In August, the Australian Securities and Investment Commission (ASIC) published its report 'Emerging market issuers'. The report highlighted the difficulties faced by corporations with operations overseas, in terms of control and corporate governance and the risk this potentially posed to investors.
With over 36% of listed companies having an exposure to emerging markets, it is essential that timely and accurate reporting and compliance with the ASX Listing Rules be followed.
This presents some key challenges for companies operating in South America. With complex cultural and language barriers, companies face difficulties ensuring good corporate governance and disclosure aggravated by a lack of access to reliable information, challenging contractual arrangements and reliance on a few key industry players. Unfortunately, good reporting is often the casualty – putting both the company and its investors in jeopardy.
A recent decision in America highlights some of the perils faced by companies investing abroad. The case exposed the fraudulent action of the chairman of Puda Coal Inc, an American company based in China. The chairman unilaterally transferred 90% of the company's assets into his own name. Unfortunately, the companies American head office was unaware of the transgression for over 18 months, in which time it had unwittingly mislead its shareholders and ultimately cost the company and its investors hundreds of millions of dollars.
This case illustrates the importance of control and corporate governance in overseas operations. To prevent similar cases it is advised that:
- A company needs a physically presence in its overseas markets,
- Be fully aware of the cultural norms and regulations, and
- Retain a legal and accounting team of the highest competency.
At, the Harris Gomez Group, we help companies maintain the highest levels of corporate governance. In particular, we advise companies to:
- Separate the roles of the legal representative and general manager,
- Place limits on powers of attorney (a common instrument in South America), and
- Ensure full disclosure by sending timely reminders regarding the companies reporting requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.