The FINANCIAL — IFC, the Association of Banks of Georgia, and the Georgian Stock Exchange presented the Corporate Governance code at a ceremony in Tbilisi to representatives of leading Georgian banks and recommended it as the basis for corporate governance policies for all banks belonging to the association.
One of the main rules agreed by Georgian banks concerns the conflicts of interest.
According to the code, members of the bank’s governing bodies should insure that adequate policies and procedures are in place to avoid conflicts of interest in their activities, and if conflict of interests arises governing body members should disclose it and abstain from participation in the relevant decision-making process.
A conflict of interest is a situation in which a person or corporation occupies a position by means of which it is possible to gain personal or corporate benefit beyond normal contractual resulting from engagement with the bank. Transactions with related parties should be considered as conflicts of interest.
A conflict of interest arises when a bank employee makes a decision with respect to a specific transaction even as that employee or a related person is counterparty to that transaction. Personal interests should not be considered when business decisions are being made. Members of bank governing bodies should in cases of conflicts of interest fully disclose all required information to the relevant governing body.
Conflicts of interest should be disclosed in a public annual report, says the Code. Transactions among members of a holding company to which the company belongs should also be disclosed. The bank should also disclose those internal by-laws or instructions that apply to conflicts of interest.
The voluntary code sets higher standards of corporate governance than those stipulated in Georgian law, meaning that Georgian banks participating in the code are demonstrating their commitment to elevate their corporate governance standards to build trust among investors.
According to its officials, IFC, a member of the World Bank Group, cooperated with the Association of Banks of Georgia and the Georgian Stock Exchange to develop a voluntary corporate governance code to help banks introduce international best practices and increase confidence in the country’s banking sector
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labor (employees), customers, creditors (banks, bond holders), suppliers, regulators, and the community at large.
“The initiative of creating this code has begun nearly for about 8 month ago. IFC in cooperation with the Association of Banks of Georgia and the Georgian Stock Exchange has been working on creating this project. After creating the code, we have discussed this issue with the banks and we have already finished product,” Maia Tevzadze, Project Manager for IFC’s Georgia Corporate Governance Project says.
According to Gilber Hie, CEO, Bank Republic, corporate governance code is very important for the banking sector.
“Bank Republic has always been involved in corporate governance matter at the early stage. I think it was in 2004 when Lasha Papashvili Chairman of the Supervisory Council of Bank Republic, started discussing this issue with IFC. We have worked a lot on this corporate governance metter,” Hie says.
“We belong to a big international group, where corporate governance is very important and group rules are very elaborated in 80 countries in the world so we are encouraging development of such things, “ Gilber Hie told The FINANCIAL.
”IFC will follow up with a public awareness campaign and hold introductory roundtables to broaden awareness of the code’s potential to influence Georgian businesses in a positive manner,” IFC officials note.
“We are glad that more and more banks pay special attention to corporate governance. The corporate governance code will serve as a benchmark for implementing corporate practices at the bank level,” Zurab Gvasalia President of the Association of Banks of Georgia says.
“The primary role of the corporate governance code for banks is to raise national standards. It also will serve as a positive market signal and help Georgian banks build and maintain investor confidence,” Maia Tevzadze says.
According to its Officials the IFC Georgia Advisory Services Project aims to improve the corporate governance practices of Georgian companies and banks, thereby helping them operate more effectively and allowing them greater access to capital.
“IFC is collaborating in this endeavor with BP and the co-venturers in its oil and gas projects, as well as with the Canadian International Development Agency,” IFC Officials note.
IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improve their lives. We foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. Our new investments totaled $14.5 billion in fiscal 2009, helping channel capital into developing countries during the financial crisis.
Written By Tako Khelaia
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