Corporate Governance in Asia

Professor Richard Welford of the University of Hong Kong has recently written an excellent series of articles on corporate governance practices in Asia.

In Part 1, he argues that good corporate governance practices are crucial to emerging markets in the region. Corporate governance practices may differ in Asia from the US, for example, because of the prevalence of controlling shareholders. The controlling shareholders, while highly motivated to assure that the company operates well, may also be inclined to do so at the expense of minority shareholders.

In Part 2, Welford discusses related-party transactions between corporations and controlling shareholders, at terms other than arm's length terms. While shareholders meetings may provide a venue for minority holders to voice their concerns about these types of transactions, some Asian companies have taken affirmative steps to exclude minority holders from meetings. Some Asian countries provide dissenters' rights in connection with certain types of related-party transactions.

Part 3 discusses the need for increased regulatory power and increased stock exchange oversight to curb wrongdoing. He notes that, to the extent that the exchanges require good corporate governance practices as a part of their listing standards, their is often little enforcement. Independent directors and institutional shareholders can be key to assuring that companies comply with good corporate governance practices.