Corporate Governance in EM: Key Red Flags to Watch out for

Whenever any organisation suffers a significant corporate governance failure, obvious questions arise as to who should have been in a position to know the impending risks and why corrective action was not taken to address the concerns. Ultimate responsibility for the company's stewardship and risk management rests with the board. Yet, other key individuals and functions within the organisation may also be in a position to know that the business is being poorly managed.

Numerous instances of company failures have highlighted the inadequacy of internal functions such as risk management, audit, compliance and legal. Alarm bells about the actual state of the company often come from investors and fund managers who closely follow their performance, rather than the stewards of the company.

There are several "red flags" to talk about; some key ones to highlight are lack of transparency, high leverage, aggressive revenue recognition and amortization/cost recognition of capital expenses. 

The panel speakers and participants, with varied experience as board members, asset managers, and rating agencies, shared their expertise and tips during the discussion. They discussed "red flags" that independent Board members must watch out for, incentivisation that results in poor corporate practices and actions to take, given their fiduciary duties and responsibilities to tackle such risks.