The recently updated G20/OECD Principles of Corporate Governance 2015 (the Principles) have been published.
According to the OECD, the Principles are intended to help policy makers evaluate and improve the legal, regulatory, and institutional framework for corporate governance, with a view to supporting economic efficiency, sustainable growth and financial stability.
The Principles are non-binding and are considered to be the international reference point for corporate governance, and have been adopted as one of the Financial Stability Board’s Key Standards for Sound Financial Systems serving FSB, G20 and OECD members. They have also been used by the World Bank Group in more than 60 country reviews worldwide, and they serve as the basis for the Guidelines on corporate governance of banks issued by the Basel Committee on Banking Supervision, the OECD Guidelines on Insurer and Pension Fund Governance and as a reference for reform in individual countries
The Principles were last updated in 2004 and the revised Principles maintain many of the recommendations from earlier versions, as well as introducing some new themes. In some cases they clarify issues from earlier editions.
The OECD state that some of the Principles may be more appropriate for larger than for smaller companies, but that policymakers may wish to raise awareness of good corporate governance for all companies, including smaller and unlisted companies.
The Principles provide guidance through recommendations across the following six themes:
- Ensuring the basis for an effective corporate governance framework;
This chapter emphasizes the role of corporate governance framework in promoting transparent and fair markets, and the efficient allocation of resources. It focuses on the quality and consistency the different elements of regulations that influence corporate governance practices and the division of responsibilities between authorities. In particular, new emphasis is placed on the quality of supervision and enforcement. The chapter also includes a new principle on the role of stock markets in supporting good corporate governance.
- The rights and equitable treatment of shareholders and key ownership functions;
This chapter identifies basic shareholder rights, including the right to information and participation through the shareholder meeting in key company decisions. The chapter also deals with disclosure of control structures, such as different voting rights. New issues in this chapter include the use of information technology at shareholder meetings, the procedures for approval of related party transactions and shareholder participation in decisions on executive remuneration.
- Institutional investors, stock markets and other intermediaries;
This is a new chapter which addresses the need for sound economic incentives throughout the investment chain, with a particular focus on institutional investors acting in a fiduciary capacity. It also highlights the need to disclose and minimize conflicts of interest that may compromise the integrity of proxy advisors, analysts, brokers, rating agencies and others that provide analysis and advice that is relevant to investors. It also contains new principles with respect to cross border listings and the importance of fair and effective price discovery in stock markets.
- The role of stakeholders in corporate governance;
This chapter outlines the benefit of active co-operation between corporations and stakeholders and underlines the importance of recognising the rights of stakeholders established by law or through mutual agreements. The chapter also supports stakeholders’ access to information on a timely and regular basis and their rights to obtain redress for violations of their rights.
- Disclosure and transparency; and
This chapter identifies key areas of disclosure, such as the financial and operating results, company objectives, major share ownership, remuneration, related party transactions, risk factors, board members, etc. New issues in this chapter include the recognition of recent trends with respect to items of non-financial information that companies may include on a voluntary basis, for example in their management reports.
- The responsibilities of the board;
The chapter provides guidance on the key functions of the board of directors, including the review of corporate strategy, selecting and compensating management, overseeing major corporate acquisitions and divestitures, and ensuring the integrity of the corporation’s accounting and financial reporting systems. New issues in this chapter include the role of the board of directors in risk management, tax planning and internal audit. There is also a new principle recommending board training and evaluation and a recommendation on considering the establishment of specialized board committees in areas such as remuneration, audit and risk management.
The updated Principles have been endorsed by the G20 Finance Ministers and Central Bank Governors.