Capital Markets Governance of Corporates: How Can Capital Markets Exert Better Governance on Corporates 5th Annual Financial Markets and Development Conference April 14-16, 2003 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the anization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not plete record of the discussion. Bob Felton, McKinsey & Company, Inc. CONFIDENTIAL LAN030414ZXI865-2351-ZXI OVERALL, GOVERNANCE REFORM IS KEY TO IMPROVED ECONOMIC CONDITIONS IN EMERGING ECONOMIES 1. Emerging economies suffer major penalties due to weak governance and other market factors 2. Important barriers inhibit movement to improved governance 3. bination of strong legal/regulatory reform and “free market” supervision appropriate path forward 1 LAN030414ZXI865-2351-ZXI EMERGING ECONOMIES SUFFER MAJOR PENALTY DUE TO WEAK GOVERNANCE AND OTHER MARKET FACTORS 1. Quality of governance important factor in investment decisions 2. Investor say they are willing to pay a premium for good board governance 3. This survey information is supported by financial analysis 4. This lack of robust capital markets leads to weak and unstable corporate financial structures 2 LAN030414ZXI865-2351-ZXI GOVERNANCE REMAINS PARED TO FINANCIALS, PARTICULARLY IN EMERGING MARKETS * Defined as effective boards of directors; broad disclosure, and strong rights and equal treatment for shareholders Source: McKinsey Global Investor Opinion Survey on Corporate Governance, 2002 Percentage of investors Eastern Europe/Africa Latin America Asia North America Western Europe 2002 How important is corporate governance* relative to financial issues, ., profit performance and growth potential, in evaluating panies you will invest in? 2000 Less important Equally important More important 3 LAN030414ZXI865-2351-ZXI
