OECD Principles of Corporate Governance

Background

• Corporate governance is crucial for the integrity and efficiency of financial markets. Poor corporate governance reduces a company's potential and can lead to financial problems and fraud.
• Companies that are well-governed typically outperform their competitors, and attract investors who can help finance future expansion.
• In 1999, the Organization for Economic Cooperation and Development published Principles of Corporate Governance and have since become a global benchmark for policymakers, investors, firms, and other stakeholders.
• They've also been adopted as one of the Financial Stability Board's Key Standards for Sound Financial Systems, and they're the foundation for the World Bank's Corporate Governance Reports on the Observance of Standards and Codes (ROSC).




• The OECD revised version of the OECD Principles of Corporate Governance on April 22, 2004. It included a number of new proposals as well as changes to existing ones. A consultation process included OECD members and representatives from OECD and non-OECD areas.
• A second review of the principles was conducted in 2014/15 based on the 2004 version of the principles with significant contributions from OECD's regional corporate governance roundtables in Latin America, Asia, the Middle East and North Africa, as well as experts, an online public consultation, and the OECD's official advisory bodies, the Business and Industry Advisory Committee (BIAC) and the Trade Union Advisory Committee (TUAC).
• The OECD principles urge businesses to ensure that they have processes in place to resolve any potential conflicts of interest, and provide a framework for internal complaints about management or board appointments.

The Corporate Governance Principles can be found here here. (updated in 2015)

The six OECD Principles are:

• Ensuring the basis of an effective corporate governance framework
• The rights and equitable treatment of shareholders and key ownership functions
• Institutional investors, stock markets, and other intermediaries
• The role of stakeholders in corporate governance
• Disclosure and transparency
• The responsibilities of the board

1. Ensure the basis of an effective corporate governance framework

The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.

2. The rights and equitable treatment of shareholders and key ownership function

‘The corporate governance framework should protect and facilitate the exercise of shareholders’ rights and ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.’

Basic shareholder rights should include the right to:

1. Secure methods of ownership registration;
2. Convey or transfer shares;
3. Obtain relevant and material information on the corporation on a timely and regular basis;
4. Participate and vote in general shareholder meetings;
5. Elect and remove members of the board; and
6. Share in the profits of the corporation.

3. The Institutional investors, stock markets, and other intermediaries

‘The corporate governance framework should provide sound incentives throughout the investment chain and provide for stock markets to function in a way that contributes to good corporate governance.’

• All shareholders of the same series of a class should be treated equally
• Insider trading and abusive self-dealing should be prohibited
• Members of the board and key executives should be required to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the corporation.

4. The role of stakeholders in corporate governance

The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

5. Disclosure and transparency

The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.

To get a better understanding of the role disclosure and transparency plays in corporate governance, read more>>

6. The responsibilities of the board

The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

To get a better understanding on the board, corporate governance structure and policies, read more>>