Countries need transparency to attract FDIs: World Bank


  • Business
  • Tuesday, 18 Feb 2003

by Lincoln Yap

GOOD corporate governance and the transparency it brings, is a key element in the bargaining power of countries to attract investors, especially when transparency is part and parcel of good business practices rather than stringent regulation. 

Since all countries need foreign direct investment (FDI) to continue to drive their economies, the perception that industry in a country pays heed to a balance of regulation and good, ethical business practices can make a country attractive to investors, according to Enrique J Rueda-Sabater of the World Bank. 

Rueda-Sabater, Secretary to the World Management Committee said a company's risk management approach usually determined the management style of that company, especially when it took into account the interests of all stakeholders. 

Enrique J. Reuda-Sabater

“A good example has been seen in the case of Enron, where it became obvious that almost all important decisions made by the board/management were in the hands of a small number of people,” he told StarBiz in an interview last week.  

Rueda-Sabater is to speak today on “Risk Management, Corporate Governance and the CEO” in Kuala Lumpur, Penang and Sibu, Sarawak. The talks are hosted by KDU Management Development Centre Sdn Bhd, a subsidiary of Paramount Corp Bhd.  

Rueda-Sabater, who handles integrated risk management practices for the bank, said one important aspect of good corporate governance was who, in a company, was responsible for that company’s risk appetite. It is this that investors would be concerned with for it would show whether a company had clear risk management policies and risk tolerance discussions. 

“After the economic crises of the late 90s, with investors cautiously returning to emerging markets, companies that demonstrate that decisions are taken by all stakeholders and in the interest of all the stakeholders, stand a better chance of attracting investors,” he added. 

Rueda-Sabater noted that while all stakeholders’ interests should be taken into account, it was also to be expected that the decision-making processes remained in the hands of management and the board. 

It became important that a board with a greater number of independent directors could provide independent views on a company’s risk. 

The danger of not having sufficient number of independent directors could result in handpicked ones acceding to policies that do not take into account everyone’s interest, thus resulting in narrow policies that lack transparency. 

Another important aspect is that while managements would not enjoy having boards interfere too much in the daily running of a company, it is also necessary that directors have the wherewithal to ask intelligent and probing questions with regard to management policies. 

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