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Money is Not Enough

Emerging Markets Enterprises Need Entrepreneurial Governance to Achieve Strategic Objectives in a Changing Environment

Changing Economic and Operating Conditions Compel Strong Governance

Absolute and relative economic gains in emerging markets in recent years have propelled many private and state-owned Emerging Markets Enterprises (EMEs) to the forefront of global business. With cash and willingness to spend and take on risk in a financial crisis-stricken world, many EMEs expanded, while many developed economy enterprises retreated.  Today, changing economic conditions—e.g., waning investment in emerging markets, sustained commodities price and demand declines, expected U.S. interest rates rises—may blunt EMEs’ financial edge.  As relative financial strength declines, strong enterprise governance will become more necessary and valuable as a competitive advantage.

In addition, as emerging economy nations take steps toward qualitative economic objectives, local legal, political, and market forces will compel stronger governance. For example, China’s clampdown on corruption and lax accounting/auditing within its state-owned enterprises will require those entities to improve their governance. Saudi Arabia’s recent opening of its capital markets to foreign investors will force affected companies to raise their governance quality. Notably, that result would align with Saudi authorities’ stated purpose of attracting “activist investors” to “allow [Saudi Arabia] to better align with best global practices and . . . accelerate [its] convergence to higher standards of corporate governance…”

Emerging Markets Enterprises in Transitional Phases Need Entrepreneurial Governance

Like some emerging economy countries, some EMEs that have had prior success and are financially strong are, at the enterprise level, in transitional phases. These EMEs:(1) are facing changing global and local economic and operating conditions;  (2) have newfound global visibility that invites greater public scrutiny; (3) have strategic, next level goals; and, (4) must navigate established and evolving standards of business conduct that are being set and enforced by diverse external constituencies and growing more material to the bottom line.

To adapt to changing conditions and advance their objectives efficientlyi.e., by proactively limiting reputational, commercial, legal and other risks and costs and capitalizing on opportunities that favor well-governed enterprises—these EMEs need not just strong governance, but entrepreneurial governance.

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