The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature. Project Number: 36027
RETA 6137-REG: Corporate Governance Component
Prepared by Henry Schiffman
For the Asian Development Bank
This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. CONTENTS I. INTRODUCTION 1
II. EXECUTIVE SUMMARY 2
III. GENERAL OVERVIEW: THE CHALLENGE OF GOOD CORPORATE
GOVERNANCE IN CENTRAL ASIA 3
IV. ITEMS OF THE TERMS OF REFERENCE 5
1. Country-by-Country Findings and Recommendations 6
2. Summary of Corporate Governance by Country 14
3. Comparison of Legal Frameworks 18
4. Comparison of Regulatory Regimes 20
5. Comparison of Promotional Activities 21
6. Summary of Recommendations 22
7. CDC Institute of Corporate Directors Proposal 23
8. Illustrative Cases: Practice and Promotion of Corporate Governance 30 2 I. INTRODUCTION
1. In April 2004 the corporate governance component of TA 6137 REG commenced activities in Tajikistan and the Kyrgyz Republic. In November work began in Kazakhstan and Azerbaijan. The work was led by Henry N. Schiffman, International Corporate Governance Expert, who was ably assisted by local consultants Tahmina Nurova and Victoria Victorova in Tajikistan, Arslanbek Kenenbaev in the Kyrgyz Republic, and Amir Tussupkhanov in Kazakhstan and Azerbaijan.
2. The project undertook a comprehensive analysis of corporate governance and needs for its strengthening in Central Asia1
focusing on four principal areas:
A. The Legal Framework for Corporate Governance
3. Analysis of the legal framework to determine whether remedial legislation is appropriate to provide the proper enabling environment for corporate governance. Areas of consideration included: excessive responsibility of shareholders; definition of the basic role of board of directors; 2
coherence of accountability provisions; requirements for independent directors; obligatory committees of the board of directors; requirements for disclosure of information concerning a company; rules on related party transactions; and fiduciary duty for company officers.
B. Corporate Governance Practices
4. Analysis of key corporate governance practices to determine whether practices differ from legal requirements. Whether significant departures from the Western model would be appropriate, was also considered, in light of local cultural and capacity factors, including enforcement, as described in item 3 below.
C. Regulatory Activities
5. Consideration was given to current regulatory activity and to possibly more involvement by the regulatory authority—the agency responsible for securities in the case of public—for enforcement of corporate governance provisions. The laws assume that shareholders will enforce them but shareholders are generally passive, and even if they are active, they often have to use the courts that are often not competent in corporate matters or are subject to undue influence.
D. Training in and Promotion of Good Corporate Governance.
6. Consideration was given to current promotion activities and needs for ongoing training, including public education in the benefits of good corporate governance and training of directors. 1
“Central Asia” refers to the four project countries: Azerbaijan, Kazakhstan, Kyrgyz Republic and Tajikistan. 2
“Board of directors” in this report and means the upper tier board when there are two boards, often referred to elsewhere as the “supervisory” board as opposed to the lower level “management board.” A management board is referred to in this report as “management” 3
II. EXECUTIVE SUMMARY
7. The legal framework for corporate governance is weak...