Why reform is needed
Good corporate governance is essential for companies wishing to access external capital and for countries aiming to stimulate private sector investments. If companies are well run, they will prosper. Poor corporate governance weakens the company’s potential and paves the way for financial difficulties and even fraud.
It is important that enterprises and financial institutions that receive EBRD financing are properly organised under domestic legislation and that their treatment of shareholders, customers, suppliers and other stakeholders is transparent and complies with legislation.
The LTP's role
Since the EBRD’s equity investments are limited to a minority position, we are particularly concerned with how companies treat their shareholders and whether minority shareholders are able to have their legal rights effectively enforced. These concerns have led the EBRD to take an early, proactive approach to the development and enforcement of sound principles of corporate governance in all the countries where we invest.
We take a two-pronged approach to promoting corporate governance. First, through integrity checks and the terms and conditions of investment operations, the Bank assesses and influences the internal structure and operation of those enterprises to which it intends to lend or invest. Second, the EBRD also works closely with legislators and regulators to assist with the creation and functioning of effective legal and regulatory frameworks which support sound corporate governance practices. To support this work, the EBRD undertakes a periodic Corporate Governance Sector Assessment to gauge the quality of corporate governance-related laws and regulations in the countries where we invest. This helps us to better understand legal developments in the region and serve as a reference for countries formulating reform.