Emerging Markets Corporate Governance Strategy

Cartica Capital employs a private equity approach to improving the governance of listed and privately-held companies in specific emerging market countries in four target regions. Cartica invests in and works with companies whose potential value remains unrealized due to significant shortcomings in its corporate governance. The governance challenges faced by firms and investors in emerging markets are typically quite distinct from those encountered in more established markets. Emerging markets companies are characterized by a high degree of concentration of ownership and control, combines with generally weak legal enforcement. In practice, minority shareholders are limited in their ability to impose corporate change or hold unwilling managements fully accountable.

Many emerging market companies suffer from market perceptions of significant self-dealing, related-party transactions and other practices that favor the interests of controlling parties to the detriment of minority shareholders. Countering this perception, many companies can realize enormous gains in valuation, cost of financing and operating efficiency by:

• Streamlining and Disclosing Ownership Structures
• Improving Board Structures, Independence and Accountability
• Revamping Strategy to Position the Company for Accelerated Growth
• Creating Mechanisms for More Efficient and Profitable Allocation of Capital
• Setting up Processes and Procedures Needed to Create Credible Financial Reports and Non-Financial Disclosure on Areas Such as Environmental Track Record, Ethics, Social Compliance
• Installing Best Practice Risk Management and Compliance Systems
• Professionalizing the Human Resources Functions, Especially in Family-Owned Companies

In emerging markets, the dynamics of family control of large enterprises often add another layer of complexity to the challenge of corporate governance. Effectively addressing the areas of governance described above in a family-controlled firm usually requires repositioning the role of the family owners in the business, and developing durable family governance policies and practices that reinforce rather than detract from the governance and management of the company. Cartica's team has extensive experience working with family owners on such key family governance issues as share ownership policies, family employment, ownership and management succession, family assemblies and councils, and family constitutions. Cartica's Corporate Governance Methodology employs specialized tools designed specifically for the family-controlled enterprise.