International principles of corporate governance

Areas of Focus
The Corporate Governance team focuses on two main areas: the financial sector and capital markets.
1. Corporate Governance in the Financial Sector
Why it matters
Governance issues in financial institutions are similar but differ in important ways from those in non-financial companies:

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  Financial institutions are charged with upholding the public's trust and protecting depositors. Balance sheets are more opaque, leading to less transparency and greater ability to conceal problems. Good governance requires boards and senior management to fulfill their fiduciary responsibilities by effectively communicating strategic business direction and risk appetite while assuring transparent and effective organization, risk assessment and mitigation, and sufficient capital support.
  
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  Good governance complements traditional supervision of financial institutions, protects the interests of depositors and other investors in commercial banks, builds and maintains public confidence in the financial sector, and ultimately contributes to its integrity and credibility.
  
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  Financial institutions are uniquely vulnerable to liquidity shocks which can result in institutional, and potentially, financial instability. Sound governance supports prudential supervision and regulation, enhancing the role and the effectiveness of the financial institution supervisor.
  
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  Many developing countries are embarking on wide-ranging corporate governance reforms of their state-owned banks in order to improve their efficiency and transparency. Development banks are now playing a more prominent role in the economy of emerging markets. Development banks play a central role in financial inclusion, SME development and, housing, agriculture and infrastructure finance. Solid corporate governance allows these institutions to fulfill their mandates more effectively.
  

What we do
The Corporate Governance Group has developed a set of tools to diagnose and strengthen the corporate governance policies and practices in financial institutions, for state-owned banks and for banks more generally.
Corporate Governance of State-Owned banks
The Group provides advisory services to countries wishing to improve state bank governance. The focus is on the most common corporate governance shortcomings applicable to state-owned banks at three different levels:

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  Regulatory Level: Developing the corporate governance regulatory environment (e.g. laws, codes, listing rules, ownership policies).
  
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  State ownership level: Developing director nomination, remuneration and evaluation policies; creating performance monitoring frameworks; developing dividend policies; supporting the creation of specialized ownership entities; and defining and limiting state-owned bank objectives and mandates.
  
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  Institution specific level: working with specific state banks to diagnose and implement corporate governance reforms drawing on the methodology of the International Finance Corporation.
  

As part of our global engagement work, the team conducts bank governance reviews in the context of the World Bank’s Financial Sector Assessment Program (FSAP). The review evaluates the specific aspects of the legal and regulatory framework applicable to banks and provides a detailed set of reform recommendations at different levels including: legal and regulatory; supervisory; and institution specific.

Governance of micro-finance institutions and financial cooperatives
The team has developed tools to assess the corporate governance framework applicable to micro-finance institutions and financial cooperatives. Reviews in the context of the World Bank’s Financial Sector Assessment Program (FSAP) and technical assistance programs are currently being carried out across the world. The program provides reform recommendations at different levels including: legal and regulatory; supervisory; and institution specific.