News

3 May 2012

IFC partners with CEDR to tackle board-level disputes in emerging economies

Experts join forces to empower emerging market businesses with sustainable corporate governance dispute resolution systems

The International Finance Corporation (IFC), a member of the World Bank Group, and the Centre for Effective Dispute Resolution (CEDR), have signed a memorandum of understanding to deliver best practices and tools that will enable emerging market businesses to tackle corporate governance disputes, from battling board members to disaffected shareholders, without resorting to costly litigation.

“Although less common for well-governed companies, most companies experience corporate governance disputes or conflicts. Left unresolved, these tensions could paralyze the board, harm the company’s performance and deter investors,” said Marie-Laurence Guy, Senior Operations Officer, IFC Global Corporate Governance Forum.

“Implementing effective dispute resolution processes for preventing and resolving corporate governance disputes is thus essential if the company is to succeed over the long-term. Just as boards have crisis management plans, so too, should they have developed and adopted dispute resolutionstrategies, policies and processes.”

In G8 countries it is estimated that unmanaged conflict has huge financial cost; in the UK alone, conflict costs businesses upwards of £33 billion each year (The CEDR Cost of Conflict Research conducted in 2006). In the developing world, the total impact of organisational conflict – including disputes between company board members or with shareholders – could be far greater, resulting in weakened local economies.
 

As these markets mature, there is growing acknowledgment that deadlocked boardrooms, as well as the use of litigation as the primary tool to resolve disputes, are unsustainable and undermine future growth. Recognising the potential to improve the fabric of business in these markets, the IFC and CEDR are working together on an initiative grounded in negotiation and mediation best practices:

• The two partners are delivering workshops using IFC’s Global Corporate Governance Forum’s toolkit on “Resolving Corporate Governance Disputes”. To-date workshops have taken place for Brazilian directors through the Brazilian Institute of Corporate Governance and for independent directors of IFC’s investee companies and local mediators in Colombia and Egypt.

• The partners organised a one-day conference of corporate governance practitioners and counsel, which took place on 23 April 2012 and was attended by delegates from 12 countries including Argentina, Brazil, Colombia, Malaysia, Pakistan, the U.A.E. and Ukraine. The conference considered how to develop innovation in the way corporate governance disputes are resolved.

• Moving forward, IFC will look at actions that might further improve the impact of this initiative, such as investigating best practice in governance disputes or how to enable directors to be effective in having helpful dialogue to prevent and manage governance disputes and their impact on a company’s operations and reputation.

• At CEDR the work is part of its not-for-profit activity that seeks to discover, implement and share alternative dispute resolution best practices to further global society.

IFC is the largest global development institution focused exclusively on the private sector and aims to help developing countries achieve sustainable growth by financing investment and providing advisory services to businesses and governments. It has worked with CEDR since 2008 on collaborative techniques for governance-level conflict.

“CEDR and IFC are committed to improving the fabric of business in the developing world,” said Dr. Karl Mackie, CEO of CEDR. “This collaboration is the first step towards educating director-level stakeholders on the strategic use of alternative dispute resolution in high-level disputes, to further company goals and objectives whilst maintaining good governance.”
 

“We see first-hand not only the damage which unchecked board conflict can inflict on a company, but also the dramatic improvement that can happen when board members are prepared, accept external help and improve their own skills when negotiating difficult internal disputes,” commented James South, CEDR’s Director of Training and project leader.

“Having delivered the first workshops to directors and stakeholders, we can see there is a real recognition from them that by managing disputes better, boards can resolve their corporate governance disputes with the level of effectiveness that businesses need.”

The Corporate Governance ADR Toolkit can be found at: http://www.gcgf.org/ifcext/cgf.nsf/Content/ADR_Toolkit