Mongolia: Crisis increases demand for corporate governance

The President of Mongolia, Elbegdorj Tsakhia, sat at the table behind a Greek salad. We were at a lunch hosted by the Corporate Governance Development Center, an NGO which brings international best practices in corporate governance to Mongolia. Also present were the Minister of Education, the Director of the Financial Regulatory Commission (FRC), the Deputy Chief of Party of the USAID-funded Economic Policy Reform and Competitiveness Project (EPRC), which helped to establish the Center with the Institute of Finance and Economics, and CEOs of leading Mongolian firms. Several International Finanace Corporation (IFC) clients were among them.

The salad looked delicious, but it would have to wait. President Elbegdorj was speaking about the role of corporate governance in Mongolia. "Corporate governance is important for Mongolia's competitiveness," he said. I was delighted. I've been waiting a long time for this moment.

Corporate governance refers to the structures and processes for the direction and control of companies.  A company that is well governed is one that is accountable and transparent to its shareholders and other stakeholders, such as employees, creditors, customers and society. Better corporate governance allows companies to recognize and act to fulfill their environmental and social responsibilities.

The President of Mongolia, Elbegdorj Tsakhia, at a lunch hosted by the Corporate Governance Development Center, an NGO which brings international best practices in corporate governance to Mongolia.

Companies with good corporate governance typically make better decisions, perform better, and find it easier to attract investment and find partners. This is important because Mongolia has to compete harder to attract investors in an economic downturn. Hence the interest, by both companies and government, in improving corporate governance in Mongolia.

This is a relatively recent development. Shortly after I arrived here in mid-2008, one of IFC's clients asked me about corporate governance, so I started asking people from business and government what they thought about it. Most had heard of it, but didn't really know what it was or how it could make Mongolia more competitive. There were exceptions. Mr. Bailikhuu, an advisor for the State Property Committee, has long been an advocate of corporate governance. But most people said, if anything, that Mongolia wasn't ready for corporate governance.

But that was before the crisis. Since then, demand for better corporate governance has been growing. In September 2008, the Economic Standing Committee on Economic Policy asked IFC to implement a project to improve corporate governance project in Mongolia. My colleague Sergei Tryputen, a Ukrainian national who manages IFC's corporate governance program in China, agreed to set up a project in Mongolia. The Netherlands provided funding and we launched it in October.

The Corporate Governance Development Center has done a lot to publicize corporate governance and has its own training program, which it set up with the help of Dr. Demir Yener, a corporate governance specialist.

In the meantime, USAID/EPRC set up the Corporate Governance Development Center in partnership with the Institute of Finance and Economics, and began the difficult process of educating companies,  government, universities and the public about the importance of corporate governance.  The World Bank also conducted a study on the observance of standards and codes of corporate governance in Mongolia, showing that there is still a knowledge gap which needs to be filled.  What this means is that Mongolian corporations now have access to the information and support they need if they want to improve their own corporate governance. Now it seems that many do.

The Center has turned out to be a good partner for us. We have materials, expert trainers, and over a decade of experience bringing corporate governance to countries of the former Soviet Union. The Center has done a lot to publicize corporate governance and has its own training program, which it set up with the help of Dr. Demir Yener, a corporate governance specialist who looks like Ben Franklin on a $100 bill. With the support of our colleagues elsewhere in Asia and the former Soviet Union, and in partnership with other organizations in Mongolia, we can move corporate governance forward.

After his speech, President Elbegdorj dove into his salad. I did the same. It was delicious.