Corporate Governance Interpreting the Value of Corporate Governance

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Corporate Governance Interpreting the Value of Corporate Governance 3 rd Asian Roundtable on Corporate

Corporate Governance Interpreting the Value of Corporate Governance 3 rd Asian Roundtable on Corporate Governance Singapore, 4 April 2001

210301 LNZXT 376 TSMW-P 1 Investor Opinion Survey respondents’ characteristics • Three surveys covering

210301 LNZXT 376 TSMW-P 1 Investor Opinion Survey respondents’ characteristics • Three surveys covering Asia, Europe, Latin America and the U. S. • Views sought from local and international investors • Investors range from money managers to pension funds • Aggregate assets under management are approximately US$3. 25 trillion

Quality of governance is a key concern when evaluating investments % “In evaluating Asian

Quality of governance is a key concern when evaluating investments % “In evaluating Asian companies for potential investment, how important is the quality of board practices relative to financial issues? ” More Same Less 210301 LNZXT 376 TSMW-P 1

210301 LNZXT 376 TSMW-P 1 Investors’ views on the quality of governance in Asia

210301 LNZXT 376 TSMW-P 1 Investors’ views on the quality of governance in Asia Quality of corporate governance Scale Very poor Premium investors are willing to pay for a well governed company % Very good Japan Taiwan Korea Thailand Malaysia Indonesia U. S. (estimate) U. S. Asia 18% 24%

210301 LNZXT 376 TSMW-P 1 Average premium investors would be willing to pay for

210301 LNZXT 376 TSMW-P 1 Average premium investors would be willing to pay for a well-governed company Average % 30 28 Venezuela 26 Columbia Indonesia Thailand Malaysia Brazil Korea Mexico Argentina Chile Taiwan Japan 24 22 20 18 0 16 Latin America Asia Italy Germany France Spain Switzerland Continental Europe US UK Anglo-Saxon

210301 LNZXT 376 TSMW-P 1 Investors’ views on how to improve board performance Average

210301 LNZXT 376 TSMW-P 1 Investors’ views on how to improve board performance Average response Latin America Europe/U. S. Negative impact -1 Majority of independent outside directors Formal CEO evaluation by the board n/a Separate CEO from chairman position Formal annual evaluation of board Formal annual evaluation of directors Higher proportion of outside director compensation paid in stock/options Have a ‘lead’ director Greater use of board committees Outside directors’ meeting with large investors n/a Negligible impact 1 Moderate impact 2 3 High impact 4 5

Asian business leaders are wary of the benefits “I do not need to raise

Asian business leaders are wary of the benefits “I do not need to raise capital anytime soon. Why should I worry about corporate governance? ” – Chairman, $2 b market cap listed company “More transparency means more opportunity for the government to favour my crony competitors. ” – CEO, listed family-owned company 210301 LNZXT 376 TSMW-P 1 “I would rather have a higher cost of capital than the higher taxes that I would be forced to pay under greater disclosure. ” – Chairman, listed multi-business company “We’ve tried. We’ve placed the best independent directors on our board. But they would not dissent” – Chairman, tightly-held listed company

The Anglo-Saxon governance system Shareholder environment Institutional context Capital market liquidity Dispersed ownership Highly

The Anglo-Saxon governance system Shareholder environment Institutional context Capital market liquidity Dispersed ownership Highly developed institutional investment Nonexecutive majority boards 210301 LNZXT 376 TSMW-P 1 Independence and performance Aligned incentives Corporate context OECD Principles Active private equity market (incl. IPOs) Active market for corporate control High disclosure Clear lines of accountability Transparency and accountability

210301 LNZXT 376 TSMW-P 1 The Asian governance system Shareholder environment Concentrated ownership ‘Insider

210301 LNZXT 376 TSMW-P 1 The Asian governance system Shareholder environment Concentrated ownership ‘Insider boards’ Reliance on family and state finance Institutional context Capital market liquidity Independence and performance Incentives aligned with core shareholders Corporate context OECD Principles Under-developed and illiquid investment market Limited market for corporate control Limited disclosure Inadequate minority protection Transparency and accountability

Managing the transitional challenge 210301 LNZXT 376 TSMW-P 1 Anglo-Saxon governance system Asian governance

Managing the transitional challenge 210301 LNZXT 376 TSMW-P 1 Anglo-Saxon governance system Asian governance system