Navigating the Revised G20/OECD Principles of Corporate Governance 2023

The G20/OECD Principles of Corporate Governance provide guidance to help policymakers evaluate and improve the legal, regulatory, and institutional framework for corporate governance with a view to supporting market confidence and integrity, economic efficiency, sustainable growth, and financial stability.

These revised Principles are the outcome of 18 months of work. They reflect a strong desire from all OECD and G20 Members to see the Principles offer guidance on companies’ sustainability and resilience and will help companies manage environmental and social risks with insights on disclosure, the roles and rights of shareholders as well as stakeholders, and the responsibilities of company boards.

The Principles are intended to be concise, understandable, and accessible to all actors with a role in developing and implementing good corporate governance globally.

The Principles focus on publicly traded companies, both financial and non-financial. To the extent they are deemed applicable, the Principles may also be a useful tool to improve corporate governance in companies whose shares are not publicly traded.

The Principles are presented in six chapters:

I) Ensuring the basis for an effective corporate governance framework;

II) The rights and equitable treatment of shareholders and key ownership functions;

III) Institutional investors, stock markets, and other intermediaries;

IV) Disclosure and transparency;

V) The responsibilities of the board; and

VI) Sustainability and resilience.

I) Ensuring the basis for an effective corporate governance framework

The corporate governance framework should promote transparent and fair markets and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement.

I.A. The corporate governance framework should be developed with a view to its impact on corporate access to finance, overall economic performance and financial stability, the sustainability and resilience of corporations, market integrity, and the incentives it creates for market participants and the promotion of transparent and well-functioning markets.

I.B. The legal and regulatory requirements that affect corporate governance practices should be consistent with the rule of law, transparent, and enforceable. Corporate governance codes may offer a complementary mechanism to support the development and evolution of companies’ best practices, provided that their status is duly defined.

I.C. The division of responsibilities among different authorities and self-regulatory bodies should be clearly articulated and designed to serve the public interest.

I.D. Stock market regulation should support effective corporate governance.

I.E. Supervisory, regulatory, and enforcement authorities should have the authority, autonomy, integrity, resources, and capacity to fulfill their duties in a professional and objective manner. Moreover, their rulings should be timely, transparent, and fully explained.

I.F. Digital technologies can enhance the supervision and implementation of corporate governance requirements, but supervisory and regulatory authorities should give due attention to the management of associated risks.

I.G. Cross-border co-operation should be enhanced, including through bilateral and multilateral arrangements for exchange of information.

I.H. Clear regulatory frameworks should ensure the effective oversight of publicly traded companies within company groups.

II) The rights and equitable treatment of shareholders and key ownership functions

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 at a reasonable cost and without excessive delay.

II.A. 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;

6) share in the profits of the corporation; and

7) elect, appoint, or approve the external auditor.

II.B. Shareholders should be sufficiently informed about and have the right to approve or participate in decisions concerning fundamental corporate changes such as:

1) amendments to the statutes, articles of incorporation, or similar governing documents of the company;

2) the authorization of additional shares; and

3) extraordinary transactions, including the transfer of corporate assets that, in effect, result in the sale of the company.

II.C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings.

II.D. Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.

II.E. All shareholders of the same series of a class should be treated equally. All investors should be able to obtain information about the rights attached to all series and classes of shares before they purchase. Any changes in economic or voting rights should be subject to approval by those classes of shares that are negatively affected.

II.F. Related party transactions should be approved and conducted in a manner that ensures proper management of conflicts of interest and protects the interests of the company and its shareholders.

II.G. Minority shareholders should be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly and should have effective means of redress. Abusive self-dealing should be prohibited.

II.H. Markets for corporate control should be allowed to function in an efficient and transparent manner.

III) 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.

III.A. The corporate governance framework should facilitate and support institutional investors’ engagement with their investee companies. Institutional investors acting in a fiduciary capacity should disclose their policies for corporate governance and voting with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights. Stewardship codes may offer a complementary mechanism to encourage such engagement.

III.B. Votes should be cast by custodians or nominees in line with the directions of the beneficial owner of the shares.

III.C. Institutional investors acting in a fiduciary capacity should disclose how they manage material conflicts of interest that may affect the exercise of key ownership rights regarding their investments.

III.D. The corporate governance framework should require that entities and professionals that provide analysis or advice relevant to decisions by investors, such as proxy advisors, analysts, brokers, ESG rating and data providers, credit rating agencies, and index providers, where regulated, disclose, and minimize conflicts of interest that might compromise the integrity of their analysis or advice. The methodologies used by ESG rating and data providers, credit rating agencies, index providers, and proxy advisors should be transparent and publicly available.

III.E. Insider trading and market manipulation should be prohibited and the applicable rules enforced.

III.F. For companies who are listed in a jurisdiction other than their jurisdiction of incorporation, the applicable corporate governance laws and regulations should be clearly disclosed. In the case of cross-listings, the criteria and procedure for recognizing the listing requirements of the primary listing should be transparent and documented.

III.G. Stock markets should provide fair and efficient price discovery as a means to help promote effective corporate governance.

IV) 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, sustainability, ownership, and governance of the company.

IV.A. Disclosure should include, but not be limited to, material information on:

1. The financial and operating results of the company;

2. Company objectives and sustainability-related information;

3. Capital structures, group structures, and their control arrangements;

4. Major share ownership, including beneficial owners and voting rights;

5. Information about the composition of the board and its members, including their

qualifications, the selection process, other company directorships, and whether they are regarded as independent by the board;

6. Remuneration of members of the board and key executives;

7. Related party transactions;

8. Foreseeable risk factors;

9. Governance structures and policies, including the extent of compliance with national corporate governance codes or policies and the process by which they are implemented; and

10. Debt contracts, including the risk of non-compliance with covenants.

IV.B. Information should be prepared and disclosed in accordance with internationally recognized accounting and disclosure standards.

IV.C. An annual external audit should be conducted by an independent, competent, and qualified auditor in accordance with internationally recognized auditing, ethical, and independence standards in order to provide reasonable assurance to the board and shareholders on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

IV.D. External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit in the public interest.

IV.E. Channels for disseminating information should provide for equal, timely, and cost-efficient access to relevant information by users.

V) 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.

V.A. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders, taking into account the interests of stakeholders.

V.B. Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly.

V.C. The board should apply high ethical standards.

V.D. The board should fulfill certain key functions, including:

1. Reviewing and guiding corporate strategy, major plans of action, annual budgets, and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions, and divestitures;

2. Reviewing and assessing risk management policies and procedures;

3. Monitoring the effectiveness of the company’s governance practices and making changes as needed;

4. Selecting, overseeing, and monitoring the performance of key executives, and, when necessary, replacing them and overseeing succession planning;

5. Aligning key executive and board remuneration with the longer-term interests of the company and its shareholders;

6. Ensuring a formal and transparent board nomination and election process.

7. Monitoring and managing potential conflicts of interest of management, board members, and shareholders, including misuse of corporate assets and abuse in related party transactions;

8. Ensuring the integrity of the corporation’s accounting and reporting systems for disclosure, including the independent external audit, and that appropriate control systems are in place, in compliance with the law and relevant standards;

9. Overseeing the process of disclosure and communications.

V.E. The board should be able to exercise objective, independent judgment on corporate affairs.

V.F. In order to fulfill their responsibilities, board members should have access to accurate, relevant, and timely information.

V.G. When employee representation on the board is mandated, mechanisms should be developed to facilitate access to information and training for employee representatives so that this representation is exercised effectively and best contributes to the enhancement of board skills, information, and independence.

VI) Sustainability and resilience

The corporate governance framework should provide incentives for companies and their investors to make decisions and manage their risks in a way that contributes to the sustainability and resilience of the corporation.

VI.A. Sustainability-related disclosure should be consistent, comparable, and reliable and include retrospective and forward-looking material information that a reasonable investor would consider important in making an investment or voting decision.

VI.B. Corporate governance frameworks should allow for dialogue between a company, its shareholders, and stakeholders to exchange views on sustainability matters as relevant to the company’s business strategy and its assessment of what matters ought to be considered material.

VI.C. The corporate governance framework should ensure that boards adequately consider material sustainability risks and opportunities when fulfilling their key functions in reviewing, monitoring, and guiding governance practices, disclosure, strategy, risk management, and internal control systems, including with respect to climate-related physical and transition risks.

VI.D. The corporate governance framework should consider the rights, roles, and interests of stakeholders and encourage active cooperation between companies, shareholders, and stakeholders in creating value, quality jobs, and sustainable and resilient companies.

The G20/OECD Principles of Corporate Governance help policymakers evaluate and improve the legal, regulatory, and institutional framework for corporate governance. They identify the key building blocks for a sound corporate governance framework and offer practical guidance for implementation at the national level. The Principles also provide guidance for stock exchanges, investors, corporations, and others that have a role in developing good corporate governance.

For more details: https://lnkd.in/ecG7VahV#board

© All Rights Reserved to the Organisation for Economic Cooperation and Development (OECD).

#corporategovernance #oced #g20 #principles