Rethinking Governance Risk in Southeast Asia
The missing dimension of corporate governance in emerging markets
Recent governance controversies in Southeast Asia have reignited debate about corporate governance across the region. The eFishery fraud case has sharpened attention on company-level governance questions, including the effectiveness of due diligence processes, board oversight, internal controls, and reporting practices. More recently, the indictment of former Gojek founder Nadiem Makarim has broadened the conversation beyond how individual companies are governed to the institutional environments in which they operate. Together, these developments raise a wider question for founders, investors, and ecosystems alike: how much do governance outcomes depend not only on companies themselves, but also on the strength, predictability, and credibility of the systems that surround them?
This question was explored through a recent corporate governance benchmarking study commissioned by TNB Aura and conducted by Steward Redqueen. Comparing governance indicators across Southeast Asian and European markets, the study identified a simple but important insight: governance outcomes depend on two dimensions. The first is the quality of governance practices within individual companies (that is, within their control), including board effectiveness, accountability structures, reporting practices, and internal controls. The second is the quality of the institutional environment in which those companies operate (that is, what is outside of their control), including regulatory quality, enforcement effectiveness, institutional credibility, and public trust. Together, these dimensions shape how governance risks emerge, are detected, and addressed.
Investors have long recognised that market conditions influence risk, particularly in emerging markets. In response, many venture firms actively support portfolio companies in institutionalising governance practices that align with internationally recognised standards. However, even well-governed businesses operate within broader institutional environments that influence how rules are interpreted, enforced, and trusted. Recent events in Indonesia have renewed attention on this wider dimension of governance risk and its role in shaping governance outcomes.
Governance failures often occur when one or both of these dimensions break down
Strong governance frameworks on paper do not automatically translate into strong governance outcomes. Disclosure requirements, independent board mandates, and governance codes only have value when they are supported by institutions capable of enforcing them consistently. Regulatory requirements may establish expectations, but implementation, oversight and public confidence ultimately determine whether those requirements influence behaviour in practice.
Examples from across Asia illustrate this distinction. India has some of the most prescriptive board governance requirements in the benchmark study, including mandated board structures, independent director requirements, and audit oversight mechanisms. Yet indicators related to enforcement effectiveness and corruption perceptions suggest that governance outcomes cannot be assessed through regulation alone. Similarly, while Vietnam performs relatively well on government digital capability measures, regulatory quality and corruption perception indicators highlight factors that may influence confidence in disclosed information and governance processes. These examples reinforce that governance outcomes depend not only on formal requirements, but also on the broader institutional systems that support them.
The interaction between governance requirements and institutional quality becomes particularly clear when comparing Singapore and Indonesia. In several areas, Indonesia’s governance framework is more prescriptive than Singapore’s. Requirements regarding board composition, structure, and responsibilities are often embedded directly in law or regulation, whereas Singapore relies more heavily on a principles-based “comply or explain” and voluntary approach. As shown in the Figure below, stronger regulation does not automatically produce stronger governance outcomes. When comparing three indicators of regulatory environment (perceived corruption, regulatory quality, and rule of law) with Asia Corporate Governance Association scores for listed company performance, there is a clear correlation with the environmental indicators over the presence of regulation. The difference lies not only in the rules themselves, but also in the environment responsible for upholding them.
In Singapore, governance frameworks benefit from operating within an environment characterised by institutional credibility, regulatory consistency, and established compliance norms. This creates confidence that governance failures will be identified and addressed predictably. In Indonesia, institutional strengthening has progressed significantly over recent decades, but challenges related to enforcement consistency, regulatory predictability, and institutional trust continue to influence how governance frameworks operate in practice. As a result, the effectiveness of governance mechanisms can vary despite the presence of formal regulations.
Governance risk varies significantly across Southeast Asia
The Singapore–Indonesia comparison illustrates the principle of the need for strong governing institutions, but the broader benchmark demonstrates that governance conditions vary significantly across the region. The figure below shows significant differences across Southeast Asian markets on indicators relating to regulatory quality, rule of law, transparency and capacity. The findings suggest that governance risk should be understood as market-specific rather than regional.
Recent initiatives such as the ASEAN ESG Working Groups’ common metrics project, alongside new disclosure guidelines in Indonesia and the Philippines, suggest growing regulatory ambition across the region. However, ambition alone is unlikely to change investor perceptions or reduce governance risk unless it is accompanied by credible implementation, regulatory quality and consistent application.
Importantly, the benchmark also identified governance strengths beyond Singapore. India demonstrates strong board governance requirements following reforms introduced after high-profile corporate scandals. Malaysia provides another example, where sustained policy attention and credible implementation have contributed to increased female representation on listed company boards. These findings reinforce the importance of evaluating governance at a country level rather than viewing Southeast Asia as a single governance environment.
Regulatory environment cannot be an overlooked dimension of governance risk
For investors, these findings highlight the importance of assessing both dimensions of governance risk. Governance due diligence should evaluate not only the quality of governance systems within a company, but also the strength of the institutional environment in which those systems operate. The same board structure, reporting process or governance policy may provide very different levels of protection depending on the surrounding regulatory and enforcement context.
This reinforces why many venture investors, including TNB Aura, place increasing emphasis on governance support. While investors cannot directly influence national institutions, they can help founders strengthen governance capabilities within their organisations. Robust governance practices improve accountability, support better decision-making, build investor confidence and help businesses navigate uncertainty.
For founders, governance should therefore be viewed as a strategic capability rather than a compliance exercise. Businesses cannot control the institutional environment around them, but they can strengthen the systems, transparency, and accountability mechanisms that improve resilience within it.
As capital flows into increasingly diverse and rapidly evolving regions, like Southeast Asia, governance can no longer be evaluated solely through company-level policies, board structures, or disclosure practices. Governance outcomes are shaped by the interaction between companies and the institutional systems around them. For investors seeking to understand risk, resilience and long-term value creation, assessing both dimensions is no longer optional.
To learn more about corporate governance in Southeast Asia, read the full case study in TNB Aura’s 2025 Impact Report (pages 25-33).
About TNB Aura
TNB Aura is a thesis-led, high-conviction venture capital firm investing in Series A–B businesses, and long-term partner of Steward Redqueen.
