In this article we will discuss about:- 1. Evolution of Corporate Governance 2. Challenges for Corporate Governance in the Developing World 3. Globalisation and the Relevance of Corporate Governance 4. Firms are Disciplined by Contestable Markets 5. Uniform Standards and Gaining Currency.
Contents:
- Evolution of Corporate Governance
- Challenges for Corporate Governance in the Developing World
- Globalisation and the Relevance of Corporate Governance
- Firms are Disciplined by Contestable Markets
- Uniform Standards and Gaining Currency
1. Evolution of Corporate Governance:
Corporate governance systems have evolved over centuries, often in response to corporate failures or systemic crises. The first well-documented failure of governance was the South Sea Bubble in the 1700s, which revolutionised business laws and practices in England.
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Similarly, much of the security laws in the United States was put in place following the stock market crash of 1929. There has been no shortage of other crises, such as the secondary banking crisis of the 1970s in the United Kingdom and the U.S. savings and loan debacle of the 1980s.
In addition to crises, the history of corporate governance has also been punctuated by a series of well-known company failures- the Maxwell Group raid on the pension fund of the Mirror Group of newspapers, the collapse of the Bank of Credit and Commerce International and Barings Bank. Each crisis or major corporate failure—often a result of incompetence, fraud and abuse— was met by new elements of an improver system of corporate governance.
Through this process of continuous change, developed countries have established a complex mosaic of laws, regulations, institutions, and implementation capacity in the government and the private sector. The objective is not to shackle corporations but rather to balance the spirit of enterprise with greater accountability.
The systematic enforcement of laws and regulations has created a culture of compliance that has shaped business culture and the management ethos of firms, spurring them to improve as a means of attracting human and financial resources on the best possible terms. This continuous process of change and adaptation has accelerated with the increasing diversity and complexity of shareholders and stakeholders.
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Globalisation too, is forcing many companies to tap in international financial markets and to face greater competition. This has led to restructuring and a greater role for mergers and acquisitions and to expanded markets for corporate control.
2. Challenges for Corporate Governance in the Developing World:
The developing world has also faced its own corporate governance challenges. For instance, in Russia a substantive share of the profits of an oil company was siphoned off by its controlling shareholder, leaving the company in debt to its creditors, employees, and the state.
In the Czech Republic, thousands of small shareholders lost their investments as ‘tunneling’ schemes by insiders stripped privatised companies of their assets.
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The economic crises in East Asia and other regions have demonstrated how macro-economic difficulties can be exacerbated by a systemic failure of corporate governance stemming from weak legal and regulatory systems, inconsistent accounting and auditing standards, poor banking practices, thin and unregulated capital markets, ineffective oversight by corporate boards of directors, and little regard for the rights of minority shareholders.
Unfortunately, the brunt of the impact has been shouldered by the poor, setting back social and economic gains by as much as a generation in some countries.
3. Globalisation and the Relevance of Corporate Governance:
Increasingly, for developing and transition economies, a healthy and competitive corporate sector is fundamental for sustained and shared growth—sustained in that it withstands economic shocks, shared in that it delivers benefits to all of society. Slow economic growth remains a major cause of poverty in many low-income countries, but the record also shows that a focus on growth alone is not enough.
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Poverty persists in part because the benefits of growth are distributed unevenly and because poor governance diminishes growth’s potential impact on poverty. Countries are coming to realize that just as public governance (public administration, including service delivery, regulations, and tax administration) is important in the public sector, so corporate governance is important in the private sector.
Moreover, public governance can have a major impact (positive or negative, depending on its quality and effectiveness) on private corporate behaviour. Countries also realise that good governance of corporations is a source of competitive advantage and critical to economic and social progress.
With globalisation, firms must tap domestic and international capital markets in quantities and ways that would have been inconceivable even a decade ago. Increasingly, individual investors’ funds, banks, and other financial institutions base their decisions not only on a company’s outlook, but also on its reputation and its governance.
It is this growing need to access financial resources, domestic and foreign, and to harness the power of the private sector for economic and social progress that has brought corporate governance into prominence the world over.
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Sound corporate governance is important not only to attract long-term patient foreign capital, but more especially to broaden and deepen local capital markets by attracting local investors— individual and institutional. Unlike international investors, who can diversify their risk, domestic investors are often captive to the system and face greater risks, particularly in an environment that is opaque and does not protect the rights of minority shareholders.
As a group, however, domestic investors frequently constitute a large potential pool of stable long-term resources critical to development. If local capital markets are to grow, corporate governance standards will need to improve to give investors the protection required to encourage them to provide capital.
Many developing and transition economies lack the supporting institutions and human resources so critical to sound corporate governance. The challenge for them is to adapt systems of corporate governance to their own corporate structures and implementation capacities, public and private, to create a culture of enforcement and compliance.
They need to do so in a manner that is credible and well understood both internally and across borders—and they need to do it far more quickly than did developed countries before them. Because effective corporate governance can promote enterprise and ensure accountability, it is an essential foundation of the global financial architecture and central to the World Bank Group’s mission to fight poverty.
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Corporate governance has only, recently, emerged as discipline in its own right, although the strands of political economy it embraces stretch back through centuries. The importance of the subject is widely recognised, but the terminology and analytical tools are still emerging. The burgeoning literature on corporate governance has largely neglected developing and transition economies.
This report develops a framework for corporate governance reform based largely on the operational experience of the World Bank Group and practitioners in the field. This framework is used to identify the major elements and processes of reform required in emerging market economies and the contribution that the World Bank Group, together with its partners, can make to the objective of promoting enterprise and accountability.
Balancing Divergent Interests:
What makes corporate governance necessary? Put simply, the interests of those who have effective control over a firm can differ from the interests of those who supply the firm with external finance. The problem, commonly referred to as a principal-agent problem, grows out of the separation of ownership and control and of corporate outsiders and insiders.
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In the absence of the protections that good governance supplies, asymmetries of information and difficulties of monitoring mean that capital providers who lack control over the corporation will find it risky and costly to protect themselves from the opportunistic behaviour of managers or controlling shareholders.
Without meaningful protection for external capital providers, those who control the corporation can use their position to misappropriate economic benefits, often at the expense of the long- term performance and value of the enterprise.
Where poor corporate governance is the norm, the problem extends beyond underperformance in the corporate sector to greater vulnerability of the financial system, since it is difficult for local capital providers (banks and institutional investors) to avoid governance risks. Lack of meaningful protection for capital providers makes it harder for firms to get financing on favorable terms.
Just what constitutes corporate governance is still a topic of debate. From a corporation’s perspective, the emerging consensus is that corporate governance is about maximizing value subject to meeting the corporation’s financial and other legal and contractual obligations.
This inclusive definition stresses the need for boards of directors to balance the interests of shareholders with those of other stakeholders—employees, customers, suppliers, investors, communities—in order to achieve long-term sustained value for the corporation.
From a public policy perspective, corporate governance is about nurturing enterprises while ensuring accountability in the exercise of power and patronage by firms. The role of public policy is to provide firms with the incentives and discipline to minimize the divergence between private and social returns and to protect the interests of stakeholders.
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4. Firms are Disciplined by Contestable Markets:
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The broader business environment creates compelling incentives for insiders to enhance the value of the enterprise. Competition and trade policies that ensure contestable markets reduce rent-seeking behaviour. Together with policies that encourage foreign direct investment, competitive markets force insiders to improve corporate performance or risk bankruptcy or takeover.
The discipline from competition is likely to be felt earlier and more sharply if there is an effective market for corporate control.
Underperforming enterprises become targets for acquisition by firms or investors who believe that they can create more value by running the enterprise themselves. Insiders have a powerful motive to improve the company’s performance in order to retain control. A control market may also redress some of the imbalance of power between insiders and outsiders.
If the market is orderly and transparent, a contest for control often produces greater economic benefits for outside investors and creditors (at least in the short run) than if insiders had continued to operate an underperforming enterprise without challenge.
A well regulated banking system that operates at arm’s length from the corporate sector:
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Competition for credit can produce better insider behaviour as banks demand greater and more accurate information and better compliance with contracts. This ability to discipline insider behaviour is greatly restricted; however, if the business environment has few creditor protections, weak contract enforcement, or unworkable bankruptcy laws.
If the banking system and corporate sector are closely interlinked, corporate insiders may fail to share value with their creditors (and governments). If corporate insiders are, in addition, insiders of the banks, they may appropriate bank resources for their own purposes.
It has become increasingly clear in recent years that for corporate governance to be effective, the banking system (both banks and their regulators) also needs good governance. This is especially important in many developing countries where banks provide most of corporate financing. It means that an effective governance system must include consideration of the role and responsibility of all capital providers.
And transparent, efficient, and liquid equity and bond markets:
Efficient securities markets send price signals rapidly, rewarding or penalising insiders through changes in the value of their interests in the company or in the company’s access to capital. The system of rewards and penalties is severely diluted; however, if markets are not transparent, investments are costly to exit, or, in the case of institutional investors, if the investors themselves are poorly governed.
Firms’ performance is monitored and spurred by reputational agents and activist shareholders:
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Developed markets increasingly feature a dense network of reputational agents who significantly reduce monitoring costs. They include accounting and auditing professionals, lawyers, investment bankers and analysts, credit rating agencies, consumer activists, environmentalists, and media.
Keeping an eye on corporate performance and insider behaviour, these reputational agents can exert pressure on companies to disclose relevant information, improve human capital, recognise the interests of outsiders, and otherwise behave as good corporate citizens. Some can also put pressure on government through their influence over public opinion.
Investors and activist shareholders have also championed governance reforms. Particularly in the United States, but increasingly in other developed market economies, they have worked actively to ensure that managers and boards act in the interest of shareholders. Although these active institutional investors do not typically take a controlling ownership stake, their visibility and influence in capital markets give them a leverage that few corporations can afford to disregard.
Venture capital firms to play a monitoring role in the governance of startup firms, particularly in knowledge-based industries. They have the expertise, resources, and responsibility to undertake intensive monitoring and overcome the information disadvantage that other investors may face.
There is no single model of corporate governance:
These internal and external features have come together in different ways to create a range of corporate governance systems that reflect specific market structures, legal systems, traditions, regulations, and cultural and societal values. The systems may vary by country and sector and even for the same corporation over time.
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But they affect the agility, efficiency, and profitability of all corporations—private, publicly held, and state-owned. Among the most prominent systems of corporate governance in developed countries are the U.S. and U.K. models, which focus on dispersed controls, and the German and Japanese models, which reflect a more concentrated ownership structure.
Recently, many countries and firms have updated their systems of corporate governance to reflect a broader and more inclusive concept of corporate responsibility that includes stakeholders, as reflected in the King Report for South Africa, the Commonwealth Association for Corporate Governance principles and others.
…But globalisation is bringing harmonization…:
Despite the diversity of corporate governance systems, the globalisation of markets is producing a degree of convergence in actual operations and governance practices. Countries and firms compete on the price and quality of their goods and services (which has led to a convergence of cost structures and firm organisation that in turn has spilled over into firm behaviour and decision-making).
They compete for financial resources in global capital markets. Increasingly, they also compete on their regimes for corporate governance. These global market pressures are providing the impetus for private corporations to harmonise corporate governance practices—to reduce risk to investors and hold down the cost of capital to corporations.
5. Uniform Standards and Gaining Currency:
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Similarly, governments, which retain priority in protecting savers, investors, suppliers, and the broader interests of the economy, are increasingly requiring that corporations operate in a fair, transparent, and accountable manner. Numerous public and private bodies have responded by establishing standards and norms related to important aspects of corporate governance.
Among them are the International Accounting Standards Committee, the Bank for International Settlements (BIS, for banking supervision and prudential regulation), the International Organisation of Securities Commissions, the World Trade Organisation, and the International Labour Organisation.
Agreement on basic principles for corporate governance is spreading:
Through a consultative process involving OECD members and observers, the private sector, international organisations, and a range of stakeholders, the OECD has distilled from diverse national practices a set of Principles of Corporate Governance.
The principles deal mainly with internal mechanisms for directing the relationships of managers, directors, shareholders, and other stakeholders. They are also intended primarily for listed companies that function within an effective legal and regulatory environment with adequate competition.
The preamble to the principles states that they “are non-binding and do not aim at detailed prescriptions for national legislation. They can be used by policy-makers, as they examine and develop their legal and regulatory frameworks for corporate governance that reflect their own economic, social, legal and cultural circumstances and by market participants as they develop their own practices”.
The OECD recognises these broad principles as a starting point for debate and consideration by governments seeking to raise standards of corporate governance.
In brief, the principles cover- the rights of shareholders (and others) to receive relevant information about the company in a timely manner, to have the opportunity to participate in decisions concerning fundamental corporate changes, and to share in the profits of the corporation, among others. Markets for corporate control should be efficient and transparent, and shareholders should consider the costs and benefits of exercising their voting rights.
Equitable treatment of shareholders, especially minority and foreign shareholders, with full disclosure of material information and prohibition of abusive self-dealing and insider trading. All shareholders of the same class should be treated equally. Members of the board and managers should be required to disclose any material interests in transactions.
Recognition of the role of stakeholders in corporate governance, as established by law. The corporate governance framework should encourage active cooperation between corporations and stakeholders in creating wealth, jobs and financially sound enterprises.
Timely and accurate disclosure and transparency on all matters material to company performance, ownership, and governance and relating to other issues such as employees and stakeholders. Financial information should be independently audited and prepared to high standards of quality. The responsibilities of the board for the strategic guidance of the company, the effective monitoring of management, and accountability to the company and shareholders.
What it takes to succeed- A Mix of Regulatory and Private Voluntary Actions:
The OECD principles draw on a report prepared by the Businesss Sector Advisory Group that emphasizes that good corporate governance can best be achieved through a combination of regulatory and voluntary private actions.
On the regulatory side, the report noted that government interventions on corporate governance are most effective when consistently and expeditiously enforced and when focused on ensuring fairness, transparency, accountability and responsibility. It stresses that regulatory measures, though necessary, are not sufficient to raise standards.
Indeed, the strengthening of corporate governance standards has been advanced by many corporate leaders who recognise that prospering in the long term requires balancing business objectives with society’s concerns.
These companies have gone far beyond the strictures of law by adopting voluntary measures that improve the quality of disclosure, ensure that directors discharge their fiduciary responsibilities, and increase the commitment of managers to running companies transparently to maximize value but with due regard for stakeholders’ interests.
The evidence increasingly suggests that such behaviour enhances the reputation and value of companies. That recognition has spurred the voluntary adoption of good governance practices by firms that now find it necessary to abide by global rules set by global markets.
Challenge of Corporate Governance in Emerging Markets:
In advanced market economies the rich and complex governance system (of policy, laws, regulations, public institutions, self-regulated professional bodies, and managerial ethos) has evolved over centuries. In emerging markets, however, many elements of this mosaic are absent or countries are ill-equipped to address the corporate governance challenges they face.
These challenges are all the more daunting because of the complexity of the ownership structure in the corporate sector, interlocking relationships between government and the financial sector, weak legal and judicial systems, absent or underdeveloped institutions, and scarce human resource capabilities.
The range of corporate structures makes the problems more complex:
Ownership patterns across developed, developing, and transition economies are extremely varied. Among successful developed economies, both dispersed and concentrated shareholdings have provided an efficient base for growth and capital accumulation as long as there has been a well-functioning legal and regulatory framework, active oversight by reputational agents, and adequate institutional and professional infrastructure.
The environment is different in many emerging market economies. The widely held publicly traded firms that constitute a significant part of the corporate sector in many developed countries are rare in emerging market economies. A more common pattern is dominance by public sector companies or closely held family-owned and managed conglomerates with complex shareholdings.
This concentrated pattern of ownership allows insiders to have tight control of the firm, but it also opens up opportunities for expropriation of outside shareholders and other providers of capital.
Transition economies face a different problem. Much of their corporate sector consists of ‘instant corporations’ created through mass privatisation programs implemented without the legal and institutional structures necessary to operate in a competitive market economy. With diffuse ownership, this has sometimes allowed insiders to strip assets and leave little value for minority shareholders.
In both systems there is a need to build institutions and professional capacity. These corporate structures complicate the problems associated with asymmetries of information, imperfect monitoring and opportunistic behaviour and make corporate governance reform more complex.
Less competitive markets and weaker institutions make the solutions more difficult:
In emerging market, economies the business environment lacks many of the elements needed for a competitive market and a culture of enforcement and compliance. Inadequate competition policies entrench large dominant firms, prevent new entry and discourage entrepreneurship. Change in corporate control is often subject to ambiguous laws with uncertain implementation, giving management considerable latitude to delay or derail any take-over attempt.
There are significant differences in legal and regulatory systems and traditions across developing and transition economies, but disclosure requirements and legal protections for shareholders are seldom up to international standards. Outdated contract and bankruptcy laws impede operation and orderly exit, and judicial systems are poorly equipped to offer the speed and predictability required in today’s global market.
Even where legal and regulatory frameworks have been updated, enforcement remains uneven and sometimes selective, reflecting a critical shortage of skills and sometimes a misuse of official power.
Often the state has a heavy presence in both the real and financial sectors. It directs credit to privileged firms on subsidised terms through a poorly regulated banking system that conducts little credit analysis and seldom monitors or disciplines large borrowers effectively. In many countries, private conglomerates are formed around banks, which then dominate both real and financial sectors.
These alliances, and the absence of arm’s length transactions within them, have led to excessive concentration of ownership, over-reliance on debt financing, high leveraging, and in many cases investments in marginal or speculative projects.
These practices have also undermined the development of securities markets. Typically, trading volumes and liquidity are low, and securities markets are dominated by a few large firms. There are almost no long-term debt instruments. Institutional investors are few and not yet strong enough to insist on fairness, efficiency, and transparency.
Their investments in emerging markets generally represent only a small part of a diversified portfolio, and because of opaque rules even the bigger institutional investors generally lack the confidence or incentives to assert their influence as shareholders.
They often vote with their feet instead of voting their proxies, contributing to the volatility in global capital flows that has hurt many developing and transition economies. These conditions have also impeded the development of local pension and mutual funds. This environment offers little incentive for sound corporate governance in either the real or the financial sector.
Focus on the Fundamentals/Basics:
Though reform is difficult, many countries have taken some of the necessary steps and a few have taken most of them, improving their institutions and human resources. Those that have stayed the course have seen impressive gains in corporate governance and economic performance. But even in this group, reform has been a long, uneven, and sometimes fragile process of successes and reversals. And some important institutions are just beginning to emerge, such as reputational agents and active shareholders.
Reforms have proved most effective when they have focused on fundamentals and have combined a complementary mixture of laws consistently enforced and incentives for firms to take voluntary actions. .They have emphasised a comprehensive strengthening of external sources of discipline and internal incentives to improve corporate governance, especially by making corporate boards more effective and competent to exercise their duties of oversight and control over management.
They have typically involved these elements:
1. Establishing competitive markets by removing barriers to entry, enacting competition laws, establishing fair trade priorities, and removing restrictions on foreign direct investments, particularly in low-income transition economies, where foreign investors can take on the role of strategic investors.
2. Requiring transparency, notably through the timely disclosure of material information about the financial and nonfinancial operations of the corporation.
3. Enforcing financial discipline by severing the links between government, banks, and corporations; restricting directed and connected lending; restructuring banks and allowing private ownership of banks by reputable local and foreign strategic partners (to bring much-needed financial, managerial, and technical capabilities to restructure the corporate sector); strengthening prudential regulation and supervision; and improving enforcement of contracts to suppliers and creditors.
4. These measures should lead to less reliance on banking systems for corporate financing and provide greater incentives for raising capital on equity and corporate debt markets.
Fostering growth of well-regulated and liquid securities markets by developing the infrastructure required for efficient capital markets, protecting minority shareholders, allowing open-ended mutual funds, enlarging the volume of equity through privatisations of state enterprises in financial and real sectors (particularly infrastructure firms), reforming the social security system, and allowing private firms to manage properly regulated pension funds.
Updating and strengthening the legal, judicial, and tax systems to ensure clarity and effective enforcement.
Building capacity by upgrading capabilities and preparing the next generation of professionals (accountants, regulators, bankers, company directors).
On the internal side, the focus of the reform is to make corporate boards more effective and competent to exercise their duties of oversight and control over management.
For these measures to work effectively, countries need to develop the necessary institutions and build human capacity. This takes years. While institutional and capacity buildings are essential tasks, countries no longer have the luxury of waiting until these measures come to fruition. In the short term countries have ‘borrowed’ or drawn on the discipline imposed by global markets, such as global investors, regulations and reputational agents.
Many countries have allowed privatised infrastructure firms (often accounting for 50-75 per cent of market capitalisation) to issue American Depository Receipts and Global Depository Receipts or to list on large foreign stock exchanges, where financial disclosure requirements are generally higher than on local exchanges. This has raised the capacity of firms in an important segment of the local market to meet higher disclosure and reporting standards.
Although some corporations still offer lower standards of reporting to domestic investors, they are gradually raising the benchmark for locally listed companies. Listing on external exchanges has also subjected firms to the scrutiny of foreign institutional investors, investment banks, credit rating agencies, and other reputational agents dial follow the performance of listed firms.
Drawing on foreign sources of discipline may initially provoke local resistance, but it can help the economy integrate with world markets, prepare firms for global competition, and serve the interests of both domestic and foreign investors. These benefits can more than compensate for any short-term loss of liquidity in local markets.
Resistance from Powerful Interest Groups:
Reform of corporate governance systems is politically difficult. Vested interests within firms generally oppose greater transparency and disclosure of both financial and nonfinancial information, arguing that the requirements are costly to comply with and put them at a disadvantage relative to local or foreign competitors. These immediate drawbacks, they claim, outweigh the potential longer-term benefits of higher share values and lower financing costs that can come with greater transparency.
Worried about diluting their privileged position in the company’s decision making, insiders often oppose such substantive corporate governance requirements as one-share one-vote, cumulative voting, public tender offers, and independent directors. Giving greater power to minority shareholders is often opposed on the grounds that it could lead to foreign control of local firms, ignoring the benefits that could bring.
Large firms tend to have considerable political influence and access to the public media, opening the door for bribery and corruption. In developing countries and transition economies regulators or supervisors rarely have the political, human, and financial resources to prevail against the determined opposition of these vested interests.
Tough disclosure requirements and substantive changes in corporate governance are sometimes also opposed by members of exchanges (brokers, dealers, banks), who fear a loss of revenue if the measures discourage firms from listing. The threatened loss of privileged access to information can also provoke resistance to reform, particularly in smaller economies where ownership and control of industrial companies may overlap.
With such opposition, it is not surprising that corporate governance reforms (in developed countries as well as developing and transition economies) have often been driven by major economic crises or serious corporate failure. The recent financial crisis in East Asia prompted countries to take major steps to strengthen governance—closing insolvent banks, strengthening prudential regulation, opening the banking sector to foreign investors, revamping bankruptcy and take-over rules, tightening listing rules, requiring companies to appoint external directors, introducing international accounting and auditing standards, requiring conglomerates to prepare consolidated accounts, and enacting fair trade laws.
The Solution- Ownership with Due Diligence:
The challenge for developing countries is to take the next steps toward sound corporate governance before another crisis erupts. The important initial steps already taken will not become fully effective until the supporting institutions and implementation capacity evolve and adjust to new monitoring and regulatory needs. The culture of state intervention and policy influence by large conglomerates will have to adapt to a global environment that puts a large premium on a culture of compliance and enforcement.
Effecting this change of culture will require a combination of regulatory reform and voluntary private action in a sustained process of consensus and capacity building involving all the players. Each country will have to find its own formula by assessing its strengths and weaknesses, setting priorities and sequencing reforms, creating strong institutions and developing the necessary human capital.
The winning formula has to be adapted to the corporate structure and to the implementation capacity in the private and public sectors. It has to provide both the incentives and the discipline for the private sector to adopt and consistently practice sound principles of corporate governance. It also needs to encourage a broadening and deepening of local ownership that will enable firms to compete more effectively in world markets—often by adhering to best practices and rules set by global markets.
For countries where companies obtain financing mainly through the banking system, reforms center on restructuring and privatising banks and strengthening prudential and regulatory systems. For countries with a large number of listed companies, the most effective tools have been tightening listing requirements, improving protection of minority shareholders, attracting reputational agents, and encouraging companies with large financing requirements to list overseas.
In all countries these steps have to be complemented by measures that minimize rent seeking, promote transparency and disclosure, and strengthen the enforcement capacity of the legal system. Given the limited institutional and human resources base, these policy and regulatory changes have to minimize the role of government in the day-to-day operation of business and focus on a core agenda of reducing economic regulation, strengthening prudential rules, and enforcing them consistently and relentlessly.
Corporate governance is not merely about enacting legislation. It is also about establishing a climate of trust and confidence through oversight. Ethical business behaviour and fairness cannot simply be legislated into being. Strengthening corporate governance is fundamentally a political process in which the government and the private sector have to join hands.
There will never be sustained and meaningful public sector reform of governance laws and regulations until the private sector understands that support of reform creates a level playing field, which is in its own best interest. And ultimately, for governance to be fully implemented, the private sector needs to build on the base of law and regulation with voluntary actions of its own.