DFIs Corporate Governance Practices: Where Do We Stand?

1. DFIs Corporate Governance Practices:Where Do We Stand? DFI Working Group on Corporate Governance Tunis, Tunisia October 21, 2008

2. Outline • Introduction • DFIs Approach Statement on Corporate Governance • DFIs Practices in Corporate Governance • Current Initiatives • Future Improvements • Conclusion & Next Steps

3. Introduction

4. 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 Governance Methodology) & an increased collaboration among DFIs: FMO, IFC, SIFEM

5. 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 corporate governance to DFIs • Signature of the “Corporate Governance Approach Statement” (Washington, DC – October 2008 by 31 DFIs) • Creation of the “DFI Working Group on Corporate Governance”

6. 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

7. 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’re heading) in their corporate governance evaluation practices • Sharing lessons learned on implementation of the Approach Statement • Strengthening collaboration & synergies among DFIs

8. DFI Approach Statement on Corporate Governance

9. Common Corporate Governance Definition Corporate Governance is the system by which companies are directed and controlled. Cadbury Code, UK, 1992 Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. OECD Principles, 2004

10. DFI Approach Statement on Corporate Governance 5 Approach Statement Elements focusing on: 1. Development of corporate governance guidelines 2. Corporate governance training 3. Observance of local corporate governance codes 4. Use of Internationally recognized financial reporting standards 5. Collaboration with other DFIs

11. DFI Approach Statement on Corporate Governance 1- Each signing DFI endeavors to: “Develop or adopt guidelines, policies or procedures on the role of corporate governanceconsiderations in its due diligence and investment supervision operations; these could cover aspects such as: commitment to good corporate governance, the rights and equitable treatment of shareholders, the role of stakeholders, disclosure and transparency, and the composition and responsibilities of the Board of Directors”

12. DFI Approach Statement on Corporate Governance 2- Each signing DFI endeavors to: “Provide or procure training on corporate governance issues to its investment and supervision staff”

13. DFI Approach Statement on Corporate Governance 3- Each signing DFI endeavors to: “Encourage companies where it invests in (whether directly or indirectly) to observe local codes of corporate governance in the spirit of best international practice. Engage company management and board members in a dialogue to foster improvement in those cases where corporate governance practices are weak”

14. DFI Approach Statement on Corporate Governance 4- Each signing DFI endeavors to: “Promote the use ofinternationally-recognized financial reporting standards and encourage investee companies to adopt or align their accounting principles and practices to such standards”

15. DFI Approach Statement on Corporate Governance 5- Each signing DFI endeavors to: “Collaborate with other DFIs on an ongoing basis, and when appropriate with its partners, to further advance the cause of good corporate governance”

16. DFI Approach Statement on Corporate Governance The following 31 DFIs signed the Corporate Governance Approach Statement in Washington on October 19th, 2007: AfDB; ADB; AWS; BIO; SBI-BMI; BSTDB; BCIE; CAF; CDC; Cofides; DBSA; DEG; DFCU; EBRD; EIB; EADB; IADB/IIC; PTA Bank; Finn Fund; FMO; IDC; IBRD; IFC; IFU; IsDB; NORFUND; OPIC; Proparco; SIFEM; SIMEST and SWEDFUND

17. DFIs practices in Corporate Governance

18. 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 the practices of each DFI according to the 5 components of the Approach Statement

19. Statement 1: Corporate Governance Policies Current Practices:

20. Statement 1: Corporate Governance Policies Work in Progress: • 61% of DFIs with basic/no specific corporate governance policies in place are preparing or planning to adopt guidelines in this area • All DFIs with existing corporate governance policies are planning further refinement Leading DFIs: • DBSA; EBRD; IADB; IFC

21. Statement 2: Training of Staff & Nominee Directors Current Practices (staff training):

22. Statement 2: Training of Staff & Nominee Directors Current Practices (director training):

23. Statement 2: Training of Staff & Nominee Directors Work in Progress: • 32% of DFIs are interested in organizing training for their staff/directors • Most DFIs are interested in cooperating with each other in this area Leading DFIs: • ADB; DBSA; EBRD; IFC

24. Statement 3: Encouraging Clients to Improve their Governance Current Practices:

25. 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

26. Statement 3: Encouraging Clients to Improve their Governance Work in Progress : • 32% of DFIs would like their support to clients in improving their corporate governance to become more systematic Leading DFIs: • AfDB; BIO; CAF; FinnFund; SIFEM

27. Statement 4: Promoting the Use of Internationally-Recognized Reporting & Accounting Standards Current Practices:

28. Statement 4: Promoting the Use of Internationally-Recognized Reporting & Accounting Standards Work in Progress : • None Leading DFIs: • EIB; FinnFund; SIFEM; SWEDFUND

29. Statement 5: Collaborating with other DFIs in Corporate Governance Current Practices:

30. 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

31. Conclusion & Next Steps

32. 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

33. Conclusion & Next Steps More 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