Corporate Governance in Developing countries.

Lee Kuan Yew was optimistic about the economic future of developing countries: “There is no reason why third world leaders cannot succeed…if they can maintain social order, educate their people, maintain peace with their neighbors, and gain the confidence of investors by upholding the rule of law” was a thought he had. But, we should not under estimate the importance of  the words ” if they can”, in the above statement. Because, most of the leaders have proved that “they can’t.”

How does that impact Corporate Governance would be the question in your mind. Corporates don’t operate in a vacuum.  They’re interconnected with the community in which they operate and the people. Therefore, if there is a deterioration of social order or no rule of law in the country, how could one expect better Corporate Governance, in Corporates that operate within?

The rule of law is the underlying framework of rules and rights that make prosperous and fair societies possible. The rule of law is a system in which no one, including government, is above the law; where laws protect fundamental rights; and where justice is accessible to all.  Rule of law cannot exist without a transparent legal system, the main components of which are a clear set of laws, strong enforcement structures, and an independent judiciary to protect citizens against the arbitrary use of power by the state, individuals or any other organization.

Good international investors may be required to maintain global standard of governance set out by their groups. Therefore, the reputed investors may not be able to invest in developing countries that are unable uphold the rule of law. As a consequence, such countries attract low grade investors, who compound the issues that are already existent. They also use bribery & corruption as a means to achieving their end. They continue to use bad management practices and treat our people like in the sweat shops in China or India.

Robust economies are dependent upon the existence of clear laws that govern societies and commerce, and a strong, independent judiciary to impartially enforce laws and contracts so that citizens, institutions and foreign investors can risk capital and trust that risk is protected from arbitrary forces. Until we reach such a position, whatever  level of Corporate governance will not unlock the potential available in our people. Thus the ‘brain drain’ which results in citizens from China, India, SriLanka, etc doing well in developed countries, which uphold the rule of law.