70969 Track Record: Lessons from IFC’s Corporate Governance Experience IFC Advisory Services in Sustainable Business In partnership with African Development Bank, Australia, Austria, Bavaria, Belgium, BP, Canada, Denmark, Finland, France, Ireland, Islamic Development Bank, Japan, Kuwait, Luxembourg, Netherlands, New Zealand, Norway, OPEC Fund for International Development, Switzerland, United States, United Kingdom, Visa International Disclaimer IFC SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in these papers are those of the authors and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of the World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. The material in this publication is copyrighted. IFC encourages the dissemination of the content for educational purposes. Content from this publication may be used freely without prior permission, provided that clear attribution is given to IFC and that content is not used for commercial purposes. International Finance Corporation Copyright © 2011 - All rights reserved Message from the Global Business Line Leader IFC supports the sustainable development of markets that work for all members of society. Building on IFC’s environmental and social performance standards, we promote sustainable business practices among firms across a full range of industry and services sectors. As part of this overarching commitment to developing sustainable businesses in emerging economies, IFC provides advice to companies, banks, governments, and relevant institutions on how to strengthen corporate governance practices so that businesses can attract capital, improve their performance, and better weather financial crises. This publication highlights the lessons learned through IFC’s years of corporate governance work. It is an impressive compilation, written by staff for SmartLessons, the IFC/World Bank program that enables development practitioners to share their knowledge in advisory services and investment and financial operations. Through the prism of their own experience, positive and negative, the authors capture practical lessons on the challenges faced in designing and implementing projects to bolster the corporate governance practices of businesses in emerging markets. These lessons provide first-hand, straightforward, and useful analysis that can help guide future efforts, enhancing project design, strengthening implementation, improving results, and deepening the impact of this important work. Monika Weber-Fahr Global Business Line Leader Sustainable Business Advisory June 2011 Lessons from IFC’s Corporate Governance Experience Building Sustainable Businesses by Improving Corporate Governance Sound corporate governance is crucial for sustainable private sector development, as it reduces risk and helps companies attract investors. There is a clear connection between well- governed companies and better company performance, with benefits such as easier access to finance, improved efficiency, enhanced market reputation, and stronger risk management. IFC is recognized as the leader among development finance institutions in bringing about lasting corporate governance improvements in the countries and regions where we work. Our efforts are making a real difference: in public policy, in the ways in which companies run, in the curricula taught at higher-level educational institutions, and in how the media report on business-related news. At its core, IFC’s leadership in promoting good corporate governance is built on the compilation of knowledge our staff has developed over more than a decade of engagement. This book of SmartLessons is a compendium of our knowledge on implementing corporate governance projects. The lessons represent an impressive body of work, with individual contributions written by our staff—the people who really know what they are talking about, because they are out there, engaged in the work on a day-to-day basis. It reflects the evolution of our project approach as the world has changed. In the early years of our work, efforts focused on the newly independent and newly market-driven nations of the former Soviet Union. More recently, projects have addressed the sometimes rocky road to stability for emerging market countries as they struggle to regain economic momentum in the wake of the global financial crisis. Meanwhile, new opportunities and new challenges lie ahead as events in the Middle East and North Africa underscore the broader importance of IFC’s core mission to drive job creation and economic development by supporting expansion of well- governed, sustainable, and thriving private sectors. IFC’s approach to this corporate governance work has undergone change as well. Now, we are moving into the next stage, as we mainstream corporate governance considerations into our investment activities. This shift is an institutional acknowledgement of the critical importance of good corporate governance in reducing our portfolio risk, in improving the performance of our clients, and in supporting sustainable private sector growth in emerging markets. Darrin Hartzler Manager Corporate Governance Unit Environment, Social, and Governance Department June 2011 IFC Advisory Services in Sustainable Business Table of Contents Introduction A Brief History of IFC’s Corporate Governance Advisory Services . ......................................................................................................................... 1 Pre-project Planning and Design Reducing Survey Implementation Delays: Experiences of a Corporate Governance Practices Survey in Kazakhstan by Karl Bach .................................................................................. 4 Project Design One from Column A; Two from Column B: Using a Flexible Project Model for Corporate Governance Advisory Services Projects by Roman Zyla .............................................................. 10 Structuring Corporate Governance Projects by Sebastian Molineus ...................................................................................................................................... 14 Project Staffing Can We Talk? Staffing Considerations in Project Design by Charles Canfield and Roman Zyla ................................................................................................................ 20 In-House, Outsourcing, or a New Hybrid Approach to Advisory Services: The Corporate Governance Project in the Balkans by Merima Zupcevic Buzadzic, Kiril Nejkov, Katarina Djulic, and Sonila Bicaku ............................................... 24 Doing More with Less: Creating Innovative Corporate Governance Products when Resources are Scarce by Rasmina Gurbatova and Anar Aliyev .................................................... 28 Pricing Pay Less, Get More: A Sustainable Business Approach to Capacity-Building Services by Juan Carlos Fernandez . ............................................................................................................................... 34 Money Can’t Buy You Love…But It Can Buy You Our Services: Experiences in Charging for Corporate Governance by Motria Onyschuk-Morozov and Patricia Maruschak ............................. 38 Working with Companies and Banks Making the Business Case: Direct Engagement with Companies and Banks to Improve their Governance Practices by Roman Zyla . ................................................................................... 46 Lessons from IFC’s Corporate Governance Experience A Thousand Cups of Tea: Strengthening Risk Management and Governance at SandBank by Jim Gohary and Chris Razook ..................................................................................................... 51 Making Glocalization Work at IFC by Mahwesh Bilal Khan............................................................................. 56 Attracting Clients to Your Advisory Project: “It is Better to Have 100 Friends than 100 Dollars” by Olga Koldasova and Yuliya Holodkova . ............................................................................ 60 Be Smart in Selecting Your Clients: The First Step May Define Your Whole Project by Mariam Manjgaladze. ................................................................................................................................. 65 Risk Management: So Critical, Yet So Elusive by Chris Razook......................................................................... 69 1+1 = … 50 Million! by Mary Lystad and Vladyslava Ryabota . ......................................................................... 73 When You Sweep the Stairs, You Always Start from the Top by Sebastian Molineus........................................... 76 Working with Regulators and Policy-Makers Help Me to Help You: Strategies for Working Effectively with Governments by Kakhaber Kutchava and Maia Tevzadze........................................................................................................ 84 Global-Local: The Ticket to Ride: Introducing Corporate Governance Codes in the Middle East and North Africa by Marie-Laurence Guy and Hassan El-Shabrawishi. ......................................................................................... 88 How Do You Get Companies to Comply with Voluntary Legislation? Develop the Legislation with Them by Roman Zyla and Teresa Ha.................................................................... 92 Education, Training, and Capacity-Building Sowing Seeds on the Beautiful Journey in 10 Cities: Improving Corporate Governance Practices by Strengthening Local Capacity for CG Consulting Services by Min Liu ......................................... 98 Learn Before You Lead: The Corporate Governance Board Leadership Training Resources Kit by Ghita Alderman and Alison Dillon Kibirige............................................................. 104 From Takeoff to Landing in Accrediting Corporate Governance Training Programs by Yehia El Husseiny.......................................................................................................... 109 Mainstreaming Lawyers and Judges to Improve the Corporate Governance Regime: The Pakistan Example by Mohsin Ali Chaudhry.............................................................................................. 113 A Bird in the Hand is Worth Two Fleeing By: Creating a Corporate Governance Course for the University of Belgrade by Juan Carlos Fernandez Zara ............................................................ 116 Getting Universities to Adopt Corporate Governance: Not as Easy as It Looks! by Khawar Ansari..................................................................................................... 119 IFC Advisory Services in Sustainable Business Public Awareness and Media Training Earning Astana Yellow Jerseys in a Corporate Governance Race: Engaging External Partners in Communications in Kazakhstan by Assel Choibekova..................................................... 124 The Pen is Mightier than the Sword if Properly Aimed! Training the Financial Media on Corporate Governance by Amira El Saeed Agag . ............................................................. 130 “Good Governance is Good Business” Debuts on Pakistan TV: How to Get Your Message to a Million People in 30 Days by Kaiser H. Naseem, Mohsin Ali Chaudry, and Riham Mustafa....................................................................... 134 How to Develop Sustainable Activities in the Field of Public Awareness and Increased Training Capacities: Experiences from Serbia by Juan Carlos Fernandez Zara .................................. 137 Successful Launch Events Help Build Momentum for IFC Projects: Lessons from the Central Asia Corporate Governance Project by Assel Choibekova. ........................................ 142 Donor Relations Five Keys to Developing Fulfilling and Lasting Country-Level Donor Relations: Lessons from the Azerbaijan Corporate Governance Project by Charles Canfield, Rasmina Gurbatova, and Sevinj Ibrahimova..................................................................... 148 Reporting, Monitoring, and Evaluation How Did We Do? Measuring Results of Corporate Governance Advisory Services Projects by Charles Canfield and Sanwaree Sethi ................................................................. 154 Capturing Results in a Better Way: Eight Lessons in Productive Data Collection by Deepak Adhikary, Mustahid Hossain, and Monica Firdouse. ............................................... 161 Exit Strategies To Exit or Not to Exit? And Where’s the Exit, Anyway? by Tania Lozansky and Dina Nicholas............................................................................................................. 168 Steering Institutes Towards Sustainability: A New Exit Strategy? by Martin Steindl . ...................................... 172 Lessons from IFC’s Corporate Governance Experience 6 IFC Advisory Services in Sustainable Business A Brief History of IFC’s Corporate Governance Advisory Services The breakup of the Soviet Union in the 1990s led to This work has helped strengthen general business the birth of a raft of newly independent republics. environments to encourage more private sector However, the rocky transition from central economic development. In addition, improvements in corporate control to market economies during that period governance have helped companies that are preparing to made IFC investment in private enterprises next to seek outside capital to enhance their performance and impossible in any of the new republics. Rather than sit gain increased access to financing sources. on the sidelines and watch, IFC made a bold decision: In the meantime, events on the world stage—and to assist in the development of market economies by the coincidences of timing—continue to elevate the helping these new governments re-organize and sell off importance of corporate governance. Following IFC’s non-functional or inefficient state-owned enterprises initial advisory work as new market-based economies to private entities. The end goal of this strategy was in former Soviet republics came into being, the Enron future IFC investment in the private sectors that we scandal of the early 2000s brought renewed scrutiny helped to create. Along the way, we developed a viable on corporate governance practices in the West. More model for corporate governance projects that has been recently, in the aftermath of the global financial crisis, successfully replicated—with refinements along the there has been renewed focus on corporate governance way—throughout the region and beyond. lapses that may have contributed to the meltdown. And In the newly independent republics of the former now, change is sweeping across the Middle East and Soviet Union, the key players didn’t understand all North Africa, bringing with it the potential to address that they didn’t know about corporate governance. As corporate governance challenges in ways that can help such, IFC’s early corporate governance advisory services strengthen economies and expand the private sector. efforts were, in effect, experiments in heightening Such events highlight the fact that there is no real awareness about the role and importance of corporate end point to good corporate governance: as market governance in these countries. conditions change, as new financial instruments are Starting first in Ukraine, and then moving throughout created, and as technology enables ever-evolving ways the region, we designed projects that reached a of doing business, there will be an on-going need to wide range of key parties, including companies, adapt corporate governance practices—as well as public governments, academic institutions, and the media. policies—to keep pace. The project model we have Our efforts sought to educate these parties on the developed is well suited for such a dynamic: within a value of good corporate governance and create strong standardized structure, the content can be altered and demand for our corporate governance advisory services. adapted to address current and future challenges. The approaches used have been tested and refined This book is a compilation of our experiences from over the course of more than a decade, resulting in years of work on corporate governance, and offers the development of a flexible and adaptable corporate SmartLessons on what we have learned. The book governance donor-funded project model. The model provides practical guidance on what to do and what has been replicated—with strong results—in other pitfalls to avoid from the people who know the work the regions where IFC is active, with specifics customized best: IFC’s corporate governance advisory services staff, to fit local conditions. who collectively have designed and implemented projects in more than 50 countries and counting since 1992. Lessons from IFC’s Corporate Governance Experience 1 Pre-project Planning and Design There are several stages in the early development While this may prove a time-consuming exercise, a of a donor-funded advisory services corporate thorough job here can avoid significant problems governance project, starting with the initial down the road. In fact, information gathered concept, which should be aimed at addressing during this early stage will help determine the a specific market failure (a systematic problem feasibility of a potential project. that is creating obstacles to private sector A well-planned, three-to-five-day feasibility development). study, conducted on the ground in the country, Determining which challenge to address involves will solidify the information already gathered, asking a number of questions: and help separate what has been written from the truth: Are regulations really enforced? Is • What in the market needs to change? there an appetite for corporate governance? Is • How will we change it? there a sense that business, government players • How can success be measured? and donors have an appetite for implementing reforms? Would there be a reliable funding source • Have others tried to do the same thing? for the duration of the project? • Are there existing services in this market niche? The information learned from both activities— Answering such questions requires some in- desk research and insight from meetings on the depth research: into the specific sector, such as ground—will help verify assumptions and refine banking; on existing regulations in the country initial ideas, so that the project, if it does move relating to corporate governance; about the forward, will have a well-defined mission and level of corporate governance awareness in the objective, based on the reality in the country. country; and on which donors are active in the country, what their country strategies are, and The SmartLesson in this section addresses a key whether they are already funding any corporate aspect of this pre-planning work: conducting a governance related projects. corporate governance practices survey. Lessons from IFC’s Corporate Governance Experience 3 Reducing Survey Implementation Delays: Experiences of a Corporate Governance Practices Survey in Kazakhstan The corporate governance team in Kazakhstan experienced many challenges that severely delayed the completion of its survey in that country. The purpose of this SmartLesson is to share some of the challenges faced with the survey and to provide useful tips to reduce delays with other surveys. Background IFC has been implementing corporate governance advisory projects within the former Soviet Union since the mid-1990s.1 A survey of corporate governance practices in project countries has been a key deliverable for these projects, as the survey’s results: • Establish a statistically significant baseline of cur- rent corporate governance practices and awareness in each project country’s joint stock companies and banks. From this baseline, improvements in local corporate governance practices can then be assessed at the end of a project’s life to help measure the project’s impact; corporate governance practices survey has been the IFC Central Asia Corporate Governance Project. This • Assist with the development of each project’s train- three-country project began in Kazakhstan and has ing seminar topics and public education work;2 recently expanded to include first Tajikistan and then • Serve as useful public awareness tools, through the Kyrgyz Republic. widespread dissemination of survey results; and • Enable IFC and other experts to gain cross-coun- Lessons Learned try insight by comparing the survey conclusions of multiple countries. 1) Conduct a baseline survey as early as possible, ideally even before project set-up Unlike surveys related to administrative barriers and launch. and business-enabling environments, corporate Like most of its sister corporate governance projects, governance surveys ask target companies about their CACGP started working on developing its corporate internal practices related to topics such as shareholder governance practices surveys during the project rights, transparency, and the effectiveness of their set-up phase, once local experts had been recruited. boards of directors. This meant that, during the course of developing One of the most recent projects to carry out a the survey questionnaire and finalizing tender 4 IFC Advisory Services in Sustainable Business documentation, the project teams were also busy 2) Designing the procurement process with client development, project launch activities to increase options helps to reduce and training seminar development. Delays became potential delays. inevitable with the project’s resources being pulled Multiple tender advertisement methods. As part of toward multiple priorities. the procurement process, the Kazakhstan project team With a baseline survey, it is vital that the survey be researched (through World Bank Group contacts, started as early as possible, ideally even before the Yellow Pages and other methods) and proactively project has commenced set-up and recruitment. contacted all known local survey companies, When a baseline survey is delayed, it reduces the requesting expressions of interest and subsequently relevance of the survey for project impact assessment including interested parties in the tender process. This purposes. Early survey implementation also enables system of direct contact was considered appropriate in the team to minimize the impact of problems or case survey companies might not see an advertisement delays related to the survey’s completion, because such placed in a local newspaper. problems are addressed earlier. However, the limited number of suitable submitted A pre-project baseline survey, however, will also bids, combined with the later discovery of additional present its own challenges. With no local experts survey companies, required that a second tender round on the ground, a local legal (or other appropriate) be held, thereby delaying the survey launch. Unknown consultant may need to be employed to adapt a prior to CACGP, there were companies that conducted survey’s questionnaire to the local legal regime and to surveys as a supplement to other work activities. Had assist with the tender for survey company selection. CACGP published an open advertisement in a widely Any concerns about survey quality resulting from the circulated newspaper, in addition to directly contacting use of an outside consultant can be mitigated if an known companies, participation in the first round IFC business line has developed an appropriate model would likely have increased. survey questionnaire for the survey’s topic. Upon the project’s expansion into Tajikistan and the Kyrgyz Republic, this dual approach to publicizing the survey tender was used. Submitted bids were from Suggested Progress survey companies that learned of the tender from Report Questions both direct contacts and the published advertisement, and an adequate number of suitable bids meant that Name of company no extended tender process was necessary. Region Structuring the tender to receive a range of bids. The tender documents for past corporate governance Name/title of primary contact surveys usually listed a fixed amount of companies Status of request to be surveyed to be surveyed and invited survey companies to (accepted/rejected) provide corresponding price quotes. The larger the If rejected, reason for rejection survey sample, the lower the error rate in the survey’s conclusions. It can therefore be important to have Questionnaire complete? Y/N as large a sample size as possible for a given survey’s Expected date of questionnaire completion budget. Comments With the uncertainty of survey costs in Kazakhstan, CACGP drafted tender documents, at the outset, to require price quotes for three different quantities of Lessons from IFC’s Corporate Governance Experience 5 By the numbers: corporate governance practices survey Country Number of companies and Number of survey Number of weeks to banks being surveyed questions conduct survey Kazakhstan 138 (reduced to 100) 105 28 Tajikistan 72 61 8 Kyrgyz Republic 100 60 Pending joint stock companies and banks to be surveyed (e.g., 3) Keep potential delays in mind when 80, 120 and 150 companies). This proved to be a designing and overseeing the survey. useful structure, as it allowed CACGP to determine Ensuring oversight of the survey company allows that its Kazakh budget could handle the middle-range for quick understanding of potential problems. The option provided by bidders. Had we selected only one Kazakhstani survey company faced major problems quantity of companies (e.g., 80 companies) for the finding companies that were willing to participate in tender, price quotes might have been over budget or the survey. Ultimately, the survey company contacted under budget, resulting in the need to re-tender or virtually every joint stock company in Kazakhstan negotiate with bidders. that satisfied the survey criteria to encourage them to We continued this practice for the Tajik and Kyrgyz participate in the survey, and we had to contractually surveys, with those budgets and needs justifying the reduce the required number of completed surveys when selection of the smallest range option provided. it was clear that the target level would not be reached. Deciding what to exclude from the tender: The survey company did not initially tell us of the data collection vs. written analysis. Local survey extent of the problems. The survey company was companies provide vital data collection and statistical required to submit periodic progress reports based on data relationship analysis for the topics being templates that CACGP had adopted from past surveys. surveyed. However, our experiences with earlier However, as delays mounted, CACGP required that corporate governance practices surveys taught more details be provided in weekly supplemental CACGP that survey companies rarely have the progress reports, stating specific reasons why companies expertise required to provide the necessary subsequent were refusing to participate in the survey and the written analysis related to corporate governance. titles of target company personnel that were providing When a survey company was required under a tender such refusals. Had the report structure been more to conduct such written analysis, the universal result comprehensive at the outset, CACGP might have was delays in the survey completion, due to the need learned more quickly about the challenges the survey for project experts to rewrite the analysis. CACGP company was facing. learned from this experience and had the tender Once the target company refusals were better process expressly exclude such written analysis; such understood, CACGP worked with the survey company analysis is to be performed by the project team. to overcome the obstacles, even though this was not required under the services contract. It was determined that terminating the relationship with the survey 6 IFC Advisory Services in Sustainable Business company and re-tendering would have caused even Managing survey size. Because CACGP was the longer delays, and that it was in the project’s best newest IFC corporate governance project in the region, interests to move forward with the assistance. we benefited by being able to adapt questionnaires from past corporate governance surveys that had been Managing participant confidentiality concerns. conducted by our sister projects within the former Soviet Confidentiality was given as the main reason that Union. Those prior surveys had been frequently revised targeted companies refused to participate in our and had become progressively more comprehensive. Kazakhstan survey. CACGP extended this behavior, and “just a few more To assist the survey company, CACGP originally questions” by enthusiastic editors ultimately resulted in executed a general letter of support that was included a survey questionnaire of approximately 100 questions. in survey-related documentation. In this letter, we While there were a variety of reasons given by companies explained the purpose of the survey and why it for refusing to participate, a recurring concern was the would be useful for companies to participate. As large amount of time required to complete the survey. confidentiality concerns arose, the letter was amended to provide general comfort as to confidentiality, Based on CACGP’s experiences in Kazakhstan, we noting that information on individual companies significantly reduced the number of questions for our would not be publicly distributed by IFC. Even surveys in Tajikistan and the Kyrgyz Republic, basing the though the project maintains strict confidentiality questionnaire on the core questions that are most common of survey responses, we felt that a confidentiality throughout many corporate governance surveys.3 comfort letter was more appropriate than scores of The Tajikistan survey is now nearing its end and has individually executed confidentiality agreements, as had far fewer companies refuse to participate. The so many agreements would have been unwieldy to Kyrgyz survey will commence shortly. execute and unnecessarily expose IFC to contractual obligations. This letter helped in many cases, although Conclusion numerous companies remained concerned about the survey company itself leaking information. There are many possible problems that can cause delays in the implementation of a survey; a few key ones have Due to the very small number of local banks in been explained in this SmartLesson, and it is important to Kazakhstan, it was vital that as many banks as possible anticipate as many potential delays as possible during the answer the banking-specific questions in the survey. planning stage. Hoping for the best, but planning for the As an exception, the project therefore agreed to have worst will better ensure that delays are avoided or, at the face-to-face meetings with some banks to explain very least, spotted and addressed as quickly as possible. the survey and how the information would be used. These meetings did increase bank participation (and were useful for project client development), but this About the Author approach is not a realistic option for a large survey. Karl Bach, Project Manager of the Central Asia Corporate Governance Project, which has teams based in Almaty Tajik companies have not expressed the same (Kazakhstan), Dushanbe (Tajikistan), and Bishkek (Kyrgyz confidentiality concern during the survey process. Republic). This may be due to a simpler survey questionnaire or Approving Manager to differences in business culture. The project’s client Motria Onyschuk-Morozov, Senior Operations Manager in companies in the Kyrgyz Republic, however, have been charge of corporate governance for IFC Advisory Services in Europe and Central Asia extremely concerned about confidentiality, so we have anticipated the need for confidentiality reassurance November 2008 during the implementation of the survey in that country. Lessons from IFC’s Corporate Governance Experience 7 8 IFC Advisory Services in Sustainable Business Project Design IFC’s first attempts to design projects aimed at • Better operational and financial performance improving governance environments date back to through improved strategic decision-making 1992. As each successive project was launched, the and managerial oversight model would be tweaked to reflect the lessons • Improved compliance to build or restore learned from the prior project, with the goal of relationships and confidence with key players, achieving maximum effectiveness. including investors, regulators, and employees From the start, the project design approach While the aims are clear, the work is complex, involved a standard structure that included and involves more than just hands-on work several categories of activities. Individual project with companies—it includes efforts targeting teams could alter the amount of effort and banks, government, the media, and educational resources that went into each category depending institutions. on the unique needs of the country or region. The SmartLessons in this section provide insight Project components are designed with the aim of into the evolution of the project design model meeting specific goals for developing the private for donor-funded corporate governance advisory sector in emerging markets: services projects, to reflect the complexities and the interwoven nature of the work. • Increased access to competitive and affordable external financing Lessons from IFC’s Corporate Governance Experience 9 One from Column A; Two from Column B: Using a Flexible Project Model for Corporate Governance Advisory Services Projects In a restaurant, patrons can select from a variety of food course options under a number of central themes, depending on their tastes. Similarly, designing the optimal corporate governance project involves identifying specific activities that fall under four different umbrellas: companies and banks, educational institutions, enabling environment, and public awareness. The SmartLesson below describes a comprehensive approach to corporate governance projects that allows for standardization and flexibility, with the amount of time and resources spent on each critical area depending on the country and its level of development. Background years, corporate governance projects constituted more What is a project model? Stated simply, it is an than one-third of IFC’s advisory services portfolio approach in which project designs are based on a in the Europe and Central Asia region. The first standard template, featuring a variety of different replication of our project model approach in another activities. The weight of each activity—the amount region was in the Middle East and North Africa, of time and resources spent on it—depends on the where an ambitious advisory services program was contextual needs of a country or region. IFC makes launched in 2002. In 2005, a corporate governance use of the project model approach in our corporate advisory services program started in the Balkan governance advisory services work. region, covering the former Yugoslav Republic of Macedonia, Albania, Bosnia and Herzegovina, and Our corporate governance project model evolved as a Serbia, with project management based in Belgrade. result of nearly two decades of hands-on experience, Along the way, we learned some key lessons on how with over 100 staff providing direct assistance to to create the optimal mix of project components. companies, executives, shareholders, regulators, legislators, educators, and nongovernmental Lessons Learned organizations in some of the most challenging emerging markets in the world. 1) Improvements aren’t sustainable in a void: take a comprehensive approach Over these years, the model has been tested and when addressing corporate governance refined, resulting in the development of a flexible gaps to include working with government, and adaptable approach to designing donor-funded educational institutions, and the public. corporate governance projects. You can talk all you want to companies about why Starting first in Ukraine and Russia in the early they need to have independent boards, get their 1990s, following the break-up of the former Soviet books audited, or hold regular shareholder meetings, Union, efforts soon extended to Armenia. Within five but unless there are rules and regulations requiring 10 IFC Advisory Services in Sustainable Business such activities, it’s unlikely that company executives will rush to change. It’s not that the business case “It is not possible to work on the business for better governance isn’t there: indeed, our own case for corporate governance in the evidence from our work in Ukraine and Russia draws absence of an adequate legal framework.” a direct link between improved financial performance —Triple Line Consulting, Corporate Governance Project of companies and enhanced corporate governance, Review compared to companies that did not address their governance gaps. Still, companies need incentives to encourage such changes. 2) Select the mix of project components based Similarly, if emphasis is placed only on developing on what stage of market development the corporate governance curricula for educational target country is in. institutions, there’s a risk of creating an “ivory tower” The level of market development and the level of mentality that would not translate well into the corporate governance awareness go hand in hand. day-to-day realities of the business world. And if the Based on our experience, the earlier the market public fails to understand the value of better-governed development stage, the greater the need to focus on companies, it is unlikely that they will pressure creating an enabling environment to set the stage as companies to address the issues or call on government the private sector begins to grow. So, in countries officials to enact policies to drive improvements. like Tajikistan, Uzbekistan and the Kyrgyz Republic, Bottom line: The governance arena touches all of the majority of project resources have been devoted these key audiences. Overlooking one or the other to putting modern legal and regulatory frameworks could make the overall effort less successful and less in place. In others, like the Balkan nations, market sustainable. “A comprehensive synthesis of project components, Corporate governance project incorporating policy advice, work with selected pilot objective and approach clients to generate demonstration effects and public awareness and dissemination campaigns, helps ensure Objective lasting and far-reaching results,” notes an IEG review Improve corporate governance practices of our Ukraine projects.4 A programmatic approach to CG in a country or region Our project model incorporates this comprehensive approach, based on a standardized template with a Provides appropriate regulatory variety of key components, including: framework • Direct assistance to local companies and banks Develops next generation IFC PROJECT seeking to improve their corporate governance; of business leadership • Advice to regulators, legislators and self-regulatory Drives demand for organizations on corporate governance standards better CG practices and creation of an environment that incentivizes Improves client’s practices; good governance; demo benefits to market • Curriculum development with educational institu- tions; and Side effect IFC branded as global leader in corporate governance • Public awareness activities, including media training on corporate governance topics. Lessons from IFC’s Corporate Governance Experience 11 economies are in a growth mode, and regulatory most of the focus is on working with governments, so frameworks already exist. Work here is primarily projects should be a minimum of five years. focused on company-level capacity building. As countries progress into the market development Still, it is important to note that this is a generality: and market growth stages, there’s increased focus on the level of country-based corporate governance company-level work, and project durations can be development is not always an indication of company- shortened. Still, we have found that it can take up to level awareness or endorsement of the value of a full year to adapt corporate governance assessment corporate governance. While some nations may have tools and best practice materials to local language and regulations, codes, and policies in place, companies regulatory requirements before company-level work may fall well short of best practices or awareness, can begin. meaning that the bulk of the project should focus on company-level improvements. We have also learned that staff in longer projects develop greater expertise and experience, which can 3) Plan a longer time frame for projects in be leveraged to help with IFC investment operations. countries with low levels of development. A two-to-three-year time frame is not long enough, Conclusion because there is so much work to be done, and The traditional approach at IFC and the World Bank because efforts to write new laws and add new had been to hire consultants to fly in and handle regulations can take a long time. When countries are the TOR /mandate however they chose to handle in the early stages of developing market economies, it. Our approach was different: to design a project Four Pillars of IFC’s Corporate Governance Project Work How IFC’s Advice is Delivered Work with Companies/Banks Work with Universities • Public seminars • CG course seminars • Private consultations • CG case studies • Pilot program • Roundtables/events Goal To improve the corporate governance practices of local companies and banks Work with Government PR and Publications • Legislative reform support • Manuals and handbooks • Public/private dialogue • Model charter and by-laws • NGO support • Media training • Web site 12 IFC Advisory Services in Sustainable Business Designing Corporate Governance Projects in Transitional and Developing Countries: A Toolkit The Corporate Governance Toolkit provides step- The toolbox contains templates and samples of by-step guidance on designing and implementing documents, including: corporate governance advisory services projects in • Project proposals transitional and developing countries. It addresses all stages of a project life cycle: • Sample press release for project launch • Development stage • Sample agendas for company and bank seminars • Project start-up • Memoranda of Understanding samples for public policy work • Work with companies and banks • Sample educational curricula, including case • Work with educational institutions studies and tests • Communications and public relations • Press articles and success story examples • Measuring results of corporate governance • Agenda for a press tour projects • Baseline survey questionnaire/post-project impact survey questionnaire based on a standard template and to alter the weight About the Author of each activity depending on the contextual needs— Roman Zyla, Corporate Governance Officer and Global the project model. A key factor in this replication Product Specialist for corporate governance, joined IFC in approach was a locally engaged staff under the helm 2002 as manager for the Ukraine Corporate Development Project, based in Kyiv, Ukraine. of an expatriate specialist project manager. The author gratefully acknowledges the contribution Through almost two decades of projects, we have of Motria Onyschuk-Morozov in the preparation of this SmartLesson. tweaked this model, experimenting with format and content. Now, with significant experience, there’s Approving Manager a wealth of documented knowledge on which to Darrin Hartzler, Manager, Business Advisory Services draw—and we know what works. September, 2010 The dynamic, flexible nature of the project model allows for a high level of customization, including types of activities and areas of focus as well as duration and scope, while taking into account the development stage of the country or region. It also allows for evolution and change as circumstances change, while encouraging replication of efforts that have a demonstrated record of effectiveness. The recent decision to mainstream IFC’s corporate governance methodology into investment operations will undoubtedly result in new iterations of the model, for even greater impact. Lessons from IFC’s Corporate Governance Experience 13 Structuring Corporate Governance Projects IFC’s corporate governance program assists businesses throughout the Middle East and North Africa region in improving their corporate governance practices. The program has five core objectives, namely to provide: advisory services to banks and companies on implementing corporate governance; assistance to investors to incorporate corporate governance into their investment decision-making; policy advice to the public sector on regulatory reforms and drafting national codes of corporate governance; sustainable institutional capacity for corporate governance, including corporate governance institutes and educational institutions; and training on corporate governance for the financial press. Background and vigilant board of directors; a robust control There is a clear business case for corporate governance. environment; a strong framework for disclosure and A 2004 study of S&P 500 firms by Deutsche Bank transparency; and a culture of protecting shareholder showed that companies with strong or improving rights, in particular of minority shareholders. corporate governance practices outperformed those Corporate governance matters to the region. Many with poor or deteriorating governance practices by Middle Eastern and North African enterprises, as about 19 percent over a two-year period. In its 2005 well as those in other regions, have reached a stage global survey, Governance Metrics International in their corporate life where adopting corporate found that the stock prices of the 26 enterprises it governance has become crucial to their future growth ranked highest in corporate governance outperformed and competitiveness, in particular as they transition their benchmark indices in one-, three-, and five-year from mid-size family-owned enterprises to large periods. Both studies demonstrate the effect that companies with regional ambitions. By improving corporate governance practices have on the overall their corporate governance, these companies may value of a company. improve their ability to access outside capital, lower Yet, while most clients intuitively state that corporate their cost of capital, improve their performance, and governance matters, few really understand what build public trust, confidence, and goodwill. corporate governance means. According to IFC, Corporate governance also matters to IFC. IFC has corporate governance refers to a set of structures worked on corporate governance in more than 80 and processes for the direction and control of countries, and this extensive experience has positioned corporations. Corporate governance affects the IFC as a global authority on governance issues for distribution of responsibility and accountability the private sector in emerging markets. Corporate among the main participants in the corporation— governance matters to IFC’s investment services, as including shareholders, directors, and managers—and it helps minimize portfolio and reputational risks, the rules and procedures for making decisions on adds value to IFC’s clients, and helps develop capital corporate affairs. Corporate governance thus provides markets. the structure through which corporate objectives are set, implemented, and monitored. A well-governed The following lessons learned are based on experience company is marked by: a strong commitment to good from implementing corporate governance advisory corporate governance; a professional, independent, projects in Russia and across the MENA region. 14 IFC Advisory Services in Sustainable Business Lessons Learned help the public sector reform a country’s legal and regulatory framework. 1) Corporate governance is a journey, not a destination. For example, the Russia Corporate Governance Project’s work to help develop the regulatory Corporate governance projects should be structured framework in Russia was limited in part due to to last at least three, ideally up to five, years, the nature of its relationship with the Securities depending on the level of private sector development. Regulator. A number of private sector companies Corporate governance reforms are ultimately also cited their uneasiness about cooperating with based on changes in behavior, notably those of the project absent public sector support. The Egypt shareholders, directors, and managers—and indeed Corporate Governance Project, in turn, forged in a corporation’s culture. Such change is not made a strong, yet arm’s-length, relationship with the overnight. As Peter Drucker, the famous management Egyptian Ministry of Investment and Capital Markets theorist, once stated: “Culture is process over time.” Authority, which in turn facilitated the project’s And so changes to a corporation’s governance policies, ability to launch a series of advisory services for the procedures, and processes can positively affect a private sector, as well as the region’s first institute company’s corporate governance culture and the of directors and the world’s first country code of behavior of its agents. This extended time period will corporate governance for state-owned enterprises. also allow the project team to better monitor project outcomes and impacts. Practically speaking, signing a Memorandum of Understanding rather than a formal agreement with 2) Obtain the godfather’s blessing, but avoid the project’s public sector counterparts is often the the kiss of death. best way forward. This allows the relevant government A corporate governance project should receive counterpart to take ownership and offer support, yet formal support from both the private and public also keep a healthy distance from the public sector. sectors before being formally launched. This holds particularly true in emerging markets with powerful 3) Remember that the sum is greater groups that are happy with keeping the status quo. than its parts. Indeed, absent a strong commitment by both the When structuring a corporate governance project, it public (relevant ministries or authorities, such as is important to target all key stakeholders involved the capital markets authority and/or central bank) in the reform process. While companies have the and private sectors (leading industry or business difficult task of implementing corporate governance, a associations), corporate governance reforms are number of other stakeholders have an important role likely to be reduced to a “box-ticking” exercise, and to play in ensuring sustainable reforms. For example, the project is thus unlikely to achieve its intended in Pakistan, the project team is training the local impacts. press and financial media to ensure that the quality of reporting on corporate governance improves. It is also A word of warning, though, when interacting with working with both banking and company regulators government: public sector backing may provide to improve the overall corporate governance legitimacy and lend support to deliver corporate framework. governance advisory services in a country (the “godfather’s blessing”). It also may be accompanied Another project component is to build sustainable by meddling and interference, which could jeopardize capacity. Thus, many of the project activities are a project’s ability to engage with the private sector as being channeled through the Pakistan Institute of an “honest broker” (a project’s “kiss of death”) or to Corporate Governance, a nascent institute that IFC Lessons from IFC’s Corporate Governance Experience 15 hopes to build and make sustainable. Finally, the inexperienced (to transfer knowledge). For example, project team in Pakistan is engaging directly with the during the program’s extremely brief ramp-up phase, private sector, conducting a series of awareness-raising a number of consultants were hired to support the events, technical workshops, and company-specific local IFC team to reach a greater number of banks interventions. Given the challenges of introducing and companies and thus help ensure that impacts improved corporate governance practices in form and success stories were developed from the get-go. rather than theory and on a sustainable basis, only an However, IFC’s additionality—its unique mix of interaction of all stakeholders is likely to produce the “global” corporate governance expertise and “local” desired development impacts. knowledge—should and must not be compromised and outsourced, lest IFC lose its reputation as a global 4) Do not outsource your core competency. leader in corporate governance for emerging markets. The success of a corporate governance project will ultimately depend on the quality of project staff— 5) Remember the top-down, not both international and local. Human resources bottom-up approach. are core to IFC’s business model, and hiring the It is important to hire the project officer/manager right individuals with real and practical corporate first, prior to hiring other project staff, allowing the governance expertise, leadership qualities, and project officer to lead the selection process for key communication (presentation and public speaking) positions within a project. While perhaps obvious skills poses a serious and time-consuming, yet not to most, the pressures from senior management or insurmountable, challenge. donors of recruiting a project manager during a very short time frame may lead program management It is best to launch the hiring process at the earliest to overlook this important step. In the end, the possible stage, ideally between the PDS-Early Review consequences of hiring (and then possibly firing) the and PDS-Approval stage and once funding has “wrong” staff comes at great human cost to the staff been secured. Hiring outside corporate governance in question, and will wind up costing even more time. consultants to support the project team in carrying This occurred in Russia, where the project manager out its work is an option, in particular when was hired after a significant number of local staff had staffing constraints exist or when project teams are been hired and an operational structure put in place, both of which had to be changed to allow the project to achieve its results. 6) Educate, educate, and then educate. Staff training is of great importance from the outset and should be included in the budget. Corporate governance is a complex topic, combining a multitude of different disciplines such as corporate and securities law, finance and accounting, economics, and other specialized fields, including risk management and internal control. It will likely prove difficult to find an Dr. Ashraf Gamal El Din, Executive Director of the individual with in-depth expertise in all disciplines. Egyptian Institute of Directors, and Sebastian Molineus, A training program on corporate governance may Program Manager, IFC Corporate Governance Program in the Middle East and North Africa, discuss corporate well prove to be a key success factor in minimizing governance issues around a joint IFC – EIoD event the project’s operational (and ultimately reputational) 16 IFC Advisory Services in Sustainable Business risk, enabling project staff to provide quality services and when to monitor and evaluate. Finally, ensure to client companies from the start. IFC’s Corporate that you have a budget set aside for this, including for Governance Department plays an important role a mid-point evaluation. In the end, what you cannot in providing training, not least of all on IFC’s capture or measure will not be evaluated and, worse, Corporate Governance Assessment Methodology, and cannot be proven (like a tree that falls unnoticed in in carrying out assessments. An exchange program the forest). For example, the MENA program recently between advisory staff is another possibility. conducted a corporate governance review for an IFC investee client in Algeria. Because the costs and time 7) Replicate successful country projects commitment were considered minimal, the work at the regional level. was not captured in a PDS document and hence is Rolling out existing IFC products across the region not formally included in most internal or external on a “light-touch” basis, once successfully piloted communications. and “standardized’’ in a country, is an effective means of ensuring that a product is able to reach other 9) Define the exit up front. stakeholders beyond a project’s immediate focus, During the final months of the Russia Corporate and can help corporate governance spill over into Governance Project, the wealth of information and other countries. Such light-touch interventions will experience the project team had gathered was to be typically consist of identifying a successful product filed into folders, which in turn were to be placed in such as a bank training program for directors boxes, which in turn were to be stored in the World developed in Egypt and partnering with a regional Bank’s basement. Rather than follow this traditional institution such as the Union of Arab Banks that path of shutting a project down, the project team is mandated to identify and invite local, country- decided to transfer its know-how and resources to a based institutions like national banking institutes. local institute of directors. However, this transfer was This regional institution can then organize a series only partially successful, mainly due to the short time of events for the local institutions to transfer the period to effectuate the transfer and unwillingness product: workshops on how to tailor the product to of local staff to move to the institute. A project’s exit local conditions and train-the-trainer events on how strategy should thus be considered at the earliest to teach the bank training program. Then IFC staff possible stage, ideally at the project conception stage. can participate and share their insight and experience In fact, the project’s exit strategy is best made a project without significant time input. objective. At the same time, the exit strategy should not tie the project to a specific partner institution; 8) Avoid the “tree falling in the forest” rather, the project team should be allowed the syndrome. necessary flexibility and time to work with and test the Before developing the monitoring and evaluation various project partners in a particular country. framework, ensure that your project has a clear goal; set of objectives that are specific, measurable, actionable, realistic, and time-bound; and action plan. Only then will the project teams be able to About the Author link project goals to impacts, objectives to outcomes, Sebastian Molineus, Corporate Governance Program Manager for IFC Advisory Services in the Middle East and and activities to outputs. Then it is best to request North Africa, worked for IFC in Russia as project manager that project staff look beneath the numbers of the for the Russia CGP from 2002 to 2005. monitoring and evaluation framework to ensure that May 2007 they understand the underlying rationale: what, how, Lessons from IFC’s Corporate Governance Experience 17 Project Staffing In the early days of our corporate governance For instance, in countries where corporate work, staffing considerations operated on a governance is not developed at all, and the different set of assumptions—and different market is not sophisticated, it may be important budgetary strictures—than today. Indeed, the jury to engage a full-time project manager. If there are is split on the question of whether a small core several countries in the region with similar levels staff is ideal or whether a larger in-house team of development, it may be possible to appoint works better. To some extent, the answer to the a single project manager who supervises all the numbers question is no longer relevant: moving activities, supported by team leaders on the forward, the model of project staffing that is ground in each country. Of course, cost, scope of described in our first SmartLesson here is simply work, cultural nuance, and capabilities all play a not realistic today. role here as well. Nevertheless, getting the staffing right is critical The SmartLessons in this section go beyond the to the success of a corporate governance project. numbers question to provide some guidance on As with other aspects of this work, what it means the kinds of qualifications that are needed to help to get the staffing right will vary from project to ensure maximum project impact. project, and from country to country. Lessons from IFC’s Corporate Governance Experience 19 Can We Talk? Staffing Considerations in Project Design There is a straight line connecting the pioneering successes of IFC’s early corporate governance advisory services projects and the fact that IFC hired talented local staff with fluency in the local language, customs, and business culture, and trained them to become experts in their field. The value of this approach has strengthened over time, as our efforts to create a market for corporate governance in developing countries have resulted in a growing demand for corporate governance services. IFC-trained local experts form the foundation of a new fee-for-service market niche—corporate governance consultancy services. Background decisions, how political compromises are reached, Staffing for corporate governance advisory services how policies are made: the reality on such issues projects is not a one-size-fits-all proposition. There is often different from what the rule books might are a number of factors to consider, including the size, suggest. scope, and duration of the project and the project’s International consultants, while experts in the field budget. These factors are typical considerations of corporate governance, may lack this nuance. Aside for any project—they are not unique to corporate from speaking the language (see lesson 2 below), local governance. Still, there are considerations unique to staff have a deeper understanding of how things work. corporate governance advisory services projects when They also may be more equipped to earn the trust determining the optimal approach to staffing. Here and cooperation of government officials in this very are some of the key lessons on staffing we have learned delicate stage of the game. over our nearly two decades of work in corporate Bringing on local staff who may themselves have a governance advisory services projects. low level of corporate governance knowledge and training them by exposing them to world-class experts Lessons Learned also starts a critical process: building a base of experts 1) Consider the country’s stage of corporate with local knowledge and global expertise to meet governance awareness: the less awareness growing demand as the country progresses along the there is, the more local hires are needed. corporate governance continuum. Project work in countries with a low level of When countries are in the market development understanding about the value of corporate stage—characterized by a growing private sector, some governance typically focuses more on work with foreign direct investment, some enabling legislation, governments, given the lack of a legislative or and a basic awareness of corporate governance— regulatory framework that would require companies project focus is divided a bit more, to include more to meet certain standards. We found that in such work with companies, educational institutions, and countries—like China, the Kyrgyz Republic, the public. But here, too, it is important to hire local Tajikistan, Uzbekistan and Vietnam—deep staff, for similar reasons: the ability to connect on a knowledge of the ins and outs of government was deep level with key audiences and to overcome an absolutely key. How government officials make inherent mistrust of outside experts. At the height of 20 IFC Advisory Services in Sustainable Business IFC’s Ukraine Corporate Governance Development Vested interests are a good Project during the 1990s, the corporate governance thing: The intangible advisory services staff team totaled 32 people, power of local hires including a stable of 15 locally trained lawyers. We found that having a deep bench of skilled staff was When Ukraine gained its independence after the particularly important for countries in this market fall of the Soviet Union in the early 1990s, many development stage, where projects feature multiple young Ukrainian professionals were torn between components aimed at various target audiences, but leaving their homeland to seek better opportunities where there is not a large pool of local consultants elsewhere and staying put amidst all the uncertainty from which to draw. Our approach relied on hiring to help build the foundation of a new country. Others talented local staff and training them to become who were trying to build a life abroad were inspired to return home. leading corporate governance experts, under the guidance of an experienced international project Among them: young Olga Mykhaylyuk, who decided manager. The project team found that hiring local to return home to complete her education and professional studies in Ukraine. staff enabled them to gain a deeper understanding of the unique conditions on the ground—things Following completion of her professional degree, that could not be found in a textbook or in formal Olga signed on as a local consultant with IFC out of government documents. a deep sense of patriotism, with a goal of making lasting contributions to her country. As countries move into the market growth and “Over the years of my work with IFC, we’ve provided maturity stage, projects may need fewer staff consultations to hundreds of local companies, resources, because they can make use of a larger base helping them to improve their corporate governance. of consultants who have been cultivated and trained With each company’s progress, Ukraine’s investment by IFC, and who can now take on a share of the attractiveness increases, and this helps our economic work as they build their own consulting businesses growth. I feel so proud that I have helped my country become a bit stronger—I feel as if I have made a real and expand the country’s economic base. There is difference,” Olga says. an increased acceptance of the value of corporate governance, which increases the trust and acceptance The moral of the story: never underestimate the intangible power of locally hired staff who have pride for international experts who may parachute in for in their country and therefore have a vested interest short stretches to deliver seminars or workshops. in seeing positive results. 2) Talking the talk: hire staff who can speak the local language. In implementing their projects, the Middle East and It sounds like one of those things that is so simple it North Africa team found that from their base in doesn’t deserve mention. But it does because, stated Cairo, they could train local staff in Egypt, Pakistan, simply, the success or failure of a project rides on the and Jordan. They sent in experts as needed, but they ability to communicate. relied on local skill sets and native fluency with local Of course, staff who are fluent in local languages also languages to be the front line in carrying out projects. need a critical knowledge base—and they may not be fluent in the language of corporate governance. This is 3) Budget time and resources accordingly to where the combination of international expertise and build local consultant capacity. local skill sets becomes important, although the exact Staffing circumstances today at IFC are a far cry from approach will vary depending on region and country. the early 1990s when we first started our corporate Lessons from IFC’s Corporate Governance Experience 21 governance advisory services work. In IFC’s current overlooked during the scoping portion of the project streamlined staff environment, large staff contingents, design phase. such as the 32-member project team deployed under The result: the team had to look outside the region the Ukraine Corporate Development Project, are not for consultants who could conduct corporate going to happen. governance assessments and help clients implement improvements. While we found capable consultants Even in countries where there in Slovenia, the cost of bringing in expertise from abroad severely limited the number of companies is a growing consulting base, assisted, and reduced the overall impact of the project. working consultants may Even in countries where there is a growing consulting lack specialized knowledge of base, working consultants may lack specialized knowledge of corporate governance. corporate governance. This was the case in China, where the team sought to add capacity by bringing on local consultants for a We no longer deploy staff in the same numbers— donor-funded project that started in 2008. A number and many suggest that this is a better, more efficient of local consultants wanted to work with us, but they approach. But it also means that it is more important were not corporate governance experts. And while than ever to make sure that consultant qualifications, there are a number of international consulting firms expertise, and capabilities match the needs and with bases in China, the in-country staff similarly requirements of the project. lacked specialized corporate governance expertise. In its early stages, the corporate governance team in So we took a step back. Eastern Europe made some staffing mistakes based We realized that we needed to train consultants on on faulty assumptions. During the design phase of our methodology before we could expand our direct the initial corporate governance project, a single advisory work with companies. This extensive effort country manager was hired for each of the five target has taken a full two years. And now, after several countries. The idea was that the country managers highly successful training classes in Beijing, Tianjin would supplement their efforts by hiring local and Shenzhen, among other locations, there is a consultants to carry out the work, including: strong and growing base of local consultants trained • Organizing awareness-raising events and in IFC’s corporate governance methodology. seminars; Early results are strong, including information shared • Working with local counterparts; by Chuangzhi Investment Consulting Firm, one of • Identifying companies eligible for assistance; and the project-trained institutions: the firm notes that two clients were able to attract a combined $2.2 • Working with the companies to identify and million in financing as of June 30, 2010, because implement improvements. of the corporate governance improvements they The plan, which sounded good on paper, turned out made, with the assistance of the consulting firm. The to have a significant flaw: there weren’t many qualified firm also notes that the clients would not have been local consultants in the region—it was a detail we had able to mobilize this funding without the corporate 22 IFC Advisory Services in Sustainable Business governance improvements. Additional results include: shifted from large IFC-staffed projects to small staff operations that manage outsourced resources, the • More than 37 professional institutions have discussion on an appropriate model is ongoing. The incorporated IFC’s CG methodology into their challenge for the next generation of projects is to consulting services offerings to their client learn from the lessons of the past and to get creative companies. in adapting to the realities of delivering effective • More than ten of the 37 project-trained projects in the coming years. professional consulting institutions generated ­ a total of $259,000 in revenue from their CG consulting services to their clients. About the Authors Charles Canfield, Senior Corporate Governance Officer Of course the real work—connecting these newly in the East Asia and Pacific region, assesses corporate trained corporate governance experts with companies governance risks and formulates mitigating strategies for ­ IFC’s investee client portfolio for the region. From July 2004 and banks to bring about lasting governance to December 2007, Charles served as the Project Manager improvements at the company and bank level—is for the IFC Azerbaijan Corporate Governance Project. only just starting. Roman Zyla, Corporate Governance Officer and Global Product Specialist for corporate governance, joined IFC in ­ 2002 as manager for the Ukraine Corporate Development Conclusion Project, based in Kyiv, Ukraine. Staffing is a critical issue with any project, and The authors gratefully acknowledge the contribution perhaps more so with CG projects. The complex of Motria Onyschuk-Morozov in the preparation of this ­SmartLesson. nature of the effort requires lots of hand-holding and significant interaction with a range of government Approving Manager officials, bureaucrats, leading educators, and corporate Darrin Hartzler, Manager, Business Advisory Services executives; this makes appropriate staffing even more September 2010 critical. As the discussion on the staffing model has Lessons from IFC’s Corporate Governance Experience 23 In-House, Outsourcing, or a New Hybrid Approach to Advisory Services: the Corporate Governance Project in the Balkans IFC uses (at least) two types of approaches for implementing advisory projects. One way to ensure implementation of services is by taking an in-house approach to project delivery. This is based on IFC staff both managing the project and undertaking comprehensive substantive work directly with clients. The approach is tailored to projects that require a highly intense dialogue with different counterparts where narrow expertise is needed. These projects are accordingly staffed with people possessing the relevant skills. The other way is by taking an outsourcing approach to project delivery. This is based on IFC staff only managing the project, with the extensive use of outside consultants to deliver specialized work and advice to clients as needed. In these cases, there are fewer IFC staff involved in projects, and the approach is used in those regions where there is a sufficient consultancy basis capable of delivering specialized advice. This SmartLesson will propose a third, hybrid approach that can be used for delivering advisory services projects. It is a model relying on two pillars: creation of regional teams of IFC staff who are both involved in project management and delivery of services on the ground, and progressive empowerment of local consultants to ensure sustainability of IFC efforts. Background practices of companies and banks in the region Advisory projects in the Europe and Central Asia (Albania, Bosnia and Herzegovina, FYR Macedonia, region have historically relied more on the in-house Montenegro, and Serbia). This goal was to be approach because projects were rather complex and achieved by providing direct support to companies programmatic in nature and involved providing and banks in implementing good CG practices, assistance to various types of clients both in the developing an effective CG regulatory framework, private and public sectors. This assistance was often strengthening the training capacity of educational provided through cross-fertilization of knowledge and institutions, and increasing public awareness of CG experience of project staff that continuously worked issues, effectively a programmatic approach. with companies, academic institutions, government As we moved to the implementation phase, the team entities, and regulators, and used what they learned began to see a mismatch between the project’s goals, with one set of clients to inform work with or provide which were extensive, and project staffing, which examples for the others. This model was particularly envisaged only one staff member for each of the five characteristic of corporate governance projects. countries (one project manager sitting in Belgrade, In Southern Europe, many projects were structured and four project officers sitting in Albania, BiH, FYR to use the outsourcing approach. Launched in 2005, Macedonia, and Serbia, with the project officer in the corporate governance project in the Balkans Serbia also covering Montenegro). Thus, the project had the goal of improving the corporate governance model was programmatic in its substance (delivering 24 IFC Advisory Services in Sustainable Business a comprehensive approach to working on CG) but was based on the use of consultants in its delivery. By progressively involving From this, various challenges began to emerge, with consultants in the project the biggest one related to working with potential client companies. work, you allow them time to Throughout the whole region, there were very few internalize the approach that reliable consultants who could deliver CG services sometimes seems obvious to that would be up to IFC standards. The project advertised for consultancy services several times, project staff. but only a handful of companies applied, out of which only two were assessed to be able to perform the work. However, these companies were not able Lessons Learned to internalize IFC’s CG methodology and deliver results as needed. Because of this, project officers 1) Form regional teams of staff with spent approximately half of their time on additional complementary skills. work that involved commenting and rewriting The project’s regional team had only one project assessment reports prepared by the consultants. In officer per country, which allowed for territorial addition, clients were not always satisfied with the coverage that would ensure the daily presence of IFC final product from the consultants, and it took project staff in each of the countries to manage the day-to- officers additional time to ensure that the reports day implementation of the project. Also, it happened were accepted by clients and that implementation of by chance that all team members possessed different recommendations took place. knowledge and experience. One project officer is an As a result, the team started thinking about the expert in external and internal audit; another in law; introduction of a hybrid model for delivering a third in business development and management; advisory services. Namely, the project officers would and a fourth in finance and public policy. It would be become more deeply involved in company-level work, rare to find a consultancy company in our region that delivering the technical assistance to clients. Staff could put together a truly multidisciplinary team such would take on the assessments, prepare the reports, as we had with our project staff. With staff stretched and assist clients in implementing recommendations. to deliver more to clients, and with the commitment At the same time, the project team made a conscious to turn chance into competitive advantage, the project decision not to abandon the modest consultancy manager and regional business line leader encouraged base. Rather, we understood that building their the team to think of themselves as a regional resource, capacity would provide for sustainable delivery of able to deploy staff as needed throughout the region, services in the future. A decision was made to partner based on the needs of the projects and clients. with them—to involve them in the work as much This was successfully done by several IFC projects as possible, and to see them as depositories of CG in the Balkans. But what can make it an even more knowledge and skills. successful model is to consciously select project Two key lessons were learned by the CG Balkans team staff during the project inception phase who are from its experience with the hybrid approach. located in different countries and have different and complementary skills. You then have a mini-matrix in which people territorially cover certain countries and functionally cover specific project areas. Lessons from IFC’s Corporate Governance Experience 25 INTRODUCING THE HYBRID APPROACH: The Elektroprivreda BiH Case Study A client from BiH, the electric utility company in the development of remuneration policies, the Elektroprivreda BiH, expressed its interest in a full- drafting of CG codes, and the assessment of internal scale assessment of its CG practices. Because EP is the audit and control frameworks. second-most profitable company in the country and Over the period of a year and a half, IFC helped EP a big market player, we faced a situation in which we to identify weaknesses in its CG, develop a set of needed to find a way to work with a client that had a recommendations to overcome key deficiencies, and potentially broad demonstration effect and to ensure organize training activities for relevant staff. As a that high-quality services were delivered. We realized result, EP introduced new policies and procedures that the consultants we had at our disposal would for internal audit and control; improved disclosure not be able to take on this kind of assignment, so we tools for shareholders, using the company Web site; decided to “test” our new regional team. developed a CG code; and amended its charter to The project manager, together with the project officers ensure that the board of directors and management from BiH and Albania, would jointly conduct this operated in line with better governance standards. assessment. There was some hesitancy and anxiety The first impact results from our work are visible: the about the ability to work with such a high-profile decision-making process in EP is improved, the internal client. But the program manager had confidence in company structure is streamlined, and internal control our abilities as staff, which was crucial to ensuring that processes are advanced. we were motivated and understood how important it The results at EP significantly inspired the project to was to deliver. start involving and establishing lasting relationships Presenting the assessment report to the company was with relevant institutions in each country that would the turning point that built our confidence. The board act as key depositories of knowledge and skills in CG. of EP immediately asked when we could start assisting Hence, when the project signed its next mandate, the company in implementing recommendations. The a local consultancy—Advantis Broker from BiH in whole CG team became involved in the delivery of this case—was made a partner in the assessment training for the board of directors and management. by participating together with the project staff in This required each of us to explore and research interviews with company representatives, commenting concrete areas in which EP required additional advice. on the assessment report, and assisting the company This meant a good deal of additional work but also in implementing recommended changes. allowed staff to specialize in niche areas—for example, In developing a regional team, it is important to be Based on the initial structuring of the project, strategic in the selection of project staff. Try to find consultants were crucial to its success—first, for people who possess skills that are complementary work on the ground and second, for sustainability so as to ensure that if there are tasks that require purposes. From the very moment when the hybrid different expertise, there is a team ready to take on the approach was conceived, it was understood that in challenge. our cooperation with consultants, we wanted to take the best from the consultancy approach and then 2) Partner with consultants and continue to identify and overcome its limitations. We decided to build their capacity, even if you cannot use create what we believed was an even more sustainable them immediately for independent work. format of cooperation with consultants by involving 26 IFC Advisory Services in Sustainable Business them progressively in the concrete work with client Conclusion companies with vigilant oversight. Through this, In our case, the hybrid approach was created out of we were transferring not only the knowledge but necessity. We believe that it has a chance to grow into also the philosophy behind IFC’s CG methodology. a specific format for delivery of IFC advisory services. This was not always easy when we were relying on It is neither better nor worse than the in-house consultants alone to deliver services. Very often, approach or the outsourcing approach. However, it consultants would listen but would not understand does provide a new more flexible avenue that IFC can exactly what the IFC CG methodology was all about. use to deliver high-quality services to clients, while For example, they would not always appreciate creating opportunities for development of staff and why it was important for training to come after the building sustainable relationships with consultants. assessment and not before it or they would not focus enough on the workshops with the working groups in companies that implemented the recommended changes. Because IFC staff were now leading the work About the Authors with the clients, we could ensure that the IFC CG Merima Zupcevic Buzadzic, Associate Operations CG Officer methodology was being followed and by involving for Bosnia and Herzegovina. the local consultants in this work, they could learn Kiril Nejkov, Associate Operations CG Officer for FYR through our example. Macedonia. Katarina Djulic, Associate Operations CG Officer for Serbia By progressively involving consultants in the and Montenegro. project work, you allow them time to internalize Sonila Bicaku, the Associate Operations CG Officer for the approach that sometimes seems obvious to Albania. project staff. Treat consultants with respect and understanding, but use them in ways that are most Approving Manager Motria Onyschuk-Morozov, Principal Operations Officer, appropriate to the market situation. Do not allow Regional Business Line Leader for Corporate Advice, IFC their approach to result in products that could Advisory Services in Europe and Central Asia compromise the overall IFC methodology of work May 2010 and product quality. Lessons from IFC’s Corporate Governance Experience 27 Doing More with Less: Creating Innovative Corporate Governance Products When Resources Are Scarce Following a successful first phase of improving corporate governance practices in Azerbaijan, the Azerbaijan Corporate Governance Project noticed that ever more clients in the market were interested in our corporate governance advisory services. We faced a significant challenge, however, having lost a number of staff members and being unable to replace them due to limited hiring policies. At the same time, demand was growing to develop more sophisticated products, as many market players were already aware of the basics of corporate governance. This SmartLesson describes the experience of the project team in providing innovative corporate governance products with limited resources. Background Based on the project’s solid success and growing demand for corporate governance in the country, the The Azerbaijan Corporate Governance Project was second phase was launched in 2007, with the added launched in 2005 with the purpose of improving objective of assisting banks and investors in assessing the corporate governance practices of Azerbaijani and improving their client and investee corporate joint-stock companies and banks, thereby helping governance practices. them gain easier access to capital. To accomplish this goal, the project partners with companies and Despite staff shortages, we needed to maintain the banks to further improve their corporate governance same level and quality of service, while delivering practices and minimize their portfolio risk, and more sophisticated corporate governance products. strengthens the capacity of educational institutions Here are some lessons learned from recent experience to provide corporate governance training. The project that contributed to the more efficient delivery of also works with the government of Azerbaijan to Azerbaijan Corporate Governance Project services in a improve the regulatory environment governing climate of scarce resources. corporate governance issues, increase public awareness of corporate governance issues, and strengthen the Lessons Learned media’s capacity to cover these issues by training them 1) When developing a product, consider in corporate governance. whether it could be of interest to other During Phase 1, we helped 336 different companies project clients. improve their corporate governance, and project For example, the idea to raise journalists’ awareness clients attracted $17.9 million in investment due of financial crisis issues emerged on an airplane as to improved corporate governance practices. The project team members, coming back from a corpo- project also developed a model university corporate rate governance network meeting in Krakow, were governance course that was adopted by five brainstorming and discussing the financial crisis and Azerbaijani institutions and subsequently exported its relation to corporate governance. As a result, we to other IFC corporate governance projects. developed a training workshop, including case 28 IFC Advisory Services in Sustainable Business studies, called “Corporate Governance as a Response to the Financial Crisis,” and delivered it to local busi- Many products that are specific ness journalists a month later. Through this training, at first glance can be creatively the project received extensive media coverage. Because we also work with educational institutions to help restructured, elaborated upon, develop corporate governance curricula, we thought redesigned, and developed of approaching them to ask if they would be inter- ested in a seminar on this topic. Several educational into products that would be institutions expressed strong interest, and the fol- interesting for other audiences. lowing month we organized and delivered the same presentation for educational institutions, resulting in the topic’s incorporation into two of the educational institutions’ curricula. example 1: 2) Think of ways one product developed for Doing More with Less one group of clients (meeting one project objective) could be tailored to meet other Lesson 1 client groups’ needs. Product 1 Target Audience Product development did not stop there. After the local media published various articles on the topic Presentation on corporate 1. Journalists following the media training, a number of project governance and the 2. Educational clients approached IFC with questions about financial crisis institutions corporate governance and the financial crisis and requests to share materials. The banking sector was Lesson 2 particularly interested in the causes of the financial Product 2 Target Audience crisis, the role of boards, and what boards should do to mitigate the consequences of the crisis. More in-depth module 3. Bankers Considering the strong interest, the project further on corporate govenance 4. Lawyers elaborated on the topic, included more case studies, and the financial crisis 5. Investors and organized roundtables for bankers. We also 6. Regulators delivered a roundtable discussing the same topic in the framework of our roundtables for lawyers, which Product 3 Target Audience we hold regularly. The interest was so broad that this Article on the financial All roundtable was attended by lawyers of the central crisis bank and the State Securities Commission. Because a number of institutional investors also expressed interest in this topic, we further developed the materials by expanding the case studies, including specific advice on how to assess and address risks. We delivered the materials to local investors as part of an effort to improve their knowledge of corporate governance practices. In addition, as part of IFC’s internal intercountry knowledge sharing, the China Lessons from IFC’s Corporate Governance Experience 29 resources–and at the same time it yields good results example 2: and has a favorable impact on the project’s work. Doing More with Less 3) When developing a product, seek input Lesson 1 from your clients. Product 1 Target Audience Because many of our services are delivered to local Screening tool 1. Local investor businesses, it is always useful to consider the clients’ 2. Other investors input. Our experience has shown that incorporating clients’ opinions is useful because it not only helps to adapt the tools and content to local realities, but also Lesson 2 because it helps effectively develop products with less Product 2 Target Audience time and limited staff resources. Training module 3. Educational on the screening tool institutions 4. Mass media example 3: Doing More with Less Corporate Governance Project asked us to deliver the Lesson 1 presentation to its clients and students of the Business Product 1 Target Audience School of Nankai University in Tianjin, China. Presentation on the 1. Lawyers In another example, the project developed a corporate transformation from governance screening tool for investors to provide limited liability company them with easy-to-use guidelines for assessing the to joint stock company corporate governance practices of their potential Lawyers’ input investee companies. After developing the screening Lesson 3 tool, we realized that it could be useful for other groups that had requested more advanced training for practical applications of corporate governance. The Lesson 2 project therefore is developing a training model, based Product 2 Target Audience on the screening tool, for educational institutions Training module on 2. Enterprises so that they can demonstrate to students a practical transformation from use of corporate governance in the workplace. A limited liability company media seminar on how investors evaluate corporate to joint stock company governance is also being developed for business journalists. Product 3 Target Audience Many products that are specific at first glance could creatively be restructured, elaborated upon, Article on transformation All redesigned, and developed into products that would from limited liability be interesting for other audiences. This approach is company to joint stock especially effective as it requires less effort and time– company which is relevant, considering the limited staffing and 30 IFC Advisory Services in Sustainable Business A specific example relates to the development of At this roundtable, our project experts learned from model documents for clients. During the years of its the clients’ experience and gathered much practical existence, the project has prepared a number of model knowledge on the subject. Using this knowledge, corporate documents, including a model charter and the project decided to write an article for its regular other corporate bylaws for companies. As the project’s bulletin on the topic, using client experiences as the work intensified with financial-sector companies, foundation. One of our training partners then asked including banks and insurance companies, there us to present the topic at a seminar for the partner’s was a growing demand for model documents for clients. The project created a presentation from the these sectors. Using previous models and based on article and tailored it to the seminar audience. From client feedback received at meetings and through one roundtable, we were able to produce an article correspondence, the project has further developed from which we developed a training presentation for model documents in three packages tailored for the our clients. needs of banks, insurance companies, and other joint stock companies, respectively. For example, Conclusion the insurance companies commented on provisions In sum, we have learned that it is possible to adapt related to the duties of directors in bylaws and one product for multiple purposes and audiences as model charters. These comments were subsequently an efficient way to create new products. Given the incorporated in the model documents for that sector. human resources constraint faced by our team, we The model documents were distributed to the found this approach to be invaluable in meeting the respective clients for preliminary review and, on needs of our clients. receipt of their comments, the drafts were finalized. The in-house counsels and other relevant personnel About the Authors (internal auditors, managers) in these companies both Rasmina Gurbatova, Communications Associate for IFC’s assisted in the development of the model documents Azerbaijan office, gained experience in communications and public relations by volunteering and working in various non- and acted as peer reviewers to ensure accuracy and governmental organizations, a state university and a private applicability. company prior to joining IFC. Anar Aliyev, Deputy Project Manager and Legal Advisor with A final example shows how one product can be used the IFC Azerbaijan Corporate Governance Project, specializes in different ways. Many clients approach the project in investment and capital-market regulations, company law, requesting information about how to transform oil and gas law, and international arbitration. themselves from a limited liability company into a Approving Manager joint-stock company. In response to the heightened Caroline Bright, Project Manager, IFC Azerbaijan Corporate interest from a number of companies and partners Governance Project in this topic, we devoted one of our regular lawyers’ May 2009 roundtables to a discussion of the issue in more depth. Lessons from IFC’s Corporate Governance Experience 31 Pricing It is not news—and it is not unique to corporate • Provide a public good: policy reforms, educa- governance projects—that people tend to make tional projects. a stronger commitment to services for which Do charge fees: they must pay than to services they get for free. However, a balancing act is needed, since • To be taken seriously: on a cost-sharing basis charging fees for a service that people don’t think with clients; and they need might not result in success. • To create a sustainable fee-for-service model that will endure after project exit: with fees as A basic rule of thumb: close to market rates as possible. Do not charge fees for activities that: The SmartLessons in this section address a number • Lead the market in the country: where there’s of pricing challenges that are encountered over a need to convince the players of the impor- the lifetime of a corporate governance advisory tance and value of corporate governance services project. improvements; or Lessons from IFC’s Corporate Governance Experience 33 Pay Less, Get More: A Sustainable Business Approach to Capacity-Building Services In advisory services, we often try to develop markets for capacity-building services where currently there is no visible demand or supply. For the corporate governance program in Southern Europe, we developed a market-based approach to enable our partners to explore new business opportunities in the field of specialized education, training, and conferences that they previously had avoided because of lack of experience and/or high financial risks. Background Through this model, we managed to reduce our costs Initially, the model that we followed in our corporate for conferences and trainings in most cases to ZERO governance program in Southern Europe was for IFC and even to get some return from our activities!5 to organize a conference or training, hire consultants, Lessons Learned and pay for all the costs. Because corporate governance was a new concept, we believed that no 1) What is the Sustainable Business Approach? one would pay for our conferences and training, and The idea is simple. As we try to convince our partners therefore we did these events for free. to enter new business segments that we want to On average, a one-day conference would cost from develop, we insure their potential financial risks up €10,000 to €30,000 (about $13,000 to $39,000), and to 75 percent of the potential total loss. So if the whenever we would follow up, we would realize that activity cannot take place or if there is a loss, we will through our activity we had created little chance of reimburse our partners 75 percent of the net loss; sustainable development because: and they will only have to support the remaining 25 percent. By doing so, we remove most of the financial • Free events made it more difficult for us to attract risk from our partners and therefore give them an the right people who cared deeply about the incentive to try new activities. topic; • The consultants we used never took ownership 2) Is it too risky for IFC? of the event and never envisaged replicating the In fact, we not only cover risks but we also work to event without us; and minimize our financial risks. We help our partners • The public believed that our events were just a develop a business plan that we believe carries the best temporary trend that would disappear with the chances of success. end of the project. For us to enter in this kind of partnership, we need to Based on these shortcomings, we decided to adopt believe that the activity envisioned can raise enough a new approach that would allow us to ensure funds from the participants to cover at a minimum sustainability in what we do. We convinced our the costs associated with the event. To break even, consultants and partners to become the main owners and possibly to make a profit, is what in our view of the conferences and training sessions, while IFC guarantees sustainability. Since we take the bulk would provide capacity-building support and share of the financial risk, we have a lot of leverage to most of the financial risks. express our views on how the business plan should be 34 IFC Advisory Services in Sustainable Business prepared. On the other hand, the fact that the partner we pay the expenses as they occur, as long as they do is potentially liable for the remaining 25 percent not reach the limit of 75 percent of the total pre- of the loss gives him a strong incentive to take full identified costs. We considered a simpler approach ownership in the business plan and to ensure that all whereby our partners would pay all the associated factors are taken into account. costs, and we would reimburse them at the end only if there was an actual loss. In reality, however, This is where the “real” work of advisory services takes our partners proved very reluctant to pay for the place, because here we talk about the content of the costs themselves before receiving proceeds from the activity we plan to deliver and how IFC can help our participants, or they had a liquidity shortage. This is partners do it. This is why this model can be adapted why we pay them instead and get compensated later. to all types of advisory services projects, not just for corporate governance. For this approach to work, we need to sign a cooperation agreement with our partners in which 3) How is the arrangement set up? the detailed business plan is an integral part of the In order for our partners to feel real ownership in the agreement. We also clearly stipulate how and what we activity, we usually let them be the front-runners and will pay for, namely all expenses related to the event, main organizers of all activities needed for the event. as they occur and as long as they cannot be paid from Of course, we assist them whenever necessary, but in the proceeds paid by participants. If these conditions front of the public, we always appear as the supporter are fulfilled, then we ask our partners to send us the or partner and not as the main organizer. This helps invoices (with copies of the bills received by them). our partners build their own capacity and reputation In reality, the arrangement works even better than on in the market. We also allow our partners to collect all paper. We rarely pay 75 percent of the total costs; in the fees from the participants and to look, if needed, fact, in most cases we pay nothing. The reason is that for sponsors and other partners. as the first payments are due, our partners usually As soon as the partners need to pay invoices for the already have proceeds from participants to cover such event, and as long as there are not enough proceeds costs, and therefore the conditions mentioned in the yet from the participants, they submit them to us and agreement are not fulfilled. However, stipulating in the agreement that we would cover costs if needed is important because it reassures our partners. We want to convince our partners to enter new businesses, so we need to give them incentives. Note: Please take into account the fact that, should the forecasted costs be higher than $5,000, you will need to ask your partner to register as a vendor through the World Bank system so that you can pay him, should you need to. This is just a formality, but failing to do so in advance can make you lose time and cause your partner to become frustrated. An event organized based on the sustainable business approach. Lessons from IFC’s Corporate Governance Experience 35 Event Costs vs. Income: A hypothetical example 6000 5000 4000 3000 2000 Costs 1000 Income 0 Result -1000 n om ls t t ts rs ts en en tio ia ke ke os ro er Ev ym rc ra tic ea at g pe he pa sp e in m in oo ot nt ng om g irl tin tc Re ll yi A ro A Pa ar in ll St Pr 4) What happens at the end of the event, or if Fu when they received an invoice for payment from an the event does not take place? international organization. Should this be an issue, our suggestion is that you simply remove the share of If the event is canceled for any reason outside the 25 percent of profit in favor of IFC. control of our partners, we calculate the net loss and reimburse them 75 percent of that amount. In For the sake of good relations and to avoid most of the foreseeable cases, cancellations will occur misunderstandings, it is important to explain to the before the event takes place, which means that not partners that “net” (be it a loss or a profit) means that all planned costs are due: for instance, if a conference we take into account what each party pays in advance is canceled, the speakers will not receive their full and gets reimbursed from it, before calculating the fees but at worst only a fraction of them. Therefore, net portion. This is an area in which we had several in this case, losses are limited and fully manageable. misunderstandings at the beginning, and therefore The same process is followed if there are not enough special emphasis is required here. proceeds from the event, namely if there is a loss. 5) How does it work in practice? If the event is profitable, we then calculate the net See chart above for a hypothetical example showing profit and share it in reverse—namely, we get 25 how the system works: percent and our partner keeps 75 percent. In this case, we send our partner an invoice with the amount According to the hypothetical example in the chart, corresponding to our share of 25 percent of the IFC pays the bills only as long as the income is not profit. This may be the area in which we faced the higher than the costs (to be compensated later in case most problems as our partners would tell us that no the event is successful). In this example, IFC would matter how well they understood and appreciated the have to cover the airline tickets, but the purchase of model, it was always a psychological matter for them the printing materials can already be done by the 36 IFC Advisory Services in Sustainable Business partner, as all the participant fees have been received. When a Macedonian financial weekly magazine, At the end, our example shows a profit of €1,000 Kapital, was interested in entering the field of ($1,313), which is reached after all costs (including organizing business conferences, we jointly organized previous payments from IFC) are paid. Thus, we will a conference on corporate governance. We wanted receive €250 (or 25 percent of the profit), and our to keep the participation fees below €200 ($263), partner will keep the remaining €750. but that was not enough to cover all expenses. Thus, we urged the partner to look for other sources of We used this model 10 times in four countries and with income, and the magazine quickly managed to sell more than six partners. From our events, we had losses paid ads to several sponsors. The event gathered more only twice due to a miscalculation of the demand. than 200 participants and media, and, in the end, Even with losses, the same partners are still working we received €1,000 ($1,313) as part of our financial with us to explore the market further and to continue profit. Included in the activity was the publication what we initiated. In all other cases, our events were and delivery of a special magazine dedicated to the profitable. Here are some examples: conference. Two years ago, we initiated a course on corporate Conclusion governance with the University of Belgrade. Students were asked to pay €800 ($1,050) the first year and This approach really works as a trigger and safety net €1,200 ($1,576) the second year. Costs to set up the in which our partners feel more confident to test new course were estimated at roughly €10,000 ($13,140). business opportunities. Most important, this model The first year, the university had 35 students and 45 has allowed us to ensure sustainability of our events. in the second year. Not surprisingly, the university In most of the cases so far, our partners continue even will launch the course for a third year, and this time it without our support and even broaden the scope of will be done without our support. their activities to new topics. We helped the Serbian Association of Managers launch a training series for its members on several topics associated with corporate governance. Through About the Author the sustainable business approach, we could convince Juan Carlos Fernandez Zara, Regional Program Manager for the Corporate Governance Program in Southern Europe, them that they needed to develop capacity in-house, was with Ernst & Young, Switzerland, prior to joining IFC. rather than hire expensive consultants. Together, we delivered four events spread over eight months, and Approving Manager Philip Condon, Head, IFC Advisory Services in Southern in each of them we managed to get around €1,000 Europe ($1,313) of profit for a four-hour conference, the costs of which were approximately €4,000 each ($5,252). October 2008 The association now continues this exercise in other fields without asking for our support. Lessons from IFC’s Corporate Governance Experience 37 Money Can’t Buy You Love…But It Can Buy You Our Services: Experiences in Charging for Corporate Governance The policy that came out in early 2007—to charge for some advisory services—has created a bit of controversy. But, we may be able to shed some light on the issue, since a few of IFC’s corporate governance projects in Ukraine and Russia have been charging clients for services since 2004. Background 1) Fees should be market-driven—not cost- IFC and one of its key donors launched the Ukraine driven. Setting a range of prices offers much- and Russia Banking Sector Corporate Governance needed flexibility. Projects in 2004 and 2005.6 Given that the banking Since corporate governance is still a new issue in sectors of these countries were relatively profitable the region, very few consulting firms, let alone and had a culture that was more open to paying for international or local organizations, were providing consulting services, they seemed ideal candidates for the same services as those planned by IFC’s projects. testing the concept of pricing for advisory services. Therefore, attracting clients to corporate governance The “public good” aspects of the project, such as products was a higher priority than recovering project working on the legislative framework, were free of costs. In determining the prices to charge for project charge, but additional assistance that benefited the services, the UBCGP and RBCGP considered fees banks directly were fee-based. The projects charged a being charged for comparable services, such as fee for services such as: audits and legal due diligence reviews, at reputable • The pilot bank program, in which participating consulting and law firms working in Russia and banks received a comprehensive assessment of Ukraine, and then set project fees close to these rates. their corporate governance, together with a series However, given that corporate governance was a of consultations and workshops over several newer topic, we made a small reduction. For training months to help them improve some of their events and seminars, the projects researched fees for corporate governance practices; similar events aimed at private companies, delivered by both international and local organizations. Project • Written consultations, including reviews of event prices were above those charged by local charters and bylaws; and nongovernmental organizations and slightly below • Certain high-level seminars. those of other international organizations. Lessons Learned The rationale: set fees high enough to be taken seriously for the given market, but low enough to The following lessons summarize what we have be affordable to most clients (see Table 1). Having learned so far. a range of fees offered the flexibility to set lower fees for smaller, regional banks with less-complex 38 IFC Advisory Services in Sustainable Business Table 1: Fees Charged By Projects Russia Banking Corporate Ukraine Banking Corporate Governance Project Governance Project Pilot Program $15,000 – $20,000 $30,000 – $40,000 Workshops $2,000 – $4,000 $2,000 – $4,000 Corporate Document Reviews (charter and bylaws) $2,000 – $15,000 $5,000 – $7,000 Public Seminars via IFC = free via IFC = free via local partner = via local partner = $100–$1,000 per person $100–$1,000 per person Total Fees Collected $250,000 $230,000 Project Budget $2.1 million $1.5 million structures (and often lower profitability) and higher the project to provide a thorough explanation of its fees for large banks with nationwide branch networks. services and of the pricing policy. It also helped set In practice, most of the clients readily accepted clear expectations for both parties from the outset. A the fees proposed, and very few negotiated them formal contract then solidified this understanding. down. Discussions focused more on deliverables and Both projects found that when clients were well- timelines. There was only one bank that one of the informed about the project and its pricing policies, projects was not able to agree with on fees and, as a they were generally open to paying for services, and result, was not accepted into the pilot program. there were very few problems in negotiating and 2) The sales pitch to clients needs to be more collecting fees. sophisticated for fee-based services than for services that are free. 3) The process of charging and collecting fees in an institution such as IFC is not always Public seminars were the key source of clients for easy, and it requires additional administrative the projects. Clients became pilot banks through resources. a process of self-selection. Once a client expressed interest in the pilot program, project staff considered You can name your price, but can you get the the bank’s commitment, financial position, and money? Charging for services not only required a reputation; this process included discussions with different type of advisory services contract, but also IFC’s financial markets investment team. If the necessitated a whole range of administrative support bank was identified as a good candidate, project to generate invoices, collect fees, and account for staff prepared a detailed presentation on the pilot revenues. Law firms and consulting companies program and met with the bank’s management to have entire departments devoted to billing, but the discuss it. This meeting afforded an opportunity for projects’ administrative and financial staff had to Lessons from IFC’s Corporate Governance Experience 39 add billing responsibilities to their other project 4) You have different clients in the project duties. New reports, forms, and procedures needed pipeline when you start charging fees. to be created, as well as a system for receiving funds In general, IFC found that more sophisticated through appropriate channels. The accounting staff companies and banks—primarily medium-to-large, was crucial in this work and became a vital part of the profitable banks—that understood the value of project team. corporate governance were willing to pay for project Charging fees was particularly troublesome for a workshops and participation in the pilot program. similar corporate governance project in Central Asia. Smaller banks attended seminars but showed limited All payments had to be made to IFC’s offices in Kyiv interest in the pilot program—possibly due to the or Moscow, because IFC does not have official status, fees, or perhaps because they felt they didn’t need and thus no separate bank account, in Kazakhstan. these services. Collecting fees for low-cost activities (below $500), In comparison to the other corporate governance such as seminars attended by many different projects that provided free services, the banking participants, was not worth the administrative burden projects found that not only did the type of to the projects. Therefore, the projects partnered client companies change, but the type of client with local nongovernmental organizations for such representative who participated in the seminars, activities and allowed them to retain the fees in workshops and consultations changed as well. exchange for handling the event logistics, registering Instead of company department heads and mid-level participants, and collecting fees. This arrangement managers, participants included CEOs, directors, and had the added benefit of building local capacity and top-level managers (see Table 2). encouraging these partners to conduct similar events on their own in the future. Table 2: Comparison Of Participation In Free Versus Fee-Based Services Providing Free Services Charging a Fee Types of companies Smaller companies Larger companies coming for services Not always profitable More profitable Need to explain value of CG Understand value of CG Often took things more slowly Implemented changes faster Did not always have Invested more resources in adequate resources the process Seminars/workshops Company department heads CEOs attended by higher Mid-level managers Directors proportion of Top-level managers Agreement between MoU with a general description MoUs with more detailed client and IFC of services to be provided outputs and deadlines set for each stage of the process 40 IFC Advisory Services in Sustainable Business 5) Client behavior and commitment improve when services come with a price tag. Preconditions For Charging Changes in the client pipeline were accompanied by changes in client behavior. Paying clients took • Awareness of the topic the advice more seriously, implemented changes faster, and often showed rapid success. These • Seeing value in such services successes created a powerful demonstration effect • Use of consultants in the market. Clients became more conscious of • Affordability of fees quality and more interested in establishing detailed descriptions of services and firm deadlines for specific project deliverables, such as document reviews and reports on their corporate governance practices. a market that is not quite ready risks getting few Some clients also requested a clause in their contract clients and taking a long time to develop a pipeline. ensuring that they could exit the contract mid-way if Even in more developed markets there may be clients they were dissatisfied with project services. Overall, that understand the value and show a high level of charging fees raised the level of client commitment commitment, but need to be subsidized in paying to the services. Many of the clients also allocated for these services. This is where a flexible approach, more resources to implementing better corporate including a price range, is key. governance, such as hiring corporate secretaries and electing (and remunerating) independent directors. 6) To charge or not to charge? That is the On the other hand, this does not mean that clients question—and it needs to be answered at the receiving services free of charge in other projects start of the project. were not sufficiently committed; a vast majority Whether to charge for corporate governance advice were dedicated to making corporate governance in a project largely depends on the level of awareness improvements. However, in many cases the paying of corporate governance in the country, and the clients implemented changes more quickly and more state of development of the market. If companies broadly. They also took the process more seriously. don’t even understand what corporate governance It’s possible that this was because banks are generally is, let alone what benefits it will bring, charging for more sophisticated and more determined to succeed project services at the outset will be risky. Companies with the programs they undertake. Another likely will be unwilling to pay for something they don’t factor was the increased interest of international comprehend. They need to be educated about investors in the financial sector at the time. But corporate governance first, and see a few companies maybe paying does influence behavior. benefit from making such changes, before the concept will gain acceptance. Corporate governance is a Note: Because of these changes in the pipeline, IFC cultural change that takes time. should be careful that the desire to include a pricing component doesn’t obscure the greater project goal Furthermore, in weaker economies with less- and prevent clients that can’t afford the services from developed markets and struggling companies, benefiting from the project. Looking back at projects affordability of such services will likely be an issue. that offered free services, we see a number of successes If the market is somewhat more advanced and the with clients that would not have paid for services at project is focused on increasing capacity and building the outset; had free services not been offered, these demand, charging may be just the right strategy. projects might not have had the broad reach and When companies understand that getting advice on impact that they did. A project that charges fees in and making improvements to corporate governance Lessons from IFC’s Corporate Governance Experience 41 Determining fee structure for corporate governance events such as this seminar is dependent on a number of variables. could lead to investment, they are often more willing still too early to think about fees. In such countries, to pay for such services. It is also helpful to determine public education is an important component of whether there already is a culture of using consultants, advisory work—through public seminars, publishing and whether similar services are offered on the articles and handbooks, disseminating information market. (See box for a summary of preconditions for about international best practices and their benefits, charging.) and working with journalists to educate them about corporate governance so that they can report on the In this region, IFC felt that Russia, Ukraine and topic knowledgably. Kazakhstan were markets where charging could work. In other countries, such as Georgia and Azerbaijan, It is important that the pricing decision be made at financial institutions might be willing to pay for these the start of the project. If the project starts charging services, but the corporate sector is probably not ready mid-way, without a clear and distinct separate phase yet. In Tajikistan and the Kyrgyz Republic, where of project work, there is a risk of confusing and losing IFC is still raising awareness on a very new topic, it is clients. 42 IFC Advisory Services in Sustainable Business Conclusion key motivators for companies and banks to improve Ultimately, the experiment in charging for corporate their corporate governance was seeing the example of governance advisory services was a success. The their peers. Therefore, we hope that more banks and RBCGP collected $250,000 in fees and the UBCGP companies will follow suit and improve their own $230,000. In both cases, all fees that were contracted corporate governance. were collected within a reasonable period of time. In 2007, the Russia and Ukraine banking corporate Furthermore, the improvements made by clients, governance project teams received IFC’s Corporate coupled with increased interest in these financial Award for their work. sectors by international investors, yielded strong results. Many of the pilot banks were able to use the fact that they made corporate governance About the Authors improvements to attract significant investments. Motria Onyschuk-Morozov, Senior Operations Manager for IFC’s corporate governance advisory projects in Central and Together, the two banking projects enabled over Eastern Europe and in Central Asia. $2 billion of investment, where clients identified Patricia Maruschak, Associate Operations Officer for corpo- corporate governance improvements as influencing rate governance advisory projects in the region and other their ability to obtain financing. advisory services in Ukraine. More importantly, we believe that these successes Approving Manager had a strong demonstration effect on the market. Tania Lozansky, General Manager, IFC Advisory Services in Europe and Central Asia In recent surveys on corporate governance practices December 2007 in Russia and Ukraine, IFC learned that one of the Lessons from IFC’s Corporate Governance Experience 43 Working with Companies and Banks It is quite logical: in countries with a small private sector, the greater the need for this direct work. sector, and little-to-no foreign direct investment, Our experiences show that this work builds on a corporate governance advisory services project itself, as more companies experience, first-hand, will focus more on other areas, such as building the benefits of improved corporate governance: a regulatory framework. Increasingly, though, in our surveys of companies in emerging markets, developing countries around the globe are client companies and non-clients alike often cite prioritizing the expansion of their private sector the corporate governance improvements of their as a way to promote sustainable growth. competitors as the strongest driver of their own efforts to improve their practices. Along with the expansion of the private sector comes the need for a stronger corporate The SmartLessons in this section share what governance project focus on companies and we have learned from our direct work with banks. And the more developed the private companies and banks. Lessons from IFC’s Corporate Governance Experience 45 Making the Business Case: Direct Engagement with Companies and Banks to Improve their Governance Practices Good corporate governance practices can keep companies out of trouble, help attract investment, ease access to cheaper capital, and outperform their competition. But companies, particularly in emerging markets, may be resistant to making needed changes. After encountering such resistance, IFC’s corporate governance advisory services teams identified an approach that addresses the resistance head-on and includes public seminars, private consultations, and a pilot program, so companies can experience for themselves the tangible performance improvements that come with better governance. Quantitative and anecdotal evidence alike indicate that well-governed companies receive higher market valuations. For companies in emerging markets, good governance is particularly important: improving corporate governance is likely to increase other capital flows and reduce the cost of capital—a key issue in emerging markets, where the perception of risk is higher. Improved governance structures and processes also help ensure quality decision making, encourage effective succession planning for senior management, and enhance the company’s long-term growth prospects, while giving companies opportunities to help manage risks and add value to clients. Background pronged, graduated approach to our work with companies and banks that includes public seminars, Many companies are unaware of the value of focusing private consultations and workshops, pilot programs, on corporate governance practices. With so many and corporate governance document review. critical priorities, why should companies spend time and resources on such seemingly minor details as how These activities have yielded some important lessons. many times shareholders meet during the year? Banks also may not make the connection between reduced Lessons Learned portfolio risk and investment in well-governed companies. 1) Use public seminars as a gateway to future engagement, and structure them to appeal to In our years of experience developing corporate busy top management. governance advisory services projects, we faced this Public seminars are often the first opportunity for challenge over and over again: how to demonstrate management and board members of companies to companies that there is a strong and compelling and banks to learn about corporate governance best business case for improved corporate governance. practices. Seminars typically last a half-to-full day To address these issues—and to get at the necessary and include a presentation by a speaker well-versed change of culture and mindset—we take a multi- in the topic, a broad selection of reference materials, 46 IFC Advisory Services in Sustainable Business and—occasionally—breakout sessions for more the seminar, because they are the decision makers and detailed discussions or case studies. In seminars we have can set the process in motion to start effecting change. conducted, we address a range of topics, including: But sometimes, these senior managers may not want to commit to a full day or half day away from the • Definition of corporate governance office. The key is to make these managers want to • Role of the supervisory board come. We found that this can be achieved in different • Board committee functions ways: by featuring well-known speakers, by providing an opportunity to network, and by arranging a • Annual shareholders’ meetings convenient time frame, among others. • Protection of minority shareholders’ rights In Russia, we altered our original format to create • Conflicts of interest condensed versions of seminars, delivered as a highly • Internal control systems successful series of breakfasts for CEOs. Breakfasts • Internal audit functions featured high-profile speakers, good food, an opportunity to network, and a brief time frame. This • Financial reporting, transparency, and information helped to attract time-stressed businesspeople. disclosure Still, management buy-in at seminars is not always Company executives who attend the seminars may use the sufficient to get to the next stage. Sometimes, we information to start making improvements in these areas found that certain company officers were assigned on their own. The seminars also encourage companies to to attend seminars. They acted as “scouts” for the follow up by requesting private consultations/workshops firm’s executive team and board, testing the content or applying for the pilot program. to determine its value. The real successes come when It is important that top managers commit to attending board members and company owners, along with the Benefits from improved Corporate governance (89% of clients and 76% of non-clients responding) Clearer roles Improved reputation Improved productivity or higher revenues Higher valuation Lower cost of capital None Clients Non-clients 0% 20% 40% 60% 80% Source: Joint IFC SECO External Evaluation of IFC Corporate Governance Projects in Russia, February 2010 Lessons from IFC’s Corporate Governance Experience 47 senior management team, commit to attending. Use a competitive process to choose participants in a comprehensive pilot program, basing selection on The value of the public seminars, consultations, and criteria such as: workshops extends beyond the information that can be shared with participants: they also provide the CG team • Level of company commitment to change with additional insight about potential participants in • Transparency pilot programs. • Willingness to disclose information 2) Be selective and choose pilot companies with • Business reputation care. • Financial condition and growth potential Given the amount of project resources that go into • Lack of resources to hire international working with pilot companies, careful selection of consultants appropriate companies is critical. Consider the extent of the effort involved: The inclusion of one or two high-profile, wealthier companies in a pilot can set a strong example for • Assessment of the client’s corporate governance other firms. practices: Work includes reviewing corporate docu- ments; minutes of shareholder and board meetings; We also note here that while enthusiasm from and financial statements; and interviewing board individual company executives is nice, full buy-in members, managers, and shareholders. from the entire management team is critical for pilot companies. It is easy to get drawn in by managers who • Preparation and presentation of corporate gov- show enthusiasm to participate as part of a pilot—or ernance assessment report: Work includes analysis as the scout sent by the management team to a public of current practices and detailed recommendations seminar. But given the intensive work required for for improvement prioritized by urgency and ease of a pilot firm, it is important to gain commitment implementation. from the board of directors and shareholders, not • Consultation with directors and managers: Work just from management. This will help ensure that the includes prioritizing areas of focus and developing recommended changes will occur at all levels, and that an improvement plan. new procedures, often outlined in company bylaws, • Assistance with implementation of priority will be adopted by these key groups. If you cannot get improvements: Work includes consultations, this full commitment, it might be a good idea to pass workshops and orientation sessions for boards of on this company’s participation in the pilot. directors, help in revising corporate documents, help in organizing shareholder meetings, advising 3) Take a practical, business-oriented on effective corporate structures and meetings, approach to improvements, because developing the role of corporate secretary, providing compliance-driven approaches may not work. assistance in improving financial reporting and Since many developing countries lack extensive information disclosure, and improving internal corporate governance regulations, companies control systems and internal audit functions. operating in these markets may not be compelled The goal of such in-depth direct assistance is to to make changes because of compliance-related demonstrate short-term and longer-term benefits, such issues—there’s not much with which to comply. So, as the ability to attract investment, streamline decision suggesting solutions that are strictly compliance- making, reduce corporate conflicts, and increase driven or that focus on adoption of international best efficiency. practices may not be met with much enthusiasm. In 48 IFC Advisory Services in Sustainable Business fact, taking this approach could lead companies to Private Consultations and become less invested in the process—companies often Workshops: Building on the view such approaches as overly cumbersome and Generalities of a Public Seminar expensive, with little value. On the other hand, evidence from studies of our Enterprises that either attend seminars or hear about IFC’s CG advisory services work may be Ukraine and Russia corporate governance projects interested in more specific information relating to shows that pointing to best-practice examples of issues that affect their particular company. Detailed companies that have improved their governance consultations might include: practices—and the positive bottom line impacts that • Document reviews by project specialists of resulted—are a powerful motivating factor for other charter and bylaws to assess compliance with companies. For instance, of the 69 client companies local laws and recommend improvements to participating in the Ukraine Corporate Development align with international best practices and go Project that responded to our survey, 77 percent beyond what is required in the local legislation. cited the experiences of other companies as a prime In many cases, this work involves recommending motivating factor for their own corporate governance additional by-laws for the company to cover issues not addressed by the current corporate improvement efforts. documents. Reviews also might include work on a company-level corporate governance code. It is 4) Create a “pull” in addition to the “push” by usually possible to charge a fee for drafting such encouraging banks and investors to consider documents. corporate governance in evaluating risks of • In-house workshops for boards of directors or potential investments. management boards, lasting from a few hours to a full day. Topics are often similar to the issues Urging or pushing companies or banks to improve covered in seminars, but include analysis of and governance for its own sake is one thing; creating reference to specific issues, policies, and proce- an incentive for better governance can pull more dures of the company in question. companies into the process. Better-governed • One-on-one discussions on specific problems companies are less risky, meaning that investment in and topics of corporate governance. such firms reduces the bank’s or investment fund’s These consulting services are typically provided portfolio risk—and enhances these firms’ ability to free of charge in new markets. However, in more attract new investment. In fact, there’s a growing body developed markets it is often possible to charge of evidence to suggest that companies can lower their for more in-depth written consultations, document cost of capital by demonstrating corporate governance reviews, and workshops. A reasonable number of improvements. verbal consultations are usually free of charge, due to the administrative burden involved in charging Encouraging financial institutions to consider fees for small amounts. corporate governance when evaluating the creditworthiness of companies seeking financing is a way to create an incentive to pull companies forward into making improvements. The good news in this regard is that IFC itself, as a financial institution, is taking the lead here: we are now requiring that new investments be analyzed for corporate governance risks before making an investment decision. Lessons from IFC’s Corporate Governance Experience 49 bank credit officers and investment officers so they Most Influential Factors can evaluate the corporate governance performance of for Corporate Governance companies in which they are considering investments. Improvements in Russia, 2010 The tools can be customized for the specific needs of the bank or investment fund, and depending on 1. Example set by other companies and banks the type of investment—equity or debt. They are the 2. Activity of IFC Corporate Governance Project same tools that are being rolled out within IFC for 3. Government regulations use by investment teams as they assess the corporate governance risks of new investments. 4. Strategic investor actions 5. Activity of consulting firms Conclusion 6. Activity of other donor-sponsored projects As IFC mainstreams corporate governance Source: Joint IFC-SECO External Evaluation of IFC Corporate Governance considerations into its own investment operations, Projects in Russia, February 2010. we will have a first-hand way to understand the associated successes and challenges. Our own experience with our own client companies, coupled The new policy comes on the heels of a directive issued with our experience working with other client by the IFC Management Team last spring integrating companies and banks, will help us to refine our corporate governance into all aspects of IFC’s business. approach even more. As of September 30, 2010, all larger and potentially riskier new IFC investments must be analyzed for About the Author corporate governance risks and opportunities as part of Roman Zyla, Corporate Governance Officer and Global Prod- uct Specialist for corporate governance, joined IFC in 2002 the due-diligence process. The requirement will apply as manager for the Ukraine Corporate Development Project, to all investments starting July 2011. based in Kyiv, Ukraine. The author gratefully acknowledges the contribution of We know from our own experience that it can take Motria Onyschuk-Morozov in the preparation of this Smart- bank officers a considerable amount of time to Lesson. evaluate the corporate governance practices of their clients. If the process is too long and burdensome, Approving Manager Darrin Hartzler, Manager, Business Advisory Services banks may skip the process altogether. Because of October 2010 this, we developed easy-to-use assessment tools for 50 IFC Advisory Services in Sustainable Business A Thousand Cups of Tea: Strengthening Risk Management and Governance at SandBank* SandBank is dealing with more than its share of challenges—and taking on some new ones. Not only must the bank cope with the global financial crisis, but it must also operate in a highly volatile political environment. On top of this, SandBank has been transitioning through an unexpected change in leadership at the chairman/chief executive officer level. Yet while the rest of the global financial sector experienced sharp profit declines, SandBank recorded remarkable growth of 15 percent. But this was not good enough for Chairman and CEO Mr. H. Habib, who recently took the reins of SandBank; he wanted to take risk management to another level—to assess his bank’s risk management and governance practices against international standards. Background Following are a few lessons, touching first on our IFC SandBank is the largest non-foreign bank in the team preparation and then on the actual client work. country (many of the banks operating there are from neighboring countries), accounting for nearly 20 Lessons Learned percent of all credit facilities and about 15 percent of 1) Put the right people in the right place at all deposits in the country. The bank has experienced the right time: don’t let internal organizational sharp growth in the past 18 months, with both structures and/or limitations drive the solution. assets and deposits growing more than 20 percent. When building a tailor-made value proposition It currently operates the largest network of branches for the client, draw upon all the expertise in the country and employs nearly 800 staff. Because available within IFC. of SandBank’s extensive network and strategic importance as a “local” catalyst to outlying territories, Mr. Habib, who spent many years working for two IFC made a 5 percent equity investment in the bank major global banks prior to joining SandBank, in 2008. understood that effective risk management permeates the entire enterprise. That’s why he wanted a top- Looking forward, SandBank is expecting continued to-bottom review of the bank, from board functions growth, introduction of new product lines and down to specific branch procedures. possible expansion into other markets. It is because of this anticipated growth that Mr. Habib wanted A diverse team was assembled to respond to the to be sure his bank’s current risk-management and client’s needs. The team, led by the banking advisory governance infrastructure could keep up with the program in the Access to Finance pillar, also included bank’s ambitions. In May 2009, SandBank engaged a corporate governance specialist from the Corporate IFC Advisory Services in the Middle East and North Advice pillar. The combination of the two disciplines Africa to assist. was critical to building the value proposition for *NOTE: The name of the client and the country of operation have been altered to retain client confidentiality. Lessons from IFC’s Corporate Governance Experience 51 SandBank. The team was able to use tools and assessing operational risk and control areas, such as methods from both practices, making its approach to audit, compliance, internal control, human resources, assessing SandBank more comprehensive. and information technology. The team then defined documentation needed from the client (such as 2) By putting the right people in the right annual reports, financial statements, various policies place at the right time and not letting internal and procedures) and the list of interviewees. The silos get in the way, a couple of related lessons interviewees list was extensive, covering a majority of emerged. board members, numerous management staff, branch First, spend ample time upfront determining how staff, and external parties (for example, external best to create a combined approach from different auditor, bank regulator). Planning the schedule of methodologies, and then divide responsibilities interviews was critical—especially since many of the among team members. Prior to the site visit, the key staff still sit in the outlying areas of the country team met to do just that (see diagram). Broadly, and were available only via video conference. This Banking Advisory went into depth on SandBank’s upfront planning helped orchestrate the site visit core banking and risk-management operations, such and ensure that the team could cover all areas of as credit risk, market risk, and treasury management. the combined approach relatively smoothly and Corporate Governance focused on board issues and efficiently. other key governance practices, such as information Second, as important as it is to clearly divide disclosure, shareholder relations, and family responsibilities upfront, it is equally important to governance. The whole team collaborated on defining collaborate on client interviews whenever possible. a new risk-management organizational structure and Access to finance and corporate advice: A combined approach Credit Risk Management Banking Advisory (A2F Pillar) Market Risk Management Treasury Management Operational Risk Management & Control Environment Combined Risk Management Organization Structure Board Functioning Corporate Governance (CG Pillar) Disclosure, Shareholder Relations, & Family Governance 52 IFC Advisory Services in Sustainable Business For example, CG took the lead in interviewing board at understanding the current processes but also at members, and BA led the detailed risk-management anticipating future requirements. discussions with various management-level staff. For example: However, most of the meetings included both BA and CG, which brought a variety of perspectives • Given the strategic direction of the bank, includ- to the discussions and allowed team members ing possible expansion beyond the country’s to understand the complete risk-management border, does the board have the right structure framework throughout the bank. For example, CG and skill sets to guide the organization? could understand the detailed risk-management • Given the likely volume increase of credit facili- processes that ultimately feed into the information ties (the loan-to-deposit ratio today is only about provided to the board, and BA could appreciate 30 percent), are the credit processes properly the board’s points of view on management-level designed and controlled? processes in the organization. Having this holistic • Given the development of new products, are the picture helped the team formulate an integrated set of front and back offices prepared to support these recommendations, from the board level down to the new types of transactions? individual-unit level. • Given the continued expansion of branches, 3) What works today may not work is the bank adequately prepared to address the tomorrow: assess the effectiveness of challenging HR needs? current processes, and build on them where These and many other such questions helped the IFC possible—but, more important, anticipate team identify a number of improvement opportunities. the client’s future requirements as you draft Altogether, 42 recommendations emerged, including recommendations. 22 with high priority. The recommendations were To its credit, SandBank had already made strides first presented to the senior management team in improving its risk-management activities. For during a four-hour work session and then to the full example, in the area of operational risk, SandBank board of directors. In general, SandBank received the had recently shifted most of its key operating systems recommendations well and intends to move forward from a part of the country where the bank originated aggressively. However, given the breadth and depth to the business capital as a way of improving business of the recommendations, the biggest challenge for continuity and avoiding political unrest. And even the bank was to determine which changes to pursue though many of its key managers still sit in the first. The IFC team assigned priorities (high, medium, outlying regions, the bank has not missed a single day low) to each recommendation to help SandBank of operation this year. develop a roadmap for the improvements. Based on this roadmap, SandBank has begun its journey toward However, the purpose of this project was not only stronger risk-management and governance processes to assess the current effectiveness of a particular that will support the bank’s future expansion. practice but also, more importantly, to consider what will be needed in the future. So, even though many 4) A thousand cups of tea: help the client of the bank’s current practices may be sufficient for develop formal processes to handle future today’s business context, they might not be adequate volume—but also retain some elements of the to support the bank’s increasing volume, evolving personal culture that has brought the client products, and ambitions for expansion. Therefore, this far. the IFC team’s line of questioning aimed not only Credit risk management was one of the key focus Lessons from IFC’s Corporate Governance Experience 53 areas for the assessment. The team evaluated portfolio grows in size and complexity. It should be SandBank’s entire credit cycle—from loan origination complemented with more formal and routine credit- to loan payoff. During the credit-cycle assessment, review processes, used consistently across the bank. Middle East and North Africa A2F leader Jim For example, the IFC team recommended a Gohary asked a SandBank branch manager how structured credit-review process with clear procedures he assessed a client’s creditworthiness. The branch on activities such as credit underwriting, collateral manager responded that he sits down with each client review, credit scoring, and credit pricing. Credit and has a cup of tea, and this informal, personal scoring (rating a client’s risk according to a defined discussion gives him good insight into the client’s methodology and specific criteria) will enable background and creditworthiness. Jim acknowledged SandBank to take a more risk-based approach to that this kind of insight is indeed valuable, and it is credit risk management by focusing more attention in the spirit of “know your client” risk-management on, and exerting more control over, loans rated as principles. But what happens, Jim asked, when 1) having higher risk. In addition, this approach will SandBank expands its loan volume, as it is expecting help SandBank better understand its total capital to do; and 2) SandBank strives for more proactive at risk across the entire portfolio, and ensure that credit monitoring, whereby creditworthiness is it is in line with the bank’s overall risk appetite. reviewed on an ongoing basis throughout the term of The IFC team also recommended a more robust the loan—not just once at origination? Suddenly, a portfolio-monitoring process, to ensure that credit single cup of tea grows into a thousand cups of tea. risk is monitored routinely and reported to senior The informal approach alone is not sustainable as the management and the board in an aggregated format. Highlights of Key Recommendations • Establish two new board committees for risk ing system and capital allocation techniques. management and HR/nominations to complement • Establish an Asset Liability Committee to help the existing Audit and Investment Committees. plan and manage assets and liabilities in a coordi- • Strengthen board composition by seeking two nated fashion (for example, term matching). or three outside directors with backgrounds in • Strengthen investment operations by introducing finance/accounting, risk management, and regional a formal investment strategy to manage the bank’s banking. significant liquidity (loan-to-deposit ratio is less • Elevate risk management in the organization by than 40 percent). creating a chief risk officer position that reports • Institute a risk-based approach for internal audit directly to the CEO and interacts regularly with the to ensure that all types of risk (not just credit) board Risk Management Committee. are addressed and that audits are focused on the • Reorganize the bank so that all risk management high-risk areas. operations come under the CRO to achieve • Strengthen the HR function to go beyond transac- coordinated, enterprise-wide improvement in the tion processing and become more of a strategic management of all types of risk. partner to the CEO to help manage the bank’s • Formalize the bank’s credit risk management evolution. processes, including development of a credit scor- 54 IFC Advisory Services in Sustainable Business The Credit cycle—a key area of Conclusion focus for the project The IFC team is now helping SandBank implement many of these recommendations. This process will take considerable time, given the enterprise-wide Step 1 scope of the effort. Many of the board-level changes Origination & will be implemented in the near term, while many of Processing Step 7 the operational changes (for example, restructuring Step 2 Payoff or the credit risk functions) will take several months Collateral & Enforcing Collateral Guarantee to become fully effective. However, the tools and lessons from this project have immediate relevance for other MENA advisory projects aimed at helping Step 6 banks improve their risk management and governance Regular & Step 3 Special Underwriting processes. For example, a similar effort is taking place Servicing for a bank in Yemen and there is a possibility of one in Afghanistan. Step 5 Step 4 A thousand cups of tea came to symbolize a transition Loan Loan Supervision Approval process common to many banks in the region—an ambitious bank moving into its next generation of operation, while at the same time trying to preserve its founding roots. A transition that, once achieved at SandBank, will undoubtedly make Mr. Habib’s cup of tea taste a bit sweeter. Yet, at the same time, the IFC team encouraged the bank to retain the cup of tea approach in the branches, to be sure that loan officers are dedicated to About the Authors Jim Gohary, Principal Operations Officer responsible for the particular clients on a personal level. This practice will Access to Finance Pillar in the Middle East and North Africa help SandBank maintain its high level of customer region, joined IFC in the summer of 2008, having previously service and strong foothold in local communities. worked at GE Capital, Royal Bank of Canada and USAID. It will also enhance the bank’s management of Chris Razook, Senior Operations Officer for the IFC MENA Corporate Governance Program, has been with IFC since credit risk by enabling loan officers to stay abreast early 2008 and with the World Bank Group since 2006. Prior of client developments and to anticipate events to 2006, Chris worked in the private sector for Pricewater- before they occur. SandBank fully endorsed these houseCoopers and IBM. recommendations and many others like them Approving Manager that were aimed at adding structure to the rapidly Jesper Kjaer, Senior Manager, IFC Advisory Services in MENA growing bank without losing that personal touch and September 2009 community outreach. Lessons from IFC’s Corporate Governance Experience 55 Making Glocalization Work at IFC After joining IFC in the Middle East and North Africa corporate governance program last year, I have experienced glocalization in its truest essence. Wikipedia describes the phenomenon of glocalization as “the individual, group, division, unit, organization, and community which is willing and able to think globally and act locally.” At IFC, we have all the right ingredients to do just that. As a global organization with 181 member countries, IFC has field offices in 81 countries and professionals from more than 126 different countries. Different projects, programs, and departments are ideally positioned to optimize the resources and opportunities provided by IFC’s global organizational structure and culture. A few interdepartmental and interproject initiatives have successfully tapped these resources and created immense synergies. This SmartLesson discusses one such example and explains how the Pakistan Corporate Governance Project has attempted to make glocalization work. Background the corporate governance program. The first was a As a part of the MENA Corporate Governance workshop for MFIs based in Morocco and Tunisia Program, the PCGP is one of the few country-specific that were undergoing or contemplating undergoing corporate governance projects. Since the project’s a transformation process whereby they would change inception three years ago, the project team has focused from nongovernmental organizations to regulated on introducing corporate governance initiatives to deposit-taking institutions. The second event was the Pakistani corporate sector and engaging with local an orientation workshop on corporate governance regulators, academia, and civil society, with a focus on for directors of the largest MFI in Morocco. Both improving corporate governance in the country. For the events under this initiative were very successful, example, the Securities and Exchange Commission of with a satisfaction rate of more than 85 percent, even Pakistan introduced a Code of Corporate Governance though they were extremely challenging to arrange and in 2002. However, the commission was finding conduct. The main challenges came from having to it difficult to gain support of the stakeholders in consolidate and address the various expectations that accepting and practicing this code when the PCGP was came from multiple stakeholders, both within IFC and launched three years ago. Since then, the project team from external clients. How did we do it? How can such has engaged with various stakeholders in Pakistan to events be conducted even more smoothly? We learned introduce the business case for corporate governance the following lessons along the way. and has undergone a very steep learning curve in the process. The team is now confident about contributing Lessons Learned its experience and expertise to other corporate 1) What? Why? Where?—Managing the governance initiatives across the MENA region. expectations of all stakeholders is crucial to Last year, I was given the opportunity to help the success of a glocal event. coordinate two training events for microfinance When you are using organizational resources from institutions in the Maghreb region that were around the world and working with several teams interested in improving their corporate governance simultaneously, it is very easy for things to fall practices. This was a collaborative initiative between between the cracks and get lost in translation. The IFC’s regional microfinance investment team and stakeholders we worked with for the microfinance 56 IFC Advisory Services in Sustainable Business events were the MENA microfinance advisory teams based in Dubai and Cairo; the corporate governance program manager based in Cairo; IFC’s Rabat field office for logistical support; the corporate governance unit in Washington for French-speaking corporate governance experts; and the external clients for whom the training was being offered. Initially, there were some communication lags, which resulted in delays with decision making, as there was a lot of back and forth in terms of what was being said and done. However, we quickly realized that what was missing from our planning, thereby contributing to the lack of progress, was a clear knowledge of each Taking notes at the Directors’ Orientation Workshop. shareholder’s expectations of these events. Clarity often emerges after people simply articulate their problems. Once we understood the problem, it helped me learn the importance of communicating was easier to address the issues head on. The PCGP with my colleagues. team took the lead and came up with a draft of key issues that we thought should be addressed at these There is nothing more important than ensuring that training events. We shared the document with all you do not waste time in communicating. E-mails of our internal stakeholders, and this started the are great, but at times they can slow you down and sort of interaction and feedback cycle that brought you may not be able to get your point across in the the inherent expectations of each stakeholder to first instance. For such cases, where things need to the table. In addition, by communicating with our be discussed and deliberated, phone calls are a good microfinance colleagues, we found that because they solution; but, if possible, do videoconferencing. Being had previous working relationships with many of the able to see your counterpart as you discuss matters institutions we were targeting, they were able to help is invaluable. The nonverbal communication that is us gauge our clients’ expectations. lost in e-mails and phone calls helps in understanding what is being said much more easily and quickly. This 2) Huh? What are you saying?—Use is especially true for IFC. Because our colleagues are technology for effective communication. spread all over the world and in most cases English is Following the first lesson, we learned that not their first language, it is difficult to understand communicating effectively was the really important each other sometimes due to differences in accents, lesson from our experience in arranging the two cultural context or professional backgrounds. training sessions in Morocco. When the people involved in delivering an event are spread all around 3) Who is in the driver’s seat?—Depoliticize the globe in different time zones, communication decision making and exploit the collective becomes extremely challenging. As a key coordinator wisdom of the team. of the event, I remember asking my colleagues in When conducting events that entail using resources Washington to call me at 11 p.m. Pakistan time. from two or three different country offices and Taking the ownership of this event and a personal different departments, there may come a time when interest in ensuring its success kept me motivated no one knows which team is in the driver’s seat. enough to work beyond normal office hours and This may be because of differing objectives of each Lessons from IFC’s Corporate Governance Experience 57 team, unstated biases, or executive hubris. In our experience with organizing the training sessions, we learned that decision-making processes should exploit the collective wisdom of the entire organization and beyond. A day after the first event, the team got together for a breakfast meeting to analyze its performance and make course corrections. The effectiveness of this process depended on getting buy- in of the entire team in fine-tuning our strategy for the second event. The team had developed a strong chemistry in a very short time—opening up channels of communication leading to an uninterrupted flow of ideas and suggestions for ways to optimize our performance for the next event, the Directors’ Orientation Workshop. 4) Okay, now what?—Contingency planning is important, but being able to think on your feet is the key. Despite trying our best to anticipate and mold our training according to the clients’ needs, during the Lots of ideas after engaging with stakeholders... first half of the first day of training, we could easily sense that some in the audience had very specific corporate governance-related concerns; these participants did not want broad-brush training, but rather a more direct problem-solving session. While When people involved in it is difficult to resolve one client’s specific issues in a delivering an event are spread forum where there are a number of clients present, we improvised on our original design. During the second all around the globe in different half of the day, we created a small exercise where we time zones, communication asked representatives from the MFIs to write down five of their most pressing corporate governance becomes extremely challenging. problems. We then tried to find those issues that were common among all the participants and addressed those. The effect was twofold. First, it made the audience feel like they were being heard and that their issues were being addressed. Second, given the large number of common corporate governance problems each MFI had listed, the MFIs realized that their problems were not as unique or complex as they had initially perceived. 58 IFC Advisory Services in Sustainable Business You can only do so much contingency planning, into the global resources of the organization is but when it comes to responding to the audience, extremely interesting and rewarding but, at the same be prepared to think on your feet and improvise. time, challenging. The MENA corporate governance Gauging the audience’s reaction and tinkering with team is increasingly looking to work glocally. the event’s format accordingly, while the event is More and more of our events and new initiatives ongoing, needs some courage. If done correctly, combine staff from two or more countries or another however, the rewards are plentiful and lasting. department within IFC. The benefits are twofold: not only do you create synergies this way, but you also 5) So, how was it?—The importance of accomplish more with less. The combination of these timely follow-up. two factors makes glocalization a key success factor in It is easy to feel relaxed and euphoric once the wrap- doing things the IFC way. up session takes place and the audience leaves smiling and grateful for a day well spent. But we have to keep reminding ourselves that the job is not over yet. About the Author Given the nature of work we do at IFC, it’s extremely Mahwesh Bilal Khan has been working for the Pakistan crucial to keep the relationship with the clients alive. Corporate Governance Project as an Operations Analyst Timely “thank you for your participation” e-mails, since April 2008. Before joining IFC, she worked for the Securities and Exchange Commission of Pakistan as an follow-up on any further developments, and responses assistant director of the Project Management Unit, where to any queries that have arisen during the event are all her main responsibilities included overseeing corporate important to the ultimate success of any event. governance-related matters and reforms. Approving Manager Conclusion Martin Steindl, Operations Manager, Corporate Governance Program, IFC Advisory Services in the Middle East and North IFC provides us with a unique opportunity to create Africa immense synergies in our work by working across May 2009 borders, areas of specialization, and cultures. Tapping Lessons from IFC’s Corporate Governance Experience 59 Attracting Clients to Your Advisory Project: “It Is Better to Have 100 Friends Than 100 Dollars”7 If you need to sell your advisory project’s services to reluctant private-sector clients in a challenging local business environment, this SmartLesson is for you. It is based on our recent experience of persuading Kyrgyz joint-stock companies to improve their corporate governance practices. Background within the business environment of the Kyrgyz The IFC Central Asia Corporate Governance Project Republic. The companies were reluctant to share in the Kyrgyz Republic launched its client activities their current corporate governance practices and in March 2008. The overall project objective is to documents with the project experts. Most of them improve corporate governance practices of local expressed real skepticism about the project’s ability joint stock companies and banks to increase their to render meaningful assistance, and they didn’t hide ability to attract investments. Providing companies their feelings. with training seminars and direct consultations on Indeed, the first thing we heard from these companies corporate governance issues are key project outputs. was: “There is no such thing as a free lunch.” Companies showing dedication to corporate Numerous donors have technical assistance programs governance reform through such cooperation may in the Kyrgyz Republic, but not all of them have been then be selected by the project to be “corporate found to be credible in the local business community. governance pilot companies.” Through the pilot For this reason, people did not believe that free program, the project performs a comprehensive advisory services could be efficient and usually corporate governance assessment of a limited number suspected ulterior motives. Although most of the of companies and provides detailed assistance to companies were very much interested in investments improve the companies’ governance, so that they can and/or grants, they simply didn’t see any benefit from serve as an example to the local business community. our advisory services. After holding several public seminars and advertising Because of the project’s limited resources, we couldn’t in local newspapers, we expected a burst of calls from meet with all the companies we wanted to cover. companies hungry for our consultations. Instead, we That’s not surprising, as there are more than 900 joint received only four requests in the first two months. stock companies in the Kyrgyz Republic, and the Direct marketing seemed to be the only way out project had only two staff members. Therefore, we of this situation. We held numerous introductory needed to change our business development strategy. meetings with companies, hoping to convince them In doing so, we learned some vital lessons that that our advice wouldn’t be based only on theoretical might be useful for other projects faced with similar best practices, but also could be of practical use challenges. 60 IFC Advisory Services in Sustainable Business Lessons Learned increased the visibility and level of respect for our services among the companies we were targeting for Let Your Partners be Your Friends, or consultations. How to Make 100 Friends First, we needed to win some goodwill from the 1) Create win-win situations with government state regulator. Every organization, including state partners. bodies, has an official action plan. As a rule, it has to Because one of the project’s objectives is to reform the go through different bureaucratic procedures to be regulatory environment in the country, we wanted amended. Compared to state bodies, IFC advisory to work with the state body authorized to supervise projects are able to modify their work plans more joint-stock companies and help develop the corporate easily and adjust them to different situations. Because governance framework. Our key partner from the we also have access to unique methodologies and government side was the state regulator, Service of experiences accumulated by IFC all over the world, Financial Supervision of the Kyrgyz Republic. We we can advise our government partners on many learned that such cooperation has additional benefits. issues. We used this advantage to adjust our project design and help our partner implement its own action In a Central Asian culture like that of the Kyrgyz plan. For example, the state regulator experienced Republic, potential clients will take a project’s difficulties in raising public awareness on corporate assistance more seriously if key government officials governance issues and informing people about new or bodies show interest in the project’s goals. amendments to the Kyrgyz legislation on joint- Especially in regional cities, companies are used to stock companies in the regions. We organized joint running their businesses under the strict supervision seminars in the regions that allowed us to share the of state authorities. The private sector takes the costs and set aside 20 to 30 minutes in the agenda for initiatives of the financial regulator very seriously, these seminars to provide participants with specific so our partnership with the state regulator greatly state regulator information. We made sure that the Kyrgyz Republic Close cooperation with the state regulator enabled four regional seminars in Talas, Jalal Abad, Kara-Balta, and Tokmok. Lessons from IFC’s Corporate Governance Experience 61 apparently reluctant to directly access our project Web site, not realizing that it was provided in both English and Russian versions. We therefore arranged to have the project’s banner placed on the state regulator’s Web site, which made it possible for information about the project and its activities to reach a larger number of companies. Project experts also initiated a special section for corporate governance on the Web site that includes ongoing work on corporate governance development in the Kyrgyz Republic. 2) Make nongovernmental organizations A seminar for microfinance organizations on “The Best Practices of Building an Effective Board of Directors.” your friends. From the very beginning, our corporate governance project has maintained a friendly relationship with goals of our partner and the goals of the project relevant local nongovernmental organizations, in coincided on important core concepts. particular the International Business Council, the Association of Microfinance Institutions, and the We have since collaborated closely with the state Union of Kyrgyz Banks. They have been operating in regulator to improve corporate governance legislation the local market for a long time and have broad client through participation in working groups, to hold databases, good reputations, and efficient channels of seminars for joint-stock companies in the capital information dissemination. We invited them to the and in regional cities, and to raise public awareness project’s official launch event and held introductory of corporate governance issues. One of the most meetings with them in order to present the project successful events was a recent seminar on annual and discover potential areas of mutual cooperation. shareholders’ meeting procedures and annual report Since that time, we reserve places for them at our preparation. It was held in early February 2009, right seminars and roundtables and, at their request, hold before most joint-stock companies held their annual special seminars for their members. The Association shareholders’ meetings. The fact that the participants of Microfinance Institutions, for example, requested could raise issues that companies face, learn about special training for microfinance organizations on relevant international best practices, and get answers the best practices for building an effective board of on contentious questions directly from representatives directors. As a result, 14 people from 12 microfinance of the state regulator had a great impact. organizations had an opportunity to learn about Another win for IFC was lower project expenses, relevant corporate governance best practices. because the state regulator was responsible for In return, the NGOs have always been glad to provide organizing the seminars, including printing and our project with their informational resources. Take mailing invitations and renting the conference hall. NGOs seriously; there may be many NGOs in your Our cooperation with the state regulator extended country, but among them you can find one or two to the real world as well. We discovered that many of the most authoritative and reliable. Invite them to local company representatives did not know much your project launch and keep them informed about about IFC or, because of their lack of English, were upcoming events. 62 IFC Advisory Services in Sustainable Business Monthly Newsletter of Local NGO Dear IBC Members and partners: We are happy to send you our monthly Newsletter – February 2009! IBC sincerely hopes that you will find the enclosed newsletter informative and useful. Should you have any questions regarding information and/or events listed in the newsletter, please feel free to contact our office any time. In this issue: • Regulation “On the procedure of power supply to industrial entities and business structures of the Kyrgyz Republic”............................................... page 1 • Social partnership is on the way!.................................................................................... page 1 • Government reduces the number of inspection bodies by 30%..................................... page 2 • Taxes, taxes and taxes....................................................................................................... page 2 • Donors’ coordination group on business & investment climate..................................... page 2 • MGN Capital offers exclusive services ............................................................................ page 3 • IBC’s new members; Asiamotors LLC and J’son & Partners LLC........................................ page 3 • Free employee for every company.................................................................................. page 4 • Attn: “IFC’s corporate governance project is looking for joint-stock companies to participate in its pilot company program”............................. page 4 ..................................................................................................................... page 5 • IBC Calendar. 3) Employ your baseline survey company as After the survey company selected the companies your agent in communicating with to be interviewed, our project experts reviewed the potential clients. list and chose companies that we thought would One of the key initial activities of our project has been be particularly useful as project clients, based on its baseline survey, which is intended to provide insights their public visibility, size, and potential corporate into the level of corporate governance in the Kyrgyz governance issues. For each of these companies, the Republic, define the problems of current practices, and survey company scheduled a joint meeting. During assist with finding ways for improvement. According to these meetings, we had an opportunity to introduce the contract and terms of reference, the survey company the project and explain key corporate governance was obliged to interview no fewer than 100 joint-stock concepts and how they related to each company’s companies, including 12 financial banking institutions. governance. As a result, the companies understood It was a great opportunity for our project experts to better the purpose of the survey and began to trust meet with companies without having to spend time on the corporate governance expertise of project experts. logistical matters. This led to a large increase in consultations with these Lessons from IFC’s Corporate Governance Experience 63 companies and made the survey go much faster and its activities. It was not easy to provide people with more efficiently. information about the project because some of them are not computer-literate and many lack access to The survey company’s experts also agreed to hand the Internet and e-mail. Identifying these challenges out materials about the project to the companies not helped us decide whom to partner with for regional included in the list for joint meetings. Right after the seminars, as a strategically selected partner could help meetings, we received many calls from companies our project increase trust with regional companies requesting our consultations. Thus, the number of otherwise suspicious of outsiders. Once we began consultations during this time increased substantially. joint regional training sessions with the state regulator, Work closely with your survey company when they attendance at those events greatly increased. select companies to be interviewed. Let the survey company know that you are interested not only in Conclusion results but also in the process and problems the survey company faces during the survey. Establishing a good Why Having 100 Friends Is Better relationship with them will ease your work and reduce Than 100 Dollars disputes during the period of delivering a final report. Our new client development strategy and close cooperation with partners during 2008 and early Why 100 Dollars Will Not Work in a 2009 allowed us to increase the number of client Country Like the Kyrgyz Republic consultations to 150 and the number of participants at seminars and workshops from 50 to 267. Before 4) Keep in mind the local peculiarities and developing the new strategy, we had held an average national habits of the people in your country of eight consultations per month. However, after our of operation. various efforts, the number of consultations increased In developing countries, things are often not what to an average of 28 per month. Increased awareness of they seem, and one never knows what resources can the project’s activities among joint-stock companies be relied on. We remembered that while we were allowed us to attract new people to participate in the preparing for our regional seminars. The first example seminars and workshops. was an outdated government database of joint-stock companies. Although it was the official database from the state regulator, due to the financial and energy About the Authors crises facing the country, many companies had closed, Olga Koldasova, Legal Advisor for IFC’s Central Asia changed their telephone numbers, or refocused their ­ Corporate Governance Project, most recently worked as a legal advisor in the private sector. activities. To make a list of invitees to our corporate governance training, specialists from the state Yuliya Holodkova, banking and financial disclosure expert for IFC’s Central Asia Corporate Governance regulator and their local contacts helped us by striking Project, based in Bishkek, Kyrgyz Republic, worked as nonoperational companies off the list. chief inspector in the off-site division of the Banking ­Supervision Department of the National Bank of the As another example, in one region we put an ad Kyrgyz Republic prior to joining IFC. in the local newspapers for a seminar on corporate Approving Managers governance issues, but not many people showed Karl Bach, Project Manager, Central Asia Corporate up. The reason was simple: Only one in ten people ­ Governance Project, and Motria Onyschuk-Morozov, ­ Principal Operations Officer, IFC Advisory Services in outside Bishkek, the Kyrgyz Republic’s political and Europe and Central Asia commercial capital, know what corporate governance April 2009 is. Only a few of them have ever heard of IFC and 64 IFC Advisory Services in Sustainable Business Be Smart in Selecting Your Clients: The First Step May Define Your Whole Project To prepare an excellent meal, you start by choosing the best ingredients. Similarly, successful corporate governance projects need to select well-suited clients. The goal of IFC’s corporate governance projects is to improve the clients’ corporate governance practices, thereby helping them operate more effectively and allowing them easier access to capital. This SmartLesson provides lessons learned during the Pilot Program, one of the many activities undertaken by the Georgia Corporate Governance Project. As we worked to improve the corporate governance practices of Georgian companies and banks, we discovered—or rediscovered—the value of careful client selection. Background The main criteria for candidate selection are: As the name implies, the Pilot Program works with • The candidate should be committed to making select companies and banks to create a model of changes to improve its corporate governance best practices of corporate governance. During the practices. Pilot Program, the project team conducts a full-scale • To have a demonstration effect, the candidate corporate governance assessment of the client. This should have a good market image and reputation. in-depth assessment consists of a review of the client’s corporate documents, and numerous face-to-face • The ownership structure of the candidate should interviews with its supervisory and management not have significant state or foreign investment.8 boards and its personnel. The project delivers to the • The candidate should have a realistic develop- client an assessment report and recommendations, ment program for potential investment. and helps with the implementation of recommended Even though the pilot candidate should comply with improvements. The goal of the program is to replicate all four of these criteria, the first one has the most the best corporate governance standards, on a smaller important role in final success, because it requires scale, for one company in order to demonstrate its that the management, the supervisory boards, and the effects for other companies and for the public at large. large shareholders truly aspire to improve corporate Positive results for the pilot company, such as the governance at the company. attraction of investments, not only have significance for that company, but through a demonstration effect, 2) Commitment to improving corporate these results are important for the entire market as well. governance should come from the company itself—not from just one person in the Lessons Learned company, even if it’s the most key person. 1) Selection of the right candidate is critical The most common corporate governance problem to achieving good results in the Pilot in Georgia, as in many former Soviet countries, is Program─and making the pilot company a real the vertical (top-down) decision-making process, in model for other companies. —or even just one person— which only a few people­­­ Lessons from IFC’s Corporate Governance Experience 65 can make key decisions for the company. In the short term, dealing with this arrangement may be expedient, since you don’t need to negotiate with or persuade many different players on the advantages of good corporate governance, and one person can move the process forward faster. But in the longer term, this management style has a disadvantage, because it develops bureaucratic procedures and practices that can slow down the whole process and increase the risk of errors in decision making. In the case of the GCGP, one of our pilot candidates The candidates should commit to changes that will was a successful bank, well known by businesses improve their corporate governance practices. and the public, and one of the biggest employers in Georgia. It was the seventh-largest bank in Georgia by asset size and one of the leaders in the banking After completion of the selection procedure, and sector, as measured by the number of customers right before the Pilot Program was to begin, the CEO and its branch network. The bank also wanted to was elected to Parliament and had to resign from his attract foreign investment, and it understood the position at the bank. This turn of events has delayed the importance of good corporate governance to attract launch of the program because the other members of new investments. A successful pilot program might the management board, who were used to the situation have a strong demonstration effect and would help in which the former CEO made all the decisions, were increase the awareness of good corporate governance not able to decide on their own to move ahead with the in the sector and country. project. Given these circumstances, we could not go forward with this candidate at the time, and a year later However, the decision to participate in the Pilot we are still waiting for management to reorganize and Program, as with almost all decisions in that bank, show a stronger commitment to improving its corporate was made solely by the chief executive officer, governance. who was a corporate governance champion in the company. The chair of the supervisory board 3) Diversify the risk by working with several pilot agreed with this decision, but she did not know any candidates—not just one. details since she had a very passive role in the bank’s During the selection process for the pilot, it is operations. The concentration of decision-making important not to put all your eggs in one basket. For power in one person was so high that even minor instance, relying on just one specific contact within actions or decisions could not occur without the a company might be risky for the project. But it is CEO’s notice. For example, it was impossible for also risky for the pilot to rely on just one candidate our team to receive the necessary initial corporate company, as illustrated by our experience with the bank documentation from the bank, or to set up an that lost its CEO. Always work and negotiate in parallel interview schedule with members of the supervisory with different pilot candidate companies, to diversify and management boards and people in other key the risk of process interruption. positions without prior permission from the CEO. This concentration of decision-making authority in In our case, even before the CEO left, the concentration one person made it extremely difficult for our project of decision-making power within the bank was so high to begin the pilot program. that it harmed the project to some extent, because it 66 IFC Advisory Services in Sustainable Business caused us to spend much effort and time on a bank While working with pilot companies, it is important that did not become an active client. If the bank had to understand whether the specific corporate been the only pilot candidate for the project, the governance improvements needed also require negative impact would have been much higher. changes in corporate culture, and whether the company is ready for such changes. Sometimes Fortunately, the project also had worked and these changes involve very sensitive issues, and negotiated with another pilot candidate, providing the company may refuse to implement them. For consultations and workshops to both banks at example, formalization of some practices or a the same time. These interactions gave us more requirement to start documenting meeting results confidence in assessing both clients’ commitment to might be understood by someone in the company as improve their level of corporate governance. After the distrust. Also, the delegation of duties might imply a failure of one pilot candidate, we immediately used loss of power for some. our back-up plan and switched and intensified our work with the second pilot candidate. This way, we During the process of working with particular pilot minimized the time gap and smoothly moved on to candidates, the team should observe governance focus our attention on the other bank. styles, behaviors and corporate cultures. For instance, they should monitor attendance at the project 4) Be alert to indicators of pilot success or seminars, workshops and consultations, and pay failure─signs that the candidate is (or is not) attention to interactions within the company. committed to good corporate governance. An assessment team needs to be smart and understand Different companies have different cultures and styles the clues early on during the work with the pilot of governance and management. A manager’s or the candidate. Is the company ready for changes? If not, chairman’s behavior, attitudes, and values may say a lot the company will not be in a position to implement about the company’s corporate culture. Improvement in recommendations for improving corporate corporate governance practices to some extent implies governance, and continuing with that candidate will changes in corporate culture. Each company has its own not be a proper use of resources. corporate culture, and experience tells us that changing it is quite difficult. In some cases, it has taken years for Workshops and seminars provide opportunities for a corporate culture to develop; therefore, changing it is the assessment team to observe interactions within the very time- and resource-consuming. pilot candidate company. Experience gained through working with pilot candidates has taught us that there are definite links between corporate culture and the success or failure of a pilot program. The table lists some signs to look for when evaluating a candidate’s corporate culture. Disregarding these signs may have a negative impact on the final results of your pilot program. Conclusion Selection of candidates is the first step in a corporate governance project’s pilot program, and it may determine the success or failure of the entire project. So A seminar for microfinance organizations on “The Best Practices of Building an Effective Board of Directors.” be smart in selecting your clients! The most common corporate governance problem with companies in Lessons from IFC’s Corporate Governance Experience 67 Things to Look for in Evaluating a Pilot Candidate’s Corporate Culture Negative Signs Positive Signs Delays in providing information Information provided on time Difficulty setting up meetings Top management always ready to meet with top management with the project staff Unwillingness of the chairman and other The chairman and other members of members of the supervisory board to the supervisory board regularly attend seminars or workshops attend seminars or workshops Difficulties reaching and Direct communication with all communicating with the CEO members of top management Lower management not meeting with Free communication with you unless top management signs off on it lower management At meetings, participants asking At meetings, all participants feel free to CEO’s permission to ask questions ask questions, and feel free to disagree with top management Lower management trying to hide Lower management discuss problems they have in the company problems they have in the company and ways to solve them CEO’s personal secretary is afraid to contact him emerging markets is the top-down decision-making process, with a single individual responsible for all About the Author Mariam Manjgaladze joined IFC’s Georgia Corporate Gov- the key decisions—making the success of your pilot ernance Project as a banking and finance specialist in April program largely dependent on that one person. That 2007. She works with banks and companies to improve is why it is important to have a commitment from the corporate governance practices, and with the government in Georgia to address weaknesses in regulating corporate company itself, rather than being dependent on the governance. goodwill of just one person. Also, it is always better to diversify and work in parallel with two or more pilot Approving Managers Maia Tevzadze, Project Manager, Georgia Corporate Gover- candidate companies, so as to minimize the risk of nance Project, IFC Advisory Services in Europe and Central process interruption if one candidate falters. Finally, be Asia, and Motria Onyschuk-Morozov, Principal Operations alert to the corporate cultures, attitudes and values of Officer, IFC Advisory Services in Europe and Central Asia your pilot candidate companies, noting those positive April 2009 or negative signs that often can predict the success or failure of a pilot program. 68 IFC Advisory Services in Sustainable Business Risk Management: So Critical, Yet So Elusive Every good organization around the globe firmly espouses the benefits of sound risk management. Certainly, the recent financial crisis has underscored this imperative. Yet it is remarkable how elusive an effective risk management function can be for many organizations. This is definitely the case for many of the companies we have worked with as part of the corporate governance program in the Middle East and North Africa. This SmartLesson is based on our recent work with an investee company to help put in place a simple but effective enterprise risk management process. This work was part of a wider corporate governance improvement effort for the company. It also draws on experiences we’ve had with other companies and provides lessons for any organization trying to figure out how to actually make risk management work. Background Lessons Learned This particular client, a mid-size, private It should be noted that the client is still in the manufacturing sector company in the Middle East process of fully implementing the recommendations and North Africa region, still operated as a small, described below. This is to be expected, given the closely-held company. It had essentially outgrown enterprise-wide scope of the effort. Nevertheless, its current infrastructure, including many of its several immediate and important lessons can be management control functions. As with many drawn from this experience. companies of this nature, there was no formal risk management framework in place. The client noted 1) Focus on the process and keep it simple. that managers considered risks implicitly as part of The primary focus should be on the process. While their day-to-day operations and addressed issues it’s important to have a firm understanding of risk reactively as they occurred. It also mentioned that a management concepts, tools, and techniques, the risk assessment had been conducted in the past year key consideration should be: how does a company by an outside advisor and delivered in a written report actually put in place a working process for discussing to the company. The challenge for this client was to risk on an ongoing basis? For this client, we help design an effective risk management function considered the following: that had the following characteristics critical to its success: • What risk-related information is being collected? • Embedded throughout the organization, not • What is the flow of that information in the just at senior levels and not just in the financial organization? processes but also in project operations, where • What dialogue is the information supporting? much of the risk lies • How frequent is the dialogue? • Routine and used as a real management tool, not just as a check-the-box reporting exercise • Who in the organization is having the dialogue? • Promoting ongoing, timely dialogue regarding • What actions and decisions is the dialogue risks facing the organization informing? Lessons from IFC’s Corporate Governance Experience 69 These considerations helped shape the design of the we simply tied it to the client’s existing management risk management processes for this client. Another activities, such as biweekly executive committee lesson is to keep the process simple enough that meetings and ongoing unit-level status meetings (see managers use it and take it seriously—that is, make Box 2 for process highlights). it stick. This was especially important for this client, since it had previously tried different approaches, 2) Integrate risk management with other key none of which were sustained. Unnecessarily complex management control processes. processes can be counterproductive. For example, In the past, this client treated risk management as a we observed processes in other clients that require separate, periodic process conducted by particular managers to complete a long series of reports and individuals and an outside advisor. We illustrated forms that go into excruciating detail about their how risk management can be linked to other key risks and mitigation strategies. They require so much management functions to create a seamless, continual effort that managers do not use them as an effective process for controlling the organization (see Figure 1). management tool—rather, they are just a burdensome We highlighted the following: reporting exercise for senior management. We were careful to avoid that for this client. • Integration with business planning. Risks should be identified for all strategic initiatives Ultimately, the process we recommended for this client based on the company’s business plans (which, did not employ any new concepts. Rather, we distilled fortunately, were well-developed for this cli- common risk management concepts down to a simple ent) and, ultimately, made part of the plans form to create an easy-to-use process. One of the main themselves. tricks was to figure out how we could integrate the • Integration with performance monitoring. risk dialogue into the client’s existing planning and Risks and the mitigation actions should be performance-monitoring processes. So, rather than reported and monitored as part of the company’s create a completely separate risk management process, routine performance-monitoring processes, just as with other types of performance information Box 1: Risk Management—How the (such as financial performance, project perfor- Term Is Used mance). These reviews should be continual and Risk management means different things to should feed back into the planning cycle on an different companies. Some companies point to a ongoing basis. detailed risk assessment report, conducted annually, • Integration with internal control. Control as their form of risk management. Others point activities for the organization should be linked to dedicated risk management staff that focus on monitoring risks for the organization, sometimes to the specific risks identified. The same matrices using sophisticated risk models. Here, we are talking used to identify and assess risks can then be used about overall enterprise risk management, relating to identify the control activity (or mitigating to the processes in place throughout a company to action, depending on the nature of the risk), to continually assess potential risks and take actions ensure that the internal control framework is accordingly to help manage those risks and achieve risk-based. defined business objectives. The scope includes any type of risk—internal and external—facing the • Integration with internal audit. The internal company at all levels of the organization. This is audit function, which did not exist prior to the the bedrock of any company’s management control corporate governance review, should assess the environment and, hence, its corporate governance entire risk management and control framework framework. to ensure that it is working effectively. The 70 IFC Advisory Services in Sustainable Business not considered in a structured way. We suggested the Box 2: Highlights of the following to help improve the dialogue: Recommended Risk Management Process for the Client • Encourage transparency. The dialogue should encourage candid reporting by staff so as to • Given the defined strategic initiatives from the promote organizational transparency and useful company’s business plans, define the corresponding risks for each by considering: What can go wrong? management actions. • The risks should include all types of risks, both • Consider all types of risks. The dialogue should internal and external. not focus only on financial risk, as is common. It • For each risk, rate (on a scale of 1 to 10) the should consider all types of risk, both internal— likely impact and probability of each. Then use operational, financial—and external—market, the combined ratings to assign an overall priority political—that may inhibit achievement of the rating, for instance the higher the impact and company’s strategic objectives. probability, the higher the priority. • Challenge assumptions. Discussions should • Identify mitigation action(s) for each risk, and assign responsibility. This will depend on the risk challenge underlying assumptions, such as those appetite. For example, low-priority risks may not about the probability or impact of particular require much, if any, mitigation. risks. Every strategic initiative has a potential • Provide biweekly updates to the executive downside that needs to be discussed. committee alongside other performance reports. • Have measured responses. Not every risk The risks and mitigating actions are no different from other strategic initiatives that should be identified will require a corresponding mitigating constantly monitored. Consider a scorecard action. There is a cost and benefit to be consid- approach that assigns qualitative progress ered for each. The risk appetite should drive the indicators. appropriate mitigation strategies. • A risk matrix such as this should be completed • Be proactive. Do not let discussions focus solely for each business unit and also at the overall on reacting to recent issues; rather, push manag- enterprise level. This matrix can be cascaded down into the business units and integrated with ers to be forward-looking and to try to anticipate their monitoring and reporting activities. risks that may occur in the short term and even longer term on a continuing basis. • Demand stress-testing. Consider extreme assigned risk priorities can help ensure that the or worst-case scenarios and the likely impact. internal audit program is risk-based, focusing on Consider a variety of scenarios and not just busi- the highest-priority risks and controls. ness as usual. This is especially critical in today’s 3) It’s all about the dialogue. environment. Simply put, if the right risk dialogue is not • Become second nature. Reinforce the notion happening, the process is broken. Whatever form that any performance or strategic discussions the risk management process ultimately takes in should automatically include risk dialogue, so an organization, it must be facilitating a routine, that it becomes second nature for staff to con- useful dialogue about risk throughout the enterprise. stantly consider: What can go wrong? For this client, most of the risk-related dialogue was reactive, addressing particular issues after they 4) The board has a key role. surfaced. Further, it was mostly bilateral between the From a governance perspective, the board of directors chief executive officer and the relevant manager and should have an effective challenge function in risk Lessons from IFC’s Corporate Governance Experience 71 Figure 1: Integrating Risk management with other key management control functions Business Planning What are we trying to achive and how will we achieve it? Internal Control What control activities can we put in place to safeguard against business risk? Performance Risk Management Monitoring What can go wrong How are we performing (internally and externally)? against our defined objectives and in What mitigation actions mitigating risks? should we take? Internal Audit Are the company’s risk management and control processes working effectively? discussions. One of the major benefits of having a experience, the most value-added advice we can offer well-functioning, diverse board (as we promote for to our clients is not only to help them understand risk good corporate governance) is its ability to offer management concepts as they evolve, but also to offer different perspectives on discussions about strategy practical lessons on how to actually make them work. and risk and to effectively challenge management. Therefore, the process should be designed to ensure that the board is receiving the right information and having the right dialogue about the risks facing the About the Author Chris Razook, part of the IFC Advisory Services team in company. We emphasized this point to the client and the Middle East and North Africa Corporate Governance included it as one of the key responsibilities for the program based in Cairo, works with companies and board audit committee. boards of directors around the region to help improve their corporate governance practices. Conclusion Approving Manager Michael Higgins, Senior Operations Manager Financial Risk management concepts will continue to evolve, Markets, IFC Advisory Services in the Middle East and especially in response to the current financial crisis North Africa gripping companies around the world. Yet, in our November 2008 72 IFC Advisory Services in Sustainable Business 1 + 1 = . . . 50 Million! It takes two arms to carry something securely for a long time without dropping it. This is a story of how two arms of IFC—investment and advisory services—successfully cooperated and helped each other to develop, nurture, and carry a client relationship that eventually led to an $8 million investment deal and another $42 million in the pipeline. Background services team at the early stages, and let Since its independence in 1991, Ukraine has moved advisory staff participate in initial meetings and from a closed, planned economy to one of the fastest- take part in the appraisal process. growing, dynamic economies in Europe. Local Although the company had demonstrated strong businessmen have displayed entrepreneurial spirit management skills and its ability to grow a successful and have comprised the backbone of the country’s business from scratch, during the appraisal IFC expanding economy. Although larger investment identified some areas in need of improvement. Asnova deals are often favored within IFC, it’s frequently had no audited financials; the legal corporate structure the smaller, local entrepreneurs who truly value and was complicated, with more than 50 subsidiaries; benefit the most from cooperation with IFC. When and, while the company had taken an initial step by our assistance to them is a well-coordinated joint effort forming a closed joint-stock company, its corporate between investment and advisory services, they benefit governance was in its infancy. even more. Asnova is a case in point. Coinciding with the appraisal process, the Ukraine Asnova Holding (“Asnova” or “the Company”) was Corporate Development Project, an advisory services established in 1992 by four Ukrainian entrepreneurs project focused on improving corporate governance in with the opening of one small store in Kyiv selling the private sector, began actively rolling out its pilot basic goods such as shampoo and soap. The business company program, offering corporate governance grew, and in the late 1990s one of its companies assessments, followed by CG improvement plans and became the exclusive distributor of Procter & training and support in implementing recommended Gamble’s goods for Kyiv and Central Ukraine. Today, changes. The investment team thought that Asnova Asnova has evolved into a leader in the Ukrainian could benefit from this type of assistance. wholesale and retail market of fast-moving consumer The UCDP advisory staff was brought in early on to goods, employing more than 4,600 people. work closely with and complement the investment Asnova was first contacted by IFC back in 2002 on the team—participating in numerous client meetings, recommendation of Procter & Gamble, which referred conference calls, and internal investment team to Asnova as a reliable and trusted partner. In the years discussions. The advisory services team was asked that followed, Asnova became not only a long-term to conduct a preliminary assessment of Asnova’s investment partner of IFC but also a success story for corporate governance and inform the investment team its advisory services arm. of its findings. Advisory services also contributed by identifying potential risks for the investment project Lessons Learned and offered mitigating solutions. Many of these findings were incorporated into the decision book of 1) Take a comprehensive approach to client the investment project. management. Form a joint investment-advisory Lessons from IFC’s Corporate Governance Experience 73 The investment team supported the advisory services had its effect on the company. Having gone through team’s findings by reinforcing the message to the a rigorous due-diligence process and evaluation of a Company that the need for CG improvements overall range of strategic and management issues, the owners was much higher than what would be required as a soon realized the weaknesses of their systems and the precondition for a loan but that, in the end, it would value that improved corporate governance could bring. help bring Asnova closer to international best practices. After an eight-month break, Asnova’s management It was left up to Asnova’s owners to decide whether or re-engaged with IFC’s UCDP team to become a not (and when) to apply for the UCDP pilot program. corporate governance pilot company. The advisory services team designed a CG 2) Advisory services and investment don’t improvement program with more than 30 different always happen simultaneously. activities, including various workshops, special training The advisory services team should be patient. You want for the company secretary, a revision of the board of the company to choose a time that’s right for them and directors’ role, succession planning, and formalization ensure that they are fully committed. Using investment of company procedures. From a CG-reluctant group as a motive (or stick) for improving things like of friends, the company owners became leaders and corporate governance can lead to a “window dressing” promoters of good corporate governance. exercise that, in the end, can increase the risk for the investment, not mitigate it. 3) Investment and advisory staff need to work Although the company’s shareholders were interested together as one IFC team. To make this happen, in learning about CG best practices, they were at first there must be frequent sharing of information somewhat skeptical about whether CG could really add between the investment and advisory arms. value. At the time, Asnova was run like a small family Both teams should know about the client’s business, with decisions made informally and issues achievements and problems. usually discussed until everyone agreed. The advisory Throughout the process, the investment team and services team expressed concern that the company the advisory services team regularly informed one had inefficient decision-making procedures and that, another of developments. The investment team often due to a lack of formalized corporate governance invited the advisory services staff to client meetings structures, there was an increased risk of conflicts and internal discussions, and the advisory services among the owners. This was communicated to Asnova’s team kept the investment staff up to date on any shareholders, but they believed that formalizing interactions with the company. Once the CG pilot procedures and a clear division of powers could unsettle program was under way, the advisory services staff their friendly relationships. summarized Asnova’s achievements and also conveyed problematic areas in need of improvement, which As a result, the investment process continued while the were incorporated into a future action plan. At the advisory services team took a back seat. The investment same time, investment staff shared information on the team included some key requirements on corporate company’s performance and future ambitions. There governance as a condition to financing the deal but were no formal procedures: each team member shared didn’t push on the rest. When IFC decided to invest, ideas and what he/she knew. Usually this happened the advisory services team was somewhat disappointed, either via e-mail or a simple chat between advisory worrying that its leverage to encourage broader CG services and investment staff. changes at the company was lost. However, having a strong working relationship with IFC and having This sharing of information helped the advisory sown the seeds of corporate governance at the outset services staff increase the quality of workshops by 74 IFC Advisory Services in Sustainable Business invited to speak about his company’s experiences at an IPO Forum at which dozens of local companies were present. His presentation was cited as among the most interesting and informative. It put Asnova in the spotlight, and for IFC it provided a strong demonstration effect of how improving corporate governance and working with IFC on the financing side can lead to success. At the introduction of IFC, Guliev also recently made a presentation at a well- attended Ukrainian CFO conference at which he spoke highly about his relationship and experience in working with IFC. Asnova CEO Urfan Guliev speaks at IPO Forum. Here our SmartLesson ends, but the relationship continues … making them more relevant to the company’s current In FY05, IFC provided a $6 million A loan and situation and also by taking into account its medium- a $2 million C loan to Asnova for the expansion and long-term plans. This also enabled the investment and modernization of its distribution, warehouse, team to keep abreast of what was happening in the and logistics business. IFC is currently working company outside of the investment deal. Working on a second financing for the company of up to together with Asnova’s management and shareholders, $42 million, including a syndication and possible IFC investment and advisory services staff were all part equity investment, to further expand the company’s of a team that developed an attractive range of services to operations. In spite of the UCDP’s official closure, the add value to the company’s business. company keeps in contact with IFC’s advisory services consultants—seeking advice, sharing information, or 4) Be a trusted partner of the client. Keep in simply discussing general CG trends in the country. touch with the client on a regular basis, including This is what good client relationship management is after the deal is signed and advisory services all about. are completed, and broaden the relationship to involve the client in other activities. About the Authors Over the life of the relationship, IFC’s investment Mary Lystad, Principal Investment Officer in the General and advisory services teams have built up a significant Manufacturing and Services Department, was Client amount of trust with the company. The initial project, Relationship Officer to the company on the investment side and worked with the company since the beginning of the which was small by IFC standards, was the first step relationship. in building a strong relationship. It was used by both Vladyslava Ryabota, Legal Advisor/Associate Operations parties to get to know one another and has led to both Officer for IFC Advisory Services in Europe and Central sides wanting to deepen and expand the relationship. Asia, was responsible for the implementation of the pilot program with Asnova. It is important to keep in close touch with the client, Approving Manager even on an informal basis, and worthwhile to include Motria Onyschuk-Morozov, Senior Operations Manager, the client in events that can benefit both parties—as Corporate Governance, IFC Advisory Services in Europe and a guest speaker at conferences and as a participant Central Asia in training events organized by IFC. For example, September 2007 Urfan Guliev, Asnova’s chief executive officer, was Lessons from IFC’s Corporate Governance Experience 75 When You Sweep the Stairs, You Always Start from the Top 9 Real and demonstrable commitment by a company’s senior officers and directors is critical to achieving lasting corporate governance reform. Two cases from the corporate governance program in the Middle East and North Africa highlight the importance of securing such commitment. These cases bring out two areas where lack of understanding can lead to resistance to change: 1) not understanding the meaning of corporate governance; and 2) not understanding how corporate governance can improve the bottom line. Overcoming these challenges is a formidable but necessary task in building the business case for companies to implement corporate governance reforms. This SmartLesson addresses how to obtain such commitment when implementing any company-level effort to effect change to a company’s governance framework, policies, and practices. The lessons also may be applicable to other staff who engage with private sector clients. Background: How do you is board composition: how do you change from overcome resistance to change? a board composed exclusively of family members Most project teams implementing corporate (in particular, sons and daughters who may not governance reforms at the company level may be be qualified) to one with independent directors? confronted with initial skepticism, lack of knowledge, To overcome any skepticism and build a sound and resistance to change. For example, most company and compelling business case, you need a proper directors and officers may not truly understand the explanation of how corporate governance pays off meaning of corporate governance. A recent IFC and how independent directors can help ensure that a survey on corporate governance practices across business sustains the livelihood of future generations. the Middle East and North Africa region showed that 59.2 percent of respondents could not define Lessons Learned: A Commitment- corporate governance properly. Most confused Based Three-Step Approach “corporate governance” with “corporate social Experience shows that the best means to effect responsibility.” real change at the boardroom level is a three-step approach built around commitment. Regarding the ability of good corporate governance to add value to the bottom line, only 49.3 percent Step 1: Sow the seeds. of respondents in the same survey thought corporate governance was important or very important to 1) For senior decision makers, organize events their organization. And of those that did, most cited that are interactive and fun. compliance as the main driver for reforms. Roundtables and seminars during which participants To illustrate resistance issues, imagine yourself as can interact and pose questions, even if in a limited a project officer who has to make the business case manner, are preferable to one-dimensional (and often for corporate governance during a meeting with the boring) conferences—although conferences with company founder and chairman. The issue at hand interactive elements may be suitable for introducing 76 IFC Advisory Services in Sustainable Business the topic of corporate governance. Interactive elements may include discussions about case studies, Case 1: EgyTrans as well as breakout groups, role playing, and mock board meetings. Hussam Leheta, chairman of the Egyptian Transport Participation by high-level decision makers (board and Commercial Services Corporation, a logistics chairmen, directors and senior managers) increases and transportation provider, sought IFC help to the likelihood of implementation at the corporate improve performance through better corporate level. How do you ensure such participation? governance. This idea came to him while attending a Partnering with a local institution with strong training course on corporate governance—the Board Development Series11 —organized by IFC’s Egypt contacts in the business community is probably your Corporate Governance Project. best bet to ensure that the audience is made up of senior directors and managers.10 The IFC brand name Under the chairman’s leadership, EgyTrans made usually does the rest. Take a look: In Case 1, the bold corporate governance improvements, including professionalizing the board and audit committee, chairman of EgyTrans attended not one but several recruiting a professional corporate secretary, and IFC training events; in Case 2, none of the client drafting a policy on related party transactions. The company’s directors attended similar courses offered company also published its corporate governance by IFC in the United Arab Emirates. improvement plan on its Web site, underscoring its commitment to transparency and accountability. 2) Give them something they can The process was expensive in the short term (it cost touch and feel. 5 percent of the company’s annual profit to make Integrating local case studies and success stories into the upgrades). However, after the overhaul the share price soared 29 percent, and several equity firms these events will help demonstrate that corporate expressed interest in investing. governance works in practice. EgyTrans is already being used as a model case study, and the Dubai client as its antithesis. When local case studies are unavailable, perhaps Case 2: A Dubai-based Company during a project’s start-up phase, the project team An IFC team conducted a corporate governance assessment for a Dubai-based company, a potential investment client. The company’s chief executive officer was eager to pursue corporate governance improvements for his institution. However, the IFC team failed to obtain the board’s commitment. One year after the submission of the final corporate governance assessment report—and the ouster of the CEO by the board—the company has yet to implement any of the report’s recommendations. Award ceremony for the best annual report during a corporate governance conference in Egypt. Lessons from IFC’s Corporate Governance Experience 77 can fall back on success stories from other regions or corporate governance programs, such as the Banca Commerciala Romana story.12 For example, the program team recently organized a large-scale conference on corporate governance for banks in Riyadh—the first such conference in Saudi Arabia— for more than 258 bankers and other stakeholders. The team not only integrated interactive elements like panel discussions into the event, but also invited the CEO of BCR to present his views on how to implement corporate governance, and the positive impact it had on his bank. Breakout session during a corporate governance workshop in Egypt. 3) Be smart: use these events as business development opportunities. Many will argue that training is not a core an IFC executive vice president, the company became competency of IFC, but it is an effective means of an investment client. reaching out and explaining the benefits of corporate governance to a broad audience. In addition, training 5) Don’t be afraid to charge! events are opportunities for developing business— One frequent argument is that fees would lessen both advisory and investment services—and the outreach due to lower attendance levels, but the promoting IFC’s brand among a country’s private corporate governance project team in Egypt found sector, which may not always be familiar with the just the opposite: In April 2006, they organized a topic at hand (or with IFC, for that matter). free conference and had 69 participants. Next, they Breakout session during a corp organized three more events and charged from $45 governance workshop in Egyp 4) Use these events to identify future to $60 per person, and to everyone’s surprise they champions. attracted an average of 73 participants over the three events. To date, the ECGP has generated $132,192 in Awareness-raising events also let staff identify key revenues and $58,243 in net profits from its training players, such as Leheta of EgyTrans, who are likely to activities alone. emerge as future corporate governance champions, who may well request more in-depth advisory Charging fees not only helps cover IFC project services, and who can serve as future case studies. expenses, it also adds drive for IFC staff, who may work that extra 10 percent to meet higher For example, while implementing the Russia expectations, and also increases the likelihood that Corporate Governance Project in 2003, the local participants will act on the takeaways from the team leader in Samara noticed that both the CEO conference. and the chairman of a company called KubyshevAzot traveled almost two hours each way to participate Finally, although some may argue that conferences in the awareness-raising events organized by their and seminars are “public goods” and should not be office. A relationship was quickly forged between the subject to participation fees, offering free conferences company and IFC, and the project team agreed to may undermine the market for conferences and conduct a full corporate governance assessment for training events, contrary to IFC’s mandate to support, the firm. One year later, following an onsite visit by and not displace, the private sector. 78 IFC Advisory Services in Sustainable Business Step 2: Drill down. Case 3: The Pakistan Corporate Focus on providing in-depth and targeted advice Governance Project to support individual banks and companies, or groups of individuals (for example, directors or The project initially organized a series of broad company secretaries) in implementing good corporate awareness-raising events, such as a November 2006 governance. Examples of such targeted assistance conference on corporate governance for listed may include corporate governance assessments companies in Karachi, which attracted over 150 and reviews, company-specific workshops, and participants. The event raised awareness among mid-level managers, but it is unlikely that it achieved consultations.13 The following lessons learned in major impacts at the company level. implementing Step 2 further show the need to obtain buy-in and commitment: As follow-up, the project organized a series of interactive workshops within the framework of the Board Development Series, targeting a select 1) Map, but don’t forget to gauge group of 38 CEOs, CFOs and board members. commitment. The participants soon understood that corporate A project should strategically define, select, and governance does indeed pay. Even before the course approach its future clients to ensure that it chooses finished, they managed to formally change 48 policies and procedures within their companies. the right companies for maximum development impact and demonstration effect, in particular when engaging in single-company projects, such as corporate governance assessments or reviews. A mapping exercise will help project staff strategically approach and select future client companies that are 2) Choose quality over quantity. best placed to serve as case studies. Given the amount of work required to implement porate In the team’s experience, three types of companies pt. the recommendations contained in a corporate are ideally suited to become best practice case governance assessment or review, it is advisable to studies: private, family-owned companies seeking a focus on a few highly committed companies—which public listing; companies in financial difficulty, or makes the selection process acutely important. This coming out of a scandal, that now seek to turn their focus will ensure that the selected companies reap the operations around and rebuild stakeholder trust; and full benefits of corporate governance—as contrasted state-owned enterprises seeking to privatize. All will with working with a large number of companies, thus likely have the motivation and commitment for real diluting the potential impact. This selectivity will change, instead of treating corporate governance as a further help ensure that the business case is properly window-dressing project. built. This mapping exercise should involve close collaboration with the investment side of IFC to 3) Get CEO and chairman buy-in. ensure that a future investment is a possibility, Prior to initiating a corporate governance assessment and also to help demonstrate IFC’s value-added (or other single company-focused project), both proposition. EgyTrans was a company in the process the chairman and the CEO should formally voice of a turnaround; the Dubai company was a start-up, their awareness of and commitment to the project. preoccupied with thousands of other management It is a mistake to have company-specific work solely issues. Lessons from IFC’s Corporate Governance Experience 79 Engaged participants at corporate governance event in Egypt. supported by the CEO and other senior managers— agreement signed by the chairman and the CEO, or which was the case with the Dubai client—without through an exchange of letters. the board’s active approval and support of the project (and vice versa). In fact, during the corporate 4) Conduct targeted workshops—the Board governance assessment of the Dubai client, two of the Development Series—for senior participants. board members did not take the time to meet with The ECGP team has found that targeted workshops the project team; and the one director who did meet for groups of individuals (chairmen, directors, CEOs, with them showed outright hostility toward corporate company secretaries, internal auditors, and so on) governance. are highly effective in promoting change, particularly Without support from both the board and when conducted with the same group of participants management, it is unlikely that recommendations over an extended period. Indeed, following the axiom, for improving corporate governance practices “less is more,” we found that inviting fewer, but more will be implemented. In cases where neither the senior, people can have greater impact than inviting chairman nor the CEO constitutes or represents a greater number of junior mid-level managers. That the majority shareholders, commitment from the the chairman of EgyTrans attended every single part majority shareholders should be sought as well. This of the Board Development Series speaks volumes. understanding should be formally captured in an (For another example, see Case 3.) 80 IFC Advisory Services in Sustainable Business 5) Ask: Does the end justify the means? a regional gas company—that did not have the internal know-how or resources to implement the Company-specific advisory services are not an end in recommendations. themselves. Of course, any intervention, even for a single company, will have some positive effect, but it 1) Explain, but also hold hands. is likely to be only a drop of water on a hot stone. All corporate governance assessments or reviews To ensure that the potential impact is not limited to a should thus be designed to include time for working single client—and that donor funds are used efficiently with the client to implement the recommendations and effectively—it is imperative that one single success made in the report—for instance, by providing story serve as an example to others. Writing simple, consultations and workshops. This follow-up has brief case studies and disseminating them during the added value of building long-term relationships awareness-raising events is effective, especially for with key clients, and ensuring that these companies companies in the same sector that may see corporate become future best practice case studies. governance improvements in one of their competitors as a potential threat to their market position and seek to implement corporate governance reforms of their own. Not surprisingly, the ECGP team is now writing About the Author up the EgyTrans case study. Sebastian Molineus, Corporate Governance Program Manager for IFC Advisory Services in the Middle East and ­ North Africa, worked for IFC in Russia as project manager Step 3: Build long-term for the Russia CGP from 2002 to 2005. relationships with clients. Approving Manager Delivery of a corporate governance assessment may Michael Higgins, Senior Operations Manager, Financial Mar- not be sufficient on its own to ensure the achievement kets, IFC Advisory Services in MENA of expected project outcomes and impact. The team September 2007 has worked with a number of clients—for example, Lessons from IFC’s Corporate Governance Experience 81 Introduction Working with Regulators and Policy-Makers Efforts to improve the regulatory framework as enough to mobilize resources when there is sudden it relates to corporate governance issues is a key interest for reform from the government. Because component of most of our projects. Our partners of this, it is good to have a strong core team of in this work include securities commissions, professionals that can work on a number of project ministries of economy/economic development, elements instead of staff dedicated to one element, central banks, and stock exchanges. such as policy reform. Specifically, our work here involves: While we have had relatively strong success in influencing the adoption of regulations or listing • Providing advice on writing new laws and rules, more complex and far-reaching pieces of regulations; legislation, such as securities laws or laws on joint • Suggesting amendments to existing legislation; stock companies, have proven considerably more • Offering comparative analyses on laws and difficult to influence, because: regulations from other countries; and • Efforts require more resources and wide support • Assisting in the development of corporate from a broad range of stakeholders; and governance codes or listing requirements. • Initiatives are often hindered by the fact that Frequently, the efforts take place under the lawmakers, many of whom hold interests in auspices of a task force affiliated with or under private companies, don’t necessarily want the patronage of the local securities commission. legislation that promotes minority shareholder This adds legitimacy to the reforms. It also rights and increases transparency to apply to helps ensure buy-in by involving all the various their businesses. stakeholders: stock exchanges, investment funds, In countries where key laws are difficult to change, self-regulating bodies, think tanks, law firms, it might be more prudent for the project’s policy donors, and other technical assistance projects. efforts to focus on voluntary corporate governance We generate additional public support for reforms codes. Such documents are seen as less threatening through roundtables and other events, often and can provide guidelines for local companies co-organized with local government or NGOs to to follow in the absence of effective legislation. provide feedback from the private sector and Once some of the company practices become more facilitate private-public dialogue. The nature accepted in the business community, it becomes less of our projects, incorporating a comprehensive controversial to introduce them into the legislative approach that includes direct work with private framework. sector clients, government, and other stakeholders The SmartLessons that follow detail ways to engage makes it easier to bring all the parties to the table. effectively with governments and clients to bring As a whole, work on legislative reform usually about the needed regulatory changes that will has many starts and stops along the way. Things support and encourage the mainstreaming of might be slow during politically tense times—like corporate governance improvements. an election year—but teams must be flexible Lessons from IFC’s Corporate Governance Experience 83 Help Me to Help You: Strategies for Working Effectively with Governments In development work, we all have heard many words of advice for effective work with governments. But succeeding at policy work is easier said than done. This paper describes how IFC’s Georgia Corporate Governance Project was able to support the process of reforms in a fast-paced, challenging political and administrative environment and amid shifting government priorities. The purpose of this SmartLesson is to share some of the challenges faced in our work with government and to provide useful tips for effective policy work. Background way to establish good working relationships with the In 2004, the government in Georgia began government and provide effective policy advice, we undertaking a wave of reforms to help spur the learned four key lessons. economy by reforming government institutions and Lessons Learned making significant changes and amendments to existing laws and regulations. Reforms were carried 1) Prepare the background and build out at a fast pace, with varied levels of stakeholder government awareness before initiating policy participation and with certain shortcomings. The work, because people only see what they are government’s reform agenda included many priorities, prepared to see. such as private sector development and privatization, Sometimes, policymakers are just not ready to tackle market deregulation, trade facilitation, tax reform, the policy problems for various reasons. They may improvements in the investment climate, and not see the real problems; they may not have a clear facilitation of European Union integration. But, with picture; or they may not be prepared to evaluate such a loaded agenda and a lack of professional and the situation. In such cases, there is a need for more institutional capacity, corporate governance problems groundwork. were often overlooked. The importance of establishing corporate governance standards in the country was In our case, for quite some time the project had not fully appreciated, although many corporate been suggesting that the Georgian government governance problems were intertwined with the adopt regulatory norms for protecting minority government’s reform efforts. For example, protection shareholders. This recommendation was not taken of shareholder rights was closely related to efforts to into consideration, however, because the government improve the investment climate. was not convinced that there was a significant policy problem. There was a need for more awareness work, The Georgia Corporate Governance Project, similar which the project tackled in several different ways. to many other IFC corporate governance advisory services projects in the region, has been working to In 2004, IFC’s Georgia Corporate Governance Project improve the legal framework regulating corporate conducted a baseline survey of corporate governance governance in Georgia. In attempting to find the best practices. More than 150 Georgian companies 84 IFC Advisory Services in Sustainable Business completed the survey. Widespread dissemination of the results made the survey a useful public awareness tool. Even if there is political will In addition to other areas for improvement, the survey from the government to take identified shareholder rights as a major loophole in the legislation. The project team used the survey results certain policy advice, often as a tool during discussions with the government. there is no process or capacity in The survey helped demonstrate that protection of shareholder rights was an area that needed place to implement it properly. improvement and helped convince policymakers to adjust their regulatory efforts. The project also used various global economic • Assessment of how each mechanism would work indicators, such as the World Bank’s Doing Business under local conditions and help in reaching indicators and the World Economic Forum’s Global agreement on the mechanism to be applied Competitiveness index, to demonstrate how poor • Analysis of the legal framework and identifica- protection of shareholder rights was negatively tion of the piece of legislation that needed to be affecting various rankings on these indices, and how amended better protection would not only improve some of the economic rankings but would actually help increase • Identification of the group responsible for investor confidence. developing the draft, along with help in drafting the amendments Following this groundwork, the project was able to raise the government’s awareness and put the This approach proved to be very useful. The protection of shareholder rights on its agenda. government followed IFC’s advice and, for the first time in Georgia’s history, decided to introduce 2) Provide a clear process and guidance on a clause protecting minority shareholders from how to implement policy recommendations. misconduct by management and controlling shareholders. Even if there is political will from the government to take certain policy advice, often there is no process or 3) Ensure participation of key government capacity in place to implement it properly. Therefore, counterparts and encourage public-private advisory projects need to point out the different dialogue. options for implementing a particular policy, describe best international practices, and indicate the actions Once awareness has been built and there is a will to that need to be taken—and by whom—in each address the policy issue, it is crucial to choose the specific area. right group to steer the process. It is important to include key government counterparts who have the For example, after much discussion, Georgian political power to push the reform, so that there are policymakers were willing to introduce shareholder no undue delays and the initiative does not get shot protection mechanisms, but they did not have a clear down midway through the process. But it is equally plan for what exactly needed to be done. The project crucial to encourage public-private dialogue and helped create a roadmap that included the following ensure participation of key stakeholders who have the elements: experience and can add value to the decision-making • Relevant examples from best international process. practice and different regulatory mechanisms for protection of shareholder rights Lessons from IFC’s Corporate Governance Experience 85 After the government was convinced of the need to introduce legal amendments to improve protection of shareholder rights, it was decided that a task force would be created and that a related piece of legislation, introducing amendments protecting minority shareholders and regulating conflicts of interest, would be drafted and presented to the parliament. The goal was then to ensure the creation of an effective task force that would include key stakeholders who had first-hand knowledge and experience. The task force was led by the state Minister of Reforms Coordination and included representatives from several ministries, members Encouraging public-private dialogue helps generate of parliamentary committees, the Georgian public buy-in. Stock Exchange, a number of nongovernmental organizations, and staff from several donor-funded advisory projects. Frequent shifts in priorities may occur, and the Accomplishing this goal also involved building a government may adopt a strategy that is in conflict meaningful dialogue among the parliamentary groups with your policy suggestions. You must remain and their private-sector counterparts early on in the responsive to changes and be willing to modify your process. The Georgian cabinet at that time, being strategy to fit the new demands. backed by the majority of parliament members, As an example, the project put much effort into almost never had a problem adopting legislation. supporting the National Bank of Georgia in To ensure that all interested parties were informed developing a draft corporate governance regulation and satisfied, the project initiated discussions with for banks. Before the regulation was adopted, the a number of parliamentary committees to prepare government initiated reforms of the financial sector. members of parliament and experts for the upcoming The supervisory function for commercial banks was hearing on the draft law. The project also convinced transferred from the National Bank of Georgia to the the task force to send the initial drafts and receive newly established Financial Supervisory Agency, and feedback from private-sector representatives affected the reform became oriented toward less government by the legislation. This turned out to be an excellent regulation. But the new agency was not interested in idea. Most suggestions from the interested parties adopting the corporate governance regulation, and were taken into consideration and contributed to the the initiative came to a halt. After much discussion, improved quality of the draft legislation. This also the project team decided that finding interested helped to generate public buy-in. counterparts in the private sector and helping them develop a voluntary corporate governance code 4) Stay responsive to changes, remain flexible, would provide best-practice guidelines for banks to and be ready to modify your strategy to fit follow while remaining in line with the government’s new conditions. new agenda. After holding discussions with private- In policy work, it is important to remain flexible sector and government counterparts, the initiative and responsive to the changing government agenda. started moving again, now in modified form. The 86 IFC Advisory Services in Sustainable Business Association of Banks of Georgia was interested in • The project’s comments regarding the composi- the initiative and agreed to be the owner of the tion of audit committees in banks and remu- Corporate Governance Code for Georgian banks. neration for supervisory board members were The project helped create a task force for developing reflected in the draft Law on Commercial Banks the draft code of best practice with the Association (enacted March 2008). of Banks of Georgia, the Georgian stock exchange, • A task force on development of a voluntary and bank representatives. Now that the draft has been corporate governance code for commercial developed, it is being discussed by the wider group of banks was created and the draft code developed Georgian banks. (February 2009). Conclusion Through effective application of the lessons discussed in this document—building government awareness before initiating policy work, providing a clear About the Authors Kakhaber Kutchava joined the IFC Georgia Corporate Gover- process and guidance for implementation, ensuring nance Project as a legal advisor in February 2007. He works participation of key government counterparts, with banks and companies to improve corporate governance encouraging public-private dialogue, staying practices and with the government in Georgia to address weaknesses in regulating corporate governance. responsive to changes, and modifying the strategy Maia Tevzadze, the project manager of the Georgia Corpo- to fit the new conditions—the project achieved the rate Governance Project, joined IFC in May 2008. following results over a two-year period: Approving Manager • Amendments to the Law on the Securities Motria Onyschuk-Morozov, Principal Operations Officer in Markets regulating conflicts-of-interest were charge of corporate governance, IFC Advisory Services in Europe and Central Asia drafted by the project and adopted by parliament May 2009 (enacted March 2007). Lessons from IFC’s Corporate Governance Experience 87 Global-Local: The Ticket To Ride: Introducing Corporate Governance Codes in the Middle East and North Africa Codes of best practice are essential tools for enhancing corporate governance practices at the national and corporate levels.14 To help developing countries and transition economies with the task of establishing these codes, the Washington, DC-based Global Corporate Governance Forum produced a toolkit on crafting, developing and implementing corporate governance codes. The product was widely disseminated, yet in some regions such as the Middle East and North Africa, very few countries had developed their own national code. This vacuum led GCGF to team up with IFC Advisory Services in MENA to roll out the toolkit through a series of workshops to encourage development and adoption of country codes. Background achieving corporate governance reforms. The challenge of diversity. The main challenge of Over a period of 18 months, the team delivered using workshops to engage partners in the MENA a series of three workshops: “Initiating the Code region lies in the diversity of the business sectors and Development Process” in Egypt, “Drafting financial markets in the region. MENA includes 19 and Consultation Processes” in Jordan, and countries, from Morocco in the west to Pakistan in “Implementing, Monitoring and Reviewing Codes” the east. At one end of the spectrum are “frontier in Morocco. markets” such as West Bank and Gaza and Yemen (which have underdeveloped capital and financial A successful global-local approach. The global markets) and, at the other end, such oil-rich Gulf Forum and local advisory services team members countries as Saudi Arabia and the United Arab drew on each other’s strengths and developed a clear Emirates (which have rapidly developing capital division of responsibilities. The Forum developed the markets). Given these disparities, the project team agenda of each workshop and selected (and covered had to address several challenges, such as: How can the costs of ) international speakers. Advisory staff we find common lessons and experiences to advise identified, invited, and managed regional participants, countries with such wide variations in economic and covered their travel and accommodation costs.15 conditions? How do you persuade key decision To cut the red tape, the teams even initiated a joint makers and individuals who can influence the PDS document in iDesk, which was linked to the development of a code to attend? respective budget codes of each unit. We decided to roll out the project on a regional basis Results beyond expectations. The preliminary goal to be able to reach out to more clients and make the was to foster the development of three corporate approach more cost- and resource-effective. The team governance codes in the region. But by the time also believed that sharing experiences, lessons learned, the workshops were completed, 14 codes had been challenges and success stories within a region, no adopted, or were in the process of being developed or matter how diverse it is, could be a powerful driver in revised. 88 IFC Advisory Services in Sustainable Business Lessons Learned “The Corporate Governance Code 1) Don’t reinvent the wheel if you don’t have to. Development program in the MENA region was conceived at the outset of a Instead of inventing something from scratch, the teams used the framework of the GCGF’s toolkit in wave of interest in corporate governance structuring the workshops, and then gave the toolkit reform in the region. It has been highly to participants for guidance. This ensured that the successful in accelerating the early stages workshops were informed by successful experiences of this reform process and has been and were rich in substance. The toolkit also provided implemented in a manner to support the team and technical advisers with a road map to national initiatives and to encourage adequately advise country task forces. national ownership.” 2) Start with stakeholders who have actively —Rajeev Pillay, Independent Evaluation Consultant and demonstrated interest. General Partner, Abacus International Management LLC Instead of trying to identify and attract key stakeholders in every country, which would have delayed the project, we decided to focus on those We began with just four countries (Egypt, Morocco, who had already expressed interest in developing Jordan, Lebanon). The number of participating a corporate governance code. We hoped that by countries16 grew rapidly as key local stakeholders working with the willing, we would create a regional- learned about the program and expressed their momentum engine for code development—and that willingness to join. Participation was limited to indeed turned out to be the case. three or four individuals per country. About 20 or so participants attended each workshop. Mostly they were heads of stock exchanges or securities User Guide For The Best commissions, representatives of professional Practice Toolkit organizations, heads of institutes of directors, representatives of government ministries, and private sector members of code-crafting task forces. 3) Choose a highly interactive, motivational workshop design when you have such diverse participants. The workshops were designed to be highly interactive learning events. They included exercises, case studies, role plays, international best practice presentations and presentations on specific regional issues. The objective was to avoid lecturing the participants, but rather to engage and motivate them. For example, each workshop started with a “tour de table,” during which the moderator asked participants from each country specific questions on their progress and challenges in the code development process. This Lessons from IFC’s Corporate Governance Experience 89 MEna Corporate Governance Implementation Strategy Regional Country Peer Knowledge Toolkit Workshops Task Forces Review Transfer FY05 FY09 allowed the participants to learn from each other, codes were better adapted to local needs, and and it even provided for a stimulating competitive recognized by local stakeholders as their own. edge. At the same time, this approach helped us avoid As noted by the independent evaluation that formal presentations by participants, the timing of the forum commissioned, team members and which is usually difficult to control. In most cases it international experts were inconspicuous throughout was the first time the participants had attended this the process. However, they were highly appreciated style of workshop, and the feedback was excellent. and effective in their behind-the-scenes roles throughout the code design and drafting process in 4) Don’t do all the work: maximize national all the countries involved. When asked, the team ownership for effective implementation. provided clients with technical advice, information Initially, we underestimated the amount of logistical about comparative experience, and comments on work needed to organize and deliver the regional drafts. However, the project team emphasized to workshops. Our staff in the field felt overwhelmed. national partners that they were free to accept or To address this concern, the team agreed to seek a reject technical advice provided by international higher involvement of local institutions and have experts. clients carry more of the organizational burden. Local institutions were increasingly involved at the second 5) Get pro bono support—if you can. and third workshops. Through its Private Sector Advisory Group, the When the team moved to country-specific advisory Forum is able to provide high-level pro bono work as a follow-up to the workshops, local corporate governance expertise and practical institutions were already fully involved. From the experiences on code development processes. In the start, the strategy was to help and advise clients, but MENA region, PSAG shared best practices and not to do the work for them. The establishment of provided guidance during the workshops. It played task forces and the drafting of the codes were left an important role in providing substantive and almost exclusively to national leaders. As a result, comprehensive feedback on draft codes prior to their 90 IFC Advisory Services in Sustainable Business final adoption. Clients greatly appreciated this service, staff training in the project’s early stages. As a first and most country task forces requested that their step in rolling out new toolkits or other knowledge draft codes be peer reviewed. management products, workshops should be organized in-house to better share new knowledge Although these international experts played a crucial and have a larger team of experts and operations role in the process, it is important to point out that officers ready to satisfy demand in the field. they did not draft the codes or otherwise do the work for local stakeholders. Furthermore, PSAG members To help address this need within the MENA region cannot be hired as consultants. and elsewhere, the Forum is organizing a knowledge management workshop for operations officers and Naturally, countries can develop and adopt national consultants, based on the content of the toolkit and corporate governance codes without the support of a on experiences gathered in the MENA region. group such as the PSAG, but doing so would mean missing out on an exceptional resource or having to hire adequate consultants that would considerably “We were extremely pleased with increase the cost of such a project. On the down side, the way in which the GCGF expert a timetable can’t be imposed on PSAG members, performed his function; he never since they are not under contract and also have other interfered, but provided substantive priorities, which poses a scheduling challenge. advice upon request and supported us 6) Plan follow-up activities in advance. Timely fully in our efforts.” knowledge transfer is important—to avoid —Chair of the Code Drafting Committee, Morocco being overwhelmed by demand. As a result of the momentum created by the workshops, the Forum and the corporate governance advisory team in MENA were immediately swamped About the Authors Marie-Laurence Guy, Senior Projects Officer and task team with requests for additional country-specific advisory leader at the Global Corporate Governance Forum, in services to develop and implement national codes. charge of activities in the Middle East and North Africa and in Southeast Europe. Within the limits of their resources, the Forum and the regional advisory services team responded to Hassan El-Shabrawishi, consultant with the Global Corpo- rate Governance Forum team based in Washington, DC, the demand and assisted country task forces in their supporting the design and implementation of corporate work. Yet, to satisfy all the requests for extensive governance advisory projects in the MENA and Eurasia regions. support, the pool of experts that the Forum and regional advisory services can draw on must be Approving Manager broadened. Philip Armstrong, Head, Global Corporate Governance Forum For future projects of this type, the Forum needs to September 2008 put more emphasis on global knowledge transfer and Lessons from IFC’s Corporate Governance Experience 91 How Do You Get Companies to Comply with Voluntary Legislation? Develop the Legislation With Them How do you promote better corporate governance when companies operate in a regulatory vacuum? How do you encourage them to comply with voluntary guidelines in the absence of legislation? IFC’s Ukraine Corporate Development Project found that getting the public sector’s help in developing those guidelines from the start is key to creating a sense of public ownership and, consequently, the incentive to follow the guidelines. Background corporate governance code could lay the groundwork The situation in Ukraine in the early 2000s was for the law and would, in the meantime, provide typical of former Communist Bloc transition best practice guidelines for companies to follow. But, economies: thousands of new joint-stock companies this would not (and should not) happen in a week! and millions of shareholders emerging from the The key was to ensure that the process of developing privatization process and operating in a regulatory this voluntary code would be transparent, and that vacuum. In Ukraine, these companies were loosely companies would be included in its development. governed by a handful of provisions in the Law on Business Associations, which dated from 1991 and Lessons Learned left much to be desired. 1) Guide the process, but let your government A new joint-stock company law had been in partner be in the driver’s seat and take the development for years, but its adoption was spotlight. constantly getting postponed or disrupted by IFC had been in Ukraine long enough to know government officials—particularly those who that the best approach to policy reform efforts is to had interests in businesses and did not want maintain low public visibility as an international transparency.17 Ukraine’s president issued a decree institution—you make more progress when you mandating corporate governance reforms, and the work through a local champion. Project staff guided Securities Commission felt pressured to deliver. They the Securities Commission behind the scenes by approached the Ukraine Corporate Development providing sample codes from other countries and Project. Motria Onyschuk-Morozov, Project Manager sharing best practices on how the process should at the time, recalls that one of the commissioners work. To bring international experience and expertise called the team in for a meeting and said, “We’ve to the table, IFC arranged an international video decided to adopt a Corporate Governance Code for conference with corporate governance code experts Ukraine. Can you get us a draft by next Thursday?” from around the world (with funding from the World Bank Institute’s Global Distance Learning Network IFC discussed this request at some length, since program). ideally a country would adopt a good corporate law first and a code later. However, the project team felt The project decided that the Securities Commission’s that helping the government develop a voluntary corporate governance task force would be the ideal 92 IFC Advisory Services in Sustainable Business group to take the code work forward. Already in existence, the task force included representatives of various stakeholder groups such as stock exchanges, investment funds, self-regulating bodies, think tanks, and law firms. Working through the task force gave the initiative legitimacy by having multiple stakeholders involved in the process. IFC’s team remained in the background, drafting sections of the code and providing advice on international best practices. 2) Build public awareness of corporate governance codes before starting work on the policy document—to begin the process of Meeting of the Securities Commission’s public ownership and buy-in. corporate governance task force. Prior to starting the drafting process, the project, in partnership with the Securities Commission, set up conflicts of interest and related party transactions workshops on corporate governance codes in five were particularly relevant to Ukraine. Giving cities around Ukraine. The workshops were open to companies the chance to voice their opinions early directors and managers of all companies. in the process helped encourage buy-in and build demand for a corporate governance code. These workshops covered topics such as the role of country codes and the Organisation for Economic 3) Give the public the ability to offer Co-operation and Development’s Corporate comments and suggestions for the draft. This Governance Principles, to create a greater understanding further increases a sense of ownership of the of the need for a corporate governance code. document. Participants were then asked to talk about how a code Following extensive review, the draft code was could apply within the Ukrainian context, and to approved by the Securities Commission task present their ideas to government officials at a series force. Then it was circulated widely to state bodies of roundtables set up by the project. Issues such as and stakeholders such as joint-stock companies and investment funds. (See box for a list of key stakeholders.) In line with its strategy, IFC funded “We’ve decided to adopt a the publication of the draft but let the commission do most of the distribution. In addition, a copy of Corporate Governance Code the draft was uploaded onto the project’s Web site to for Ukraine. Can you get us a invite comments and suggestions online. draft by next Thursday?” Knowing that the document they were considering was a draft gave individuals and groups a powerful —Member of Ukraine Securities Commission to IFC sense that their input was valued and that they were Corporate Development Project Team being brought into a transparent process to which they could contribute. To build on this enthusiasm in the private sector, IFC also worked with the Securities Lessons from IFC’s Corporate Governance Experience 93 Commission’s regional offices to co-organize a series of smaller public roundtables around the country. “This was a critical process that Initially, 23 meetings were held in different oblasts gave us a chance to reflect our of Ukraine, but interest and demand were such that the Securities Commission later organized 100 own needs in a document that additional meetings. A total of 128 public discussions was essentially for us and not of the draft code were held in 24 oblasts of Ukraine, attended by 4,370 people, including executives of handed down from Parliament.” joint-stock companies, professional stock market —Yakiv Goldenberg, Ukrnafta participants, academics, public servants, and others. Two recurring themes at these roundtables were After the public review process, IFC helped the task whether the code should be mandatory or voluntary force organize a concluding roundtable to summarize and how the code was to be implemented by local the feedback. The review resulted in very few changes companies. In particular, the commission was more to the final version of the code, since most of the inclined to try to enforce the code and make it comments related to implementing the code and mandatory, given the absence of a good law. Project whether it would be a mandatory or voluntary staff provided concrete examples of how codes work document. However, such wide involvement by in other countries. In the end, the commission various parties ensured that all who were affected by decided to adopt a voluntary code to set an example the document were familiar—and comfortable—with of best practice for local companies. it and, most importantly, felt that they were part of the process. Key Stakeholders In The Process 4) Don’t stop with the adoption of the document. Give companies the tools to • Directors and managers of companies implement it properly. • Shareholders The final version of the code, officially called the Ukrainian Corporate Governance Principles, was • Securities Commission adopted and signed by the Securities Commission • Stock exchanges (seven exist in Ukraine, but only in December 2003 and published in March 2004. two have any influence) Corporate sponsors, many of which were involved in • State Property Fund and other ministries (due to discussing the code, even funded the cost to publish the number of companies still owned by the state) and distribute 8,000 copies of it throughout the • Nongovernmental organizations, a few of which country. were already part of the task force on corporate governance Although IFC could have stopped with the passage of the code, the project decided that companies would be more likely to adopt it if they had good implementation tools. IFC drafted a sample charter and bylaws for open joint-stock companies, which included the best practices outlined in the code. These 94 IFC Advisory Services in Sustainable Business documents—used by the project team and refined according to the Securities Commission, about 70 based on feedback from clients over a number of percent of public companies have adopted elements years—were further discussed by the task force and of the code into their company charters, even though adopted by the commission. This way, companies had the code is voluntary. a complete set of ready-to-use templates they could Currently, the commission is in the process of customize to help them comply with the code. amending the code to reflect the latest changes to One of the first companies that began implementing the OECD Corporate Governance Principles. With the code, and even drafted its own company-level a revised draft in hand, the commission is following corporate governance code, was Galnaftogaz, a the process that IFC set out earlier, by arranging for growing Ukrainian gas company. This step, combined national-level public discussions and roundtables with other corporate governance improvements, before official adoption. helped Galnaftogaz receive an IFC investment in 2005. The project team, together with Galnaftogaz, About the Authors publicized this success story to send a signal to other Teresa Ha, Communications Associate for IFC Advisory companies in the market that corporate governance Services in Europe and Central Asia, based in Moscow, reforms can lead to investment. worked in publishing in New York prior to joining IFC. Roman Zyla, Corporate Governance Officer and Global Product Specialist for corporate governance, joined IFC in Conclusion 2002 as manager for the Ukraine Corporate Development Ukraine still has not passed a joint-stock-company Project, based in Kyiv, Ukraine. law, although a draft law was passed in the first Approving Manager reading in May 2007. In its absence, most companies Motria Onyschuk-Morozov, Principal Operations Manager, make reference to the Ukrainian Corporate Corporate Governance, IFC Advisory Services in Europe and Central Asia Governance Principles as the key document that sets December 2007 the corporate governance agenda in the country. And, Lessons from IFC’s Corporate Governance Experience 95 Introduction Education, Training, and Capacity-Building There are multiple aspects to the education, even after we exit there’s a sense that CG training and capacity-building component of our improvement activity will continue and build corporate governance advisory services project on itself. In China, for example, this is starting work. The efforts here have a multi-pronged to happen. focus. • There is enough of a local consulting base with the specialized skills to meet this demand, Work with Local Consultants thanks to the training these local consultants Consultants may already have a client base, got from IFC. but they may lack education on corporate governance. So, work here helps them develop Work with Educational the expertise to expand their range of service Institutions offerings, thus helping to develop the market Efforts here focus on curriculum development, for corporate governance consulting services. provision of instructional tools and materials, and Cultivating an educated local consultancy base expert guidance for professors at professional also means that we can reach more clients than schools like business and law schools, to we otherwise would be able to do. Consultants teach corporate governance methodology who are in the process of learning IFC’s corporate in a systematic way to the next generation governance methodology sometimes tag along of managers, directors, and business leaders. as part of our staff work with companies, so The goal: as these students move into the real they receive hands-on training in addition to world of business, they will have internalized coursework. the corporate governance concepts learned in school, contributing to the mainstreaming of And ultimately, as the number of paid good corporate governance as part of day-to-day engagements between local consultants trained business activities. in IFC’s methodology and client companies or banks increases, this becomes a strong indicator Our project teams have developed a model of sustainability, signaling that: corporate governance course that is easily replicable and adaptable for use in many • Demand for CG services is growing organi- countries. Our direct work with the private sector cally, outside of the hands-on involvement provides a steady source of real-life material on of a development institution like IFC, so that which to build case studies to enrich classroom 96 IFC Advisory Services in Sustainable Business learning. We have also organized case study Typical activities include organizing joint events programs for professors to teach them how to and seminars, helping develop training courses for develop, write, and teach case studies. In Ukraine, their membership, sharing results, methodologies we held a nationwide case study competition, and tools, and on occasion, inviting key members as a way to encourage the development of new to participate in study tours. For example, the materials. We worked with the authors of the top Ukrainian Association of Bankers participated entries to refine their drafts and published the in a study tour of Switzerland, along with winning case studies. other project clients. The group met with their counterparts at the Swiss Banking Association Work with Project Partners and member banks to learn how the organization IFC project teams often work with other functions and provides valued services to organizations to ensure that various stakeholders membership. are involved in the project and trained in For professional groups like lawyers and corporate governance issues. Common project accountants, targeted continuing education partners include: activities have proven popular. In Azerbaijan, for • Institutes of directors instance, the project team held a series of well- attended brown bag lunches on various corporate • Business associations governance topics for lawyers from private law • Shareholders’ associations firms. This approach allows for discussion of more • Audit/accounting associations sophisticated topics, given that participants have a certain base of knowledge of the issues. • Think tanks • Professional organizations An important aspect of the capacity-building work also involves training within client Project staff work with these entities to help organizations—so-called “training-of-trainers” strengthen their programs and services, increase efforts—so that clients will build their own their membership, and put them in touch with institutional capacity to educate their own staff their international counterparts. The work also on corporate governance efforts. might include encouraging these groups to get involved in lobbying for policy reforms in their The SmartLessons in this section reflect the range country. of our experiences in this critical area. Lessons from IFC’s Corporate Governance Experience 97 Sowing Seeds on the Beautiful Journey in 10 Cities: Improving Corporate Governance Practices by Strengthening Local Capacity for CG Consulting Services Corporate governance is a journey, not a destination. The IFC China Corporate Governance Program started its journey in 10 cities of China in 2009 and sowed “seeds” on the ground. Today, some of those seeds are germinating, blossoming, and bearing fruit. This SmartLesson describes what steps we took, including selecting partners, mapping the journey, choosing partners for maximum impact, localizing training, and following up afterward. Background workshops in China. More than 280 representatives The IFC China Corporate Governance Program from over 170 professional institutions—including is a three-year advisory services project that aims management consulting firms, law firms, and to improve CG practices among Chinese private accounting firms—have participated in the companies through different types of intervention workshops. that focus on direct company assistance, knowledge Participant evaluations from the first seven workshops management, and capacity building. demonstrated the initial impact of the project. Since its inception, the program faced the small- Thirty-seven professional institutions that were versus-big challenge. With a small team of three trained incorporated the IFC CG methodology into and a small budget dealing with a big country and their consulting services to 115 client companies, a big market, how do we reach the maximum target provided CG training to 1,103 individuals, and companies in China to improve their CG practices reviewed 125 CG procedures for client companies with limited project resources? How do we accelerate for improvement. Ten of these institutions reported program impact throughout China as a whole? Who revenue of $259,036 generated from CG services to will be the program’s successors to deliver CG services their client companies. in the Chinese market after we exit? Lessons Learned After deep consideration, we designed what we called “The 10 Cities Project.” Our goal: to deliver 1) Select the right partner for the journey. 10 workshops on the well-established IFC CG It is important to have a strong local partner to methodology in 10 cities throughout China by co-organize the training in different regions and targeting local professional institutions to improve cities in such a big country. In the beginning, we their capacity to provide CG consulting services and chose a CG research center in China that had to better enable them to provide CG services to their participated in our CG training programs before client companies in China. and showed its commitment to cooperate with us as Since 2009, we have delivered 10 CG methodology our strategic partner for the 10 Cities Project. Later, 98 IFC Advisory Services in Sustainable Business we discovered that although the center’s regional, Beijing-area network was strong, it did not have a good countrywide network. That meant that we had to struggle on our own to organize and deliver the workshops in different cities. After some searching and consideration, we identified a good potential partner in the management consulting committee of the China Enterprises Confederation (MCC), which has an extensive, Training participants discuss the case studies in the Shenzhen workshop. countrywide network, including 56 provisional committees. MCC works as a bridge among of our program and began detailed discussions and enterprises, management consulting organizations, negotiations with us. At the initial negotiation, MCC and government. disagreed about sharing costs with IFC and also However, convincing this powerful institution to requested that IFC pay it for organizing the training embark on a long journey with a “stranger” was not workshops. We showed MCC the value of the IFC easy. In the beginning, MCC didn’t know about CG methodology for its member firms, which are IFC and had doubts about our motives in China. top management consulting firms in China; defined To dispel their doubts, we invited MCC’s officers common goals with MCC; and agreed to cover to IFC’s Beijing office for a field visit and showed the travel costs of one officer designated by MCC them what IFC has done in China in the past years. to travel together with us to different cities for the We also invited MCC’s director to participate in the training workshops. Ultimately, MCC agreed to help board of directors training workshop organized by organize the training workshops in different cities and the program. Gradually, MCC recognized the value share the workshop organizing costs, including the The 10 Cities China corporate governance program project e r v i ce s n su l ti n g s CG co ls y to o lo g do ho et m CG C IF Thousands of Hundreds of client companies possible CG consulting services providers in 10 cities One program: CCGP Lessons from IFC’s Corporate Governance Experience 99 provision of resources such as classroom facilities, • Sufficient target audience; equipment, lunch, refreshments and the like. MCC • Strong market need for CG services; also designated an officer who was responsible for recruiting target audiences and facilitated local media • Availability of support from MCC’s provisional reporting. committees; and • Breadth of impact across various regions, with 2) When deciding where to hold workshops, emphasis on frontier regions. map the journey together with your partner. Next, we created a list of around 20 cities and It’s a bit of an understatement to say that China is a narrowed it down to ten to 15, using the criteria big country. It spans a massive swath of geography to compare and contrast. Finally, our local partner and is home to more than 600 cities.18 Deciding MCC identified a final list after discussions with its on the 10 cities was definitely a challenge. Should provisional committees in the target cities. The route we go to cities in rich regions or in frontier regions? of our journey to 10 cities was mapped out. Should we hold sessions in large cities or medium- size cities? 3) Select good “seeds” for sowing by We started by identifying the important elements identifying the target audience and selecting that would form our decision criteria, such as local participants carefully for maximum impact. partners’ support and market needs. We discussed The objective of the 10 Cities Project is to build and these elements with our partner and settled on four strengthen the capacity of professional institutions key criteria: for CG consulting services and to improve the CG IFC team, MCC team and training participants in the Dalian workshop. 100 IFC Advisory Services in Sustainable Business Direct Quotes from Participants “What I learned from the training is not only the knowledge of corporate governance, but also a set of very comprehensive and practical tools for corporate governance advisory services. I will definitely adopt the methodology and provide corporate governance services to Trainers from IFC CG team (left to right: Charles my clients in the near future.” Canfield, Vladislava Ryabota, Min Liu) —Mr. Ren Haoqian, General Manager, Chengdu Daoqin Management Consulting Firm practices of their client companies through their “This is the best training I have ever attended engagement. Just as farmers select their seeds with in the past 30 years in China!” care so that they can have strong yields and quality —Ms. Ao Dongyang, Senior Consultant, . produce, we realized that we needed to select with Training Center of Shenzhen Qianghua . care the consultants who would be trained because University Research Institute they would play a key role in ensuring the success of the project. “CG is a journey. As a consulting service provider, we still have a long way to go. I We discussed at some length how to select our own believe my consultation will be much more good “seeds” for sowing in the 10 cities. We decided convincing, once equipped with IFC CG Methodology.” to limit the number of participants for each workshop to 20 to 40 people, and we noted that potential CG —Ms. Wu Qingzhen, General Manager, ­ ChongDaTongHao Management . service providers might come from management Consulting Co., Ltd. consulting firms, law firms, accounting firms, investment consulting firms, management schools “The difference between IFC training and other and the like. We also developed a list of qualifications training I attended from other places is that the for participants: IFC training is more practical. It’s amazing that tomorrow I can use the tools and skills I learned • Educational background; skills or expertise in from this training to provide CG services to my executive management, finance, corporate gover- clients.” nance, corporate law, accounting, or banking —Mr. Duan Fanglan, General Manager, . Tianjin Guanghua Enterprise Management . • General knowledge of corporate governance Consulting Co., Ltd. • Minimum of five years’ consulting experience “This training broadens my vision and also • Client list that includes a minimum of 15 com- provides me an opportunity to view CG panies that have used the participant’s consulting from a different angle. I will combine IFC’s services within the last three years CG methodology into our practice, and I am looking forward to the results of this • Willingness to incorporate CG consulting combination.” services as part of the participant’s portfolio of —Ms. Gao Yuexing, Deputy Director, Financial service offerings Department, Shanghai SHENYIN WANGUO Research Consulting Co., Ltd. A pre-training questionnaire was created that contained information on our selection criteria. Using the questionnaire, we conducted a pre-training survey Lessons from IFC’s Corporate Governance Experience 101 A training participant in the Beijing workshop presents the group discussion results. among the candidate participants in each city, which MCC outlined a low-cost approach to organize the helped select the best candidates. It also helped us training that included conducting the training in the understand their skills, experiences, and expectations training room contributed by MCC’s member firms for the training. in target cities and providing cost-effective food for lunch and coffee breaks. MCC also decided on a two- 4) Don’t give them a fish for free, but let tier pricing policy that charged $30 to participants them pay for fishing tools and teach them affiliated with MCC’s member firms and $220 to how to fish. participants not affiliated with MCC firms. Lessons learned from earlier advisory services projects showed that the participants might not value what 5) Don’t forget to acclimate to the local they learned from the training if the training were climate when sowing the seeds: localize free. To avoid this situation, we discussed the pricing your training. issue with our partner and agreed that MCC would To equip our participants with the skills they needed charge participants for the training and use the fees and to help them learn how to seek clients for their to cover part of the training costs. After consultation new offerings, we put a great deal of thought into with its provincial committees in the target cities, training design and preparation of training materials 102 IFC Advisory Services in Sustainable Business to fit the Chinese context. To ensure that the IFC and case studies to them about every two months methodology training would be linguistically and by e-mail. Each time, we received many feedback culturally appropriate in China, we localized the e-mails from participants who highly appreciated training by translating all the tools into Chinese and our knowledge sharing. We also sent participants adding local case studies into the training materials. a greeting card when the new year came in. We worked with our colleagues from IFC’s CG unit, • Develop and distribute a handbook on CG Charles Canfield and Vladislava Ryabota, to develop consulting services. We are planning to work a comprehensive training model, which includes together with MCC to develop a user-friendly presentation slides, case studies, sample documents, handbook on CG consulting services for more in-class exercises, and practical tips. potential CG service providers. The handbook The training agenda was designed to avoid talking too will include some real cases on CG consulting much about CG in general. Instead, we focused on services in China contributed by the trained presenting the tools and how to apply them in China. people who have incorporated the IFC CG During the 1.5-day training session, we also shared methodology into their consulting services. our experiences on how to interview client companies • Organize a CG forum to build a bridge between and brainstormed with participants on how to enterprises (potential CG services buyers) and sell CG consulting services to target clients. Local the trained firms (CG service providers). We are guest speakers talked about their own experiences planning to co-organize an event with MCC in providing CG consulting services for Chinese in Beijing after the handbook is complete. The companies. Participants also had opportunities project-trained people will be invited to the to discuss ways to localize and customize the forum to directly communicate with enterprises methodology. on CG consulting services. 6) Don’t ignore your seeds after sowing them, Conclusion but water them regularly for sustainable The IFC China Corporate Governance Program growth. sowed hundreds of “seeds” along its journey in China. Training is not a one-off event. Don’t ignore the Some of these seeds have germinated, blossomed, people trained by the project after the training. Give and borne fruit, while others will need more time. them sustainable support. However, the lessons from The 10 Cities Project have relevance for other CG advisory projects aimed On the second day of the training, most of the at improving enterprises’ CG practices through questions from participants focused on concerns strengthening local capacity. about follow-up support from IFC and MCC. To address the participants’ needs, we developed a follow-up plan for the 10 Cities Project: • Invite participants to suitable CG events. For About the Author Min Liu, Associate Operations Officer for the IFC China example, we invited some of the trained people Corporate Governance Program, joined IFC in 2003, having to the seminar on board crises organized by previously worked as a lawyer and university instructor in China. the program in Beijing to equip them with the knowledge of CG as a response to financial crisis. Approving Manager • Regularly share good CG articles and informa- Sergii Tryputen, Manager of the China and Mongolia Corporate Governance Programs tion. To maintain good relationships with the August 2010 trained people, we sent good CG reports, articles Lessons from IFC’s Corporate Governance Experience 103 Learn Before You Lead: The Corporate Governance Board Leadership Training Resources Kit Most codes of best practice in corporate governance require directors to undergo periodic training to improve their knowledge and skills so that they can become better leaders and change agents of their companies. After holding four residential corporate governance leadership courses in Washington, D.C., and consulting with institutes of directors, universities and other trainers, IFC’s Global Corporate Governance Forum19 identified the need for a global corporate governance curriculum targeted at directors of companies in developing markets. Background director development programs. After surveying Research demonstrates that better-governed the landscape, we concluded that, although director companies attract capital at a lower cost and perform development was a relatively new phenomenon, better in the long run. Better companies also lead to a lot of good material and curricula were already better societies, creating sustainable businesses that in existence in more than 30 countries, including contribute to the overall economic development the curriculum developed by the IFC Corporate of the countries within which they operate. Our Governance Advisory Services team in the Middle challenge was to help boards of directors understand East and Northern Africa region. However, some the concepts of corporate governance and how these training centers, especially those in developing and concepts can be turned into practices that add value transition economies, did not have the resources to to the company. From that understanding, the boards develop their own curricula, or had weaknesses in of directors can act as agents of change by analyzing their programs and needed additional material to the boards on which they sit, identifying shortfalls enhance their training offerings. from best practice, and implementing the necessary We therefore decided to use current best practice changes to make their boards more effective. already in place in certain parts of the world and to To address this challenge, we decided to develop the use this knowledge to develop a generic program and Corporate Governance Board Leadership Training materials targeted at directors’ training institutions and Resources Kit to strengthen the skills of corporate associations in developing and transitional countries. governance trainers, who, in turn, would work Following are some of the key lessons we’ve learned directly with company directors and members of while developing and implementing the Resources Kit. governing bodies (referred to herein as directors or boards of directors). By doing so, training programs Lessons Learned can exponentially improve national capacity to achieve wider adherence to corporate governance 1) Use a multidisciplinary team to develop best practices. materials that are interactive and appropriate for adult learners. When the project started in 2006, we were also aware that there were more than 70 existing providers of The research we gathered showed that, although large numbers of directors were being trained in 104 IFC Advisory Services in Sustainable Business various programs, the impact of this training was not reflected in improved board leadership and practices. Resources Kit Features We decided to consult specialists in adult learning to see if they could identify why this was so. One • Emphasis on interactive exercises for adult learn- expert, Mary Jo Larson, advised us, “Directors with ers that draw on participants’ diverse, relevant knowledge of corporate governance may not have experiences the skills or confidence to influence their boards. To • Maximum flexibility through a modular curricu- activate directors, [it is important to] provide a safe lum that can be adapted by institutions to suit space for board members to discuss local realities, their needs and those of their directors plan strategies with peers, and practice the leadership • A standardized curriculum that includes skills required to bring constructive changes to board PowerPoint presentations to enhance the learning experience and minimize the training decision making.” provider’s investment of time and resources for The Training Resources Kit therefore includes curriculum development a separate Training Skills Guide that provides • Advancement of corporate governance reforms interactive learning strategies that trainers can use to by instilling in participants leadership values that enrich the sessions for adult learners. Within each can help them to work within their companies or organizations to adopt best practices training module, there are activities that provoke discussion and debate. Also included in the Training • Creation of long-term relationships with those responsible for implementing corporate gover- Resources Kit is a case study that traces the evolution nance best practices of a hypothetical founder/family-owned company, Organica Futura, while it considers corporate • Enhancement of the training provider’s brand and authority in the policy-making process to develop governance reforms as part of its evolution toward national corporate governance codes becoming a public company. • Encouragement of participants to be “change To develop such material, we pulled together a agents” of corporate governance by developing multidisciplinary team of five consultants with the knowledge and skills needed to build support within their boards for implementing best expertise in corporate governance, adult education, practices and strategic communication. The team spent 18 months developing the Training Resources Kit. We also got director training institutes and other trainers to contribute their knowledge and assistance. facilitators, is keeping costs at a level that participants Although each consultant worked separately on his can afford. or her section of the Training Resources Kit, it was critical to hold regular meetings with the core team 2) Flexibility is key: Consider a modular to peer-review all sections, discuss key challenges, and approach and encourage institutes to ensure an integrated approach to the material as it was “localize” and own the material. being developed. Given the fact that we are a global program, and In deploying the training, we found that interactive due to the disparate nature of the countries and learning techniques work better in smaller groups. the levels of the skills base within the countries in We therefore advise training providers to run which we operate, we decided to adopt a modular workshops with from 20 to 30 participants so that the approach to the curriculum within the Resources participants can maximize the benefits of the training. Kit to give it maximum flexibility. Trainers can use One of the challenges of this for local training single modules for their presentations, as well as providers, especially where they have to pay for combine the modules to present a course suitable to Lessons from IFC’s Corporate Governance Experience 105 Group exercise at the launch of the Corporate Governance Board Leadership Training Resources Kit, Washington, D.C., March 2008. the requirements of those directors being trained. The institute to localize it to regional or country-level Resources Kit’s curriculum is divided into five parts. requirements. The Training Resources Kit is only The first four parts each contain four modules; the a framework, and this is clearly explained to each fifth has only one. Each module includes: trainer and each institute when we do our training- of-trainers program. Depending on the institute’s • Contents and schedule: a detailed lesson plan, level of development, some may require extra allocating time for each activity, and directing the assistance to work on this localization—for example, trainer to relevant material (PowerPoint slides, preparation of case studies to be used during handouts, case studies) training. • Notes: providing background material and source references But even when the Forum is providing help to the institutes to localize the material, the ownership • PowerPoint Slides: to support the trainer’s element is crucial to the success factor: ultimately it presentation. These can be modified to match is the institute that will run the program and respond the branding identity of the trainer and also be to local market demand, and therefore the national localized so that directors can obtain information ownership is imperative. This scalability building that is relevant to them process has also proven to be a resource-intensive Because the Global Corporate Governance Forum is process (both financial and human resources) that a global program, we couldn’t develop the Training requires attention and guidance throughout, and that Resources Kit for a specific region or country. From often causes a major challenge for local institutes and the start, we knew we had to keep it at a general institutional development partners. level, and that it would require more work from each 106 IFC Advisory Services in Sustainable Business 3) Use the Internet to build a community of trainers. “I thought at first this was going to be yet Because we had limited resources to roll out the another feel-good workshop. But I realize Training Resources Kit, we looked at different ways now that I have been given the tools to to use it for maximum effect and decided on a open doors and work with people in a training-of-trainers approach. We held a workshop different way—just by noticing their in Washington, D.C., with representatives from preferences, their strengths, and the way directors’ training institutions and individuals they make decisions. This is going to help involved in training directors in Africa, Asia, Eastern Europe, Latin America, and the Middle East and me as a trainer and as a board director.” North Africa. This group would help us disseminate —Malawi TOT participant the Training Resources Kit in the future by running their own TOT courses or by using the Training Resources Kit to train directors within their region. community of trainers who have undergone the same training and can further share experiences. This allows Since the first workshop, which had 20 participants, for a platform of cross-pollination. there have been 16 TOT courses held in 13 countries across four continents. As of December 2009, more In addition, we decided that every individual or than 300 trainers have been trained to use the training institution using the Training Resources Training Resources Kit. Kit for training would be required to enter into a contract with the Forum. The contract stipulates how Because the participants in the TOT sessions are the Training Resources Kit can be used and what from all around the world, we developed a new feedback needs to be given to the Forum on its usage. online resource—a blog—to support the Training For that reason, the agreement provides evaluation Resources Kit. On the blog, trainers can freely obtain samples and survey samples that the institutes can use the content and resources in the Training Resources for data gathering. Kit and are able to access any future edits/additions to it. The blog also facilitates collaboration through the This feedback is important, as it helps us to better sharing of ideas and experiences—thus building cross- understand the impact of the training, provides regional engagement. information to us and our donors on the impact of the Training Resources Kit, and allows us to measure 4) Employ mechanisms to maintain quality its usage and relevance to those directors who have control and ensure feedback. been trained. To exert quality control over use of the Training Evaluation forms to be completed by training Resources Kit, we instituted password protection participants are included in the Training Resources for the blog, with access restricted to those trainers Kit. From these evaluations, it is evident that those who have participated in and completed a training- trained to date with the Training Resources Kit have of-trainers event. This was an essential part of our found it to be very relevant and useful. Participants dissemination strategy, not only to make sure that have also rated the use of the interactive adult intellectual property rights were protected, but also learning techniques highly, rating the overall quality to ensure a measure of quality control. After all, if at 4.64 on a 5-point scale. Evaluation has been we let anyone access the blog, they would be able to highest where the Training Resources Kit has been download the material without having been trained localized and local trainers have been used to pass on in it. Including only Forum-trained trainers creates a their experiences and demonstrate hands-on skills. Lessons from IFC’s Corporate Governance Experience 107 also allow a deeper, longer-term intervention. In turn, deepening the Forum’s intervention will allow for providing ongoing support, including a regular consultative approach. It’s becoming apparent that a one-time TOT event is not enough for trainers to become proficient and to show behavior changes. There is a need to develop a series of TOT sessions for trainers from those directors’ training institutions and corporate governance associations that have implemented and are successfully using the original TOT methods and techniques, so as to help them Interaction at a training-of-trainers program in Brazil, consolidate and build on the skills they have learned. February 2009. This will also lead to a more efficient data-collection process, which has been a major challenge in the We are also looking at ways to measure the impact first roll-out phase. Having a narrower, longer-term on boards of the training that is carried out using approach will enable us to help guide the institutes the Training Resources Kit. This is obviously more through the monitoring and evaluation mechanism difficult than evaluating the knowledge transfer at and requirements, which should result in more each of the training workshops. To date, we have had systematic feedback on the longer-term impact of the low responses to surveys carried out on the impact training on the trained directors’ boards. the material has had on boards, so this is one area on Finally, having a longer-term intervention with which we will be concentrating in the future. institutes and their trainers will facilitate the development of a real-life case studies database from Conclusion: Evolving the local trainers. This user contribution system approach Training Resources Kit will leverage trainers’ contributions in ways that will be Corporate governance is a constantly changing subject, useful to other trainers and will be shared through the and we realized from the evaluations that we need Web-based Forum-trained community of trainers. to keep the Training Resources Kit evolving while enhancing the overall impact effectiveness. This year, the Forum will organize a review meeting, gathering a About the Authors small user group to reflect on lessons learned across the Ghita Alderman, Projects Officer at the Global Corporate Governance Forum, oversees the Sub-Saharan Africa regions and discuss the different experiences, successes, portfolio, and managed the development of the Corporate and challenges. Discussions will be formulated around Governance Board Leadership Resources Kit as well as its how we will move forward with the material and its dissemination strategy. dissemination strategy. Alison Dillon Kibirige, Fellow of ICSA and qualified UK solicitor, worked for more than 20 years as a company Going forward, it is becoming apparent that the secretary. A consultant to the Global Corporate Governance Forum in the East Africa region, she has served on the Forum’s engagement with the training institutions faculty team at numerous training-of-trainers programs. and corporate governance associations needs to be done on a smaller scale to ensure higher impact and Approving Manager Philip Armstrong, Head of the Global Corporate stronger local ownership. Working with a narrower Governance Forum pool of institutes that already have the structures in January 2010 place to absorb the resources’ intensive process will 108 IFC Advisory Services in Sustainable Business From Takeoff to Landing in Accrediting Corporate Governance Training Programs Most of the OECD member countries have training institutions that offer corporate governance courses and programs for directors (for example, the Institute of Directors in the United Kingdom, the National Association of Corporate Directors in the United States) that have received independent accreditation.20 There is a high demand among corporate governance institutes and institutes of directors in the Middle East and North Africa region and possibly other regions to have training programs that are accredited by recognized international bodies. Background After researching and asking within IFC to find out The IFC Egypt Corporate Governance Project whether IFC could accredit training courses and/or sought to create a culture of good corporate governance certify directors, the answer was simply “no,” because in Egypt and, despite its short lifetime of two years, IFC is not an accreditation body. And yet we own managed to pave the way for such a culture. The the know-how; we have the expertise to formulate ECGP helped the Ministry of Investment create the and develop training programs. Because no other Egyptian Institute of Directors and strongly supported corporate governance project in IFC has pursued the its activities over the lifetime of the project.21 opportunity of seeking accreditation for a corporate governance training course, we decided to become In May 2007, ECGP offered the “Board pioneers, and along the way we learned some valuable Development Series.” Designed by four officers, the lessons. program consisted of 24 modules with 72 hours of training over 12 nonconsecutive days. It was the Lessons Learned first such program to be available in the region and was carried out through the EIoD. The first group 1) Make sure that the accreditation agency is of trainees included 25 high-profile delegates from reputable and credible. prestigious large corporations and banks in Egypt. We knew for sure that selecting the right accreditation The participants appreciated the knowledge gained body would be a key starting point to the success from this intensive program, but at the end of and sustainability of the BDS program. But the big the first of four parts, they asked us if we granted challenge in our case was to find a reputable, credible certification22 for successful completion of the agency that would accredit a corporate governance training program. training program. Unfortunately, there is no list of accreditation agencies, especially when it comes Soon after this first course, it became quite clear that to corporate governance programs. We contacted there was a demand among corporate governance several corporate governance experts within IFC as institutes and institutes of directors in MENA to well as from other top-notch corporate governance have training programs accredited by recognized institutions, such as the National Association of international bodies. Accredited programs are held Corporate Directors and the Conference Board. in high esteem by participants because they not Many of them referred RiskMetrics to us. only benefit from the learning experience during the training but also become certified. Lessons from IFC’s Corporate Governance Experience 109 …It became quite clear that 2) Ensure that your program meets the accrediting agency’s expectations. there was demand among Before you start the process of accreditation, review corporate governance institutes the accrediting agency’s standards and requirements to make sure your program meets them and, if not, and institutes of directors whether you could alter the program to meet these in MENA to have training qualifications. programs accredited by You don’t want to be in a situation where you apply and receive a refusal. This might have negative recognized international bodies. implications for your program, for IFC, and for your partner. Especially in the MENA region, word of mouth is very powerful, and negative word of mouth RiskMetrics Group, formerly known as Institutional can kill a program before it even starts. Shareholder Services, is a worldwide proxy and According to RiskMetrics, “Only director education corporate governance service provider committed classes that meet or exceed RiskMetrics Group’s to helping companies improve their corporate standards receive accreditation.” governance. As part of this commitment, RiskMetrics Group accredits director education programs that The following are examples of these standards: foster improved corporate governance practices. By • The program must consist of a minimum of eight accrediting selected director education programs, hours of instruction directors are exposed to today’s best practices in corporate governance. Only director education • The curriculum must focus on improving a classes that meet or exceed RiskMetrics Group’s company’s corporate governance practices standards receive accreditation. Each curriculum is • Programs should address topics such as board evaluated based on the promotion of strong corporate oversight of management, the work of the key governance practices. board committees, board performance evalua- tions, succession planning, and the like Since its initial release in June 2002, RiskMetrics Group’s Corporate Governance Quotient has become the industry standard for rating companies on their governance structure and practices. RiskMetrics has accredited more than 50 leading programs, including the NACD, the Stanford Directors’ Summit, the Harvard Business School, the Conference Board, and the Wharton/SpencerStuart Directors’ Institute. Directors attending an accredited director education program gain valuable insights, and RiskMetrics Group will take this continuing education into consideration when evaluating their company’s CGQ® score. CGQ® credit for companies with directors Participants listen intently as IFC facilitator conducts attending an accredited program lasts for two years. training event. 110 IFC Advisory Services in Sustainable Business of delivery; the curriculum materials, exercises, cases, and support and reference materials; the trainers’ recent biographies, including their experience that is relevant to the topic to be delivered; annexes, references, and additional resources; and sample and model documents. You should be ready and reply directly. Don’t underestimate the work involved; there is a tremendous amount of information needed, and the work to be carried out is huge and needs a lot of time to complete. But, once you collect all that is needed, IFC trainer conducts program for certified directors. there is a high certainty that the program will be accredited. It goes without saying that all of these materials and much more should be in a standardized The BDS met all the standards except for one format, edited and reviewed by professionals, and condition, which was that at least 25 percent of definitely approved by your manager. the speakers must be current or former directors of The accrediting agency will then have a committee publicly traded companies. review the program, request any additional This was a bit tricky because we were planning to information or documentation if necessary, deliver the entire program ourselves. However, and suggest changes. Benchmarked against the we managed to get the speakers on board through accrediting agency’s standards, the committee then screening, interviews, and selection, and provided decides whether to accredit the program. them with training-of-trainers sessions. We also relied on our senior operations manager more than once to 4) Once accredited, add your own requisites deliver two modules because he had previously served to boost credibility. on different boards. You can take the accreditation body standards to the next level and add your own requisites to 3) Allocate time and resources for preparation the certification stage. According to Wikipedia, of a lot of material. certification requires providing proof of passing To expedite the accreditation process, make sure that standards or meeting predetermined requirements you prepare the basic information in advance. For for certification. This may include meeting instance, basic information can include the title of continuous or regular review requirements. your training program (which should be standard Professional certification for individuals usually for all your documentation), the sponsor (IFC, in requires experience and the passing of knowledge or our case) and training provider (IFC partner), the competence tests. program agenda, and program dates. Submit the basic For instance, RiskMetrics grants certification after information along with your first request. participants have completed a minimum of eight Later, when the agency contacts you, it will require credit hours out of the total BDS 12 credit hours. more in-depth information. This can include such We added an additional requirement of successfully things as the detailed outlines and instructor sheets passing self-evaluations (approximately 240 of every program module; the number of delivery multiple-choice questions) where the minimum hours for each topic in every module and the means pass rate is 80 percent for the combined results. Lessons from IFC’s Corporate Governance Experience 111 This was and still is not a condition imposed for instance, now organizes the BDS training program by RiskMetrics, but we believe that having this four times a year, in English and Arabic. With each of requirement will add more credibility to the program. these courses, the partner earns more than $100,000 And it turns out we were right. The implication of our per year. requirement is that participants who pay and attend The accredited BDS, which became the flagship of the BDS will not receive certification unless they meet the EIoD, supported the IFC exit strategy not only in our requirements and those of RiskMetrics. terms of the financial sustainability of the institute, but also because RiskMetrics’ continuous follow-up Conclusion and supervision of the EIoD ensure that the training The whole process of accreditation by RiskMetrics program consistently retains its high quality. took us six months. It may be a prolonged process, but the benefits are enormous. The RiskMetrics RiskMetrics has granted automatic accreditation to charge for accreditation was zero; hence there was the same BDS training program offered by other IFC no cost involved, apart from the time of IFC staff partners, such as the Pakistan Institute of Corporate members. Governance and the UAE’s Mudara Institute of Directors. International accreditation, which entitled program participants to carry the “certified director” title, had a profound marketing impact on the demand About the Author for repetitions of the training program. Before Yehia El Husseiny, member of IFC’s Corporate Governance Program team with IFC Advisory Services in the Middle East accreditation, the course was a bit hard to sell. For and North Africa. example, in Egypt before the program was accredited, the EIoD had trouble getting one group of trainees Approving Manager Martin Steindl, Program Manager, Corporate Governance, (about 17 participants) to attend during the first six IFC Advisory Services in the Middle East and North Africa months. After accreditation, the same institute easily August 2009 gets four to five intakes a year. One of IFC’s partners, 112 IFC Advisory Services in Sustainable Business Mainstreaming Lawyers and Judges to Improve the Corporate Governance Regime: The Pakistan Example Characteristically, corporate governance projects have focused on directors and senior managers. However, since 2007, the IFC Pakistan Corporate Governance Project has hosted a seminar series for judges and lawyers with the goal of inspiring and equipping young legal talent with the necessary skills to play an instrumental role in improving the corporate governance regime in Pakistan. The seminar series, which included two seminars directed at lawyers and three seminars for judges, with 134 participants overall, signified a strategic realignment in bringing the legal fraternity into the fold of the project’s activities. This SmartLesson demonstrates how the legal community can be used as a vehicle for corporate governance reform in a country. Background cumbersome court procedures, lawyers and judges There is strong evidence that lawyers and judges in Pakistan may be your best chance to ensure that can be instrumental in improving the corporate corporate governance disputes are resolved outside the governance regime in a country. First, most countries courtroom, with them as mediators. have a mandatory corporate governance code, and corporate lawyers are regularly consulted by Lessons Learned companies seeking compliance with these regulations. 1) Get early input to identify the prime Second, they have access to a company’s higher constituency to work with. echelon, whose commitment to good corporate governance is a decisive factor. Third, once sold on From the start, we engaged with lawyers. Following the business case for corporate governance, lawyers a consultative process that comprised one-on-one are able to influence a meaningful change in owners’ meetings with various lawyers, we decided to target behavior and help them improve their corporate young talent. The benefits of this approach were governance. Fourth, lawyers’ input in drafting obvious. Young lawyers tend to be more receptive relevant corporate governance regulations brings them than their senior colleagues in approaching a subject. to the forefront of corporate governance reform. Without having already developed professional bias regarding most corporate governance issues, they are Lastly—and this is the central point of this more likely to approach any training with an open SmartLesson—minority shareholders’ rights are mind. In the formative stages of their careers, they traditionally protected through a court-driven are also more flexible in pursuing higher education or process. However, given the uncertain outcome and independent research in the corporate governance area. expense incurred in pursuing court proceedings, minority shareholders can benefit enormously from Although the idea of targeting judges seemed out-of-court settlement of their disputes. In fact, straightforward on paper, we soon realized the due to scant shareholder activism, coupled with first challenge we faced in organizing a seminar for Lessons from IFC’s Corporate Governance Experience 113 judges—how to access this group who preferred to senior management, and shareholders through remain out of the public eye except when presiding the use of alternative dispute resolution measures, over trials? After some thought, we decided to including mediation and other statutory mechanisms establish contact with a training institute. We thought for protecting minority shareholders against majority this would ensure that judges turned out en masse oppression and mismanagement. In addition, court to participate in trainings, and hence we would have decisions were used as case studies to highlight the more impact in delivering the corporate governance nature of corporate governance disputes in Pakistan. message designed for them. A training institute’s One example is a recent ruling of the High Court that involvement, we calculated, would, by default, be an put the corporate governance of one of the bidders endorsement of the value of corporate governance in a high-profile privatization transaction right in the training for judges (which at this stage was going to middle of a controversy regarding the eligibility for be first of its kind). such sale. We approached the Federal Judicial Academy, a In working closely with the Academy and directly government-run training institute. The Academy, with judges, we received invaluable input for established in 1988, is the oldest judicial training developing group exercises for workshops with young institute in Pakistan and provides training for judges lawyers. For example, each individual judge was nationwide, unlike its provincial counterparts. asked to write a judgment in favor of good corporate However, as the Academy focuses mainly on governance practices in a fictitious corporate delivering hard-core judicial training, we had to governance dispute. We also developed a group convince them of the rationale for supplementary exercise in which lawyers would put themselves in training on corporate governance. Over multiple the shoes of an advisor to the securities regulator meetings, we explained that such training would and propose changes they would like to see made to emphasize the court’s role in addressing minority the corporate governance code. Research conducted shareholders’ concerns. The emphasis on alternative on corporate governance–related disputes and their methods for the resolution of corporate governance out-of-court settlement by the Global Corporate disputes, we pointed out, was also essential for Governance Forum, an IFC multidonor trust fund reducing court burden and efficient settlement of facility mandated to improve corporate governance such disputes. As a result of these discussions—which policy standards and practices in developing centered on the rationale for and the basic outline countries, provided more in-depth insight to the of the seminar series—the Academy was able to training. recognize the value of conducting these seminars. 3) Sell the business case for 2) Tailor the presentations to your corporate governance. audience’s needs. According to a survey of corporate governance The consultative process with the law firms and the practices in Pakistan, commissioned by the project Academy also helped us develop training material in 2007, an overwhelming 89 percent of respondents that was audience-focused. Based on the feedback stated that a mandatory corporate governance code received from lawyers, the training material on the was the main reason for their compliance with good one hand highlighted the role of lawyers in improving corporate governance practices. Given that many the corporate governance of their client companies. nonlisted companies are not obliged to comply with On the other hand, the seminars emphasized the need the corporate governance code, tackling this narrow for effective resolution of disputes involving boards, view was a tough challenge. We focused on training 114 IFC Advisory Services in Sustainable Business their input to help with developing a toolkit for resolving corporate governance−related disputes. We also reviewed the Forum’s toolkit and provided our input to its contents. Further, in association with IFC’s Alternative Dispute Resolution Project in Pakistan, we designed a half-day workshop for Khawar Ansari, a member of the Pakistan Corporate mediators trained by the Karachi Centre for Dispute Governance Project, addresses a group of mediators Resolution on their role in mediating corporate during a training workshop at the Karachi Centre for governance disputes. Consequently, the two projects Dispute Resolution. were able to join forces for a common agenda. The project team also made best use of the diverse skills in law, management, and corporate governance at to help both lawyers and judges fully understand its disposal. For example, a team member with legal the underlying economic rationale for good qualifications took the lead role in designing and corporate governance practices—such as increased undertaking these activities. efficiency, lower cost of capital, and increased access to capital—in order to put them on the same page Conclusion with enlightened managers and directors. During presentations, we shared with participants various Some key outcomes illustrate the project’s success in findings from research conducted by leading resources training lawyers and judges in corporate governance. that linked good corporate governance practices We received subsequent requests from the Academy with the building of more efficient organizations—a to make the seminar available again. We also plan characteristic valued highly by investors. This to engage them for a follow-up seminar. But, the provided a potent redress, because we felt that any most interesting outcome is that, by focusing on change in the perception of lawyers would trickle lawyers as a new target group, we were able to find down to their clients. One clear proof of this was that creative ways of supporting other programs and units many participants highlighted the economic rationale within IFC that paved the way for future interaction for good corporate governance in both the discussions with these programs and units to support a better and the group activities during the seminars. corporate governance regime. For the project, such close cooperation with these programs and units 4) Exploit synergies to enhance the within IFC is aimed at increasing our corporate benefits of the intervention. governance footprint in Pakistan. The seminar series led to other opportunities for working with lawyers with other IFC programs About the Author Mohsin Ali Chaudhry, member of IFC’s Pakistan Corporate and units, thus helping to avoid duplication and Governance Project team. enhance the overall impact of the Corporate Governance Project’s activities. Through close Approving Manager Martin Steindl, Program Manager, Corporate Governance, cooperation with its staff, the project helped the IFC Advisory Services in the Middle East and North Africa Global Corporate Governance Forum to reach out May 2009 to local lawyers and relevant institutes and solicit Lessons from IFC’s Corporate Governance Experience 115 A Bird in the Hand is Worth Two Fleeing By: Creating a Corporate Governance 23 Course for the University of Belgrade It all started with good intentions. IFC’s corporate governance program in Southern Europe was in contact with the law faculty of the University of Belgrade to discuss possibilities to help it develop CG courses. As it happens, when you initiate talks with potential partners, we found that another institution was also discussing development of a new course with the university. The institution was in talks with the faculty of economics and showed interest in corporate governance. We decided to join efforts and try to develop a new product with both faculties. This SmartLesson discusses how IFC’s CG program in Southern Europe collaborated with many different partners at the University of Belgrade to set up a corporate governance course. Background reports. The SC was meeting as scheduled and This process started in early April 2006. We had a first formally approving all milestones. meeting with representatives of both faculties and By May 2006, everything was ready. The first chosen quickly decided that each organization should allocate option was to launch a specialization course on CG one person to handle this process on a daily basis. We in September 2006. This course would focus on called them managers. We also appointed a Steering the financial and legal aspects of CG. The faculty Committee, represented by the people in charge of of economics would cover all topics related to every institution, and decided on the working rules. information and disclosure, as well as auditing and The rules were simple. The SC would be in charge financial reporting. The law faculty would cover all of the key material decisions and would meet a other topics. The target audience would be executives minimum of twice a month, unless otherwise and other high-level managers from companies. The needed, in order to approve each milestone of the course would charge fees and would be profitable. A project. Our first decision was to conduct a joint combination of local and foreign professors would feasibility study and present the available options to allow local professors to learn from their foreign the SC for its final deliberations. Driving directions peers in the long run, and would also help the course for the study were the use of synergies between the gain credibility in its first year. Other medium-term two faculties; sustainability; and a combination of options included development of optional courses short-term, medium-term, and long-term projects, and gradual inclusion of CG in the formal curricula. as well as undergraduate and postgraduate options. Two weeks before the official launch of the The feasibility study was due before the end of the promotional campaign for our specialization course, summer semester of 2006, so that we could start the a representative from the faculty of economics called courses in the winter semester of 2006–2007. for a special meeting of the SC, during which he At the beginning, everything went as planned. suggested a new approach. He was not satisfied with Managers were meeting regularly and drafting their the division of the courses among the two faculties 116 IFC Advisory Services in Sustainable Business and thought his faculty was not getting enough recognition, as he thought his level of involvement Instead of telling them what was greater than the one provided by the law faculty. we could do, we decided to Furthermore, he felt that too much focus was being put on the legal aspects of CG and not enough on let them bring us their wish the financial aspects. Therefore the conclusion was list. The idea was simple: we that the faculty of economics would not support the agreed plan. He suggested a new plan in which the can help you, but we want faculty of economics would take the lead on a number you to tell us how. of topics. He concluded, “Either we work this way, or I am out of this project.” Days afterwards, the project team met with the representative, but he was reluctant be around 30. That number of participants was also to change his mind. seen as optimal to allow for discussions and debates by participants. All the work we had done was wasted. Although disappointed, the CG program decided to focus only The IFC Corporate Governance Program provided on the law faculty. Instead of trying new approaches, we advice on the syllabus and contacts with academics decided to focus on what the law faculty was good at. from abroad. Within months, the project became Instead of telling them what we could do, we decided very concrete, and the specialization course on CG to let them bring us their wish list. was launched in April 2007 with 40 participants. This course lasts eight months, with classes every Saturday. The idea was simple: we can help you, but you tell us The participation fee is €1,000 ($1,313), which how. Very quickly, the law faculty explained that they makes the course fully profitable. With this setup, the had specialization courses on several topics but not on CG project had no costs to bear and only provided CG. These specialization courses were intended for all advisory services. interested participants, as long as they had a bachelors degree in social sciences. The fees were calculated Lessons Learned in order to make the course profitable, and the minimum number of participants was determined to 1) Too many partners may seriously hinder the end result of a pilot project, especially if they bring different agendas to the table. Even though we had agreed on formal working rules and had formal meetings where everyone agreed on the course of action, we could not prevent the sudden change that happened at a crucial point in the process. 2) Always ensure that you perceive potential conflicts of interest beforehand and act accordingly. Course participants listen intently during one of the courses. We should have considered earlier the fact that the two faculties involved are often competing. We Lessons from IFC’s Corporate Governance Experience 117 thought we would overcome this by formalizing the not feel committed to our Memorandum of process, but we were unable to because of the strong Understanding. Would a formal contract have made differences between the two faculties. a difference? We do not think so, because at the end of the day we would not have been willing to 3) Do not aim for solutions that are too enforce our contract with partners to our program. complex. Find out what your partners do Therefore, commitment and buy-in at the beginning well and use their experience, rather than are essential. From our perspective, the way to gain trying to teach them new things at the very this commitment and buy-in is to understand the beginning of your cooperation. agenda and priorities of your potential partners. After This helps to build goodwill. Eventually we that, you just need to ensure that you take their views succeeded by following the specialization model into consideration and provide them with sufficient of the law faculty. This also allowed us to act faster recognition. in the process. Now that we are cooperating on one project, the faculty has asked our advice on a number of other issues. About the Author Juan Carlos Fernandez Zara, Regional Program Manager for 4) If you work with partners that have the Corporate Governance Program in Southern Europe, was at Ernst & Young, Switzerland, before joining IFC. different agendas, try to get their buy-in and commitment before you start. Do not expect Approving Manager a legal document to do it for you. Philip Condon, Head, IFC Advisory Services in Southeast Europe, Belgrade One of the reasons for the failure of our first May 2007 initiative was that our partners (faculties) did 118 IFC Advisory Services in Sustainable Business Getting Universities to Adopt Corporate Governance: Not as Easy as It Looks! The main goal of IFC’s Corporate Governance Project in Pakistan is to establish sustainable capacity in the country so that, once the project is over, institutions will be able to improve their corporate governance practices to international standards using locally available resources. The project aims to achieve this goal by helping set up a stable and robust regulatory framework, establishing sustainable institutions to train directors and improve board performance, training the media in selecting and reporting on issues that communicate the local relevance of corporate governance, and encouraging business schools to incorporate corporate governance as a core subject in the MBA curriculum. Background Lessons Learned This last goal—helping universities embed 1) Get buy-in at the outset. corporate governance into the Master of Business Administration curriculum—is the focus of We chose to start with a local university so that this SmartLesson. This important focus aims to we could manage any hiccups with close personal inculcate best practices at the grassroots level and attention. The first step was to embark upon a build a resource pool of formally trained corporate fact-finding mission to gauge the appetite of key governance expertise. The key steps in the process stakeholders and determine their requirements for are: a corporate governance course. To accomplish this mission, the project team organized a half-day seminar • Getting buy-in from faculty and students at the with faculty members, the head of the business school, start; and postgraduate students. The seminar gave us the • Conducting a training-of-trainers program for opportunity to assess the different stakeholders’ levels the business school faculty; of interest in a corporate governance course. Based on the seminar, we concluded there was sufficient traction • Strengthening our relationship with the key from faculty and students alike to encourage us to sign stakeholders at the university; and an agreement with the university to proceed with the • Remaining connected with the students development of a corporate governance curriculum to reinforce the importance of corporate and the design and delivery of a TOT program for governance. the faculty. In achieving this milestone, we had to navigate some potentially tricky hurdles that threatened the 2) Make course corrections in a timely manner. success of this entire initiative. The SmartLesson After developing the corporate governance below—lessons learned while implementing the curriculum, designing the TOT program was first corporate governance course based on IFC’s relatively straightforward. All we had to do, it seemed, material and taught by a university in Pakistan— was to select the relevant material, adapt the content shows how the project team addressed these to the local context, and deliver the training. Before challenges. Lessons from IFC’s Corporate Governance Experience 119 the three-day training, we paid one last visit to the their achievements, we were able to reinforce our key business school to confirm areas of focus of the messages on good corporate governance practice. training. All the pieces of the puzzle seemed to be This marked a turning point in the process, because clicking into place. the audience started to engage and take ownership of the material we were presenting. As a result, the The first part of the training was going as planned. atmosphere calmed down and became more positive The audience appeared to be attentive. As the and conducive to learning. This change was reinforced presentations unfolded, however, we began to sense in the positive feedback from the post-training an uneasy silence. We realized that many in the evaluations. audience were not responding; they were looking into space! Then, as the presentations became more and 3) Continue to build bridges with the key more intricate, some members of the audience started stakeholders after the event. to become agitated. A couple of the faculty lecturers began to share their fears. They questioned whether Because we wanted to ensure the successful the concept of corporate governance would fly in implementation of our agreement with the university, Pakistan, and whether their students would show any our engagement with them did not stop at the end of interest in corporate governance. the three-day training-of-trainers program. After the training, we leveraged several other opportunities to These people carried the main responsibility for visit the faculty and follow up on their promises to start the success of the course, and it appeared they were teaching corporate governance to their MBA students. sensing a shift in the burden of responsibility from Unfortunately, the university seemed to be dragging its IFC to themselves, as they realized that the success feet in getting the corporate governance course on the of this initiative now rested on their shoulders. road. The head of finance, the original sponsor of the Other faculty members joined in, for good measure, project within the university, had become too busy to with more general objections, most of which had take this project across the finish line. no grounding in principles of good corporate governance. It did not take long for the mood of We therefore focused on the senior lecturer, who the audience to shift from polite attendance to had been one of the most animated and energetic antagonistic and at times markedly aggressive. As the participants during the TOT. We worked closely with course wore on, the atmosphere became intimidating him, encouraging him to champion the project and and highly charged, and we became concerned that sign up students for the first corporate governance this audience reaction would jeopardize the entire course. At first he was reluctant, because he felt there training program. We knew we had to find a way would be very few takers. He claimed the students to reassure and motivate this core group of faculty were not very familiar with the topic of corporate lecturers to move ahead with the original plan. governance, and would not see career prospects in this field. We saw this as an opportunity to present Urgent action was required to cool the temperature our business case for a corporate governance elective before the situation became overheated and slipped course in the MBA program. Our premise was that from our control. We brought the three key opinion corporate governance is an emerging issue and, in leaders center stage to focus everybody’s attention. To light of the unfolding global financial tsunami, this harness their experiences, we opened up a discussion issue was here to stay. In addition, since very few on their achievements in corporate governance. They people had any kind of specialization in corporate talked of their experience serving on boards, some governance, students with formal academic within the country and some abroad. By recognizing grounding in corporate governance would be in high 120 IFC Advisory Services in Sustainable Business demand. We also offered to present these arguments Conclusion directly to prospective students. In the end, this was Engagement with the students is set to continue, not necessary, because 30 students signed up for the because IFC has offered to meet with the students corporate governance elective. again toward the end of their course. The response from the university has also been positive, including 4) Reinforce the relationship with an invitation for IFC to deliver orientation lectures the end user. during the next round of recruitment for the new Once the students were on board, having signed up batch of students. Also, since the initial course, other for their corporate governance elective course, we colleges have asked IFC to provide an orientation reinforced their good decision by inviting them to on corporate governance and training-of-trainers, IFC for an orientation on the landscape of corporate and have shown interest in using IFC materials for governance in Pakistan. We wanted to nurture these their intended corporate governance courses. The students so that they would become ambassadors key ingredients of our success were getting buy-in of good corporate governance practices at their at the outset, building strong relationships with key university. stakeholders, making course corrections in a timely manner with back-up plans, and nurturing the We lined up a videoconference with the students, students to become ambassadors of good corporate the Pakistan Institute of Corporate Governance, governance practice at their university. and IFC. We briefed the students on the objectives and achievements of the IFC Corporate Governance Project and the work of the institute in accrediting directors, increasing membership, and orienting companies on corporate governance. The ensuing discussion was highly interactive. It ranged from a About the Author review of local business leaders’ opinions on corporate Khawar Ansari, member of IFC’s Pakistan Corporate Gov- governance to the opportunities and barriers to the ernance Project team, part of IFC Advisory Services in the Middle East and North Africa. progress of good corporate governance practice in the country. The students were thoroughly engrossed, and Approving Manager we rewarded them with certificates of participation. Martin Steindl, Program Manager, Corporate Governance, IFC Advisory Services in the Middle East and North Africa This activity generated a buzz at the university and enhanced the prospects of high enrollment for the April 2009 second batch of students. Lessons from IFC’s Corporate Governance Experience 121 Public Awareness and Media Training Introduction As with any other issue, there’s a direct correlation general public. Awareness activities are also aimed between public awareness about corporate at shareholders, to help them learn more about governance and media coverage of stories related their roles, rights, and responsibilities. to corporate governance. Most of our corporate governance advisory services projects devote some Media Training time, effort, and resources to national public education Providing training to journalists and members of campaigns, aimed at raising awareness. Part of this the media builds their skills and knowledge, and work involves providing training to educate journalists leads to more sophisticated coverage of business on the importance of good corporate governance and issues in a particular country. It also ensures that the working with the media to encourage coverage of work of informing the public and keeping corporate corporate governance-related news. governance issues in the public eye will continue after project activities end. The work here helps create a broader popular understanding of corporate governance and the Bringing stories of interest to the media is another proper functioning of a modern corporation. It key aspect of our work. Because journalists are looking leads to changes in attitude that can help drive new for interesting, headline-grabbing pieces, our role behaviors: increased support for reforms, heightened here is to bring good stories to them, in addition to interest in the study of corporate governance topics helping them understand the value of good corporate as part of professional training in law and business, governance. This can mean arranging press tours so and acceptance of foreign investment as a necessary that journalists can visit firms that have implemented condition for growth of the economy. corporate governance improvements and interview decision-makers at these firms about the reasons Message Knowledge Attitude Behavior for their initiative and how it has enhanced company performance. In particular, journalists are interested in: Raising Public Awareness • Shareholders’ rights Our public awareness work takes a variety of forms: • Transparency press conferences, round tables, articles written for • Securities markets trade publications, and interviews with the press. In many cases, projects sponsor the publication and • Statistics, numbers, and data distribution of periodic newsletters on corporate It is also worth noting that working with journalists governance issues, making use of data from carries some risks, since some may be looking for gossip or our surveys on corporate governance practices. scandal rather than solid news. One way to avoid Information from surveys can be shared with key this trap is to assign all media-related contacts to a government officials as well, to help drive home the dedicated staff person with professional communications message on the value of governance improvements. skills. This also ensures that messaging remains consistent. These efforts enable better understanding of the The SmartLessons in this section offer insight into successes importance of good corporate governance for the in media training and public awareness activities. Lessons from IFC’s Corporate Governance Experience 123 Earning Astana Yellow Jerseys in a Corporate Governance Race: Engaging External Partners in Communications in Kazakhstan What do corporate governance and bicycle racing have in common? Frankly, not much. But the IFC Central Asia Corporate Governance Project team felt like cycling champions after our success in raising awareness about corporate governance in Kazakhstan. The corporate governance “race” in Kazakhstan started in 2006 in Almaty when a team of 11 people got together to launch the project. Just as the Astana cycling team retains its first place in the world ranking, subsequently reinforced by the victory of Alberto Contador in the Tour de France, our project team came out winners in helping corporate governance become an important topic in Kazakhstan. In this SmartLesson we would like to share how the project partnered with international coaches, local experts, and government bodies to promote corporate governance through publications, annual conferences, and seminars for mass media representatives in Kazakhstan. Background competitiveness and sustainability of the national Kazakhstan is located in the heart of the Eurasian economy, relying on corporate governance principles. continent at the crossroads of East and West. Prime Minister Karim Massimov also participated When the project started operations, not many of in a corporate governance awareness conference in the region’s businesspeople knew what corporate February 2007 in the Kazakhstani capital, Astana, governance was. IFC’s communications objective thereby greatly raising the profile of the topic through was to widely spread the word about corporate the accompanying press coverage. In spring 2007, governance, convince policymakers to create a full Senate hearings on the competitiveness of the favorable legislative framework, and—the most economy included invited experts on corporate important task—inspire joint-stock companies and governance. banks to implement corporate governance standards. However, the corporate governance race was not A yellow jersey goes to those companies and banks easy. To provide an information campaign to raise whose shareholders value investment attractiveness! awareness on corporate governance, the project team The success of the Astana team expanded the developed a three-year communications strategy that popularity of cycling around the world, including included: in Central Asia. Similarly, just a year later after the • Engaging international partners such as project launch, the need for improved corporate Organisation for Economic Co-operation and governance has been noticed at the highest levels of Development, German Technical Cooperation power in Kazakhstan. In February 2007, President Society, and Reuters; Nursultan Nazarbayev publicly emphasized the importance of development of corporate governance • Collaborating with the government of principles and improvement of corporate governance Kazakhstan in conducting three annual interna- at state-owned companies. Samruk-Kazyna National tional conferences with participation of more than Welfare Fund was established to enhance the 200 delegates each year from different countries; 124 IFC Advisory Services in Sustainable Business • Engaging the local business community through Drawing Inspiration publication of their views and experience in from the Astana ProTeam our quarterly magazine, Vestnik of Corporate Governance; and • Inviting IFC internal involvement, including organizing four seminars for 40 journalists, one of them in cooperation with the Global Corporate Governance Forum and Reuters. Moreover, the project published more than 300 analytical and informational corporate governance- related articles, and produced helpful publications. Lessons Learned 1) To multiply your project’s effectiveness in raising awareness about corporate governance, build partnerships with government agencies and with associations of financial institutions. The project partnered with the Agency of the Republic of Kazakhstan on Regulation and Supervision of the Financial Market and Financial Organizations and with the Financial Institutions’ Association of Kazakhstan. Astana is a professional road bicycle racing team Together we promoted good corporate governance by sponsored by the Astana group, a coalition of state- organizing annual international conferences in 2006, owned companies from Kazakhstan, and named after its capital city, Astana. The Astana team 2007, 2008, and 2010. attained UCI (Union Cycliste Internationale) ProTeam The events were platforms to analyze and discuss the status in its inaugural year, 2007. practical issues and challenges in the implementation Since 1919, the leader of the general classification of corporate governance principles in Kazakhstan, in the Tour de France (the classification by which the to promulgate the experience and recommendations winner is determined) wears a yellow jersey. of the international experts, and to develop optimal solutions regarding efficient corporate governance and controls in companies. governance concerns in initial public offering holdings, More than 150 delegates participated each year, and development of a corporate secretary institute. including shareholders, bankers, investors, and financial market regulatory bodies. They represented 2) Cultivate champions for corporate Kazakhstan, Russia, Azerbaijan, the United Kingdom, governance from among international and the United States. Discussions covered such issues coaches and worldwide experts. of corporate governance as protection of joint-stock The project worked with a variety of individuals companies against hostile takeovers and greenmail, and organizations to raise awareness of corporate information disclosure, establishment of efficient governance, particularly among key stakeholders. internal controls, corporate governance rating, actual For example: issues of board of directors’ activities, corporate Lessons from IFC’s Corporate Governance Experience 125 • Cooperation with GTZ: Together with GTZ Communications and the Supreme Court of the Republic of Strategy for 3 years Kazakhstan, IFC organized a series of events in which leading experts in corporate governance from Germany spoke to representatives from Enga gin joint-stock companies and banks. The series l gI na t focused on actual issues concerning the Law on er en Pa nt ner m rt Joint-Stock Companies in Kazakhstan. Inv Int er s e olv na IFC tion 3) Provide workshops, seminars, and other al vehicles for educating the mass media. IFC, the Global Corporate Governance Forum, and Reuters cooperated in organizing a regional media ent th B us i E n g e ss nm wi workshop: “Reporting on Corporate Governance in er ing ag C n g a Central Asia and the Caucasus Region.” in or v t om Loc b m u al a n ity C o l l e Go The project organized other seminars for journalists, th who in turn became effective at promoting corporate governance through mass media in Kazakhstan. Not all participants of our seminars became fans of the topic. However, with some of them, IFC acquired • OECD Principles in long-term, fruitful relationships. Since 2006, for Kazakh: IFC partnered instance, Kazinform has published more than 30 with OECD to publish news stories, articles, and interviews about IFC and the official translation of corporate governance. the OECD Principles in Kazakh to educate policy­­ makers, investors, ­ porations, journalists, cor­ A Kazakh translation of and other stakeholders in OECD Principles. Kazakhstan. That was the first international benchmark in corporate governance to be translated into the Kazakh language. The official translation plays a significant role in enhancing corporate governance standards and advancing business standards of Kazakhstani companies, which in turn enables them to improve company performance and attract outside capital. In addition, The conferences boosted the level of corporate the official translation of the document facilitates governance in the local market and raised awareness the development of the legislative framework and of the topic through media mentions about its importance. enforcement of effective rules of corporate governance. 126 IFC Advisory Services in Sustainable Business “Social Corporate Responsibility versus Corporate Governance, and Rights of Minority Shareholders.” And IFC’s investment staff discussed “Importance of Corporate Governance in the Investment Decision- Making Process.” 4) Engage the local business community and international experts in promoting corporate governance—by inviting them to write for your own publication. The project worked closely with such partners as Standard & Poors, KPMG, international experts, Twenty-four mass-media representatives participated in and local bankers by publishing articles, interviews, the writing seminar and evaluated it highly. and theoretical materials in our quarterly magazine, Vestnik of Corporate Governance. We initiated a public “The seminar for journalists organized information campaign to ­ by IFC was interesting due to the fact raise awareness on corporate that it raises awareness of corporate governance–related issues governance. The topics were selected among the wider reader appropriately, the speakers were brilliant, community in Kazakhstan. and the presentations were informative, That campaign ­ targeted interesting, and intelligible. I personally managers of joint-stock Vestnik of Corporate ­ companies, supervisory learned important and interesting facts.” Governance. board members, government —Daniyar Sikhimbaev, Kazinform News Agency officials, students at institutions of higher education, ­ the mass media, and securities-market professionals, as well as existing and prospective shareholders. One of the seminars the project organized for journalists addressed the issue of writing about Vestnik of Corporate Governance became a valuable corporate governance. It started by explaining source of information, with case studies from the corporate governance from the very beginning: world’s best corporate governance practices, modern What is corporate governance? What are its trends, experts’ opinions, theoretical aspects, and principles? It also discussed how to promote corporate an effective toolkit for the introduction of proper champions and how to shame bad practice. And an corporate governance principles. independent economic observer from Kazakhstan Initially it was distributed only in Kazakhstan and conducted a session on how to prepare analytical then far beyond the borders—in the Kyrgyz Republic, material on corporate governance. Tajikistan, and Russia. It is always hard to measure At the second seminar, “Corporate Governance: communications efforts, but one indicator is the Current Realities,” an expert from Interfax, Moscow, increasing number of subscribers—of both hard focused on investor relations for 17 mass-media copies and the electronic version—and a growing representatives. IFC’s legal advisors explained number of downloads from the Web site. Lessons from IFC’s Corporate Governance Experience 127 “We are very much interested in Vestnik of Corporate Governance magazine Team Spirit issued by IFC, which in our opinion is one of the leading professional Guest members of our publication team: corporate governance magazines in the International Experts Commonwealth of Independent States.” Lado Chanturia, professor from Bremen University —Igor Korotetskiy, KPMG Moscow in Germany, wrote “The Boundaries of What Is Permitted: Shareholders Rights to Get Information on Germany.” The most remarkable aspect of the whole process of Hans Joachim Schramm, also from Bremen University, shared his knowledge on “Corporate developing magazines was the active involvement of Blackmail: Useful Information for Kazakhstan, Based all members of the team—from discussing the name on Experience in Germany.” of the publication, to brainstorming the concept and contents of every edition, to inviting international Aleksandr Okunev, Director of Corporate Governance Center in Ukraine, wrote “Where to Get and local partners to write articles based on 46,000 Corporate Secretaries in Ukraine?!” theoretical knowledge and practical experience. This quote from the Astana Cycling Team’s official Local Experts Web site captures it well: “Cycling is a team sport. The team has also partnered with the Kazakhstan Without a coherent and competent team, no leader Supreme Court, conducting joint training and can win a victory.” roundtables on corporate governance topics. As a result, Ulbosyn Suleimenova, judge of the Supreme Court of Kazakhstan, published a practical 5) Look within IFC to discover talents that article in Vestnik, “Judicial Practice in Shareholders’ support your project. Agreements.” Along with promotion of corporate governance, we Beybit Shermuhametov, Judge of Financial Court discovered talents within IFC. For example, Nurlan in Almaty, dedicated a series of articles in Vestnik Sarsenov, legal advisor, became an excellent writer to “Problematic Issues of Invalidation of Large who contributed a lot to the communications compo- Transactions in Kazakhstan.” The series became a nent of the project. Not only has he written analytical practical guide for international legal companies and informational articles for more than half of the operating in Kazakhstan, according to feedback from readers. editions of Vestnik, but his articles also have been pub- lished in Securities Market Magazine in Kazakhstan almost every month for three years. He has already published three books on corporate governance issues Other IFC contributors to Vestnik include Boris and will do more in the future! Janjalia, a colleague from IFC’s sister project in Another is Adalyat Abdumanapova, team leader for Georgia, who wrote an article on “Mediation—an Kazakhstan, whose many talents include making pre- Alternative to Corporate Disputes”; Yulia Holodkova, sentations, lecturing students, consulting, and writ- a team leader for the Kyrgyz Republic, who ing, and her successful initiative to develop a Corpo- contributed an article about “Results of the Corporate rate Secretaries Club in ­ Kazakhstan can be replicated Governance Survey in Kyrgyz Companies”; and in other countries. Now the project communicates Tahmina Nurova, a team leader for Tajikistan, who regularly with members of the Corporate Secretaries wrote on “Review of IFC Corporate Governance Club via newsletters. Project in Tajikistan.” 128 IFC Advisory Services in Sustainable Business Note: Some people have writing talent, and some Zhanna Ambartsumyan, came up with a brilliant do not. At first, the team thought everyone should idea—to develop a “Brief Glossary of Corporate contribute to Vestnik on a rotation basis: all experts Governance Terminology.” would write articles about their own spheres of • Russian-English/English-Russian Glossary: expertise. But this approach became very challenging When someone mixed up “shark repellent” with for the whole team when it became clear that some “white knight,” we realized we needed to develop team members were just not good at writing and the “Russian-English/English-Russian Corporate sometimes took weeks or even months to finalize an Governance Glossary.” In consultation with the article, even with the help of other team members. It project’s experts, IFC’s in-house translator en- is more efficient to identify the good writers and then deavored to make the glossary as comprehensive let them do the writing. as possible. The idea of a corporate governance glossary was replicated in Tajikistan’s project. 6) Find ways to support the media’s efforts to cover corporate governance. Conclusion: Season Ends with As a result of educating journalists, the number of Yellow Jerseys media mentions has increased. However, most news Engaging the government and international and local agencies use their in-house translators, who are partners in promoting corporate governance worked not familiar with corporate governance terms. We well in Kazakhstan. To demonstrate how it works in found that the following items helped improve the practice, the project chose a few “pilot” companies. journalists’ accuracy: This will be another story—another stage of the race. • Brief Glossary: In some cases, translators used Corporate Management About the Author Assel Choibekova, Communications Associate for IFC in instead of Corporate Europe and Central Asia, Kazakhstan, has written more than Governance in articles and 500 articles and press releases on economic issues. Previous- widely published them. ly, Assel worked for IFC Central Asia Corporate Governance Project and IFC Central Asia Leasing Project. Communications associ- ates tried to explain the Approving Manager “Brief Glossary of difference over the phone, Adalyat Abdumanapova, Team Leader for the IFC Central Kazakhstan. Asia Corporate Governance Project in ­ Corporate Governance but without much success. Terminology.” December, 2010 IFC’s in-house translator, Lessons from IFC’s Corporate Governance Experience 129 The Pen Is Mightier than the Sword if Properly Aimed! Training the Financial Media on Corporate Governance The financial media have the platform and the potential to promote better corporate governance practices and corporate transparency—by showcasing new standards and reporting on bad corporate governance practices among companies. By raising the general public’s awareness of key corporate governance issues, the financial media can indirectly effect improvements in the practice of corporate governance. The challenge is to help them use their platform in ways that contribute to greater stability and efficiencies in the private sector, and ultimately lead to economic development. In the Middle East and North Africa region, educating the press on corporate governance issues is key to creating local demand for better practices in the region. This SmartLesson shares lessons learned during a project to do just that. Background The IFC corporate governance program in MENA, jointly with the Global Corporate Governance Forum and in collaboration with Thomson Reuters Foundation, launched a regional project to help the financial media strengthen their role in covering corporate governance issues. The project delivered three subregional interactive workshops with the following goals: • Raising awareness and promoting a better understanding of corporate governance issues among the financial media; IFC and the Global Corporate Governance Forum with the Mashreq Press training participants in Egypt. • Increasing the quantity and quality of media coverage of corporate governance, and thus better informing institutional investors, policy makers, Lessons Learned managers, and board members on corporate governance issues in the region; and 1) First come isn’t necessarily first served: • Helping promote corporate champions and establish eligibility criteria upfront. discourage bad practices, thus encouraging better Prior to the workshops’ organization, the project enforcement of good practices. created certain eligibility criteria to select the most capable participants. We wanted media people who would be willing to tackle and write about local 130 IFC Advisory Services in Sustainable Business 3) A friend in need is a friend indeed: call on IFC’s local offices for support. IFC’s local offices can facilitate outreach to the right target media outlets. In our case, we relied on the help of the Morocco, Lebanon, and Jordan offices to tap their knowledge of journalists and to profit from their established media contact lists. We also involved them in extending letters of invitation, contacting local journalists, and following up with the journalists regarding their participation. This assistance was of great benefit, because it allowed the project leader to focus on more substantive issues. IFC team leading the media training. 4) Experience is the best teacher: local speakers have hands-on familiarity with local issues. corporate governance issues. To this end, we required each participant to submit an article, complete with Inviting local speakers—instead of international byline, on corporate governance. Then we evaluated ones—to the different regional press training each one. workshops turned out to be a good decision. Not only did it save money, but it also gave us speakers who This requirement was key to ensuring a certain quality could do a better job of addressing local corporate standard in writing and a level of understanding and governance issues. For instance, they had a better knowledge about corporate governance among the understanding of the local corporate governance future workshop participants. problems faced by policymakers, they were able Caution: It is paramount to disclose these eligibility to share insights into real cases from their home criteria upfront. Otherwise, it is difficult to justify the countries, and they emphasized how media support rationale for accepting some applicants and denying can help local companies more easily embrace others. better corporate governance practices. Overall, their affiliation with the region helped create a positive and 2) It takes two to tango: select a strong memorable experience for the attendees. partner. 5) In for a penny, in for a pound: participants It is important to have a strong partner to lead the need to attend the entire workshop. part of the training on journalism. In our case, choosing Thomson Reuters Foundation, a highly Since every session of the workshop is important, respected international news agency, gave our it should be viewed as a “full meal”—rather than as workshops real credibility. In the media industry, a “buffet” where attendees can take a little of this Reuters is perceived as one of the world’s leading and a little of that. To ensure full participation and sources of news, and its respected name was a crowd commitment, workshop organizers announced at magnet. Having such a partner motivated experienced the start of the events that certificates of attendance journalists to participate. would be distributed only to those participants who attended the entire workshop. Lessons from IFC’s Corporate Governance Experience 131 a Facebook page established by the GCGF. The Facebook page, called “Reporting on Corporate Governance,” features updates, relevant materials, and information about upcoming events that are posted to provide a channel for the media to share and exchange news, opinions, and suggestions. This platform will also provide an opportunity for journalists to promote their own work, as well as to raise the profile of their media outlets by sharing coverage of the latest corporate developments. We also invited participants to continue sending their IFC team, trainers, and participants in the Gulf media articles to IFC. And we offered incentives, such as: workshop. providing technical comments and feedback from the project leader on their draft articles; inviting some of them to future IFC workshops to give presentations 6) Less is more: three subregional workshops on how they are investigating leading stories in their served multiple countries. home countries; and providing contacts in their Inviting journalists from across the MENA region to home countries—such as key government officials, the three subregional workshops ultimately proved professors and corporate governance practitioners—to to be more efficient and cost-effective than holding help strengthen their articles. This approach enabled an event in each individual country. In fact, this the project to collect 50 articles. approach required only about a quarter of the budget needed to conduct individual country workshops. The project didn’t charge for its services, with few Virtual Support exceptions, since the aim was to serve the public interest rather than the interests of a specific private sector counterpart or group. By addressing The Global Corporate Governance Forum’s intermediaries such as the financial press, we could Facebook-based “Virtual Press Club” was created achieve the benefits of raising public awareness of as a communications vehicle for those interested in corporate governance issues on a sustainable basis corporate governance reporting, and as a platform for updates on the program’s status. Participants are more effectively than we could by directly addressing encouraged to “meet” their peers worldwide and a handful of companies and banks. connect with corporate governance experts, including training-program participants. 7) Catch as catch can: it takes planning and The Facebook page is also a channel for participants persistence to follow up and track articles. to provide comments and suggestions for the Forum’s Never underestimate the time and effort needed to Corporate Governance Media Toolkit. follow up and track articles in different countries! To date, some 200 people—including workshop Be sure to plan for this important aspect upfront. participants and trainers, corporate governance To track published articles in different countries experts, and IFC corporate governance throughout our region—and to provide an communications officers—have joined the club. opportunity to engage with participants—we sent an invitation to all workshop participants to join 132 IFC Advisory Services in Sustainable Business Note: To be successful at the impact level and, more hands-on training, a coaching element, and insights specifically, to make a strong case that the journalists’ into journalistic and investigative techniques. IFC articles improved after their training, it is necessary also served as a catalyst by providing a forum for the to compare each participant’s articles on corporate regional press to voice concerns to market regulators, governance published before attending the workshop and to make recommendations to be included in (for example, you can use the article submitted to corporate governance reform processes. meet the eligibility criteria) with those published afterward. This quality assessment should be carried out by an external independent consultant from an academic institution or a consultancy firm. The About the Author consultant should have extensive experience in Amira El Saeed Agag, an Operations Officer in the corporate corporate governance in the region, and should lead governance program for the MENA region, has been with the “before and after” evaluation based on a series of IFC for four years. Her focus is on providing corporate gover- nance advisory services to banks and companies. qualitative benchmarks. Approving Manager Conclusion Chris Razook, Program Manager, Corporate Governance, IFC Advisory Services in the Middle East and North Africa The project’s methodology, as designed by the GCGF, March 2010 was new to the wider MENA region. It included Lessons from IFC’s Corporate Governance Experience 133 “Good Governance Is Good Business” Debuts on Pakistan TV: How to Get Your Message to a Million People in 30 Days With the lifting of strict government censorship and an end to sole ownership by the state, a wide range of private TV channels have developed in Pakistan. That’s why it seemed opportune for IFC Advisory Services in the Middle East and North Africa to try something different and sponsor a TV series—to create awareness of and make the business case for good governance within Pakistani companies and financial institutions. Background: Wouldn’t this have no idea what we’re talking about; so, we wanted money be better spent elsewhere? to reach those people—to have ourThe go Plus Business message beyond Channel’s Logo a narrow community of business owners and corporate Why should IFC sponsor a TV show, when it could managers. Therefore, the program’s objective was to put the money into program development? That’s tailor its content to suit the varied information needs what the Pakistan Corporate Governance Project of the channel’s diverse viewers. For that reason, in ad- team wondered. We asked: Is it worth it? We had dition to covering technical issues, it addressed generic two roads to choose from: We could continue with questions, such as: Could anyone become a stake- business as usual, organizing workshops, inviting holder in a corporation? How does poor corporate key stakeholders and hoping they would show up for governance affect the country? Doesn’t poor corporate the whole event; or, we could take a more innovative governance lead in some cases to bankruptcy, conse- approach. The second road was filled with challenges, quently affecting the incomes of thousands of families? of course, but that’s the one we chose. And in the end it proved more effective. Working as partners, IFC and Business Plus carefully sorted out critical program elements, including the Lessons Learned format, duration, number of episodes, allocation of airtime, extent of coverage, selection of program 1) Think about what you want to achieve, and logo, and program design. The 25-minute format simplify the message so it connects with an comprised moderated panel discussions and a series audience that extends beyond businessmen of onsite interviews of the key stakeholders, including and government. directors and managers of companies. There were 13 After an extensive procurement process, IFC decided episodes in all. The program was allocated a prime- to partner with the leading English-language TV time slot and could be viewed across Pakistan. channel, Business Plus (http://www.businessplus.tv/), We also made sure to choose the right panelists to which offered around- deliver the right message to such a wide audience. the-clock business news Each panelist’s credentials, including corporate and analysis. governance experience, were properly reviewed. We When we say that cor- also had a chance to choose some of the program porate governance is a public concern, a lot of people panelists from the cadre of certified directors who 134 IFC Advisory Services in Sustainable Business had participated in an ongoing director training he had been advising companies on corporate program developed by IFC in association with a governance issues in his consulting capacity. IFC’s local partner and training institute, the Pakistan corporate governance message wasn’t new to him, Institute of Corporate Governance, and to present since he had taken part in one of the training events these individuals as corporate governance champions. that IFC had organized for the public in Lahore. Also, an interview with the government’s corporate The next task was to develop a close rapport with the regulator provided the opportunity to spell out anchor and have him understand what we were trying various aspects of government policy in promoting to achieve through this program. We coached the good corporate governance practices. anchor on issues relating to corporate governance and IFC’s role, and on asking the right questions targeting 2) Involve your communications professionals these issues. while the horses are still in the barn. Design the project in line with IFC’s communications The project manager played a leading role, providing and brand-building guidelines. For example, the the anchor continual guidance on issues arising out communications staff can help with issues related to of discussions or other aspects of the program during presenting the bigger picture of IFC’s work in the rollout. In addition to the training we provided, it country and deciding what kind of information to was important to encourage the anchor to undertake emphasize. independent research on the specific topics and themes of each episode. And we solicited his input on 3) Be proactive in mitigating reputational risk. the selection of the panelists for each episode. The use of electronic media to disseminate information on good corporate governance was new. “The use of electronic media to promote The medium is not comparable to a workshop or a good governance in Pakistan has helped seminar—the sort of activities we were traditionally tremendously in creating an awareness engaged in at that time—where you closely manage of the key issues amongst the business everything from developing the content through presenting the material to choosing the audience and community and also encouraging the the level of publicity by the press and the electronic regulators to take action where needed. media. With TV you have less control over the The TV platform has allowed IFC and presentation of the material and the response of the Business Plus to spread the message of audience. In a highly visible project such as this one, good governance far and wide.” less control increases IFC’s reputational risks. We were very conscious of this situation and mitigated the —Amir Qureshi, TV anchor risks as follows: We carefully chose and trained the program’s We reserved IFC’s right to review and vet all anchor. An anchor acts as the human face of a TV 13 shows before airing. In consultation with the show, and the success of a TV program is inextricably channel and the anchor, IFC’s project manager linked to the anchor’s performance. In consultation reviewed each show to provide technical advice on with the host channel, we chose a management the content. As time passed, and with the increased consultant who had experience moderating TV shows capacity of the anchor, fewer modifications were for that channel before his engagement with the needed. project. In addition to his experience as a moderator, Lessons from IFC’s Corporate Governance Experience 135 governance, IFC’s name was deliberately taken out of the program’s logo. However, the promo for each episode indicated that the program was sponsored in partnership with Business Plus and IFC. 5) Evaluate your initiative. As with any program, it is important to measure—to the degree possible—what the project achieved. For example, we used the following indicators: Program reach: We were aware that a more structured approach could have been taken to track Amir Qureshi, anchor, moderates a discussion with panelists David Monkman, CEO, Business Support viewers (including, for example, recall and exposure Fund; Afra Sajjad, Head of Policy Development, surveys), but the team opted for a more informal ACCA Pakistan; and Abid Burki, Director, Centre (and cheaper) way. The TV channel provided IFC for Management and Economic Research, Lahore University of Management Sciences. with viewership numbers based on its own tracking. According to the channel, more than a million Pakistanis watched the IFC-sponsored program. 4) Remember to strike a balance between New business: As a result of the program, the project promoting IFC as a player in the corporate manager received calls from more than 15 leading governance field, and at the same time not companies in Pakistan asking for help in integrating having the TV series come across as an IFC corporate governance practices. commercial. Beyond the numbers: The TV program contributed The show was primarily about raising awareness to raising awareness of good corporate governance and encouraging businesses to introduce good and established corporate governance as a public corporate governance. We didn’t want to tout our own concern. Most important, the program managed to achievements—or to be perceived as doing so. We build the capacity of media professionals, such as the wanted to deliver the message that good governance is Business Plus staff and the anchor, to carry on with good business for everyone, while branding IFC as a the message. knowledgeable and credible player in this field. This was a delicate balance and one that demanded careful thought. About the Authors We encouraged the anchor to facilitate independent Kaiser H. Naseem conceived this project while working as and thought-provoking discussions, since it was Project Manager for the IFC Advisory Services in the Middle East and North Africa Pakistan Corporate Governance necessary for the panelists to be able to discuss the Project. corporate governance practices of Pakistani companies Mohsin Ali Chaudhry, Operations Analyst for the Pakistan in candid terms. However, we made sure the program Corporate Governance Project, worked with Kaiser in imple- stated clearly that the views expressed by the anchor menting the project. and the panelists were not to be attributed to IFC or Riham Mustafa, member of the Communications Practice Group, Middle East and North Africa, advised on policy and taken as carrying IFC’s stamp of approval. Furthermore, procedures for the project. because the purpose of this program was not to March, 2010 publicize IFC but rather to raise awareness on corporate 136 IFC Advisory Services in Sustainable Business How to Develop Sustainable Activities in the Field of Public Awareness and Increased Training Capacities: Experiences from Serbia A company with good corporate governance standards will usually benefit in two ways. First, it will have improved performance. Second, it will have access to cheaper capital or debt. Although some companies need only one of the two benefits, most in the Balkans need both. This is because markets in Southern Europe are developing fast, and most companies are often targets for takeovers due to their proximity to Western Europe. Local companies realize that the new entrants are better organized and have large amounts of capital that allow them to be more competitive. Therefore, local companies perceive the need to improve their corporate governance to survive. With this in mind, IFC has been using market approaches to promote corporate governance services in the Southern European marketplaces where the concept of corporate governance is still limited. To enhance this process, IFC has developed an insurance scheme offered to the suppliers of corporate governance services. This innovative approach of providing financial risk coverage in a nascent market has enabled IFC to work with local partners in a sustainable way. Background: How do you programs on their own. That these training programs develop a market when one have been profitable is a promising sign of increasing does not exist? demand for the product and its potential for One of the main challenges at the beginning of the sustainability. program was that corporate governance was an almost unknown concept in the Balkans. As a result, demand Lessons learned and supply in this field were limited. When you could 1) Understand the demand side. find them, the buyers were not ready to pay for what the suppliers were offering. One of the objectives • Who are the buyers? of the program is to help companies improve their • What are the expectations of each of the buyers? standards in corporate governance, and another is to improve training capacities of educational institutions • What are the products/services that would match in corporate governance in a sustainable manner. supply and demand? In order to cope with these very valid but nonetheless • What is the level of quality needed to match the complex factors, we developed a seven-step approach. price that buyers are ready to pay? Even though this has been tested for less than a Companies are the main targets for corporate year and with slightly fewer than ten clients and governance. They include several stakeholders, such partners, results from these tests have so far been as the shareholders, the directors, the executives, the very satisfactory, with high levels of sustainability. employees, the suppliers, the clients, the workers, Local institutions have taken ownership of corporate and, ultimately, the authorities that govern the daily governance programs and are offering training life of the companies. Even though all have certain Lessons from IFC’s Corporate Governance Experience 137 interests in better corporate governance standards in This would allow us to assess the gap, if any, between their companies, not all would be ready to pay for the our needed attributes and the reality. This would also related services or have enough power to implement allow us to consider the source of the suppliers. the recommended changes in governance structure. For example, even though employees have a clear 3) Analyze your demand and match it with the interest in being in a company in which executives right supplier. and directors follow good standards of corporate In some cases, this step may be unnecessary, because governance, they have almost no power to influence the demand is homogenous. In other cases, different the adoption of such standards unless they are demands come from different levels of management, represented on the boards of the companies. The same depending on the respective target groups (as in would apply to minority shareholders, who will not our case), and the suppliers have to be identified be able to influence the board as to the direction of accordingly. the company. Therefore, certain stakeholders will not be ready to pay for corporate governance services. Several types of demand were identified in the process. CEOs, who had limited knowledge of In our case, we focused on what we call key corporate governance, needed sufficient information decision makers. In Southern Europe, markets are to be able to communicate internally and decide on structured so that the companies are characterized by the next steps to be taken by their subordinates. Based concentrated ownership of majority owners. These on the approaches used by top business schools to majority owners often play the role of chief executive train executives, we then developed short training officer at the same time. Therefore, these key decision courses. Consulting firms would be the best suppliers makers are our primary target as potential buyers. for this target group to deliver training to the CEOs. These CEOs are also surrounded by a small number Since they have experience in advising companies on of internal trusted advisors who have a high level of very practical topics, they could also be the trigger influential power. They are our secondary target. to sell the concept to the CEOs. Because these top Under them, fall our third target: middle managers leaders maintain very busy schedules, their training who are instructed by their superiors. They need sessions need to be concentrated, packed within the training in order to implement the new practices. time frame of only a few days. Details on identifying the right targets and matching Executives directly under the supervision of CEOs them with appropriate suppliers are described below. also lacked understanding. Because they were more involved with the implementation, they needed more 2) Understand the supply side. specific training, focusing on technical and practical Corporate governance embraces legal concepts; tools as opposed to broad concepts and ideas. We thus, we had to work with lawyers. But corporate therefore had to work more at the level of long-term governance is also about organization and strategy, executive training programs. Associations would be so we also had to work with consulting firms best suited to provide long-lasting training to their offering expertise on this subject. Finally, corporate members and to middle managers focusing on day-to- governance is also about financial reporting, so we day practical problems. had to consult financial experts. Middle- and lower-level managers, who still would As such, we drew up a list of potential suppliers in have the ability to implement changes at their level, the broad sense. In this exercise, we were looking not would need longer-term, educational, and academic at what exists in the market, but more ideally at what programs. Universities are well-suited for this. would be the needed attributes to supply the demand. 138 IFC Advisory Services in Sustainable Business customized services and products to meet the market Even though all company demands, instead of using a cookie-cutter approach. stakeholders have an interest This was done to ensure buy-in and identification from the suppliers. in better corporate governance standards, not all would be 6) Develop an action plan and agree on a budget. ready to pay for the related Once the goals and strategies were set, decisions were services or have enough made on the next steps to translate the strategy into power to implement the concrete deliverables. For this it is necessary to set a precise agenda and answer the following questions: recommended changes in • What kinds of activities will there be, and when governance structure. will they take place? • What will be the role and responsibilities of each supplier? 4) Assess the willingness and capacity of each • How should the work of each supplier be potential supplier to become a corporate coordinated? governance specialist. • How often is there a need to supervise what is At this stage, we made a presentation of the project being done? to the potential suppliers. We realized that if the For each supplier, we developed a specific agenda activity is to be sustainable, the supplier has to have based on the specific strategy. Once each activity the following minimum attributes: is agreed on, it is necessary to develop a budget • Human resources or capacity to grow in this that includes all costs—namely, staff costs, public field relations and advertising, all logistics, fees for speakers • Knowledge or capacity to become a trusted if any, etc. In our case, we also included the cost corporate governance specialist for IFC’s staff that would be involved in preparing or advising on the activity. The idea was twofold. • Willingness to enter this field with a long-term First, we determined that in order to be sustainable, approach or, in other words, to have other than the activity has to be profitable. This meant we a purely financial interest in entering this market would always draw our suppliers’ attention to the segment fact that sponsorships or donations of all kinds, including subsidies from international organizations 5) Agree on a common goal, and set the and nongovernmental organizations, were not a strategy to reach this goal. sustainable replacement for fees paid by participants. This is the most rational and difficult step to If at this stage simulation does not show profit ensuring a successful long-term relationship. Our from the fees paid by participants, then it makes no goal was to ensure an improvement in corporate commercial sense to deliver it. governance knowledge that would translate into better corporate governance practices. We created Second, since we were aiming to have sustainable a tailor-made strategy in each case. With each of activities, this meant that at a certain moment, IFC the partners, we discussed their needs as suppliers and our program would withdraw from the activity and their agendas so as to help them to develop Lessons from IFC’s Corporate Governance Experience 139 Financial Risk Coverage through Insurance Plan Because we are pushing potential suppliers to enter doing so will automatically reduce the amount of profit into new markets with new products, we are aware that will be realized and will at the same time increase that this involves uncertainty that translates into the reimbursement that has to be paid to IFC at the potential financial risks for the suppliers. In the end of the event. worst-case scenario, the event could attract no or not enough participants, and this would translate Challenges: into a financial loss. This alone can act as a strong obstacle to suppliers entering a new market. This is The concept of paying for services: Both suppliers why we adopted an approach in which we would act and buyers were skeptical of IFC’s promoting the idea like an insurance company. The idea is that, once the of selling services to be profitable. Because of IFC’s budget is set, we insure up to 75 percent of the total mission, all the parties thought that services from IFC costs and agree with our supplier that if revenues are should be provided for free. Changing this mind- not reached to cover all expenses, we will cover the set and getting the involved parties to accept and difference to put our supplier in a break-even situation. internalize the idea of paid services was challenging. Our supplier would only have to cover the remaining Internal issues with handling reimbursement: 25 percent of the costs. This setup gives the supplier Because this is an unusual arrangement of doing a financial incentive to test new markets, because it business—IFC giving cash to the clients beforehand reduces the financial risks on his side. It also ensures to execute the program and getting reimbursed his commitment, since part of his money is at stake if later after the clients sell their services— there was the event is not managed correctly. confusion at IFC about how to handle these payments If the event is profitable, the profits are shared, with and reimbursements. Because the supplier is our the supplier receiving 75 percent of the profits and IFC partner and is not hired by IFC, we had to figure the remaining portion. Of course, before sharing the out how to treat advance payments to cover costs profits, each party is reimbursed from any payment related to the event. The same happened at the end made before the event. This allows us to maintain a of the event for the payments to and reimbursements certain control on the cost components of the activity, from our partners. In that case, we circumvented the because if our supplier is tempted to inflate the costs, problem by sending invoices to our partners for the amount to be paid. to let the suppliers work by themselves. Therefore, to hear about this new concept. However, the price each activity with our suppliers had to be designed also has to act as an entry barrier or selective tool to accordingly. allow for better targeting of participants. In other words, a price that is too low will bring in all types of Once the budget was set, we decided on how many audiences, and a price that is too high may close the participants we needed and how much they would door to potentially interested participants. have to pay. Setting the price is also an important part. Because we are talking about buyers who are not In our events, the prices ranged from €200 ($268) for aware of the concept of corporate governance, the a three-hour conference to €1,500 ($2,012) for three price has to be in line with what they are ready to pay days of training, whereas a nine-month executive 140 IFC Advisory Services in Sustainable Business course could cost around €900 ($1,207). If all is done correctly, the following benefits can be gained: In addition to careful financial planning, there was the feature of financial risk coverage that IFC provided (see 1. High commitment from local suppliers box), which encouraged and assured the suppliers that 2. Clear strategy to develop sustainable activities they could offer corporate governance services in the nascent market. 3. Increased chances of successful exit for programs 4. Leverage from suppliers to reach targeted audiences 7) Deliver the training and assess the situation. Once all elements are determined, the activity is ready to be delivered. In all our activities, we always place our supplier at the forefront; and we ourselves act as About the Author Juan Carlos Fernandez Zara, Regional Program Manager for supporters but not organizers of the event. This is the Corporate Governance Program in Southern Europe, done with the purpose of giving greater visibility to the was at Ernst & Young, Switzerland before joining IFC. suppliers and allowing them to promote their brand Approving Manager and reputation in this new market while ensuring Philip Condon, Head, IFC Southeast Europe Enterprise sustainability. We also use each event to gradually Development, Belgrade withdraw our presence and increase our supplier’s level December 2007 of effort. Lessons from IFC’s Corporate Governance Experience 141 Successful Launch Events Help Build Momentum for IFC Projects: Lessons from the Central Asia Corporate Governance Project A good first impression can give any new relationship a boost—even the relationship between an IFC advisory services project and a country. Based on our own experience with the Central Asia Corporate Governance Project, and on lessons from other similar projects in the region, we believe that the first impression of a project is a gauge for the effectiveness of the project’s future performance. And the strength of that first impression depends on how well the introduction is organized. This paper shares some of what we’ve learned about how to organize a successful launch event—and make a good first impression. Background liaising with the mass media. Arrange face-to-face meetings with potential clients and counterparts of To promote corporate governance reform in the your project. region, IFC runs projects in Russia, Ukraine, Georgia, Azerbaijan, and Kazakhstan. Our experience Start preparing for the launch event at least two with the Central Asia Corporate Governance months in advance (see Table 1). It takes the efforts of Project—the newest of these projects, launched in the whole team, but one person should be responsible 2006—shows that a well-executed official launch for coordination and monitoring. event allows us to achieve the following objectives: Organize individual meetings to introduce your • Announcing the official commencement of the project to potential clients and counterparts. project’s activities Experience shows that face-to-face meetings work most effectively. Prepare all marketing materials that • Liaising with potential counterparts and clients are to be presented at the launch event, and develop • Raising awareness within the business community • Promoting media coverage • Attracting state officials’ attention to corporate governance issues Lessons Learned 1) Prepare for the launch event: a “to do” list—with deadlines—is vital. Do your best to make the organizational and logistical elements perfect before the event. Prepare To encourage attendance at the opening press promotional materials. Give special attention to conference, the project staff met individually with journalists ahead of time. 142 IFC Advisory Services in Sustainable Business Table 1: Sample Launch Reception “To Do” List Actions (To complete before the event) Timeframe 1) Develop a database of potential clients of the project. 2 months 2) Choose a date and style for the project launch. 2 months 3) Work on promotional materials: the project’s information brochure, banner, flags, Web site, and other marketing materials. 2 months 4) Prepare an invitation card and envelopes in the IFC corporate style. 3 weeks 5) Identify and select speakers. 3 weeks 6) Organize individual meetings with companies and media. 1 month the project’s Web site, to make the information on Ankara Hotel in Almaty, Kazakhstan. More than your project available to all of the interested parties. 127 representatives from joint-stock companies, educational institutions, and the government As a result of our preparations, 80 percent of the participated, including Senator Utebaev, chairman of representatives of companies and 72 percent of the the Committee on Budget, Finance, and Economy of media professionals whom the project staff had met the Senate of the Republic of Kazakhstan. with individually attended the launch. Make every team member a promoter. At our launch 2) Have a well-planned launch reception to announce: “An IFC advisory services project has event, the entire team staff attended and were come to your country!” and demonstrate the professionally dressed. Everyone had studied the professionalism of IFC staff. goals and future activities of the project, to be able to speak knowledgeably and enthusiastically about It is important for the launch reception to it and to project a professional image. Our team also demonstrate the professionalism of IFC staff. But, understood that, even though it was an enjoyable there is no “one size fits all” for how to do that. One IFC project used the premises of the embassy of the donor organization for its project launch and invited the ambassador, who had a warm 40-minute conversation with the mass media. Journalists liked the open atmosphere and wrote many positive articles. Two other projects used five-star hotels. Another project organized a photo contest beforehand, and on the launch day announced the winners. The style of the project launch can be affected by the venues that are available in the city. Our project decided that brief speeches during a cocktail reception format would work best. The The press conference took place immediately before launch reception took place at the Intercontinental the official launch event. Lessons from IFC’s Corporate Governance Experience 143 Table 2: Sample Press Conference “To Do” List Actions (To complete before the event) Timeframe 1) Develop a list of media companies. 2 months 2) Organize individual meetings with journalists. 1 month 3) Write a press release. 3 weeks 4) Circulate the press release, brochure, and The day of the press marketing materials. conference party, our reason for being there was professional and leading mass media organizations in Kazakhstan we were all to make an effort to mingle among the participated. In all, 16 media outlets broadcast this guests, introducing ourselves and the project to as event in Kazakhstan, in the region, in the United many people as possible. States, and even in Spain! The press conference unexpectedly started late, 3) Hold a press conference to inform the and we were concerned that guests arriving for the media—and to establish a good working reception had to walk by the press conference. But, relationship with them. the situation turned to our advantage: many reception Build liaisons with the mass media. A good supply of attendees were excited to watch a press conference information about the project is vital for a positive with so many media people attending, which served IFC image. Our project held a press conference just to increase their excitement about our project. outside the room where the launch reception was about to take place. Some 29 representatives of 15 Give journalists as much information as you can. Besides a press release with names and titles of the speakers, provide an information brochure and articles about your project, as well as any other useful information about your business line (see Table 2). 4) Develop promotional materials that are attractive and professional. Promotional materials—including, for example, an information brochure, file folders, and a Web site—create an image of IFC. So, it is important to be professional when presenting information about the project, whether in person or via promotional As a result of early promotion, the project’s first materials. seminar was well attended. 144 IFC Advisory Services in Sustainable Business Recommendation: as you develop the brochure about your project: Example of IFC Statistics • Personalize the introduction and perhaps include a photo of your project manager As of December 2005, more than 7,231 companies in the region received consultations on corporate • Detail the project activities governance from IFC and attracted investments of more • Provide information about IFC and other than $486 million, including $41 million from IFC. donor organizations • Include statistics from IFC experience, to 5) Be proactive after the launch event: don’t confirm accomplishments give your potential clients and counterparts To coincide with the project’s launch, the Central a chance to forget what they have learned Asia Corporate Governance Project published about the IFC project. the first issue of a 20-page quarterly, Bulletin of Two weeks after the launch event, the Central Asia Corporate Governance, which included an interview Corporate Governance Project conducted the first with Karl Bach, the project manager, along with seminar, “Introduction to Corporate Governance: staff introductions and updates on the project’s Board of Directors.” For the sake of efficiency, as well activities. It also included interviews with Gorton as to create momentum and excitement about the de Mond, IFC regional representative, and project project’s activities, we told potential clients about partners, such as the head of the Association of this seminar at the same time we invited them to the Financiers of Kazakhstan. In addition, the bulletin launch party. Apparently it worked: 46 representatives provided information about IFC and a brief history from 29 companies showed up! of its corporate governance program. The project has since received positive feedback and continued subscriptions. About the Author Assel Choibekova, Communications Associate for the IFC Also, the project’s Web site (www.ifc.org/cacgp) Central Asia Corporate Governance Project, Kazakhstan, became active almost simultaneously with the launch previously, worked as an Operations Analyst at IFC Central Asia Leasing Project. She has written more than 300 articles event. Now, all interested parties may use it to and press releases on economic issues. browse news and information related to corporate governance. To be effective, a Web site needs to be up Approving Manager and running by, or soon after, the launch event, since Karl Bach, Project Manager, Central Asia Corporate Gover- nance Project, Kazakhstan project materials distributed at the launch event refer January 2007 to the Web site. Lessons from IFC’s Corporate Governance Experience 145 Introduction Donor Relations Even in the best case scenario, client fees will on such projects,” notes IFC Director Christian only cover the portion of corporate governance Grossmann. “You can have the best-planned advisory services projects focused on direct work project in the world, but if there isn’t a compelling with companies. So, donors will always remain story that you can tell to highlight the value, or an important piece of the funding puzzle. It is a if there is no mega-trend that has catapulted the mistake to treat donors as simply an open check issue into the limelight—like Enron or Lehman book—not only will this not help accomplish the Brothers—donors may not be interested.” goal of getting the project funded, but it also Success stories and case studies with outcomes of means losing out on the opportunity to capitalize other projects—including quantitative data from on donor knowledge of the local environment monitoring and evaluations, if available—can help and key players. Failure to engage with donors in this regard, as part of a broader presentation beyond merely cashing the check also could make package that also includes: it harder to attract new rounds of funding. • A well-structured proposal; As arms of their representative governments, donors are motivated by their nations’ own • Specific deliverables; strategic interests—and they are influenced by • A summary of the donor’s strategies in the public opinion of their countries. the targeted country and how the project aligns with the strategy (this requires some But in an environment where budgets are preliminary research to narrow down the field tight and the list of needs in the developing of donors to those that have interest in the world seems to grow longer by the day, it is country and in the issues); and understandable that the value of allocating resources to something that cannot always be • Information on why IFC is uniquely positioned captured in a quick sound bite may not be readily to carry out this work: as an investor, we apparent. know what investors are looking for. We have relationships with companies and with policy Thus, an important aspect of the work here is makers, enabling us to work from the bottom on making the case for the value of prioritizing up within companies and from the top down at corporate governance issues. In effect, this can the policy level and at the educational level to involve a concerted effort to “connect the dots”— effect change. showing donors why they should care about these issues. The SmartLesson here offers additional insight into maintaining positive donor relations. “Donors need ammunition to convince their own authorities that they should be spending money Lessons from IFC’s Corporate Governance Experience 147 Five Keys to Developing Fulfilling and Lasting Country-Level Donor Relations: Lessons from the Azerbaijan Corporate Governance Project Much of IFC’s advisory services work is funded through partnerships with donor governments and other multilateral institutions. Such donors are vital partners for IFC, and maintaining good donor relations is paramount to making IFC’s advisory services work even better. The Azerbaijan Corporate Governance Project, for example, is implemented with the financial support of the State Secretariat for Economic Affairs of Switzerland.24 Its goal is to improve the corporate governance practices of Azerbaijani joint-stock companies and banks, thereby helping them gain easier access to capital. At the April 2007 IFC-SECO semiannual meeting in Lviv, Ukraine, SECO commended ACGP as a model for maintaining a good donor relationship. This SmartLesson shares some of what we’ve learned from this relationship over the last three years. Lessons learned him and served as a source of information, both on work-related matters and on life in Baku. Moreover, 1) Establish and maintain a good working the IFC team strategically planned the date of the relationship with all of the donor’s project’s official launch to coincide with an initial visit representatives related to your project. by the SECO representative, making it possible for him to speak at the event. This association has grown In general, the IFC-SECO partnership is managed at into a professional and congenial relationship. the senior level primarily by the General Manager of IFC Advisory Services in Europe and Central Asia, 2) Be sure the donor representatives know with semiannual reporting to SECO’s office in Bern. they are members of the team. However, a good, and perhaps overlooked, practice The project organizes regular “meet the staff” is for the project manager and other staff to establish meetings with the country representatives, so they can a relationship with the country representatives. get to know the staff and understand each person’s These representatives can be great allies, since they role. These meetings also ensure that every member constantly communicate with the head office, and of the project team understands the importance of your successes are their successes as well. the donor, and that each member knows the donor When ACGP started, there was no Swiss country representatives by face and name. Before representative in Azerbaijan, but shortly thereafter staff met the SECO regional director for the first SECO announced that it would post a Swiss national time, the ACGP project manager circulated his in Baku. Even before the representative’s arrival, photo via e-mail, along with the correct spelling and the project manager established a relationship with pronunciation of his name. 148 IFC Advisory Services in Sustainable Business During the meetings, each team member gives a preparation of information for the IFC Advisory concise update on his or her current work, providing Services in Europe and Central Asia internal bulletin, a good opportunity for the donor to express any which is circulated every two months. concerns about the project activities. ACGP found Keep the donor informed about future this to be a more efficient way to discuss concerns events well in advance. than doing so at the formal semiannual meetings. Along with the update e-mail, the ACGP project Another team-building effort is the practice of manager sends the SECO country representative a list discussing any major undertaking with the donor of planned and tentative events. In addition, monthly before commencing the activity. For example, ACGP informal luncheons with the donor representatives discussed beforehand with SECO a plan to execute help keep them informed. a Memorandum of Understanding with a project partner and the selection of various pilot companies. Become a source of additional information Even though SECO always agreed with the project’s for the donor. undertakings, its representatives felt informed and Occasionally, SECO country representatives request provided better support than they might have if information beyond the scope of the project area. they had found out about the changes after the fact. For example, ACGP is a good source of information Moreover, SECO’s representatives often offer sound on the banking and financial sector in Azerbaijan, advice that can make a good initiative even better. due to its work with clients in this sector. Without To promote the spirit of collaboration even more, divulging any confidential client details, the project we started sending jointly signed cover letters to has provided information that SECO country recipients of major ACGP publications. For example, representatives have found helpful in the funding of the project manager and the SECO regional director other projects in the sector. Additionally, we often signed cover letters accompanying the official refer SECO to other contacts who are better suited to Azerbaijani translation of the Organisation for answer certain questions. Economic Co-operation and Development Principles of Corporate Governance and the ACGP Corporate 4) Allow the donor to use the project as a Governance Survey Results that were sent to over 250 vehicle to promote its presence and visibility. companies, banks, and other project partners. Invite the donor to all project events, and, Also, it is important to make sure the donor is aware if warranted, ask one of the donor’s country of changes in staffing and recruiting. When someone representatives to speak at or participate in any leaves the team, the ACGP project manager promptly formal opening ceremony. informs the SECO regional director. If you ask the donor to speak, provide adequate background information on the event, and clearly 3) Keep your donor informed. outline the issue and the message that the project We found that the local SECO representatives hopes to deliver. For example, when the ACGP asks appreciated periodic updates, but given all of the SECO representatives to speak at its events, the administrative reporting in IFC, we did not want project manager sends them an agenda, speaking to add another layer. So the project manager and points or a “scene setter” that explains the event, the local representative agreed that an informal and mentions who else will be speaking and attending e-mail every other month would be sufficient. They the event. As a follow-up, ACGP always sends chose this schedule to coincide with the project’s thank you e-mails to donor representatives for their Lessons from IFC’s Corporate Governance Experience 149 Ensure the donor’s visibility at your events and in your office. The ACGP prominently displays the donor’s banner in its office conference room, and we have placed a number of small Swiss flags on desks and in common areas throughout the Baku office. So, clients who come to the office for meetings are well aware of the donor’s place in the project. A reception for clients and partners gives the donor an opportunity to meet the people we work with. SECO banners and flags are always on display at project events—and strategically placed for events that will be televised. At the last joint meeting in Lviv, participation, along with copies of any newspaper the project manager showed SECO a video montage stories about the event. of the project’s television news coverage in Azerbaijan, During project events, the appropriate staff should and the donor was pleased to see its banner so introduce the donor’s clients and partners. prominently displayed. Make sure your clients and partners, and especially If you invite outside experts to present at seminars government officials, understand how important or conferences, make sure you provide them with your donor is for the success of your project and, sufficient information about the donor, so they ultimately, its clients and stakeholders. understand who sponsored their participation. Also, always provide information about the donor in your At a client-and-partner reception for SECO press releases and other communication with the representatives from Switzerland during the April 2006 media, to increase the likelihood that the journalists Baku semiannual meeting, these representatives had will mention the donor and its activities. For example, the opportunity to meet such individuals as Naida whenever staff open or moderate a project event, the Saidigova, who was the first lecturer in Azerbaijan to speaker acknowledges and thanks SECO (at least once deliver a corporate governance course based on ACGP’s by its full name, the State Secretariat for Economic model university course. SECO representatives Affairs of Switzerland), and if SECO representatives expressed appreciation for the chance to match a face are present, we thank them individually by name. and a person with the plethora of stories and numbers contained in written periodic reports. Reminder: Be sure to include the donor’s name and current logo on presentations, project publications, The Baku team prepared the clients before SECO’s and conference or seminar banners and agendas. visit by giving them a one-page note on SECO and how SECO had benefited their company. 5) Be honest, available and sincere. Such preparatory work can pay huge dividends. For example, during an official Memorandum of Donors will respect you and trust you for Understanding signing ceremony, a frequent client your honesty. of ACGP thanked SECO and its regional director, If you make a mistake, admit it, apologize, and make by name, on national television. Donors greatly sure it won’t happen again. Don’t make excuses or try appreciate such recognition. to cover up an error. For example, during a particularly busy period with several consecutive events, the project 150 IFC Advisory Services in Sustainable Business failed to send SECO an agenda for one of the events Be cheerful and sincere. that we had invited them to attend. The day before ACGP staff members feel lucky to have a donor such the event, we contacted the donor to remind them as SECO, whose representatives are reasonable and of their participation. When the representative said easy to deal with. The relationship should be based on they had not received the agenda, the project manager a genuine desire to cooperate—not just going through promptly apologized for the oversight and accepted the motions to secure funding. Remember that it responsibility. The donor representative understood truly is a partnership and should be managed as such. and was happy to receive the agenda shortly thereafter. Due to the project’s regular communication with the Conclusion donor, the representative was already aware of the event and it was not a big surprise. And, the project’s record Good donor relations ensure the smooth running of open communication and good faith led the donor of the project—and benefit IFC in general, since to see this misstep as a minor oversight, soon to be it periodically proposes new projects to SECO and forgotten. often requests extensions of existing projects. For example, following the April meeting, SECO granted Be available, responsive, and punctual. a 14-month extension to ACGP. The SECO country Regardless of the travel demands that go with the job, representative noted that it was an easy give to extend the project manager or a designee should always be such a project. available to the donor. If travel takes a project manager away from the project for a significant amount of time, About the Authors let the donor know who the contact person is during Charles Canfield, Project Manager for the IFC Azerbaijan this period. Also, the donor will appreciate it if you can Corporate Governance Project. be easily reached. The same approach should be applied Rasmina Gurbatova, Communications Associate for ACGP. to donor requests. Moreover, don’t be late to meetings Sevinj Ibrahimova, Team Assistant for ACGP. or cause delays in starting events on schedule— Approving Manager especially with the Swiss! Motria Onyschuk-Morozov, Principal Operations Manager, Corporate Governance, IFC Advisory Services in Europe and Central Asia May 2007 Lessons from IFC’s Corporate Governance Experience 151 Introduction Reporting, Monitoring, and Evaluation In measuring the impact of projects at closure, non-clients will be forthcoming on their financial we look at the four areas of focus within our data. In reality, this is not always the case—very ­ project model. We have developed an approach few non-clients are willing to provide impact-level to measure impacts and results within each of financial data, making it difficult to compare ­ability these areas: to attract investment. We are continuing to try new approaches that will help overcome these • Direct company-level improvements to challenges. corporate governance: measured by surveys of clients and non-clients on practices and We are also starting to think about ways to assess impacts the longer-term impacts of projects, well beyond project closure. • Improving the regulatory framework: ­ measured by passage and implementations What’s the reason for this? of laws and corporate governance codes Often, project closure is the starting point for • Work with educational institutions: measured ­ clients that were beginning to undertake ­ corporate by surveys of educational institutions on governance improvements. Many clients and non- students taught and curricula used clients are still in the planning stages when we • Public awareness and work with media: exit projects, with implementation of additional measured by media monitoring improvements to come. In addition, the extent In designing evaluations of our programs for of new investment in client companies due to purposes of reporting, we look at three basic changes in corporate governance practices may questions: not be apparent at project closure. Instead, such investment may come over a more extended • Do improvements in corporate governance time frame. result in investment? To address this evaluation gap, IFC, in cooperation • Is there a demonstration effect in the market? with SECO, recently conducted a first-ever • How do we achieve sustainability? evaluation to assess the longer-term impact of Of course, reliance on surveys to measure IFC advisory activity in Russia during the period ­ company-level impacts gives rise to a number of 2001-2007. The evaluation quantified strong challenges. For instance, despite best intentions, impacts and results in all four areas of project work. survey questionnaires may not be completely It validated the theory that significant additional unbiased. In addition, comparing performance impacts would be realized two-to-three years of non-client and client companies presumes that after projects close. Lessons from IFC’s Corporate Governance Experience 153 How Did We Do? Measuring Results of Corporate Governance Advisory Services Projects In Ukraine, 52 out of 70 surveyed client companies (74 percent) that upgraded their corporate governance practices as a result of IFC consultations reported improvements in production, sales, profits, and/or decision-making. It’s a notable statistic, one that can be used to help us tell our story and make a stronger case for the value of corporate governance, as well as assist in attracting funding for new projects. Over the years, IFC’s corporate governance project teams have developed an effective approach to gathering such information and measuring results. Background Even though we recognized the value of project In the early years of our corporate governance project monitoring and evaluation, we faced a considerable experience, measuring results was a challenge—we challenge: coming up with an effective way to needed to figure out how and where data should be measure the results, progress, and impact of projects collected, how to benchmark improvements, and how with multiple components and varied activities. to understand the connections between corporate Over the years, we have developed a viable approach governance improvements and positive impacts such to measuring the results of all levels of corporate as lowered cost of capital. governance work with clients, ranging from In these early years, the connection between good companies and banks to education institutions, governance and stronger businesses was not well- from media to legal work. This has netted a sound documented. In some cases, there were internal base of reliable data on the significant results yielded battles that needed to be fought so that client by our corporate governance projects that we can company management would see the importance present to donors, IFC management, and—of critical of the work as a tool to help improve business importance—potential clients, to demonstrate the profitability and the overall business environment. business case for making governance improvements. Careful attention to monitoring, evaluation, and Here are some key lessons we have learned along the results measurement has helped increase awareness way. and deliver the message that good corporate governance practices strengthen companies, and can Lessons Learned help mitigate portfolio investment risks through 1) Baseline surveys are important not only improved company performance. for assessing outcome and impacts—results And, as with any other project or investment, on- can highlight deficiencies and enable going monitoring and evaluation has become an better targeting of activities to address the important tool to see if the team is on track to meet deficiencies. goals, as well as to uncover any gaps or problem areas Of course, we know that baseline surveys are so they can be resolved. important for providing information that we 154 IFC Advisory Services in Sustainable Business can use on post-project assessments to determine About IFC’s Corporate outcome and impact. But we learned through hard Governance Project Evaluation experience—meaning that in some of our earlier Methodology projects in Russia and Ukraine we omitted this important step—that conducting an initial baseline Evaluations of corporate governance projects focus survey helps the team understand the overall level of on answering three key questions: corporate governance practices in the given country, region, or sector. And even though the overall design • Did corporate governance improvements result in measurable impacts, such as improved of the project might not be materially changed, access to finance, lower cost of capital, and/or incorporating baseline survey results early on can help improved reputation for project clients? direct certain activities toward deficiencies uncovered. • Did the projects achieve a demonstration effect It is also helpful to collect baseline information in the broader market? on the overall understanding of the benefits of • What is being done to ensure the sustainability corporate governance and the link to investment. For of the project’s work? example, in Azerbaijan, we asked about respondents’ Among the tools developed to measure the results awareness of and commitment to good corporate of corporate governance projects are: governance practices by asking what they knew about • Standard indicators for internal tracking by the the Organisation for Economic Co-operation and project team Development Principles. This gave us a frame of • Survey questions and templates to assess reference on which to base our work so that we could outcomes and impacts address gaps, and a benchmark against which we can • Tips and questions for in-depth interviews measure overall market awareness changes at project • A questionnaire for educational institutions completion. In our work, we collected data on the existence of specific internal documents before starting in- depth work with clients. Comparing this baseline information on specific companies with post-project project. This limits our ability to attribute the clients’ outcome assessments on these same companies is results to the work of the IFC project. If we could a simple, accessible way to demonstrate the strong compare our clients to non-clients who were also results achieved. It’s a snippet of information that can really eager to improve corporate governance, and did be summed up in a sound byte, and it gives the team it through some means other than the IFC project, a hook to interest the media so that they will cover we could get around this issue, but, unfortunately, it’s the story. nearly impossible to create a truly comparable control group for comparison. 2) In corporate governance projects there’s no In Russia and Ukraine, we focused on an approach real way for us to compare apples to apples, that would bring us close: comparing companies that but there’s a way to get close! worked with the project and similar companies that One issue we encounter when evaluating corporate had no contact with the project. While this does not governance projects is selection bias; the clients fully address the selection bias issue, it does give us who choose to work with IFC are often more likely meaningful data and serves as a good indicator of to undertake improvements in the absence of the project results. Lessons from IFC’s Corporate Governance Experience 155 For purposes of deciding how to measure results, was quite low, compared to the set targets in our we categorized our corporate governance projects in monitoring and evaluation framework. When we Russia and Ukraine under two main umbrellas: investigated, it turned out that company executives had limited time to spend on such meetings. • Group A: projects with more than 25 active clients and/or a large population of prospective To address the issue, we decided to set up a hotline, clients; projects with clients that have similar staffed 24 hours a day, seven days a week. competitors Some might ask: Was 24 hours a day, seven days a • Group B: projects with less than 25 active clients week coverage really necessary? and/or a small population of prospective clients in the market; projects with exceptional clients— The answer: yes. those with overwhelming market share or the Many companies in Azerbaijan hold their Supervisory largest size in the market Board meetings in the evenings and on weekends, and it For projects that fall in the Group A category, is during such meetings that questions are likely to arise. conducting a survey that compares impact and Companies could call in with questions and get outcomes between client companies and non-client their questions answered right away, on demand. companies can help us understand the effectiveness of We rotated the job of staffing the hotline among the project. In Ukraine, this kind of survey revealed consultants. It proved an effective tool to help that 75 percent of companies that worked with IFC companies and to introduce them to what we were as pilot companies experienced improvements in offering. The more they understood about how we production, sales, or profits as a result of improved could help, the more willing they were to participate. corporate governance, compared to 34 percent of While we did not formally measure the effectiveness non-client companies that reported undertaking of the hotline, we believe that it did lead to more similar improvements to their corporate governance consultations—and increased the likelihood that they practices—it’s a big difference, and a great statistic to would be willing to pay for services. The hotline also help tell the story. served as a great marketing tool in our start-up phase, For projects that fall in the Group B category, because it helped raise awareness about the project. statistically significant comparisons between clients and non-clients are not possible. For these projects 4) Don’t underestimate the value of a good we focused on collecting outcome and impact story: the combination of solid, quantitative information from clients at the beginning, midpoint, data and anecdotal evidence can make the and end of the project, and just telling a “before and case. after” story on the results. In-depth interviews with pilot clients can enrich peoples’ understanding, and also get at some of the 3) Monitoring can be a tool to uncover issues softer, harder-to-quantify yet equally powerful results. during project duration. These interviews can serve as the basis of success Even the best-planned projects can go awry. Careful stories or profiles that can tell the story to donors and monitoring of progress can ensure that things stay other external audiences. on track—and can help redirect projects if what was Also of note: such profiles can make a strong case to initially planned isn’t working as well as it should. We other companies that may be considering undertaking found this to be very effective in Azerbaijan, where a corporate governance improvements. This review after the first year of our operations indicated demonstration effect—companies learning from the that the number of consultations we conducted reported experiences of others and following suit— 156 IFC Advisory Services in Sustainable Business Motivating factors behind improvements to internal documents and Corporate governance practices Percentage of companies that cited each of the following as a motivating factor for introducing or modifying practices or documents at least once Government UCDP policy work Seen other companies’ UCDP pilot program experiences UCDP Strategic investor Other donor project Clients Other Non-clients 0% 20% 40% 60% 80% (89% of clients and 54% of non-clients responding) Motivating role of other companies’ experiences Percentage of companies citing “seen other companies’ experiences” as a motivating factor for introducing or modifying practices or documents at least once Internal documents Commitment to good corporate governance Board of Directors practices Information disclosure Protection of shareholder rights Financial management practices 0% 20% 40% 60% 80% (30% of clients and 53% of non-clients responding) (Source: Ukraine Corporate Development Project: Outcomes and Impact of Assistance to Companies, 2006) Lessons from IFC’s Corporate Governance Experience 157 Russian Universities Using IFC Materials in Course Development Educational Institution Course Name Tolyatti State University Organization of Enterprise Samara Academy for the Humanities Corporate Governance Samara State Technical University Corporate Governance Samara State University of Economics Strategic Management, Strategic Management II, Crisis Management Samara International Market Institute Theory of Organization, Human Resources Management Moscow Higher School of Economics Program of the Corporate Director, Corporate Governance, Corporate Policy, Introduction to Corporate Governance for Corporate Secretaries, Strategic Management of Finances St. Petersburg State University—Law Faculty Corporate Governance in Power Energy Company, Problems of Corporate Governance St. Petersburg State University—Management Corporate Governance St. Petersburg State University of Investments, Corporate Governance Economics and Finance Northern Caucasus Academy of Corporate Governance, Management State Service (Rostov) of International Business Ural State Economic University (Yekaterinburg) Corporate Finance, Corporate Finance II Ural State University (Yekaterinburg) Course of programs in second year of magister study, Corporate Social Responsibility Ural State Law Academy (Yekaterinburg) Corporate Law Ural-Siberian Institute of Business (Yekaterinburg) Strategic Management Ural State Technical University (Yekaterinburg) Strategic Management (President Program) Source: Joint IFC-SECO Evaluation of CG Projects, Russia, February 2010 158 IFC Advisory Services in Sustainable Business can be extremely powerful. Our analysis of corporate governance projects in Ukraine bears this out: for Careful attention to both clients and non-clients, the two most significant monitoring, evaluation, and motivating factors for undertaking improvements were legislative requirements and seeing other results measurement has helped companies’ experiences. increase awareness and deliver Success stories can help in media outreach and public the message that good corporate relations efforts, and for the educational and policy work components as well. In fact, a direct quote governance practices strengthen from an investor, professor, or government official companies and can help about the effectiveness of the work can go a long way toward driving home the message about the value of mitigate portfolio investment corporate governance improvements. risks through improved 5) Maintaining good records of legislative company performance. recommendations, draft laws, and amendments to existing legislation will help track changes. Projects can achieve country-wide impact and sustained results through passage of new legislation surged 70 percent. Monitoring and documenting this related to corporate governance practices. To track outcome gave the Georgian regulators more evidence results here, be sure to keep track of what’s been to help drive new public policy and to explain the proposed. Following the passage of laws, IFC’s legal rationale behind additional legislative changes. specialists or legal consultants can determine if the recommendations from the project were included in 6) Measuring the results of media outreach the legislation, provided that the project has tracked and public awareness activities is complicated, the details of the proposed revisions and the key but do-able. contact people in the government agencies to whom Media publicity is a key tool to demonstrate the the recommendations were presented. Surveys to value of IFC’s corporate governance efforts to the track changes in country-wide corporate governance broader marketplace. It is next to impossible to show levels at the end of a project can also include a direct causal link between publicizing the work questions on compliance with these new laws to show we do with clients, the effect on the wider group of how the changed legislation influences company potential clients, and the country’s level of corporate behavior. governance practices. Still, there are ways to present a convincing case on this issue. Tracking behavioral changes based on new legislation also gives governments an important tool to use as In Russia, for instance, we found that engaging the they promote a corporate governance agenda. For services of a media monitoring firm to track mentions example, in Georgia, we helped the government of corporate governance was a cost-effective way to introduce a new, streamlined company reporting get the information we were looking for. The firm format to replace a rather complex and confusing conducted rapid searches and analyses on a list of process. Within one year after the introduction of this corporate governance-related terms in 72 federal- new format, compliance with reporting requirements level Russian publications. Their findings showed a Lessons from IFC’s Corporate Governance Experience 159 nearly 300-percent spike in the number of corporate We determined that one way to measure the results governance mentions—from 604 mentions in 2001 of corporate governance projects that work with to 1,755 mentions in 2008. academia is to focus on how universities and individual professors are using the materials we provide. To Another dramatic spike in the number of media find this out, we developed a survey that questions mentions came around the time of our Initial universities and professors on their use of teaching Public Offering conference launch in Ukraine. Such modules and educational products that were created monitoring helped provide further evidence of the as part of the project. We also included questions to project’s demonstration effect in the market. gather information on the number of students reached In our experience, a high percentage of clients and with these materials, as well as qualitative feedback on non-clients typically report that hearing about the the usefulness of the materials provided. positive experiences of other companies is a prime motivator of their desire to change (see lesson 4). Conclusion This shows not only the important role played by the As attention to corporate governance issues becomes media in reporting these experiences, but also the way mainstreamed into IFC’s business, measurement will in which the projects can use this to influence the become even more complex—and ever more critical. behavior of non-clients as well. The measurement tools and templates being developed will require fine-tuning to reflect this new reality. 7) Educational components of corporate governance projects can have the most durable impact, but results are hard to quantify. About the Authors If cost were not an issue, tracking the career paths Charles Canfield, Senior Corporate Governance Officer of graduates who have taken corporate governance in the East Asia and Pacific region, assesses corporate course work as part of a business or law school governance risks and formulates mitigation strategies for IFC’s investee client portfolio for the region. From July 2004 curriculum would be a great way to measure long- to December 2007, Charles served as the Project Manager term impact: to look at where they are working and for the IFC Azerbaijan Corporate Governance Project. how their corporate governance knowledge helped Sanwaree Sethi has worked on results measurement in them in their managerial roles. But this would Europe and Central Asia (ECA) since joining IFC in 2005. She has an MS from Georgetown University’s School of Foreign require extensive—and expensive—longitudinal Service and a BA in Economics from Amherst College. studies, tracking career progress for 10-20 years post-graduation. Still, just because such studies Approving Manager Darrin Hartzler, Manager, Business Advisory Services are not feasible does not mean that this important component should be overlooked. September 2010 160 IFC Advisory Services in Sustainable Business Capturing Results in a Better Way: Eight Lessons in Productive Data Collection Although many development partners have been discussing impact and evaluation for the last 30 years of international development, there still seems to be disagreement on indicators, impact, and how to collect the data—and discussions are ongoing. Evaluations and impact assessments are crucial for IFC advisory services projects. They help identify issues in implementing strategies that ultimately stand in the way of realizing the project’s goals and provide vital lessons for the success of future endeavors. Based on our experiences at the IFC South Asia Enterprise Development Facility, we want to share some lessons on how to collect monitoring and evaluation data in the most effective way and what data to look for. Background staff members were able to use the tool to its full During the first cycle of the project, our monitoring potential, and thus our M&E results fell short of and evaluation team, as a pilot, adopted a results- their high aspirations. Although everyone wanted based performance measurement tool to assess the a good and useful system, few welcomed the work effectiveness of our interventions. The tool was based involved in updating files unless there was some kind on a planning matrix derived from causal chains to of urgency. Often their input came too late in the make intended impacts within the framework of IFC process to be useful. development objectives and strategies. Anecdotal feedback and actual application of the We wanted this tool to help us assess the impacts of piloted performance measurement tool revealed interventions and guide us in improving our future several other issues; addressing them taught us some efforts. However, due to various challenges, not all valuable lessons. Figure 1. Monitoring and evaluation Causal Chain Logical Plan of Output Outcome Impact Framework Operation Based on Program Logic Model Lessons from IFC’s Corporate Governance Experience 161 Lessons Learned 1) Develop the relationship with the client or the information provider before requesting any data. A major hurdle was the enterprises’ reluctance to share data, such as the status of their business performance. In countries like Bangladesh, information is spread by word of mouth, according to oral tradition. This means that the transmission of knowledge, information, and data occurs not via books and Web pages, but through people interacting with one another in informal settings. Owners of IFC staff engaged directly with farmers in the field to small and medium enterprises prefer to get to know assess their needs. the people they are dealing with before they give out business- or finance-related data. Local businessmen feel comfortable providing information in a subjective Because donor staff members keep changing, we also manner by talking to peers and colleagues, rather realized that it is important for them to understand than by doing lonely research on facts and evidence. the past, the present, and the future outcome of plans. In other words: first the relationship, then the data- sharing. In the future, we plan to employ the oral 3) Include a clause in the Memorandum of tradition approach to build up rapport and strong Understanding that ensures data sharing networks with associations and business chambers. related to the project from every stakeholder involved. 2) Secure stakeholder consultation and buy-in Previously, we collected data from multiple sources at the outset. using various methods but were often left with Previously, M&E was perceived as a data collection numerous blanks or conflicting information. It is not unit that worked on numbers in an isolated way. Now that clients did not want to cooperate; they just lacked we know that stakeholders must be part of the process the foresight to provide the necessary data in the to ensure the tool’s success. Stakeholders include task language we wanted. By coaching the clients on how managers and transaction leaders, clients, service data can be collected and how the clients themselves providers/associations, management, development could leverage the information, we started collecting agencies, and donors (see Figure 2). It is important required data right at the outset through the MOU, to get feedback from the stakeholders regarding the and we were able to see significant improvements in project’s interventions and the expected impact they data compliance. will have. Every stakeholder needs to understand how Because we kept the data to ourselves, the clients the data affect and illuminate their project’s success, didn’t see much value in their contributing. We and hence take ownership over this dimension of the learned that we should also share company data and project. Teamwork and group brainstorming generate our diagnosis with the clients so that they could see the kind of innovative approach that is necessary. the value of the information. We found that involving donors is a useful strategy. 162 IFC Advisory Services in Sustainable Business Figure 2. Stakeholder Consultation Consultant Report Client Advisory Services Data Service Providers/ Donors Association Information System Transaction Leader/ Annual Report/ Task Manager Case Study Management Impact Assessment PSD M&E Figure 3. Monitoring and evaluation Framework Annual Baseline/ Monitoring Benchmarking (e.g. primary source) Annual/ IFC-SEDF Database Donor Report (Quasi) Indirect Method Experimental of Estimation Design (e.g. secondary source) Independent Quality Control Units Lessons from IFC’s Corporate Governance Experience 163 6) Customize tools for collecting baseline and monitoring data. We have multiple demands for our information. We need to adhere to the indicators and guidelines provided by the Results Measurement Unit, based in Washington, D.C., to summarize the global data from the field (more generic/standard in nature); provide sectoral benchmarks to create an industry-specific baseline so that we can do some comparisons after the interventions; and give information and feedback to the task managers. In addition, we use the data for our own value-added marketing of our advisory services through sharing industry-level information with the clients so that they are aware of the changes taking place within an industry. Initially, we followed the generic indicators suggested by the Results Measurement Unit. But we soon learned that it is crucial to design exclusive, user- friendly templates to address the specific issues of To ensure success, stakeholders must be part of the process. each relevant sector. For example, if we are working on the garment sector, it is important to look at the export volume, labor margin, and unit price of the garments to see how growth has been achieved. On 4) Add an independent quality control unit. the other hand, it is important to benchmark the cost Even with more consistent data sharing, we of raw materials and inputs like electricity and gas for encountered problems with sustaining data quality in the light engineering sector, the focus of which is on terms of consistency and comparability. We learned that an independent quality control unit would be a useful addition to provide a neutral view on data validation and process compliance (see Figure 3). 5) Educate users about the value of constant feedback. It took time to educate users on M&E. Many of them simply did not see beyond data collection. As a result, the tool missed receiving constant feedback, which would have given diverse users’ perspectives. Ultimately, we leveraged corporate-wide demand and an M&E network to educate users on the importance of M&E by circulating information from organized M&E discussions among colleagues who were not originally a The ready-made garments industry requires customized tools for collecting data. part of the process. That said, it is still a difficult process. 164 IFC Advisory Services in Sustainable Business reducing costs of inputs to other industries that use 8) Follow through in the short and medium term. light engineering products as their raw materials. We also need to look beyond short-term M&E. For The biggest lesson we learned is that it is really example, after facilitating the organization of an important for the results measurement team based in electrical fair to promote local products, at year’s end the field to understand the causal relationship between we measured the participants’ sales and job growth. interventions and certain results so they can tailor It was only later that we realized that we should have the indicators accordingly. The M&E team should be continued our M&E efforts and tracked how many involved at the project design stage. Doing so increases future contracts or businesses they secured as a result of the workload, but then there is no shortcut. participating in the fair. 7) Go beyond measuring the impact on Conclusion primary beneficiaries. Our experience from the pilot demonstrates that Previously, we tracked the effects of our interventions a revised Management Information System-based at the outcome and impact level only on the primary performance measurement tool that addresses the beneficiaries. We then learned that it is critical to aforementioned bottlenecks is the best way to ensure focus on the changes in the business practices of those that the desired goals of the project are achieved. affected by our interventions directly and indirectly, We also plan to use our comprehensive monitoring because that provides greater insight into the strengths and evaluation database for all kinds of reporting, and weaknesses of our interventions. such as semiannual IFC reporting, corporate advisory services project management templates, semiannual For example, most of the access to finance work donor reporting, management reporting, press involved building partner financial institutions’ releases, and case studies. competency in lending to SMEs by introducing new SME-friendly products and training. We helped these institutions build and maintain a good tracking About the Authors system that would look at changes in their SME Mustahid Hossain, task manager for M&E in IFC-SEDF, was loan portfolio, nonperforming loans, the number with General Electric, Merrill Lynch Investment Bank and Dell of borrowers and outreach, and the growth of new Computers prior to joining SEDF. products. However, when the external evaluators saw Monira Firdouse, program assistant for the Monitoring and Evaluation Unit in SEDF, joined SEDF in February 2005. Earlier, that the banks were doing well with our assistance, she worked for American Express Bank, Ltd. in the Credit and their first question was, “So what?” They wanted to Marketing Department. see precisely how the SMEs benefited by taking a loan Deepak Adhikary, Principal Operations Officer and Head of from the bank, and how they improved their business SEDF in Bangladesh, was involved in many program evalua- tions while he worked with the GTZ, the International Labour performance. The same concerns were raised in all the Organization and Swisscontact before joining IFC. business lines. The biggest lesson we learned is that, in Special thanks to David Martz, Abdullah Mamun, Farhana designing interventions, we really need to be specific Gaffar, Shazia Ahmed and Mohammad Rehan Rashid. about what kind of changes we want to see in the April 2009 ultimate beneficiaries and how we can attribute our interventions. Lessons from IFC’s Corporate Governance Experience 165 Introduction Exit Strategies Should we stay or should we go? there is a plan to ensure continuing capacity to keep the work going. Gaining commitment from donors and from IFC to implement an advisory project on corporate Planning when and how to exit a corporate governance is a challenge, it’s true. The bigger governance advisory services project is a delicate challenge, though, is that the need for on-going business. With so many projects through the support for corporate governance improvements years, we’ve had a range of experiences related in the markets where we work extends well to exiting—or not exiting when we should have. beyond the two-to-five year timeframe of a typical project. The needs will continue long after Considerations might include the level of IFC and donors have exited the project. capacity already in the market and how quickly it may be developing, the level of resources Because of this, devising a viable exit strategy at committed, and the market viability of the exit. the outset of any project is critical. The exit plan Bottom line: there must be a business case for will define the sustainability of the work done any exit strategy. during the lifetime of the project. It also will provide some comfort to partners and donors, so The SmartLessons in this section provide a frank they see that once project funding is depleted, look at our exit strategy experience. Lessons from IFC’s Corporate Governance Experience 167 To Exit or Not to Exit? And Where’s the Exit, Anyway? The IFC mission contains that great word “sustainable.” And yet every project must end at some point. When that happens, how do we ensure that the progress that has been made continues? Since 2000, IFC has completed more than 50 advisory projects in Eastern Europe and Central Asia. We have experimented with a number of different exit strategies for our projects, from handing over activities to existing organizations, to creating brand-new entities, to transferring materials to project partners. We have also made the same mistakes several times, including designing a follow-on phase rather than designing an exit. Background continue to apply the new skills and practices they learned at IFC in the private sector. Initial thinking on this topic was prepared in the fall of 2007 as an outcome of discussions with the Myth #2: Once we pass a law, the Swiss Secretariat for Economic Affairs, our donor change is sustainable. partner, which takes exit strategies very seriously. This SmartLesson is not meant to be all-encompassing, This continues to be one of our favorite delusions. nor does it present any sophisticated analysis. It Consider our experience with leasing regulations in simply summarizes a few practical takeaways on exit Central Asia. Although IFC advisory teams initially strategies across the business lines in our region. succeeded in introducing favorable legislation for leasing in the Kyrgyz Republic and Tajikistan, the leasing lobbies in the country were not strong enough The 3 Myths about Exits to advocate against reversals. In both cases, IFC had Myth #1: We’re so good at this, let’s to spend significant additional efforts to reenact the keep doing more. legislation once again. Although the market may want more IFC services, The key question to ask is whether the client base it is often hard to accept that our additionality has you are leaving behind has the critical mass and expired. Many advisory projects should naturally close is organized well enough to fend for itself if the when IFC’s catalytic role comes to an end. Consider regulations change after IFC is gone. Alternatively— the product/practice curve on page 169. If your project or, better yet, concurrently—policymakers need to ends when the market for the new product or practice be sufficiently educated about the subject matter to you’ve worked to introduce has already become understand what drives or inhibits the private sector. widespread and accepted, you can usually assume If not, then we have not managed the exit strategy that sustainability has been achieved. In other words, sufficiently well. because the demonstration effect has taken hold, there are no additional public benefits from working Myth #3: Spinning off the advisory team is with individual firms. Those who need the technical the exit of choice. support can buy it on the local market. When that This happens over and over again. The team is so happens, the best exit strategy is for our advisory staff great, and they really know their product: why don’t to shift their attention to other countries or to return we just spin them off into a business? In hindsight, to their own marketplace after project completion and our track record with this exit strategy isn’t great. 168 IFC Advisory Services in Sustainable Business In fact, this is probably the most complex and risky project activities to partners. However, it’s much exit of all the options. In the simplest terms, this is more important that the product itself has sufficient because you are combining the risk of a new product/ demand in the market at appropriate price levels. Too service with the risk of a new business. And we know often, we focus on “building the capacity” of an exit that more than 80 percent of new businesses fail. partner, overshadowing the real goal of making sure the market is ready for the product and that several service So what are some of the lessons from providers can competently meet the emerging demand. implementation? Consequently, when we stop building capacity of our exit partner and subsidizing the product, the service Lessons Learned disappears from the market. Investing significantly 1) Plan the exit at the proposal phase, and in building market awareness, selecting multiple exit implement it over at least one year. An exit is part of a project and needs to be planned Product/Practice Adoption Curve within the project proposal just like any other major activity. The exit strategy also needs to be regularly updated and reviewed throughout the project life Maturity cycle. Premature exits can potentially undermine your entire program. From our experience, a good Penetration exit strategy takes on average one year to implement. Take-off Unfortunately, we usually think about exits only in the last three months of the project. There can be three possible objectives for good exits: Early • Maintaining the momentum of new practices being introduced, assuming the market is not yet at the maturity stage; Time • Ensuring that legislative changes are not reversed after project completion; or • Providing continued affordable access to training (Lack of) Success Rate and consultations on the relevant topic(s). Depending on your program, these objectives should be designed into how you actually structure the work. 24 For example, if your project envisions introducing new –5 services in the marketplace, the emerging best practice 0% is to competitively select, where possible, several exit 16 partners as you launch the project. This approach maximizes the time during which you can work with your exit partners, and also ensures that you don’t distort 8 competition by leaving behind only one provider. 2) Focus more on the product, less on 0 Entities created Entities still in existence the exit partner. since 1997 up to 2007 A common way to exit a project is to hand over Lessons from IFC’s Corporate Governance Experience 169 partners, and appropriately charging for services during need to be staffed accordingly from day one. An the course of the advisory project all help to prepare the entrepreneurial mindset becomes probably the most market for this transition. important criterion for the selection of the project team. This is not necessarily so for our normal Our work in the automotive sector in Russia has been advisory services programs. Our experience spinning a good example of where this exit strategy actually off the Roundtable magazine, a regular publication worked. The objective of the Automotive Component of the Ukraine Corporate Development Project, for Supplier Development Project, supported by the example, showed that while many staff members were U.S. Government, was to help Russian automotive excellent writers and editors, the team did not possess supplier companies improve quality and efficiency by the necessary combination of marketing and business minimizing waste and inefficiencies in the production skills to make the magazine sustainable. Although the process. The project trained several consulting magazine enjoyed popularity under the IFC umbrella, companies in lean production and other techniques, its existence ceased with the project. The Ukraine SME and a significant amount of effort was spent on general Toolkit Project, on the other hand, recruited its project awareness about the benefits of lean production within manager with terms of reference clearly stating that the sector. As a result, after the project closed in 2004, IFC support would continue only through the initial there was a critical mass of clients willing to pay for the 18-month gestation period, and that we expected the lean production product; and three consulting firms successful candidate to be able to run the Internet site could meet this demand in a competent manner. As in the marketplace thereafter. The Web site created indicated in the graph below, the business of one of our through this program, Vlasnasprava.info, has now been partner consulting firms grew tenfold by being able to operational without IFC support since 2004. respond to market demands. Conclusion 3) Staff spin-off exits separately. There still seems to be a lot of anxiety about exits As already mentioned, this is probably the most in IFC. It is easier to be creative and conceive the complex and risky option, because it combines the next phase. What we have learned, however, is that risk of a business start-up with the risk of a more exits are perfectly manageable processes as long sophisticated new offer on the market. In some cases, as we are disciplined enough to think proactively however, this is the last resort and only available option. about them up front and treat them as objectives Normally this happens when there is no one in the in their own right, with sufficient time allocated marketplace who is capable of or interested in taking to implementation. We’ve also learned that it is up our product, and yet we believe it is critical for the empowering to actually claim certain things as private sector at a given point in time. An example of “done.” After all, IFC’s role is to be out there, looking this “last resort” situation was our attempt to find a for the next frontier. reputable partner to work with us on the financing and marketing of cotton in Tajikistan, after the civil war there. This sector was accountable for a significant share About the Authors Tania Lozansky, Head of Advisory Services in Europe and of the country’s gross domestic product and almost Central Asia, worked in the ECA region as senior operations the sole source of income for the rural population. officer across several business lines and products. We had no takers and proceeded with creating a new Dina Nicholas, formerly Operations Officer for Investment organization, with all the accompanying growing pains. Climate programs in Eastern Europe and Central Asia, was also the first knowledge management officer for the region, We learned the hard way that exits that foresee the from 2006 to 2008. spin-off of project activities into a separate company November 2009 170 IFC Advisory Services in Sustainable Business LEASING REGULATIONS Kyrgyz Republic IFC helps pass amendments to Tax Code exempting Government Government imported leased equipment removes leasing VAT reenacts VAT from VAT incentives incentives 2003 2004 2005 2006 2007 2008 IFC helps pass amendments to Tax Code exempting imported leased equipment from VAT Government Government removes leasing reenacts VAT Tajikistan VAT incentives incentives Annual sales Prioritet consulting Company 4000 3500 3000 uct 2500 on Prod ucti Prod 2000 wL ean ion , Ne ep utat 1500 rov ed R Imp 1000 500 0 2001 2002 2003 2004 2005 2006 2007 IFC Intervention Lessons from IFC’s Corporate Governance Experience 171 Steering Institutes Towards Sustainability: A New Exit Strategy? In the old days, we closed donor-funded projects by putting papers in folders, placing the folders in boxes, and moving those boxes into the cellar—or, worse, shredding it all. Either way, we lost years of valuable information. Since then, a number of projects have grappled with developing an appropriate exit strategy, but often too late and without identifying an institution, organization, or company that could preserve a project’s knowledge and carry on with its activities. The Egypt Corporate Governance Project decided to address this issue by dealing with the exit strategy from the beginning, integrating it into the project objectives, and building in mechanisms for project sustainability through local capacity building. Background of the Egyptian Central Bank and profiting from In line with its overall goal to help build sustainable an advantageous market situation for bank training businesses in the Middle East and North Africa in Egypt. We chose two such different types of region through improved corporate governance institutions because each can play a vital role in the practices, the ECGP defined sustainable institutional overall project design. A mixed selection of institutes capacity for corporate governance advisory services as might best mitigate the different risks associated with a priority. each type of institute. We decided to cooperate with institutes of directors, Lessons Learned or institutes of corporate governance, and direct all The following lessons describe the details of and project activities through such institutes, thereby rationale behind institutional selection. enabling them to continue project activities beyond the project lifetime. Such institutions are found all 1) It takes two to tango. Building over the world and serve as professional networks sustainable institutions is hard work, often for senior executives and board members, offering going beyond the capacity and lifetime of an information, advice, training, conferences, and IFC advisory project. You have to be selective publications to help maximize the potential of their in choosing the institutions you work with. members. These institutions either focus exclusively Working with a start-up institution could on corporate governance or provide wider services in be too time-consuming and too risky, but the area of senior executive training and education. cooperating exclusively with an already In December 2005, the ECGP launched its activities existing institution might not enable you to with two local partners, the Egyptian Institute meet all of the project’s objectives. of Directors and the Egyptian Banking Institute. It is remarkable to build a project from scratch in a Although the EIoD had not launched any activity sustainable manner, but it requires a long-term and until then, it was the only organization in Egypt exclusive commitment that at times absorbs much that focused exclusively on corporate governance. of your resources. This approach does not allow On the other hand, the EBI was a well-established for diversification of risks. Neither does it meet the training institution operating under the umbrella overall strategy of the donor-funded facility. 172 IFC Advisory Services in Sustainable Business In countries where corporate governance is not a familiar concept, supporting a start-up that focuses exclusively on this topic has some distinct advantages. For instance, you may have a much deeper impact on the institution’s operations and the direction it takes in the future. Consequently, the institution and its staff show a high level of commitment, since corporate governance would be their only business. An already existing training institute focuses on other subjects as well, which might limit the time and personnel available to integrate additional training After using international speakers for the earlier conferences, the project supported the formation of an modules. In our case, the EBI frequently carried on Egyptian resource faculty for the Egyptian Institute of other projects with other donors. On the other hand, Directors. the advantage of an established institute is that you do not have to be worried about its future existence. which corporate governance is just a missing training 2) Don’t put all of your eggs in one component. And one of your institutes should focus basket. Diversify from the beginning; don’t exclusively on corporate governance, whether it is a give the slightest hint of an impression that start-up or not. As criteria for the selection of a start- you work exclusively for only one institution, up, you should insist on having some prerequisites particularly if you have decided to cooperate already in place—which we unfortunately had not with and invest in a start-up institution. done. Such prerequisites could be a business plan, a (minimal) number of staff, and management In the first year, our team ended up working almost that is performance-oriented and committed to exclusively with the EIoD, since there was no time to a quality approach. Ideally, the project’s lifetime advance on other project components, such as with would be longer than just two years for such intense the EBI. But IFC’s role is to foster competition, not to cooperation. create monopolies. Supporting only one institution for over a year risks inviting criticism from other training 3) Check out the reality. Don’t expect to be institutions that do not get the same type of support able to transfer staff recruited on IFC’s payroll (which, luckily, did not occur in our project). At the to a start-up institution after the project’s same time, you do not want to work with more than termination. one start-up in corporate governance services, because At the outset of our cooperation with the EIoD, you cannot assess easily whether the market demand the Minister of Investment appointed one of his can support more than one institution exclusively advisors to serve as chief executive officer for the committed to corporate governance. Also, working EIoD on a fulltime basis—major progress over the with two start-ups is far too time-consuming. However, prior situation, where another advisor took care of you may provide your training materials—maybe in the EIoD as just one of many tasks. But the EIoD a shortened version—to other training institutions, had no staff, no business plan, and basically no clue thus reducing the risk that the success of your project how to provide services on corporate governance. depends on one institution only. Although the last point is an ideal match with IFC’s Our recommendation for future projects: if you advisory products in corporate governance, rectifying choose several institutes to work with, two of them the other deficiencies—setting up a business plan and should be already existing training institutes for recruiting staff—posed a number of difficulties for us. Lessons from IFC’s Corporate Governance Experience 173 To address the EIoD staffing issue, we recruited business development skills who were committed three staff members on one-year IFC coterminous to the start-up idea, and the ECGP was looking for agreements to work at the EIoD site while remaining subject-matter experts who showed a potential for under the overall supervision of IFC’s project officer. developing training materials and presentations on The main idea was that staff should get used to topical corporate governance matters. In hindsight, working with the CEO of the EIoD and eventually, it’s no surprise that the staff members we originally after one year, shift their employment to the institute. hired, and who designed training programs under The practical reason for this set-up was that IFC our supervision, were more attached to IFC and its Advisory Services in MENA was not entitled to project than to the EIoD. provide the institute with a grant enabling it to hire Regarding the lack of a business plan, it was of its own staff directly. At the time, this approach paramount importance that it be developed without sounded feasible to us, particularly since the salary IFC’s involvement. The business plan should provide level of the IFC staff would have been carried forward a basis on which to objectively judge whether an by the EIoD. engagement with the institute makes sense. Also, the After half a year, two of the three staff members degree of professionalism within the institute can be wanted to leave the EIoD for several reasons, the main evaluated according to the plan. If the project is asked one being that IFC is perceived as a more prestigious to support the drafting of such a plan, objectivity institution than a start-up—and in this case also perishes. With the EIoD, we were lucky that, thanks governmental—institution. To avoid having more to a World Bank grant, a third party (a department than one staff member resign, we changed the original at the University of North Carolina) was drafting the design of the project, allowing the two remaining business plan. But, due to massive delays in delivering staff to continue as project officers with IFC and the plan, we really could not have walked away by the waiving the expectation that they would voluntarily time it was completed. shift to the EIoD. On this basis, they continued working for the EIoD by sharing their knowledge 4) Cash is king. Move quickly toward with the new team at the EIoD and undertaking sustainability by letting the institute charge overall project management functions from an IFC for all of its services—to ensure sufficient point of view. Foreseeing such an issue early on, we operating cash flows. had initiated the recruitment process for further As a rule, it will take about seven years for a start- staff on the IFC payroll, but this time, we prioritized up institution to achieve overall sustainability. their possible willingness to stay with the EIoD as a Therefore, you should not raise the expectation that selection criterion. We also recruited on a short-term you can create a sustainable institute after a project consultant basis only. More importantly, at that time, intervention of just two or three years. Yet, some the EIoD did not need such heavy lifting, at least elements in the business plan that serve as cash from the project officer’s side. Finally, the CEO of the generators can become sustainable. In our case, we EIoD was able to request more staff, seconded from managed to put the training capacity of the EIoD the Ministry of Investment, which increased the level on very solid ground. In general, for an institute of independence from our staff and in general made of directors, training can generate 40–60 percent the CEO better equipped to run the institute. of revenues, with the remainder coming from Qualifications of the staff of a start-up such as membership fees and sponsors. the EIoD are very different from those of the After the first conference, we started to price for staff the ECGP was looking for to implement every event. Although the conferences generated a its project. The EIoD needed staff with excellent small loss, which is normal due to the invitation of 174 IFC Advisory Services in Sustainable Business international guest speakers, our 72-hour program— presentation as an opportunity to develop their own the Board Development Series, a training program business, which should be allowed only within an covering all aspects of corporate governance and acceptable timeframe. (One consultant took up half designed exclusively for a small (20 maximum) set of an hour of a two-hour module to give credit to his directors and executives—yielded a profit. Including own work, which is, of course, not acceptable.) Even the two intakes of the Board Development Series if the international consultant doesn’t charge (and is and three further conferences, the project generated not exaggerating his own agenda), flight costs—most $117,133.33 in revenues for the EIoD. of the consultants justifiably request business class— might still be substantially higher than the costs for Furthermore, the Board Development Series is local consultants. internationally accredited as a director training program by Risk Metrics Group, formerly known As a consequence, we supported the formation of an as Institutional Shareholder Services, a worldwide Egyptian resource faculty for the EIoD, composed proxy and corporate governance service provider of the participants of our first intake of the Board that also accredited the director training programs of Development Series. Although all of our selected INSEAD and the Conference Board. This element trainers were experienced executives, the challenges of international accreditation, entitling participants they faced in the training environment—such as of the program to carry the title “Certified Director,” delivering the presentation, engaging the participants had a profound impact on the demand for revolving in discussions, and answering tricky questions—called repetitions of the Board Development Series. for preparation ahead of time and a specific training objective for them in the project design. 5) Think strategically. From the beginning of the project, consider building a resource Conclusion or training faculty consisting of a reasonable Later, the EIoD conducted a successful and highly number of local trainers. profitable annual conference and is currently Even if you have created a demand for certain organizing the fourth part of the Board Development training programs, and companies are interested in Series completely on its own. The demand for this your corporate governance advisory services, at some type of training is higher than ever and will continue point the training institution needs a resource faculty to provide the institute with a pivotal revenue that can educate on corporate governance in the same stream. The EBI recently conducted training on bank way the members of the IFC project team do. The governance, which the project designed for them, that availability of local experts is especially important to attracted over 20 participants. ensure the sustainability of training. The first two rounds of the Board Development Series were delivered by IFC staff, occasionally with About the Author the help of international consultants. Although the Martin Steindl, corporate governance project officer for Egypt participants appreciated this international dimension, in IFC’s Advisory Services in the Middle East and North Africa, worked as an attorney at law on corporate governance, the presenters were not able to put international best international business law and arbitration prior to joining IFC. practice into a local context. (In part, the discussions among participants compensated for this deficiency.) Approving Manager Another disadvantage of having international Michael Higgins, Senior Operations Manager, Financial Markets, IFC Advisory Services in the Middle East and consultants, especially in the context of sustainability, North Africa is their high cost. Sometimes international September 2007 consultants do not charge for their time, but use the Lessons from IFC’s Corporate Governance Experience 175 Endnotes 1. To date, IFC Advisory Services in Europe and Central Asia 11. The Board Development Series is an in-depth, interactive has implemented corporate governance projects in Armenia, course on corporate governance for current and future Russia, Ukraine, Georgia and Azerbaijan, in addition to the directors. It consists of four parts, each with six modules of Central Asia Corporate Governance Project. two-to-three hours, and is typically taught over a half-year 2. For example, if the survey results show that many period. It is accredited by the Institutional Shareholders corporations are not establishing an effective internal Services, and participants who complete the course are corporate secretary function, a project may want to focus on certified. increasing training and developing tools on this issue. 12. Details of the BCR case study are available at: www.ifc. 3. CACGP is now using these questions to develop a core org/ifcext/corporategovernance/ corporate governance survey that could be rolled out globally 13. A corporate governance assessment is an in-depth to allow comparisons across countries. examination of a company’s corporate governance framework, 4. http://ifcnet.ifc.org/ifcint/ieg.nsf/AttachmentsByTitle/ policies and procedures, and actual practices, followed by UkraineCIR/$FILE/CODE2007-0040+Ukraine+CIR.pdf recommendations and an implementation plan. A corporate governance review is a shorter version of an assessment. 5. This paper is a follow-up to another SmartLesson by the Corporate governance consultations consist of targeted advice same author: “How to Develop Sustainable Activities in the on a single issue. Field of Public Awareness and Increased Training Capacities: An Experience from Serbia.” 14. The codes reflect best practices for the governance of firms, including issues such as board membership and board 6. These projects work on policy reform, public awareness, composition, board practices, selection of board members, and educational programs, but spend a substantial amount of remuneration and dismissal of management, auditing and time providing corporate governance advice to private sector information disclosure, and relationships with shareholders. companies—work that many would classify as a “private good.” 15. Participants from Gulf Cooperation Council countries all covered their own costs. 7. A play on a popular Russian proverb. 16. In addition to Lebanon, Egypt, Morocco, and Jordan, 8. The thresholds (maximum of 25 percent each for state and countries with participants in the series of workshops were foreign ownership) may be modified if the candidate meets all Algeria, Bahrain, Oman, Pakistan, Saudi Arabia, Tunisia, the other criteria and shows genuine dedication to the goals of United Arab Emirates, and West Bank and Gaza. the program. 17. For example, the new law was introduced in June 2001, 9. A German proverb. right before the lunch recess on the day before Parliament was to break for the summer. A few years later, not one but 10. Another reason for partnering with local organizations two new versions were presented to Parliament—both very is for IFC staff to focus on using their corporate governance similar, but one with pro-management adjustments. Many know-how to provide value-added services such as preparing Parliamentarians were confused and declined to vote. and delivering course materials and not conference management. Partnering is also an excellent means of passing 18. Cities with a total population of 360 million. knowledge on to the local partner organization. 176 IFC Advisory Services in Sustainable Business 19. Established in 1999, the Global Corporate Governance Forum is an IFC multidonor trust fund facility that focuses on supporting practical, targeted corporate governance initiatives at the local, regional, and global levels through its toolkits, publications, events, sponsorship of research and Private Sector Advisory Group. 20. According to Wikipedia, accreditation is a type of quality assurance process under which services and operations of an educational institution or program are evaluated by an external body to determine if applicable standards are met. If the standards are met, accredited status is granted by the agency. 21. At a later stage, ECGP supported the creation of a local resource faculty that is easily able to carry the organization and delivery of technical training events forward. As a result, the EIOD reached a level where it successfully organizes technical training events in a sustainable manner without further support needed from the project. 22. According to Wikipedia, certification refers to the confirmation of certain characteristics of an object, person, or organization. One of the most common types of certification in modern society is professional certification, where a person is certified as being able to competently complete a job or task, usually by passing an examination. 23. A Scottish proverb. 24. SECO is the Swiss Confederation’s competence center for all the core issues related to economic policy. It is also involved in efforts to reduce poverty and to help developing countries that have transition economies build sustainable democratic societies and viable market economies. As of February 28, 2007, SECO supported nine IFC advisory services projects in Europe and Central Asia. Lessons from IFC’s Corporate Governance Experience 177 Credits EDITORIAL PHOTOGRAPHY Editor Cover page, clockwise from Ann Moline top left: Pakistan Corporate Governance Project/ Project leaders IFC, Ukraine Corporate Loty Salazar Governance Project/IFC, Mary Beth Ward Roman Zyla/IFC, China Roman Zyla Corporate Governance Program/IFC, Ukraine For SmartLessons Corporate Governance Victoria Chang Project/IFC Abiola Olapeju Johnson Sita Ramaswami Pages 2, 18: China Corporate Governance Editorial support Program/IFC Amy Sweeting Page 9: Pakistan Corporate The project team gratefully Governance Project/IFC acknowledges the contributions of Charles Page 32: Stock photo Canfield, Darrin Hartzler, Anna Hidalgo, Christian Page 44: IFC Grossmann, Fiorella Facello, Rasmina Gurbatova, Min Page 82: Roman Zyla/IFC Liu, Sebastian Molineus, Motria Onyschuk-Morozov, Pages 124,148,154: Loty Sanwaree Sethi, Martin Salazar/IFC Steindl, Sergii Tryputen, and Merima Zupcevic in IFC Page 168: World Bank Sustainable Business Advisory; IFC Environment, Social and Photos accompanying Governance Department; SmartLessons reprinted World Bank Corporate with permission of Governance Program; and SmartLessons authors IFC field-based corporate governance advisory service DESIGN projects. 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