Now, a few words about corporate governance in other countries. Well, first of all, people oftentimes start with the key issue here, what we call the "demand" I will put that in quotes for corporate governance. So, it depends upon how the capital markets are structured. Again, in the US this is overall diffuse stock ownership. In other countries, it's not so. For example, in Germany, people participate in the stock market more indirectly. There are large financial institutions that play a more important role. So, people normally, people at large, they engage in debt investment. So, they have deposits in the banks or the purchases of bonds, and then this money is accumulated, and then large financial institutions they take sizable blocks of stock in a public corporation. So, here basically, they're big players and smaller players. And strictly speaking these are these big players that are key. And they can protect themselves. So, you can see that the demand for corporate governance here, is less pronounced. And therefore we can say that in general, the corporate governance system in the US is strong and effective. Again, in Germany as an example and some other countries of that kind, it's weaker but that does not mean that it is so much worse. And then let's say, in Japan it's somewhere in between. But if we take a country like Italy then you can see that to a significant extent it's a completely different story. Companies are much more often family-owned and the whole idea of external financing is not so acute. So, people mostly sort of ancillary borrowed money. So therefore, it's no wonder that the system of corporate governance there is somewhat different. But now I would like to proceed and again, focus on what oftentimes goes without saying. Now, in large developed countries the good corporate governance is clearly important and it is observed there. But why is that that it's not a thing that is observed everywhere else? Now here, before we answer this question, let me pause and answer one more important question. Now, I would say what goes without saying, and that is the system of enforcement and implementation of these rules. So, we can say that in good corporate governance we see transparency, we see uniform clear rules, then we see legal procedures and enforcement, then courts and everything. So, basically we can see that if someone commits a fraud or even some steps that seem to be in favor of one group at the expense of the other, then the other party can go to court and then say, "Well, wait a minute. These people tried to abuse my rights." And unless the system is efficient, then there is no good corporate governance. And so if this fails, then we can say that there is actually no corporate governance at all. So, although this sort of goes without saying for the well-developed countries, but it's not so for developing or other smaller countries where sometimes this system is kind of skewed, or there are sort of regulatory distortions that contribute to the inefficiency of the system. And the story here is that it depends upon what is good and for whom. So, we can say, why is good corporate governance so rarely seen? Well, because this is a system that would be cool if you had it for free, but this is a costly system. And whenever anything is costly then the question is, who pays? Because for example, in the developed countries it's kind of clear because the market is interested in getting more and more money. And then it's the interaction of the market, the government, so in this or that way the system is getting shaped up and then everyone enjoys that. However, if the system must be created, that is a big challenge. Let me give you an example. In the developing countries there may be a special situation if most of the investors are foreigners and the system must be created locally. That means that foreigners enjoy a free lunch because they enjoy the good corporate governance if and when it's built. But the local market pays for that and sometimes that's fine if you can enjoy that. I'll give you the acute example. Let's say, that happened almost 20 years ago that was just on the brink of the Russian crisis of 1998. And the Russian government bonds they had a really nebulous yield of 150 percent. Now, some foreign investors said, "Well, wait a minute. This is a huge opportunity." That's a free lunch because this is a government bond. And in the developed markets government bonds are riskless or virtually riskless. So, you can easily invest in a virtually riskless security and get a nebulous yield of 150 percent, what's wrong with that? Well, you can never have a security that yields so much that is riskless. So, soon after these numbers, the Russian market collapsed and the government defaulted on these bonds, so they were by no means riskless. And that time I was working in the Russian investment company, so I've seen that how some foreign investors they were really rushing in. And sometimes we were openly said, "Well, don't do this because this is going to collapse very quickly." And some of them they were those who did not hear, and those who were too greedy on the span of just a few weeks lost all their money. So sometimes you can see and again, well, this very number is a clear signal that something is wrong with the government system of borrowing. So, in the next episode, I'll give you another funny example how sometimes the absence of good corporate governance results in the inability to enjoy a nice potential value creating option, that will be the case of the Russian preferred shares. Also we will go back to the case of 20 years ago, but that is really important, and pour some light on the contribution of good corporate governance in the value of companies and projects.
