DFIs Corporate Governance Practices:

Where Do We Stand?

DFI Working Group on Corporate GovernanceTunis, Tunisia

October 21, 2008

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Outline

• Introduction• DFIs Approach Statement on Corporate

Governance• DFIs Practices in Corporate Governance

– Current Initiatives– Future Improvements

• Conclusion & Next Steps

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Introduction

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DFI Corporate Governance Network Background

1st Conference: Paris- June 2004– Hosted by: IFC– Objectives: Highlight the importance of

corporate governance in the DFIs work– Outcomes: Introduction of the DFIs work on

CG (including the IFC Corporate GovernanceMethodology) & an increased collaborationamong DFIs: FMO, IFC, SIFEM

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DFI Corporate Governance Network Background

2nd Conference: Amsterdam- March 2007– Hosted by: FMO & IFC– Objectives: Proposal of a common Approach

Statement on corporate governance among DFIs– Outcomes:

• Acknowledgement of the importance of corporategovernance to DFIs

• Signature of the “Corporate Governance ApproachStatement” (Washington, DC – October 2008 by 31DFIs)

• Creation of the “DFI Working Group on CorporateGovernance”

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DFI Working Group on Corporate Governance

An open group, currently including:

– AfDB, Mohamed Bourenane– CAF, Gabriel Duque– EBRD, Gian Piero Cigna– FMO, Frederik Van Pallandt– IFC, Sanaa Abouzaid– IsDB, Julio Estrada

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DFI Corporate Governance Network Background

3rd Conference: Tunis- October 2008– Hosted by: AfDB– Organized by: the DFI Working Group on Corporate

Governance– Objectives:

• Assessment of where DFIs stand (and where they’reheading) in their corporate governance evaluation practices

• Sharing lessons learned on implementation of the ApproachStatement

• Strengthening collaboration & synergies among DFIs

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DFI Approach Statement on Corporate Governance

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Common Corporate Governance Definition

Corporate Governance is the system by whichcompanies are directed and controlled.Cadbury Code, UK, 1992

Corporate governance involves a set of relationshipsbetween a company’s management, its board, itsshareholders and other stakeholders.Corporate governance also provides the structurethrough which the objectives of the company are set,and the means of attaining those objectives andmonitoring performance are determined.OECD Principles, 2004

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DFI Approach Statement on Corporate Governance

5 Approach Statement Elements focusing on:

1. Development of corporate governance guidelines2. Corporate governance training3. Observance of local corporate governance codes4. Use of Internationally recognized financial

reporting standards5. Collaboration with other DFIs

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DFI Approach Statement on Corporate Governance

1- Each signing DFI endeavors to:“Develop or adopt guidelines, policies orprocedures on the role of corporate governanceconsiderations in its due diligence andinvestment supervision operations; these couldcover aspects such as: commitment to good corporategovernance, the rights and equitable treatment ofshareholders, the role of stakeholders, disclosure andtransparency, and the composition and responsibilities of theBoard of Directors”

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DFI Approach Statement on Corporate Governance

2- Each signing DFI endeavors to:“Provide or procure training on corporategovernance issues to its investment andsupervision staff”

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DFI Approach Statement on Corporate Governance

3- Each signing DFI endeavors to:“Encourage companies where it invests in(whether directly or indirectly) to observe localcodes of corporate governance in the spirit ofbest international practice.Engage company management and boardmembers in a dialogue to foster improvement inthose cases where corporate governancepractices are weak”

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DFI Approach Statement on Corporate Governance

4- Each signing DFI endeavors to:“Promote the use of internationally-recognized financial reporting standardsand encourage investee companies to adoptor align their accounting principles andpractices to such standards”

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DFI Approach Statement on Corporate Governance

5- Each signing DFI endeavors to:“Collaborate with other DFIs on anongoing basis, and when appropriate with itspartners, to further advance the cause ofgood corporate governance”

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DFI Approach Statement on Corporate Governance

The following 31 DFIs signed the CorporateGovernance Approach Statement inWashington on October 19th, 2007:

AfDB; ADB; AWS; BIO; SBI-BMI; BSTDB;BCIE; CAF; CDC; Cofides; DBSA; DEG;DFCU; EBRD; EIB; EADB; IADB/IIC; PTABank; Finn Fund; FMO; IDC; IBRD; IFC;IFU; IsDB; NORFUND; OPIC; Proparco;SIFEM; SIMEST and SWEDFUND 16

DFIs practices in Corporate Governance

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DFIs Corporate Governance Practices

Methodology:

• Requested “profiles” from signing DFIs• Response rate of about 75 %• Analyzed the received information and

made an approximate evaluation of thepractices of each DFI according to the5 components of the ApproachStatement

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Statement 1: Corporate Governance Policies

Current Practices:

AS I Basic CG aspects included in the general investment

appraisal framew ork59%

No CG Guidelines23%

Specif ic methodology (developed/adopted) used to

assess clients’ CG18%

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Statement 1: Corporate Governance Policies

Work in Progress:– 61% of DFIs with basic/no specific corporate

governance policies in place are preparing orplanning to adopt guidelines in this area

– All DFIs with existing corporate governance policiesare planning further refinement

Leading DFIs:– DBSA; EBRD; IADB; IFC

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Statement 2: Training of Staff & Nominee Directors

Current Practices (staff training):

AS IINo training for staff

36%

Occasional training for staff50%

Regular Training for staff14%

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Statement 2: Training of Staff & Nominee Directors

Current Practices (director training):

AS II No training for Board nominess

70%

Occasional training for Board nominees

15%

Regular Training for Nominees

15%

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Statement 2: Training of Staff & Nominee Directors

Work in Progress:

• 32% of DFIs are interested in organizingtraining for their staff/directors

• Most DFIs are interested in cooperating witheach other in this area

Leading DFIs:– ADB; DBSA; EBRD; IFC

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Statement 3: Encouraging Clients to Improve their Governance

Current Practices:

AS III

No encouragement mechanisms

27%

Some encouragement mechanisms

73%

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Statement 3: Encouraging Clients to Improve their Governance

Current Practices:Some of the encouragement mechanisms used:• Conducting CG assessments and preparing

Improvement Programs for clients• Encouraging clients to adopt CG codes and

best practice• Incentives (funds /TA) to clients improving

their CG• CG training for clients 25

Statement 3: Encouraging Clients to Improve their Governance

Work in Progress :

• 32% of DFIs would like their support toclients in improving their corporategovernance to become more systematic

Leading DFIs:– AfDB; BIO; CAF; FinnFund; SIFEM

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Statement 4: Promoting the Use of Internationally-Recognized Reporting & Accounting Standards

Current Practices:

Requiring use of Internationally recognized financial reporting

standards23%

Encouraging use of Internationally recognized financial reporting

standards36%

No encouragements23%

Requiring the use of internationally recognized

financial reporting standards on a case by case basis

18%

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Statement 4: Promoting the Use of Internationally-Recognized Reporting & Accounting Standards

Work in Progress :

• None

Leading DFIs:– EIB; FinnFund; SIFEM; SWEDFUND

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Statement 5: Collaborating with other DFIs in Corporate Governance

Current Practices:

AS VExisting collaboration

79%

No collaboration yet21%

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Statement 5: Collaborating with other DFIs in Corporate Governance

Work in Progress:

Areas of interest for further collaboration among DFIs:

• Sharing experience in CG with other DFIs• Developing CG guidelines• Staff and nominees training

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Conclusion & Next Steps

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Conclusion & Next Steps

So far, a lot has been achieved, especially in the areas of:

• Adopting general CG guidelines• Encouraging clients to improve their

CG• Collaborating with other DFIs

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Conclusion & Next StepsMore still needs to be achieved, especially in the

areas of:• Further defining CG guidelines• Training of staff and directors• Strategic client encouragement mechanisms• Encouraging/requiring the use of

internationally recognized reporting standards

• More effective collaboration among DFIs

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