Published in Myanmar Market Intelligence on 21 March 2016

Corporate governance is lagging behind, and it’s going to take more than a new stock exchange to fix it.

Myanmar’s ambition to expand its economic reach beyond its own borders may be a necessary step toward becoming a fully integrated member of the international business community, however legitimacy comes at a price.

If those companies wish to find success in the form of new investors in the post-junta era, they are going to need to quickly learn the definition of corporate governance, analysts familiar with Myanmar believe.

“The majority of [local] businesses are starved for capital. The cronies never needed capital – they had their own sources of money,” said Peter Beynon, country manager of Jardine Matheson International Services, who is also the contact person for the Institute of Chartered Accountants in England and
Wales (ICAEW) strategy in Myanmar.

“The family grown businesses have never had access to investors like us or international lenders,” he said. “Bank lending has only just started now, but it doesn’t cut it for those seeking large-scale expansion.”

Indeed, obtaining international capital will require a great deal of internal change as corporate governance is a relatively new concept – and for many, one that remains wholly unknown – while
accounting standards are rudimentary across the board.

“There basically aren’t any [accounting standards] in Myanmar. It’s as rare as hen’s teeth to find a high quality financial accountant,” Mr. Beynon said.

He explained that this is common in frontier markets, as most businesses are owner-managed.

“Business owners don’t think they need a set of financial books and they are not demanded by the authorities. They understand how their business is doing purely by the level of money they have
in the bank account – or how big the pile of money is at the end of the day if they don’t have a bank account,” he added.

The Myanmar Institute of Certified Public Accountants did not respond to requests for an interview about the standards it recently adopted for the profession.

As the issue has all but stunted growth for Myanmar’s biggest companies, the International Finance Corporation (IFC) and the Union of Myanmar Federation of Chambers of Commerce and Industry
(UMFCCI) signed a deal to improve local corporate governance practices in mid-February by providing training and workshops in an array of related topics.

The deal will focus on addressing challenges such as the necessity for more independent boards of directors, creating a more defined role for directors, improving transparency and putting place better control frameworks and shareholder practices.

Many of these problems are due to the lack of a robust legal and regulatory framework that includes basic governance provisions and investor protections.

“There is awareness of corporate governance in Myanmar, but the understanding of it remains limited,” said IFC’s country representative, Vikram Kumar, citing a widespread lack of investor protections.

“Every shareholder should have a voice, but large shareholders can change dividends and there is no mechanism to prevent that. You can basically do whatever you want,” he said. “There is no form of minority rights and very few companies hold AGMs. It’s very important to build capacity on the quality
on financial information that’s shared.”

Protection for investors in listed companies is even more important as private shareholders are typically family members.

The hope for the Yangon Stock Exchange (YSX), which launched in December but is yet to begin trading, is to bring a greater level of transparency and corporate governance to Myanmar. However experts have lamented the rules on public disclosure as being nebulous at best.

“When you look at YSX listing rules in terms of disclosure requirements, they refer to company information,” an expert told The Myanmar Times. “It’s not clear what company information is, so it’s
very vague … and in my opinion the big issue here is that the listing rules are not supported by any corporate governance code.”

Others agreed, saying that the Central Bank has done a poor job in producing said rules – and merely requires that accounting standards be in line with ambiguous local accounting standards.

“I personally think that [the terminology of the rules] means nothing because it’s open to anyone’s interpretation,” said an industry player who is not authorized to speak to the media.

The source added that the Central Bank is aiming to develop a set of standards that meet the “very basic” local standards half-way with those of the International Financial Reporting Standards (IFRS) –the latter of which he said is “way above everybody’s head.”

Forty-nine percent of YSX is owned by two Japanese companies – Japan Exchange Group, the operator of Tokyo Stock Exchange and Daiwa Securities Group.

The source said that the Japanese owners “would like to bring the standards for listing up but in the early stages, they will find that very difficult to do. It’s working from scratch and things will be very
difficult during the first six months – if not the first two years,” said the source.

Still, he believes the stock exchange represents a huge step forward for the country.

“It’s exactly what Myanmar needs. It will bring up standards of corporate governance and accounting. It’s an ideal opportunity for companies looking at other ways of getting financing,”Others remain more holistically optimistic.

“We believe that there is a growing awareness of corporate governance in Myanmar,” Tina Singhsacha, who co-chairs the UK–Myanmar Financial Services Taskforce. The taskforce comprises the British Government and UK private sector organizations and was established in 2013 to aid the development
of a transparent financial sector.

“More importantly, we see…a growing recognition of the importance of good corporate governance practices. The main challenge on this front is not uncommon, and it is to do with the need for greater exposure and experiences to be able to adopt the appropriate practices that suit the local environment,” said Ms. Singhsacha, who is also the chief representative of Standard Chartered Myanmar’s representative office.

Anthony Preston, head of the British Embassy’s Burma’s Prosperity Team, said: “We are getting to the point where a core group of businesses will adopt good corporate government practices. And once we have that, we might see a group of businesses collectively developing standards, rules and regulations; or at least advised standards for the local business community.

“It will be a process of selection – I think certain companies will end up doing very well out of investment and the stock exchange and those who don’t catch onto corporate governance with fall behind,” he said.