The market is a brutal place these days. And investors are an unforgiving bunch. When it comes to corporate malpractice, a few errors of judgement on behalf of one company and a whole index can plummet. So how should the market distinguish between companies with a good corporate governance regime and those with a governance regime that would embarrass a Latin American dictator?
The Asian Corporate Governance Association (ACGA) has just launched a new service called the ACGA Quick Assessment, to provide companies, insurers and investment managers with a qualitative view on a company's governance regime. According to Jamie Allen, secretary general of the ACGA, the service is designed to assess the quality of a company's governance based on its levels of transparency and accountability. Once the assessment is made, then the ACGA will also provide recommendations as to how a company could improve.
The Quick Assessment will be made by analysing public information available in corporate results announcements, websites and articles of incorporation. The ACGA team will look at five main areas when assessing the company: 1) Its accounting and auditing policies 2) Its board structure and strategy 3) How a company handles its conflicts of interest 4) Its training procedures 5) Its treatment of minority shareholders.
Defending the ACGA's approach of just using public information, Francois Roy, the chief analyst of the association says a lot can be gleaned from information that is already in the public domain. "There is of course a place and a need for in-depth assessments of companies in Asia. But few Asian companies feel comfortable with outsiders coming in and asking questions about their directors and managers, and how they perform. Even progressive companies want to know more about what corporate governance reform involves before committing to a process of reform," he says.
"This is where our Quick Assessment can help," he adds. "We say to companies we will examine their governance practices simply by analysing their public information. Getting an independent view of what you tell the world about yourself is a logical first step to knowing if you need to improve. Our recommendations will help you understand what investors are likely to think about your transparency and accountability—and how you can fix it yourself."
While the results of the assessment will not be made public, the service is not designed as a way for bad companies to buy their way to respectability. The ACGA is a non-profit organization and so commercial considerations will not come before its need to uphold standards.
"We do not want to be viewed as providing a window dressing service," stresses Roy.
