Improving the effectiveness of boards is a priority for corporations everywhere, but in emerging markets it is especially important. In most emerging markets, the institutions that help guard against corporate malfeasance—securities regulators, stock exchanges, the judiciary, institutional investors, equity analysts, accountants, and a probing media—are still relatively weak or lack critical mass. Boards may therefore be the most robust line of defense. As India's technology giant Infosys Technologies acknowledges in its annual report, "An active, well-informed, and independent board is necessary to ensure the highest standards of corporate governance."

The issue of sound boards is also well to the fore because of their clear link to the cost of capital. In 2002 McKinsey's global investor opinion survey showed that equity investors would pay a premium of 20 to 40 percent for emerging-market companies with strong boards of directors. More recently, a study by the Asian Development Bank Institute found that South Korean and Indonesian companies whose board-effectiveness ranking rose from the median to the top quartile saw their market value increase by 13 to 15 percent.¹ In South Africa Mervyn King, the judge who headed the drafting of that country's corporate-governance code, observed that foreign capital flows to places...