What is Measured?
TABLE 1 - WHAT DO THE PROTECTING MINORITY INVESTORS INDICATORS MEASURE?
Doing Business measures the protection of minority investors from conflicts of interest through one set of indicators and shareholders’ rights in corporate governance through another (table 1). The data come from a questionnaire administered to corporate and securities lawyers and are based on securities regulations, company laws, civil procedure codes and court rules of evidence. The ranking of economies on the strength of minority investor protections is determined by sorting their distance to frontier scores for protecting minority investors. These scores are the simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the extent of shareholder governance index (figure 1).
FIGURE 1 - HOW WELL ARE MINORITY SHAREHOLDERS PROTECTED FROM CONFLICTS OF INTEREST?
PROTECTION OF SHAREHOLDERS FROM CONFLICTS OF INTEREST
The extent of conflict of interest regulation index measures the protection of shareholders against directors’ misuse of corporate assets for personal gain by distinguishing 3 dimensions of regulation that address conflicts of interest: transparency of related-party transactions (extent of disclosure index), shareholders’ ability to sue and hold directors liable for self-dealing (extent of director liability index) and access to evidence and allocation of legal expenses in shareholder litigation (ease of shareholder suits index). To make the data comparable across economies, several assumptions about the business and the transaction are used.
SHAREHOLDERS' RIGHTS IN CORPORATE GOVERNANCE
The extent of shareholder governance index measures shareholders’ rights in corporate governance by distinguishing three dimensions of good governance: shareholders’ rights and role in major corporate decisions (extent of shareholder rights index), governance safeguards protecting shareholders from undue board control and entrenchment (extent of ownership and control index) and corporate transparency on ownership stakes, compensation, audits and financial prospects (extent of corporate transparency index). The index also measures whether a subset of relevant rights and safeguards are available in limited companies.
See the methodology for more information.