Much of the attention to corporate governance issues in emerging markets has focused on the role of governance in improving emerging-market companies’ access to global portfolio equity. An increasing volume of empirical evidence indicates that well-governed companies receive higher market valuations; however, improving corporate governance will also increase all other capital flows to companies in developing countries—from domestic and global capital, from equity and debt, and from public securities markets and private capital sources.

Equally important, good corporate governance leads to better performance. Improved governance structures and processes help ensure quality decision making, encourage effective succession planning for senior management, and enhance the long-term prosperity of companies, independent of the type of company and its sources of finance.

Corporate governance is a priority because it presents opportunities to manage risks and add value. Besides benefiting individual client companies, improved corporate governance also contributes more broadly to promote sustainable private sector investment in emerging markets, to identify and manage environmental and social risks and pursue environmental and social opportunities and outcomes in business activities, with a view to continually improving sustainable performance. The relationship, that a strong culture of corporate integrity and governance has with sustainable performance is important—and that a company’s management and board of directors play important roles in driving risk management and sustainable growth. This helps improve the financial, social, and environmental sustainability of investments and enhances the public trust in operations.

It is in the interest of all organisation’s to reduce the risk of investments by improving their governance. In the worst corporate governance environments, poor standards and weak enforcement continue to be barriers to investment. Improving corporate governance facilitates investment in higher-risk environments. It may also bring an increase in the market valuation of companies and attract more investors, which together increase the opportunities for all investors and organisations to improve their governance and to better communicate the quality of their governance to markets.

If organisations do not improve their corporate governance, then it increases not only investment risk but also reputational risk, through involvement with organisations with poor governance or, in the worst cases, corporate scandals. Reputational risk is particularly serious where stakeholders and equity investors stand to lose from governance abuses.

Improving corporate governance contributes to the development of the public and private capital markets. Poor standards of governance, particularly in the area of transparency and disclosure, have been a major factor contributing to instability in the financial markets across the globe. This was seen in the 2008 financial crisis, where corporate governance shortcomings, particularly in the area of control environment (internal audit, internal controls, risk governance, and compliance) interrupted economic growth.