Corporate Governance Due Diligence Crucial for Emerging Market Transactions
Alvarez & Marsal report stresses the strategic importance of corporate governance due diligence in emerging market deals to ensure value creation and manage risks.
Consulting firm Alvarez & Marsal is highlighting the critical role of corporate governance due diligence in transactions involving emerging markets. The firm's analysis suggests that governance is often treated as a compliance issue rather than a strategic priority, a perspective that can lead to significant downsides.
In emerging markets, where regulatory environments and ownership structures can be complex and inconsistent, a thorough assessment of corporate governance is essential. Investors, including pension funds and other institutional capital, risk financial losses and reputational damage if they fail to adequately evaluate governance risks.
The report points to potential governance failures that can erode value, such as fictitious revenues, delayed financial disclosures, and aggressive commercial strategies without sufficient internal controls. It notes that family-owned or promoter-driven companies, common in these markets, may have centralized decision-making and weak board independence, posing risks to minority investors.
Key risks identified include promoter business practices, bribery and corruption, data privacy and cybersecurity concerns, financial integrity and reporting issues, and Environmental, Social, and Governance (ESG) factors. Alvarez & Marsal advocates for an operational approach to due diligence to assess these risks in practice.