OECD – Organization of Economic Cooperation and Development

Corporate governance involves a set of relationships between a company’s management, its board, its
shareholders and other stakeholders. Corporate governance also provides the structure through which
the objectives of the company are set, and the means of attaining those objectives and monitoring
performance are determined.

2015 Six OECD Principles:

1. Ensuring the basis of an effective corporate governance framework

2. The rights of shareholders and key ownership functions
3. The equitable treatment of shareholders
4. The role of stakeholders in corporate governance
5. Disclosure and transparency
6. The responsibilities of the board

First released in 1999 originally developed in response to a call by the OECD Council Meeting at
Ministerial level on 27-28 April 1998, to develop, in conjunction with national governments, other
relevant international organisations and the private sector, a set of corporate governance standards and
guidelines.

first initiative by an inter-governmental organisation to develop the core elements of a good corporate
governance regime

The OECD Principles of Corporate Governance form part of a broader international effort to promote
increased transparency, integrity and the rule of law

business ethics and corporate awareness of the environmental and societal interest of the communities
in which they operate can have an impact on the reputation and long-term performance of
corporations.

The Principles are non-binding and do not aim at detailed prescriptions for national legislation. Their
purpose is to serve as a reference point. They can be used by policy makers, as they examine and
develop their legal and regulatory frameworks for corporate governance that reflect their own
economic, social, legal and cultural circumstances, and by market participants as they develop their own
practices.

The Principles are evolutionary in nature and should be reviewed in light of significant changes in
circumstances. To remain competitive in a changing world, corporations must innovate and adapt their
corporate governance practices so that they can meet new demands and grasp new opportunities.

1999 2004 2015

The Principles are intended to *The 1999 Principles should be Good corporate governance is
assist Member and non- revised to take into account new not an end in itself. It is a means
member governments in their developments and concerns. It
efforts to evaluate and was agreed that the revision
improve the legal, institutional should be pursued with a view to
and regulatory framework for maintaining a non-binding
corporate governance in their principles-based approach, which
countries, and to provide recognises the need to adapt
guidance and suggestions for implementation to varying legal
stock exchanges, investors, economic and cultural
corporations, and other parties circumstances.*
that have a role in the process They are intended to be concise,
of developing good corporate understandable and accessible to
governance. the international community.
They are not intended to
substitute for government, semi-
government or private sector
initiatives to develop more
detailed “best practice” in
corporate governance
the Principles focus on
governance problems that result
from the separation of ownership
and control. The Principles
therefore have to be
complementary to a broader
approach to the operation of
checks and balances.
I. RIGHTS OF I. ENSURING THE BASIS
SHAREHOLDERS FOR AN EFFECTIVE
The corporate CORPORATE
governance framework GOVERNANCE
should protect The corporate governance
shareholders’ rights: framework should promote
1. Basic shareholder transparent and efficient
rights include the markets, be consistent with
right to: the rule of law and clearly
a. secure methods of articulate the division of
ownership responsibilities among
registration; different supervisory,
b. convey or transfer regulatory and enforcement
shares; authorities
c. obtain relevant 1. The corporate
information on the governance framework
corporation on a should be developed with
timely and regular a view to its impact on
basis overall economic
d. participate and performance, market
vote in general integrity and the
to create market confidence and
business integrity, which in turn is
essential for companies that need
access to equity capital for long
term investment.
G20 priority in 2015 to support
investment as a powerful driver
of growth.
The Principles are also about
inclusiveness. Today, millions of
households around the world
have their savings in the stock
market, directly or indirectly. And
publicly listed companies provide
for more than 200 million jobs.
the international reference point
and as an effective tool for
implementation:
I. ENSURING THE
BASIS FOR AN
EFFECTIVE
CORPORATE
GOVERNANCE
Same
1. Stock market regulation
should support effective
corporate governance
(Stock markets can play a
meaningful role in
enhancing corporate
governance by
establishing and
enforcing requirements
that promote effective
corporate governance by
their listed issuers. Also,
stock markets provide
 shareholder incentives it creates for facilities by which
meetings; market participants and investors can express
e. elect members of the promotion of interest or disinterest in
the board; and transparent and efficient a particular issuer’s
f. share in the profits markets -place a governance by allowing
of the corporation. framework that is flexible them to buy or sell the
2. Shareholders have enough to meet the issuer’s securities, as
the right to needs of corporations appropriate. The quality
participate in, and operating in widely of the stock market’s
to be sufficiently different circumstances, rules and regulations
informed on, facilitating their that establish listing
decisions development of new criteria for issuers and
concerning opportunities to create that govern trading on its
fundamental value and to determine facilities is therefore an
corporate changes. the most efficient important element of
3. Shareholders deployment of resources. the corporate
should have the 2. The legal and regulatory governance framework.)
opportunity to requirements that affect 2. Cross-border co-
participate corporate governance operation should be
effectively and vote practices in a jurisdiction enhanced, including
in general should be consistent with through bilateral and
shareholder the rule of law, multilateral
meetings and transparent and arrangements for
should be informed enforceable. exchange of information.
of the rules, 3. The division of (High levels of cross-
including voting responsibilities among border ownership and
procedures, that different authorities in a trading require strong
govern general jurisdiction should be international co-
shareholder clearly articulated and operation among
meetings ensure that the public regulators, including
4. Capital structures interest is served. through bilateral and
and arrangements 4. Supervisory, regulatory multilateral
that enable certain and enforcement arrangements for
shareholders to authorities should have exchange of information.
obtain a degree of the authority, integrity International co-
control and resources to fulfil operation is becoming
disproportionate to their duties in a increasingly relevant for
their equity professional and objective corporate governance,
ownership should manner. Moreover, their notably where
be disclosed. rulings should be timely, companies are active in
5. Markets for transparent and fully many jurisdictions
corporate control explained. through both listed and
should be allowed unlisted entities, and
to function in an seek multiple stock
efficient and market listings on
transparent exchanges in different
manner. jurisdictions.)
6. Shareholders,
 including
institutional
investors, should
consider the costs
and benefits of
exercising their
voting rights.
II. EQUITABLE
TREATMENT OF
SHAREHOLDERS
The corporate governance
framework should ensure
the equitable treatment of
all shareholders, including
minority and foreign
shareholders. All
shareholders should have Same 1-5
the opportunity to obtain
effective redress for
violation of their rights.
1. All shareholders of the
same class should be
treated equally
2. Insider trading and
abusive self-dealing
should be prohibited.
3. Members of the board
and managers should
be required to disclose
any material interests
in transactions or
matters affecting the
corporation.
II. THE RIGHTS OF III. THE RIGHTS AND
SHAREHOLDERS AND EQUITABLE
KEY OWNERSHIP TREATMENT OF
FUNCTIONS SHAREHOLDERS
The corporate governance AND KEY
framework should protect OWNERSHIP
and facilitate the exercise of FUNCTIONS
shareholders’ rights The corporate governance
framework should protect
and facilitate the exercise
II. The exercise of of shareholders’ rights and
ownership rights ensure the equitable
by all treatment of all
shareholders, shareholders, including
including minority and foreign
institutional shareholders. All
investors, should shareholders should have
be facilitated. (As the opportunity to obtain
investors may effective redress for
pursue different violation of their rights.
investment (Corporate boards,
objectives, the managers and controlling
Principles do not shareholders may have
advocate any the opportunity to engage
particular in activities that advance
investment their own interests at the
strategy and do expense of non-
not seek to controlling shareholders.
prescribe the In providing protection to
optimal degree of investors, a distinction
investor can usefully be made
activism.) between ex ante and ex
a. Institutional investors post shareholder rights.
acting in a fiduciary Ex ante rights are, for
capacity should example, pre-emptive
disclose their overall rights and qualified
corporate governance majorities for certain
and voting policies decisions. Ex post rights
with respect to their allow the seeking of
investments, redress once rights have
 including the been violated. In
procedures that they jurisdictions where the
have in place for enforcement of the legal
deciding on the use of and regulatory framework
their voting rights (It is weak, it can be
is increasingly desirable to strengthen
common for shares the ex ante rights of
to be held by shareholders such as by
institutional low share ownership
investors. The thresholds for placing
effectiveness and items on the agenda of
credibility of the the shareholders meeting
entire corporate or by requiring a
governance system supermajority of
and company shareholders for certain
oversight will, important decisions.)
therefore, to a large 1. Impediments to cross
extent depend on border voting should be
institutional eliminated. (Such cross-
investors that can border chains cause
make informed use special challenges with
of their shareholder respect to determining
rights and effectively the entitlement of
exercise their foreign investors to use
ownership functions their voting rights, and
in companies in the process of
which they invest. it communicating with
calls for disclosure of such investors. In
how they exercise combination with
their ownership business practices which
rights with due provide only a very short
consideration to cost notice period,
effectiveness) shareholders are often
b. Institutional investors left with only very
acting in a fiduciary limited time to react to a
capacity should convening notice by the
disclose how they company and to make
manage material informed decisions
conflicts of interest concerning items for
that may affect the decision. This makes
exercise of key cross border voting
ownership rights difficult. The legal and
regarding their regulatory framework
investments. should clarify who is
(institutions should entitled to control the
disclose what actions voting rights in cross
they are taking to border situations and
minimise the where necessary to
 potentially negative simplify the depository
impact on their chain.)
ability to exercise key 2. Related-party
ownership rights) transactions should be
III. Shareholders, approved and conducted
including in a manner that ensures
institutional proper management of
shareholders, conflict of interest and
should be allowed protects the interest of
to consult with the company and its
each other on shareholders.
issues concerning a. Conflicts of interest
their basic inherent in related-
shareholder rights party transactions
as defined in the should be addressed.
Principles, subject (The potential abuse
to exceptions to of related party
prevent abuse. transactions is an
(To overcome important policy
this asymmetry issue in all markets,
which favours but particularly in
diversification, those where
they should be corporate ownership
allowed, and is concentrated and
even encouraged, corporate groups
to co-operate prevail. This is all the
and co-ordinate more important
their actions in where significant
nominating and portions of income
electing board and/or costs arise
members, placing from transactions
proposals on the with related parties.)
agenda and b. Members of the
holding board and key
discussions executives should be
directly with a required to disclose
company in order to the board whether
to improve its they, directly,
corporate indirectly or on
governance. behalf of third
More generally, parties, have a
shareholders material interest in
should be any transaction or
allowed to matter directly
communicate affecting the
with each other corporation.
without having to
comply with the
 formalities of
proxy
solicitation.)
IV. THE ROLE OF V. THE EQUITABLE VI. INSTITUTIONAL
STAKEHOLDERS TREATMENT OF INVESTORS, STOCK
IN CORPORATE SHAREHOLDERS MARKETS AND
GOVERNANCE The corporate governance OTHER
The corporate governance framework should ensure INTERMEDIARIES
framework should the equitable treatment of The corporate governance
recognise the rights of all shareholders, including framework should provide sound
stakeholders as minority and foreign incentives throughout the
established by law and shareholders. All investment chain and provide for
encourage active co- shareholders should have stock markets to function in a
operation between the opportunity to obtain way that contributes to good
corporations and effective redress for corporate governance. ( In many
stakeholders in creating violation of their rights. jurisdictions, the real world of
wealth, jobs, and the corporate governance and
sustainability of financially Same ownership is no longer
sound enterprises. characterised by a straight and
1. The corporate uncompromised relationship
governance framework between the performance of the
should assure that the company and the income of the
rights of stakeholders ultimate beneficiaries of
that are protected by shareholdings. In reality, the
law are respected. investment chain is often long
2. Where stakeholder and complex, with numerous
interests are protected intermediaries that stand
by law, stakeholders between the ultimate
should have the beneficiary and the company.
opportunity to obtain The share of equity investments
effective redress for held by institutional investors
violation of their such as mutual funds, pension
rights. funds, insurance companies and
3. The corporate hedge funds has increased
governance framework significantly, and many of their
should permit assets are managed by
performance- specialised asset managers. The
enhancing mechanisms ability and interest of
for stakeholder institutional investors and asset
participation. managers to engage in corporate
4. Where stakeholders governance varies widely. The
participate in the Principles recommend that
corporate governance institutional investors disclose
process, they should their policies with respect to
have access to relevant corporate governance)
information. 1. Institutional investors
acting in a fiduciary
capacity should disclose
 their corporate
governance and voting
policies with respect to
their investments,
including the procedures
that they have in place
for deciding on the use of
their voting rights
(disclosure of how they
exercise their ownership
rights with due
consideration to cost
effectiveness.)
2. Votes should be cast by
custodians or nominees
in line with the directions
of the beneficial owner of
the shares.
3. 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
4. The corporate
governance framework
should require that proxy
advisors, analysts,
brokers, rating agencies
and others that provide
analysis or advice
relevant to decisions by
investors, disclose and
minimise conflicts of
interest that might
compromise the integrity
of their analysis or advice
5. Insider trading and
market manipulation
should be prohibited and
the applicable rules
enforced.
6. 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
recognising the listing
requirements of the
primary listing should be
transparent and
documented. (It is
increasingly common
that companies are listed
or traded at venues
located in a different
jurisdiction than the one
where the company is
incorporated. This may
create uncertainty
among investors about
which corporate
governance rules and
regulations apply for
that company.)
7. Stock markets should
provide fair and efficient
price discovery as a
means to help promote
effective corporate
governance.
VII. DISCLOSURE IV. ROLE OF V. ROLE OF
AND STAKEHOLDERS STAKEHOLDERS
TRANSPARENCY The corporate governance
The corporate governance framework should
framework should ensure recognise the rights of
that timely and accurate stakeholders established
disclosure is made on all by law or through mutual
material matters regarding agreements and
the corporation, including encourage active co-
the financial situation, operation between
performance, ownership, corporations and
and governance of the stakeholders in creating
company wealth, jobs, and the
1. Disclosure should sustainability of financially
include, but not be sound enterprises.
 limited to, material
information on: Same 1-3
a. The financial and 4 Where stakeholders
operating results of
the company.
b. Company objectives.
c. Major share ownership
and voting rights.
d. Members of the board
and key executives,
and their 5 Stakeholders, including
remuneration.
e. Material foreseeable
risk factors.
f. Material issues
regarding employees
and other
stakeholders.
g. Governance structures
and policies.
2. Information should be
prepared, audited, and
disclosed in
accordance with high
quality standards of
accounting, financial
and non-financial
disclosure, and audit.
3. An annual audit should
be conducted by an
independent auditor in
order to provide an
external and objective
assurance on the way
in which financial
statements have been
prepared and
presented.
4. Channels for
disseminating
information should
provide for fair, timely
and cost-efficient
access to relevant
information by users. 6 The corporate
participate in the
corporate governance
process, they should have
access to relevant,
sufficient and reliable
information on a timely
and regular basis.
individual employees and
their representative
bodies, should be able to
freely communicate their
concerns about illegal or
unethical practices to the
board and their rights
should not be
compromised for doing
this. (Unethical and
illegal practices by
corporate officers may
not only violate the
rights of stakeholders but
also be to the detriment
of the company and its
shareholders in terms of
reputation effects and an
increasing risk of future
financial liabilities. It is
therefore to the
advantage of the
company and its
shareholders to establish
procedures and safe-
harbours for complaints
by employees, either
personally or through
their representative
bodies, and others
outside the company,
concerning illegal and
unethical behaviour.)
governance framework
should be complemented
by an effective, efficient
 insolvency framework
and by effective
enforcement of creditor
rights. (Especially in
emerging markets,
creditors are a key
stakeholder and the
terms, volume and type
of credit extended to
firms will depend
importantly on their
rights and on their
enforceability.
Companies with a good
corporate governance
record are often able to
borrow larger sums and
on more favourable
terms than those with
poor records or which
operate in
nontransparent
markets.)
VIII. THE VI. DISCLOSURE AND VII. DISCLOSURE AND
RESPONSIBILITI TRANSPARENCY TRANSPARENCY
ES OF THE The corporate governance Same
BOARD framework should ensure
The corporate governance that timely and accurate
framework should ensure disclosure is made on all
the strategic guidance of material matters regarding
the company, the effective the corporation, including
monitoring of the financial situation,
management by the board, performance, ownership,
and the board’s and governance of the
accountability to the company.
company and the Addition to no. 1:
shareholders. Related party transactions. It is
1. Board members should important for the market to
act on a fully informed know whether the company is
basis, in good faith, being run with due regard to the
with due diligence and interests of all its investors. To
care, and in the best this end, it is essential for the
interest of the company to fully disclose
company and the material related party
shareholders. transactions to the market,
2. Where board decisions either individually, or on a
may affect different grouped basis, including whether
shareholder groups they have been executed at
 differently, the board arms-length and on normal
should treat all market terms Transactions
shareholders fairly involving the major shareholders
3. The board should (or their close family, relations
ensure compliance etc.), either directly or indirectly,
with applicable law are potentially the most difficult
and take into account type of transactions.
the interests of
stakeholders. Same 2-3
4. The board should be 4 External auditors should
able to exercise be accountable to the
objective judgement shareholders and owe a
on corporate affairs duty to the company to
independent, in exercise due professional
particular, from care in the conduct of the
management. audit. (it clarifies that the
5. In order to fulfil their external auditor should
responsibilities, board be accountable to the
members should have shareholders. It also
access to accurate, underlines that the
relevant and timely external auditor owes a
information. duty of due professional
care to the company
rather than any
individual or group of
corporate managers that
they may interact with
for the purpose of their
work.)
Same
5 The corporate
governance framework
should be complemented
by an effective approach
that addresses and
promotes the provision of
analysis or advice by
analysts, brokers, rating
agencies and others, that
is relevant to decisions by
investors, free from
material conflicts of
interest that might
compromise the integrity
of their analysis or advice
(a number of countries
have taken steps to
ensure the integrity of
 those professions and
activities that serve as
conduits of analysis and
advice to the market.
These intermediaries, if
they are operating free
from conflicts and with
integrity, can play an
important role in
providing incentives for
company boards to
follow good corporate
governance practices.)
demand full disclosure of
conflicts of interest and
how the entity is choosing
to manage them
VIII. THE
RESPONSIBILITES
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.
Same
4. The board should apply
high ethical standards. It
should take into account
the interests of
stakeholders. (The board
has a key role in setting
the ethical tone of a
company, not only by its
own actions, but also in
appointing and
overseeing key
executives and
consequently the
management in general.
High ethical standards
IX. THE
RESPONSIBILITES
OF THE BOARD
1. 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. (When
employee representation
on boards is mandated
by the law or collective
agreements, or adopted
voluntarily, it should be
applied in a way that
maximises its
contribution to the
board’s independence,
competence and
information. Employee
representatives should
have the same duties
and responsibilities as all
 are in the long term other board members,
interests of the company and should act in the
as a means to make it best interest of the
credible and trustworthy, company.)
not only in day-to-day
operations but also with
respect to longer term
commitments.)

# main points:

1. Principles not meant to be binding and regulatory, only serve as reference point.
2. Principles are dynamic, must adjust to changes and trends
3. Borderless economy