Corporate governance practices are converging globally and becoming stricter, according to a report released Wednesday by Global Governance and Executive Compensation Network and executive compensation and performance consultant Farient Advisors.
“Not only is the focus on governance intense in most venues, it is expected to increase in about two-thirds of those countries surveyed, including those with a currently weak or moderate focus. This means that common standards for good governance are likely to rise as well,” said the report, which looked at practices in 17 countries across six continents. “Most striking from our study is that these phenomena tend to be global, rather than confined to a handful of countries,” the report said.
“Investors have been demanding more safeguards on their capital so we are seeing increased governance. On the other side, countries have recognized that capital requires these safeguards and really have moved quickly,” Farient director John Trentacoste said in an interview
The countries differed significantly on their level of focus on corporate governance. The most intense focus was found in most developed countries, particularly in the U.S. and Europe, moderate in many Asian countries and Brazil, and weak in Mexico and China, although the latter is trying to raise its corporate governance profile, the report said.
Driving the “renewed and now nearly global focus” on corporate governance is the need for systemic economic stability and safer capital markets. “As capital becomes more fungible across borders, governments are trying to attract capital for economic development. As a result, many economies once dominated by concentrated wealth, like that in Mexico, are now more democratized by distributed wealth, like that in the U.S.,” the report said. “Governments impose requirements to ensure their capital markets are sufficiently safe to effectively attract foreign and domestic investment.”
The report is available on Farient's website.