Cambodia has an opportunity to improve its corporate governance, addressing issues in this field that are increasingly important to international companies considering investment, an official from the International Finance Corporation (IFC) has said.
James Christopher Razook, the IFC’s corporate governance lead for East Asia and the Pacific, said with regional economic integration progressing under the ASEAN Economic Community (AEC), good corporate governance was a key selling point for the bloc’s member states to attract new investment.
“Corporate governance is playing an important role in promoting economic growth in the Cambodia because it builds the confidence of investors and business partners, and attracts [new investment] to the Cambodian market,” he said.
However, a lot of challenges remain, as the Kingdom needs to improve corporate transparency, strengthen companies and the function of their board of directors, and improve risk management, he said.
“Comparing the level of corporate governance in Cambodia to other ASEAN countries, I think there is still a long way to go and a lot of things to improve,” Razook said. “In terms of transparency, and in the board of directors, there is quite a control gap in Cambodian companies, so there is a large opportunity for improvement.”
He said family run businesses and state-owned companies hoping to attract new investors of business partners – or simply to operate sustainably over the long term – need to consider setting up a proper board of directors and management structure, and must implement appropriate business practices.
According to a 2014 study by the Asian Corporate Governance Association (ACGA), Singapore, Hong Kong, Malaysia and Thailand presented good models of corporate governance and companies operating in these jurisdictions scored high for their corporate governance practices. Cambodia was not included in the report, and is believed to have a low standard of practice.
Lor Sok, managing director of law and policy firm Sok Xing & Hwang, said Cambodian business was gradually transforming from traditional management to a more professional management model as a younger generation embraces new strategy and management plans to reform family businesses.
“As we are now part of the AEC there are more challenges from market competition,” he said. “The new generation is bringing a wave of reform to transform traditional management in the business sector.”
Improving corporate governance is paving the way for new capital and investors, he added.
Nao Noeurn, manager of tax and accounting firm Royal CTA (Cambodia) Co Ltd, said the management system of traditional Cambodian businesses, with their networks of family members, relatives and friends, was facing a lot of challenges.
“[These companies provide] no financial reports to reflect the reality of their business operations and face a lot of conflicts of interest,” he said. “They also face a lot of risk and it is hard to build up the confidence of shareholders because they do not know what corporate governance is.”
However, compared to five years ago, corporate governance appears to have improved, particularly as the government has shown more discipline in enforcing laws and taxes, he said.
“I noticed that since the government started to collect the tax payments more strictly, businesses have started to manage their financial reports and change the function of their management,” Noeurn said. “It will not take much longer for business in Cambodia to grow strong as the new generation changes the way companies are managed.”