G20/OECD Principles Of Corporate Governance
G20/OECD Principlesof Corporate Governance
G20/OECD Principlesof Corporate Governance
Please cite this publication as:OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, BN: 978-92-64-23687-5 (print)ISBN: 978-92-64-23688-2 (PDF)Photo credits: ann triling/Thinkstock.com.Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. OECD 2015You can copy, download or print OECD content for your own use, and you can include excerpts from OECDpublications, databases and multimedia products in your own documents, presentations, blogs, websites andteaching materials, provided that suitable acknowledgment of the source and copyright owner is given. Allrequests for public or commercial use and translation rights should be submitted to rights@oecd.org. Requestsfor permission to photocopy portions of this material for public or commercial use shall be addressed directlyto the Copyright Clearance Center (CCC) at info@copyright.com or the Centre français d'exploitation du droit decopie (CFC) at contact@cfcopies.com.
FOREWORDForewordThe G20/OECD Principles of Corporate Governance help policy makers evaluateand improve the legal, regulatory, and institutional framework for corporate governance,with a view to supporting economic efficiency, sustainable growth and financialstability.First published in 1999, the Principles have since become an internationalbenchmark for policy makers, investors, corporations and other stakeholders worldwide.They have also been adopted as one of the Financial Stability Board’s Key Standards forSound Financial Systems and form the basis for the World Bank Reports on theObservance of Standards and Codes (ROSC) in the area of corporate governance.This edition contains the results of the second review of the Principles, conductedin 2014/15. The basis for the review was the 2004 version of the Principles, whichembrace the shared understanding that a high level of transparency, accountability,board oversight, and respect for the rights of shareholders and role of key stakeholdersis part of the foundation of a well-functioning corporate governance system. These corevalues have been maintained and strengthened to reflect experiences since 2004 andensure the continuing high quality, relevance and usefulness of the Principles.The second review was conducted under the responsibility of the OECD CorporateGovernance Committee chaired by Mr. Marcello Bianchi. All non-OECD G20 countrieswere invited to participate on an equal footing. Experts from relevant internationalorganisations, notably the Basel Committee on Banking Supervision, the FinancialStability Board and the World Bank Group, also participated actively in the review.Significant contributions were received from the OECD’s regional corporategovernance roundtables in Latin America, Asia and the Middle East and North Africa,experts, an online public consultation and the OECD’s official advisory bodies, theBusiness and Industry Advisory Committee (BIAC) and the Trade Union AdvisoryCommittee (TUAC).A draft of the Principles was discussed by the G20/OECD Corporate GovernanceForum in April 2015. Following that meeting, the OECD Council adopted the Principleson 8 July 2015. The Principles were then submitted to the G20 Leaders Summit on15-16 November 2015 in Antalya, where they were endorsed as the G20/OECD Principlesof Corporate Governance.In order to ensure their continuing relevance and accuracy, the review of thePrinciples was supported and informed by extensive empirical and analytical workG20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 20153
FOREWORDaddressing relevant changes in both the corporate and financial sectors. In this work,the OECD Secretariat and the Corporate Governance Committee reached out to a largenumber of experts, organisations and research institutions. Support for research wasalso received from relevant academic institutions, including Bo aziçi University.The next step for the OECD working with the G20 and stakeholders is to promoteand monitor effective implementation of the revised Principles. This will include acomprehensive review of the Methodology for Assessing the Implementation ofthe Principles of Corporate Governance.4G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 2015
TABLE OF CONTENTSTable of contentsPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .About the Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79I. Ensuring the basis for an effective corporate governanceframework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13II. The rights and equitable treatment of shareholders and keyownership functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18III. Institutional investors, stock markets, and other intermediaries. . . . .29IV. The role of stakeholders in corporate governance . . . . . . . . . . . . . . . . .34V. Disclosure and transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37VI. The responsibilities of the board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Annex. Recommendation of the Council on Principles of CorporateGovernance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 20155
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PREFACEPrefaceThe purpose of corporate governance is to help build an environment oftrust, transparency and accountability necessary for fostering long-terminvestment, financial stability and business integrity, thereby supportingstronger growth and more inclusive societies.The G20/OECD Principles of Corporate Governance provide this benchmark.They clearly identify the key building blocks for a sound corporate governanceframework and offer practical guidance for implementation at a national level.Partnering with the G20 gives the Principles a global reach and furtherunderlines that they reflect experiences and ambitions in a wide variety ofcountries at different stages of development and with varying legal systems.To be relevant, it is essential that corporate governance rules andregulations are adapted to the reality in which they will be implemented. That iswhy the update of the Principles has been supported by extensive empirical andanalytical work on emerging trends in both the financial and corporate sectors.This includes corporate governance lessons from the global financial crisis, theincrease in cross-border ownership, changes in the way that stock marketsfunction and the consequences of a longer and more complex investment chainfrom household savings to corporate investments. The conclusions of this factbased research are reflected in the recommendations. The Principles alsoaddress the rights of the many stakeholders whose jobs and retirement savingsdepend on the performance and integrity of the corporate sector.Now, the priority is to put the Principles to good use and for countries andcorporations to harvest the benefits of better corporate governance. For thispurpose, the OECD will work with the G20, national institutions and otherinternational organisations to assess the quality of the corporate governanceframework and to support implementation of the Principles on the ground.Angel GurríaOECD Secretary-GeneralG20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 20157
ABOUT THE PRINCIPLESAbout the PrinciplesThe Principles are intended to help policymakers evaluate and improve thelegal, regulatory, and institutional framework for corporate governance, with aview to support economic efficiency, sustainable growth and financialstability. This is primarily achieved by providing shareholders, board membersand executives as well as financial intermediaries and service providers withthe right incentives to perform their roles within a framework of checks andbalances.The Principles are intended to be concise, understandable and accessibleto the international community. On the basis of the Principles, it is the role ofgovernment, semi-government or private sector initiatives to assess thequality of the corporate governance framework and develop more detailedmandatory or voluntary provisions that can take into account country-specificeconomic, legal, and cultural differences.The Principles focus on publicly traded companies, both financial andnon-financial. To the extent they are deemed applicable, they might also be auseful tool to improve corporate governance in companies whose shares arenot publicly traded. While some of the Principles may be more appropriate forlarger than for smaller companies, policymakers may wish to raise awarenessof good corporate governance for all companies, including smaller and unlistedcompanies.Corporate governance involves a set of relationships between a company’smanagement, its board, its shareholders and other stakeholders. Corporategovernance also provides the structure through which the objectives of thecompany are set, and the means of attaining those objectives and monitoringperformance are determined.The Principles do not intend to prejudice or second-guess the businessjudgment of individual market participants, board members and companyofficials. What works in one company or for one group of investors may notnecessarily be generally applicable to all of business or of systemic economicimportance.The Principles recognise the interests of employees and other stakeholdersand their important role in contributing to the long-term success and performanceof the company. Other factors relevant to a company’s decision-makingG20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 20159
ABOUT THE PRINCIPLESprocesses, such as environmental, anti-corruption or ethical concerns, areconsidered in the Principles but are treated more explicitly in a number of otherinstruments including the OECD Guidelines for Multinational Enterprises, theConvention on Combating Bribery of Foreign Public Officials in International BusinessTransactions, the UN Guiding Principles on Business and Human Rights, and the ILODeclaration on Fundamental Principles and Rights at Work, which are referenced inthe Principles.The Principles are developed with an understanding that corporategovernance policies have an important role to play in achieving broadereconomic objectives with respect to investor confidence, capital formationand allocation. The quality of corporate governance affects the cost forcorporations to access capital for growth and the confidence with which thosethat provide capital – directly or indirectly – can participate and share in theirvalue-creation on fair and equitable terms. Together, the body of corporategovernance rules and practices therefore provides a framework that helps tobridge the gap between household savings and investment in the realeconomy. As a consequence, good corporate governance will reassureshareholders and other stakeholders that their rights are protected and makeit possible for corporations to decrease the cost of capital and to facilitate theiraccess to the capital market.This is of significant importance in today’s globalised capital markets.International flows of capital enable companies to access financing from amuch larger pool of investors. If companies and countries are to reap the fullbenefits of the global capital market, and if they are to attract long-term“patient” capital, corporate governance arrangements must be credible, wellunderstood across borders and adhere to internationally accepted principles.Even if corporations do not rely primarily on foreign sources of capital, acredible corporate governance framework, supported by effective supervisionand enforcement mechanisms, will help improve the confidence of domesticinvestors, reduce the cost of capital, underpin the good functioning offinancial markets, and ultimately induce more stable sources of financing.There is no single model of good corporate governance. However, somecommon elements underlie good corporate governance. The Principles build onthese common elements and are formulated to embrace the different modelsthat exist. For example, they do not advocate any particular board structureand the term “board” as used in the Principles is meant to embrace the differentnational models of board structures. In the typical two-tier system, found insome countries, “board” as used in the Principles refers to the “supervisoryboard” while “key executives” refers to the “management board”. In systemswhere the unitary board is overseen by an internal auditor’s body, theprinciples applicable to the board are also, mutatis mutandis, applicable. As thedefinition of the term “key executive” may vary among jurisdictions and10G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 2015
ABOUT THE PRINCIPLESdepending on context, for example remuneration or related party transactions,the Principles leave it to individual jurisdictions to define this term in a functionalmanner that meets the intended outcome of the Principles. The terms“corporation” and “company” are used interchangeably in the text.The Principles are non-binding and do not aim at detailed prescriptions fornational legislation. Rather, they seek to identify objectives and suggest variousmeans for achieving them. The Principles aim to provide a robust but flexiblereference for policy makers and market participants to develop their ownframeworks for corporate governance. To remain competitive in a changingworld, corporations must innovate and adapt their corporate governancepractices so that they can meet new demands and grasp new opportunities.Taking into account the costs and benefits of regulation, governments have animportant responsibility for shaping an effective regulatory framework thatprovides for sufficient flexibility to allow markets to function effectively and torespond to new expectations of shareholders and other stakeholders.The Principles are widely used as a benchmark by individual jurisdictionsaround the world. They are also one of the Financial Stability Board’s KeyStandards for Sound Financial Systems and provide the basis for assessmentof the corporate governance component of the Reports on the Observance ofStandards and Codes of the World Bank.The Principles themselves are evolutionary in nature and are reviewed inlight of significant changes in circumstances in order to maintain their role asa leading instrument for policy making in the area of corporate governance.The Principles are presented in six different chapters: I) Ensuring the basisfor an effective corporate governance framework; II) The rights and equitabletreatment of shareholders and key ownership functions; III) Institutionalinvestors, stock markets, and other intermediaries; IV) The role ofstakeholders; V) Disclosure and transparency; and VI) The responsibilities ofthe board. Each chapter is headed by a single principle that appears in bolditalics and is followed by a number of supporting sub-principles. The Principlesare supplemented by annotations that contain commentary on the Principlesand are intended to help readers understand their rationale. The annotationsmay also contain descriptions of dominant or emerging trends and offeralternative implementation methods and examples that may be useful inmaking the Principles operational.G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE OECD 201511
G20/OECD Principles of Corporate Governance OECD 2015I. Ensuring the basis for an effectivecorporate governance frameworkThe corporate governance framework should promote transparentand fair markets, and the efficient allocation of resources. It shouldbe consistent with the rule of law and support effective supervisionand enforcement.Effective corporate governance requires a sound legal, regulatory andinstitutional framework that market participants can rely on when theyestablish their private contractual relations. This corporate governanceframework typically comprises elements of legislation, regulation, self-regulatoryarrangements, voluntary commitments and business practices that are theresult of a country’s specific circumstances, history and tradition. The desirablemix between legislation, regulation, self-regulation, voluntary standards, etc.,will therefore vary from country to country. The legislative and regulatoryelements of the corporate governance framework can usefully be complementedby soft law elements based on the “comply or explain” principle such ascorporate governance codes in order to allow for flexibility and addressspecificities of individual companies. What works well in one company, for oneinvestor or a particular stakeholder may not necessarily be generally applicableto corporations, investors and stakeholders that operate in another contextand under different circumstances. As new experiences accrue and businesscircumstances change, the different provisions of the corporate governanceframework should be reviewed and, when necessary, adjusted.Countries seeking to implement the Principles should monitor theircorporate governance framework, including regulatory and listing requirementsand business practices, with the objective of maintaining and strengtheningits contribution to market integrity and economic performance. As part ofthis, it is important to take into account the interactions and complementaritybetween different elements of the corporate governance framework and itsoverall ability to promote ethical, responsible and transparent corporategovernance practices. Such analysis should be viewed as an important tool inthe process of developing an effective corporate governance framework. Tothis end, effective and continuous consultation with the public is an essentialelement. In some jurisdictions, this may need to be complemented byinitiatives to inform companies and their stakeholders about the benefits of13
I. ENSURING THE BASIS FOR AN EFFECTIVE CORPORATE GOVERNANCE FRAMEWORKimplementing sound corporate governance practices. Moreover, in developinga corporate governance framework in each jurisdiction, national legislatorsand regulators should duly consider the need for, and the results from,effective international dialogue and co-operation. If these conditions are met,the corporate governance framework is more likely to avoid over-regulation,support the exercise of entrepreneurship and limit the risks of damagingconflicts of interest in both the private sector and in public institutions.A. The corporate governance framework should be developed with a viewto its impact on overall economic performance, market integrity and theincentives it creates for market participants and the promotion oftransparent and well-functioning markets.The corporate form of organisation of economic activity is a powerfulforce for growth. The regulatory and legal environment within whichcorporations operate is therefore of key importance to overall economicoutcomes. Policy makers also have a responsibility to put in place a frameworkthat is flexible enough to meet the needs of corporations operating in widelydifferent circumstances, facilitating their development of new opportunitiesto create value and to determine the most efficient deployment of resources.Where appropriate, corporate governance frameworks should therefore allowfor proportionality, in particular with respect to the size of listed companies.Other factors that may call for flexibility include the company’s ownershipand contr
addressing relevant changes in both the corporate and financial sectors. In this work, the OECD Secretariat and the Corporate Governance Committee reached out to a large number of experts, organisations and research institutions. Support for research was also received from relevant academic institutions, including Bo aziçi University.
G20/OECD Task Force on Financial Consumer Protection to develop effective approaches to support the implementation of the Principles with an update report on work undertaken submitted by the time of the G20 Leaders St. Petersburg Summit. In September 2013, the G20 St. Petersburg Declaration stated that the G20 Leaders supported the
the financial system. Three sets of high-level principles endorsed by G20 Leaders reflect this: Innovative Financial Inclusion (2010), Financial Consumer Protection (2011), and National Strategies for Financial Education (2012). In addition, in 2016, a new set of high-level principles on Digital Financial Inclusion were approved by G20 Leaders.
Under the 2020 Saudi Presidency, the DETF has taken the lead in advancing the G20 AI Principles. This background report, prepared by the OECD, underpinned the development of the Examples of National Policies to Advance the G20 AI Principles. It sets out rationales for action on each of the G20 AI Principles
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G20 Green Finance Synthesis Report 3 Summary The G20 Green Finance Study Group (GFSG)'s work supports the G20's strategic goal of strong, sustainable and balanced growth. The challenge is to scale up green financing, which, based on a number of studies, will require the deployment of tens of trillions of dollars over the
EMBER GLOBAL ELECTRICITY REIEW 2021 - G20 PROFILE - SAUDI ARABIA 5 Most G20 countries have significantly increased their share of wind and solar over the last decade. Three countries - Russia, Indonesia and Saudi Arabia - have thus far remained unphased by the global trend. Even among these countries, Saudi Arabia is the only G20
global oil market. Increasing imports by Saudi Arabia of intermediate and capital goods from G20 countries. Providing more investment opportunities in Saudi Arabia for the G20 countries and providing profitable opportunities for the G20 investors to take advantage of the free zones planned to be established in Saudi Arabia.
1 1. Introduction At the G20 Summit in Cannes in November 2010, the G20 endorsed IOSCO’s final report on the Principles for the Regulation and Supervision of Commodity Derivatives Markets (Principles). In their declaration, the G20 stipulated that Market Authorities1 should be granted effective intervention powers to address disorderly markets and prevent market abuses.
