This report assesses the corporate governance practices of listed companies in South Africa, within the broader context of the institutional capacity needed to ensure compliance and enforcement. The diagnostic reflects the corporate governance framework as of December 2001. South Africa has a well developed equity market with a market capitalization of 154 percent of GDP. Listed companies account for half of the corporate sector by value. As of 2001, on average, listed firms used equity financing for 35 percent of total funding. Given capital account restrictions, issuers operate largely in a captive market for domestic institutional investors. Institutional investors, however, take a passive attitude with respect to corporate governance. The policy recommendations herewith, can be grouped under three broad categories: legislative reform, institutional strengthening and voluntary/private initiatives. The legislative and regulatory framework dealing with corporate governance practices is undergoing substantial changes, and it is anticipated that most of the pending legislative and regulatory issues will be resolved. The most serious problems are compliance and enforcement. Hence, one of the key recommendations for policymakers is to strengthen the enforcement powers of the securities regulator.