This topic measured the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. The most recent round of data collection for the project was completed in May 2019. See the methodology and video for more information.
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. 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 scores for protecting minority investors. These scores are the sum of the scores for the extent of conflict of interest regulation index (extent of disclosure, director liability, and shareholder suits sub-indexes) and the extent of shareholder governance index (extent of shareholder rights, ownership and control structures, and corporate transparency sub-indexes).
Source: Doing Business database
Protection 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 three dimensions of regulation that address conflicts of interest:
· extent of disclosure index: transparency of related-party transactions;
· extent of director liability index: shareholders’ ability to sue and hold directors liable for self-dealing;
· ease of shareholder suits index: access to evidence and allocation of legal expenses in shareholder litigation.
To make the data comparable across economies, several assumptions about the business and the transaction are used (figure 1).
Shareholders' rights in corporate governance
The extent of shareholder governance index measures shareholders’ rights in corporate governance by distinguishing three dimensions of good governance:
· extent of shareholder rights index: shareholders’ rights and role in major corporate decisions;
· extent of ownership and control index: governance safeguards protecting shareholders from undue board control entrenchment;
· extent of corporate transparency index: transparency on ownership stakes, compensation, audits and financial prospects.