Corporate governance, the big business groups and the G-7 reform agenda: A critical analysis

Since the Asian crises which began in Thailand in summer of 1997, issues of corporate governance and corporate organisation in emerging markets have acquired an international dimension. They constitute an important part of the reform agenda of G-7 countries in their plans to institute a new international financial architecture which would forestall future crises. The central G-7 argument is that the proposed reforms of the corporate and financial systems of developing countries are essential to make the global markets function properly. The implicit suggestion is that the recent financial crises in these countries were not the outcome of market failures but rather the failure of developing country governments and institutions which did not provide accurate and adequate information to markets, as well as imposed other distortions on the latter. This thesis is not universally accepted by economists, but nonetheless, such reforms were pressed on the crisis-affected Asian countries as part of IMF conditionality and are now being advocated for other developing countries. This paper concentrates on the reform of corporate systems in emerging markets, an issue which has not received as much public and academic attention as the reform of the financial sector in these countries. The reform of the non-financial corporate sector necessarily involves issues of corporate governance and organisation including the role of the big business groups. The latter, as we shall see, are ubiquitous in emerging countries.