Many East Asian countries have issued codes or guidelines on corporate gover-
nance. Malaysia and India, for example, require companies to devote a section of
their annual reports to the implementation of corporate governance principles, along
with a detailed compliance report. Recently, jurisdictions such as Hong Kong,
Malaysia, and Singapore, have also established “secondary” markets to cater to
young and high-growth companies. Given the higher risks associated with these
small, start-up companies, these markets require more disclosures to protect in-
vestors.
The Securities and Futures Commission usually is the front-line regulator of list-
ing related matters and oversees the performance of the stock exchange. It has the re-
sponsibility to enhance market efficiency and improve transparency. After the Asian
financial crisis, many countries have revamped their listing requirements. Codes of
best practices of corporate governance have been formulated with more requirements
for independent directors and the like. Apart from the front-line regulator, Monetary
Authorities usually require more financial disclosures as well as more stringent cor-
porate governance requirements.
Private sector bodies such as societies of accountants in emerging economies have
also responded to the demand for better financial transparency and good corporate
governance. The Hong Kong Society of Accountants (HKSA), for example, recom-
mended changes in regulations such as the role and responsibilities of board of di-
rectors, improving financial reporting and audit. The HKSA also advocated recom-
mendations covering board membership including the inclusion of finance directors
on boards, the establishment of board subcommittees such as audit committee and re-
muneration committee.
Based on the above analysis, a strong disclosure system must be underpinned by
an effective legal and regulatory framework. With a few exceptions, the regulatory
framework in the region lacked the institutional capacity and effective and credible
sanctions to ensure that companies complied with the relevant regulations and that
accounting and auditing self-regulatory organizations were diligent in ensuring their
members applied the relevant disclosure standards.
Apart from the effective legal and regulatory framework that needs to be improved
for good corporate governance, it is of paramount importance that the quality of in-
dependent nonexecutive directors in the board and the three board subcommittees
must be assured. Against a background of relationship based corporate governance
system whereby the INEDs are usually connected to the companies, the quality of the
independent nonexecutive directors is even more important.
24.5 CONCLUDING COMMENTS. Emerging market corporate governance reform
has not progressed very substantially despite the willingness of policy makers and
investors to press for change. First, corporate governance reform needs to devote
more emphasis to driving change through institutional reform of capital markets and
underlying structure of property rights to complement practical improvements to
governance at the corporate level. Second, the importance of concentrated owner-
ship such as family owned businesses, government affiliated corporations in emerg-
ing markets should be recognized more explicitly. Without the proper incentives, a
relationship based system could continue to act as a major obstacle to corporate gov-
ernance reform. One should recognize that developing economies have a distinct
legal and regulatory framework and unique ownership structure that are markedly
different from those that prevail in the developed capital markets such as the United
24.5 CONCLUDING COMMENTS 24 • 9