NEWS
Links between governance and the financial crisis
11 March 2013
Category:
News, Asia, Global
By David Macfarlane
Whilst it is clear that there is a link between some significant failures in corporate governance practices and the nature and extent of the financial crisis, it would be naïve to think that this was the only contributing factor, the Association for Sustainable and Responsible Investment in Asia (ASrIA)’s General Manager Jessica Robinson tells Asia Asset Management.
The prominence of family firms in Asia, for instance, complicates the very notion of a “best practices regime of corporate governance”. The situation in Europe and the US where there has been considerable focus over the past 20 years on developing standards for corporate governance is another example. “The significant learning from this is that it was not the fact that the standards did not exist,” says Ms. Robinson, “rather, it was the fact that these standards were not consistently applied. If only we knew at the time what we know now – that the world was leveraging itself beyond its means, spending to create unsustainable growth on the back of a firm belief that the growth cycle would continue to make way for economic success.”
Ms. Robinson continues: “If we assume that we did not know, then the specific risk that is yet to come is not knowing what we do not know. There is an increasing politicisation of the policy-setting framework – especially in Asia – as countries seek to immunise their capital markets from the risk of contagion. With this political uncertainty comes the risk of reactive and potentially damaging policies being put in place as a knee-jerk reaction to cover against economic failure. There is insufficient transparency in reporting to allow investors to truly understand the risks associated with their investments – and addressing this has to become a priority.”
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