Global Work Around


It’s a very globalized world, but it’s good to acknowledge differences. Obdurate human nature being what it is – along with enduring and distinctive institutional, cultural and sovereign expression – means differences will endure. The world is not uniform and working realities contrast, which implies differing levels of risk. This makes due-diligence that much more important. The reality creditors encounter in different locations is a case in point.

You’ve got to hand it to the do-gooders at places like the World Bank (IBRD), sometimes they can be extremely helpful, especially if public minded efforts are intended to provide balanced, and objective analysis. Of course, that should never be a gratuitous assumption to make. But that said, once discerned, sources of objective and empirical analysis should be prized.

This should be especially so for the global risk taker, who is motivated, let’s be frank, by profit and who marshals his or her animal spirits accordingly. The danger, as any sitting member of a bank credit committee might tell you, is that the highly motivated risk taker may be prone to extrapolation (“hey, if it worked here, it should work there…”) and may be subject to inertia (“hey, since it worked here, it should work there…”).

Stepping into the fray, the World Bank has undertaken an exercise that may be useful toward gauging cross-border risk-taking commitments. On a periodic basis, the multi-lateral institution had produced its “Ease of Doing Business” effort which grades how amenable a local environment is for business formation. The exercise covered 190 countries, with a country’s composite score drawn from sixteen dimensions that measure ease of opening a business, operating that business, and when necessary, closing or re-organizing a business. In this comment, we are referencing results published as of 2020.

In its “Ease of Doing Business” exercise, the World Bank sought to determine a country’s benchmark asset recovery rate as a function of the researched and due-diligence vetted typical cost of re-organization, time involved in the resolution process, and whether the re-organization allows for ongoing viability or a “piece-meal” breakup of the business.

For comparative purposes, the World Bank also arranged the 190-country survey in regional and income groupings. Here, various and sundry risk committees should take note. Recovery value, following corporate bankruptcy, does indeed vary throughout geography and apparently by income level.

The highest recovery rate, at 70.2 cents on the dollar, is posted among the survey of high-income OECD countries. For the different geographic surveys covering the remainder of other countries, the average recovery rate among them amounted to just 31.9 cents on the dollar.

The same distinction between high-income OECD and non-OECD countries is also manifest in the time required for corporate re-organization and the “cost (% of estate)” the re-organization process entails. The benchmark time frame for high-income OECD countries is 1.7 years, according to the World Bank study. For non-OECD countries, that benchmark posted at 2.6 years.

Lastly the cost as a percentage of the estate – in other words, the cost incurred to facilitate and administer the reorganization – posted at just 9.3% for high-income OECD countries, while posting at a much higher share at 16.2% for the non-OECD grouping.

What’s the importance of these differences? The relevance for the global risk-taker is to understand and appreciate country institutions and their effectiveness and how these differ across global geographies. Legal dispute resolution – it’s effectiveness and carry through – cannot be assumed but must be understood on a country-by-country basis.

Note as well the one global phenomenon afoot (no pun intended). Immigration at scale means people are voting with their feet – to go to destinations where institutions (legal, political, economic and perhaps social as well) function expeditiously and impartially.

For the cross-border risk-taker, a failure to understand this imperative can mean much more material capital losses, when business plans fail (they sometimes do…), and claims have to be re-worked and settled.

On an interesting side note, the vagaries of human nature intruded even among the technocratic ranks at the World Bank. In September 2021, the Ease of Doing Business index compilation was discontinued following revelations coming to light that World Bank leadership had sought to alter objective findings from the exercise for specific countries. In December 2022, the multi-lateral announced its to plans to produce a replacement methodology some time during the second half of 2023. Such a replacement methodology will hopefully deliver useful insights, mutatis mutandis.

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