Doing Business Reforms
PROTECTING THE RIGHTS OF MINORITY SHAREHOLDERS
Afghanistan made the most noteworthy improvements to minority investor protections in 2017/18. A new law on limited liability companies, which replaced the earlier law on business corporations and limited liability companies, made significant headway toward mitigating the risks of prejudicial conflicts of interest in companies and strengthening corporate governance structures. In addition, Annexure 2 was added to the Commercial Procedure Code granting greater powers to shareholders to challenge related-party transactions. As a result of these two enactments, Afghanistan improved its score on all six related indexes, resulting in a 68.5-percentage point increase in its score for minority investor protections.
Twenty-two other economies also strengthened minority shareholder protections in 2017/18. Djibouti, for example, strengthened minority protections by modifying its Code of Commerce as well as its Code of Civil Procedure. The amendments provide that related-party transactions must be approved by companies’ general assembly meeting excluding interested members; that an interested director can be held liable when the transaction is unfair or prejudicial to the other shareholders; and that any information relevant to the subject matter of the claim must be made available to the shareholder plaintiff by the defendant and witnesses during trial.
Twelve economies—Afghanistan, Azerbaijan, Bahrain, China, Cyprus, Djibouti, Jordan, Kenya, the Kyrgyz Republic, the Philippines, Saudi Arabia and Sudan—gave shareholders a more prominent role in major corporate decisions such as major transactions, issuance of new shares and appointment of auditors, increasing their scores on the extent of shareholder rights index.
Fifteen economies—Afghanistan; Armenia; Azerbaijan; Bahrain; China; Djibouti; the Dominican Republic; Jordan; Kuwait; the Kyrgyz Republic; Mauritius; the Philippines; Sudan; Taiwan, China; and Uzbekistan—took steps to clarify corporate governance, ownership and control structures by, for example, enacting legislation that requires companies to nominate independent board members and set up an audit committee. These changes resulted in improvements in the scores of these economies on the extent of ownership and control index.
Fourteen economies—Afghanistan, Armenia, Azerbaijan, Bahrain, Djibouti, the Arab Republic of Egypt, Jordan, Kenya, Lithuania, Mauritius, Papua New Guinea, Saudi Arabia, Sudan and Tunisia—passed legislation in 2017/18 that increased corporate transparency requirements. These laws give more agenda-setting power to shareholders and disclose board member activities in other companies, executive compensation and audit reports. These economies improved their scores on the extent of corporate transparency index.
Finally, 12 economies enacted regulation in 2017/18 strengthening mitigating factors against potentially abusive or prejudicial related-party transactions. Among them, Tunisia amended its capital market rules to require that companies promptly publish information on conflicts of interest. These 12 economies—Afghanistan, Armenia, Bahrain, China, Cyprus, Djibouti, Jordan, Kenya, Kuwait, Tunisia, Ukraine and Sudan—improved on the extent of approval, extent of director liability and ease of shareholder suits indexes.
PROTECTING INVESTORS REFORMS BY ECONOMY DB2008-DB2019