2010: The Year of Lessons in Corporate Governance
Editor’s Note: This post is one in a series on the Best Ideas of 2010 for the BoP. We asked the NextBillion staff writers and editors to share what they considered to be the year’s most impactful – or potentially impactful – concepts, startups or initiatives that came to fruition in 2010.
Commercial microfinance grew too fast for its own good in India.
Impact investing is an emerging asset class.
Businesses of every size are looking for ways to combat corruption in their countries.
If there’s one common thread woven through all of those stories, it’s the growing importance of good corporate governance. Healthy discussion and debate between a strong board of directors and managers helps to ensure that business decisions really are made in the best interests of all stakeholders.
As a massive influx of capital from public and private equity flooded India, microfinance institutions pushed Indian microclients from one million in 2005 to 25-27 million in 2010, board oversight suffered from a deep lack of reliable reputational agents: independent accountants, lawyers, credit rating agencies, financial media, researchers, advisors and other analysts. Reputational agents help board members gather the necessary information to foster healthy discussion with managers about subjects, such as the possibility of over-leveraging and over-indebtedness. Consequently, managers continued to do what was easiest and most expedient for their businesses: making loans. The crisis ensued.
At the end of a banner year capping off a banner decade, impact investing got a huge stamp of mainstream investor approval with the JP Morgan/Rockefeller/GIIN report declaring it a new asset class. As impact investing continues to attract mainstream attention, impact investee businesses will have plenty of key business decisions to make as they grow in the years to come. Board directors and social entrepreneurs must be prepared to discuss subjects like how fast to grow; what organizational changes can help accommodate growth; whom to hire to help manage growth; and above all, if a business is serious about scale, when and how to go public.
As one of many signs that corruption and graft are indeed global issues that businesses intend to help resolve, this September the Wall Street Journal launched its Corruption Currents Blog.
Meanwhile NextBillion.net’s Rebecca Regan-Sachs declared corruption “International Development’s Dirty Little Secret,” in the first of a series on the impact of corruption and poor governance on the base of the pyramid. In places where corruption has long been accepted as an unchangeable reality, such as Russia, Ukraine, Pakistan and Thailand, businesses are coming together to say enough is enough. By infusing transparency and accountability into private sector operations, good corporate governance helps bring countries along the good governance learning curve, while also adding vital credibility as the private sector advocates for the same from government.
Sometimes corporate governance is taken for granted; other times it’s totally ignored. Either way, the year 2010 has illustrated the need to ramp up corporate governance on the development through enterprise agenda.