in the governance practices of a company.
The matrix focuses the assessment along six ESG parameters—key environmental, social and governance policies and practices, the structure and functioning of the board of directors, the control environment, disclosure and transparency, treatment of minority shareholders, and governance of stakeholder engagement (which includes civil society and communities affected by a company’s operations).
Another tool is the IFC Transparency and Disclosure Toolkit—which helps companies in emerging markets prepare comprehensive and best-in-class integrated annual reports that are appropriate for their size and organizational complexity and adapted to the context of operation. The objective is to provide useful information for investors and other stakeholders.
We apply this integrated approach beyond the companies we invest in. We also use it in our advisory work with regulators and stock exchanges—to help them apply higher disclosure standards to corporate listings, reporting requirements, and other disclosure obligations.