Improving board performance in emerging markets

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A recent McKinsey Quarterly article has picked up on what the IFC has known for years: boards of directors in emerging markets face far different challenges than their Western counterparts.

The piece points to several issues that make it difficult to maintain an effective Board in developing countries.

  • Highly concentrated ownership of companies
  • Weak recruitment processes for directors, and a dearth of experienced directors
  • Poor focus; the Board is either too passive or too meddlesome
  • An inadequate supply of information from management
  • Cultural environments that discourage open disagreement
  • Underdeveloped legal systems

But the problem does not stop there. To this list, I would add:

  • Frequent confusion between the role of shareholders and the role of the Board in company decision making
  • The common presence of a Chairman/CEO who is also the company’s controlling shareholder. This changes the character of the Board, and can mean a lack of accountability by management. How can the Board conduct a performance review of the person who owns, controls, and runs the company?

Note: A warm thanks to the kind folks at MQ for providing us with a special guest-link to their premium content.

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