At its core, corporate governance relies on the right arrangement of checks, balances, and incentives. The purpose is to prevent one group from expropriating the cash flows and assets of others, and to provide a structure to support long-term value creation. History is littered with examples of company collapses arising from poor corporate governance practices. Poor governance impedes economic growth and increases financial market volatility.
A lack of focus on shareholder value, conflicts of interest, limited board independence and poor internal controls have contributed to high-profile scandals in South Korea and Japan, but attempts to reform both markets are now underway.
EOS has engaged with Asian companies on corporate governance since the early 2000s. Over this period, we have witnessed an evolution in regulation and best practice. But although we have seen some significant improvements, corporate governance is still widely viewed as an area of structural weakness when compared with European and North American markets.
For example, the increase in independent directors is a positive trend, but in some instances we continue to face challenges in getting access to these directors for engagements. The lack of relevant business expertise or sufficient knowledge in key areas among some independent directors also raises concerns about their effectiveness. As executive directors often hold more power on boards in Asia, we require more effective independent directors to act as a counterbalance and to challenge the executive team.
Read the full article in our Q1 2024 Public Engagement Report.
Improving corporate governance in Asia
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