OECD corporate governance

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OECD PRINCIPLES OF

CORPORATE GOVERNANCE

Group 9:Shivam Gupta 12PGDM049Shobhit Birla 12PGDM050Shubho Bhattacharya 12PGDM051Shubhy Gupta 12PGDM052Sneha Sethi 12PGDM053

Sohini Sadhu 12PGDM054


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Introduction

Aim - To develop a set of corporate governance standardsand guidelines with national governments, private sector andinternational organizations.

Facts:- Developed on 28-29 april,1998.

Adopted as one of 12 key standards for sound financialsystem by Financial Stability Forum.

Form basis for CG component of the World Bank/ IMF. Assessment team- Steering group + World Bank +IMF + BIS +

FSF+ IOSCO.


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Consultations also included experts from a large number ofcountries and interested parties such as :-

Business Sectors Investors Professional Groups Trade unions

Civil Society organizations International trade settling bodies

Principles were put on OECD website for public comment.

It was decided that principles should be revised to take intoaccount new developments and concerns.Also recognized the need to adapt implementation to varyingeconomic and cultural circumstances round the world.


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PREAMBLE


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1. Formed to assist OECD and non-OECD to evaluate and improve

Legal

Institutional

Regulatory framework

and guidance to

Stock exchanges

Investors

Corporations and other parties

2. They are concise, understandable and accessible to international community

2. Corporate governance improves economic efficiency and growth as well as enhancinginvestor confidence

4. It provides the structure through which the objectives of the company are set, meansof attaining those objectives and monitoring performance are determined.

4. Should provide proper incentives for the board and management to pursue objectives

that are in the interests of the company.


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6. Corporate governance system in an individual company and across an economy as awhole, helps to provide a degree of confidence. As a result, the cost of capital is lowerand firms are encouraged to use resources more efficiently, thereby underpinninggrowth.

7. CG framework also depends on factors such as business ethics, corporate awarenessof the environmental and societal interests of the communities in which a companyoperates.

8. Principles focus on governance problems that result from the separation of ownership

and control. not simply an issue of the relationship between shareholders and management

it also caters to the issues arise from the power of certain controllingshareholders over minority shareholders

9. Corporate governance is affected by the relationships among participants in thegovernance system.

Shareholders, family holdings, bloc alliances acting through holding companycan influence corporate behavior.

institutional investors are increasingly demanding a voice in corporategovernance


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10. The degree to which corporations have principles of good corporate governance is animportant factor for investment decisions.

If countries are to reap the full benefits of the global capital market and attractlong-term capital, corporate governance arrangements must be credible, well

understood across borders and adhere to internationally accepted principles.

11. The Principles are non-binding and do not aim at detailed prescriptions for nationallegislation. Rather, they seek to identify objectives and suggest various means forachieving them. Their purpose is to serve as a reference point.

12. They can be used by policy makers as they examine and develop the legal andregulatory frameworks for corporate governance that reflect their own economic,social, legal and cultural circumstances, and by market participants as they developtheir own practices.


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I. Ensuring the Basis for an

Effective Corporate GovernanceFrameworkThe 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


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The framework should be developed with a view to its impacton overall economic performance, market integrity and theincentives it creates for market participants and the

promotion of transparent and efficient markets

Legal and regulatory requirements to be consistent with therule of law, transparent and enforceable

Division of responsibilities to be articulated clearly andensuring public interest is served

Supervisory, regulatory and enforcement authorities shouldhave the authority, integrity and resources to fulfill theirduties in a professional and objective manner. Their rulings

should be timely, transparent and fully explained


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II. The Rights of Shareholders

and Key Ownership FunctionsThe corporate governance framework should protect and facilitate the exercise of

shareholders rights


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Secure Methods of Ownership Registration

Convey or Transfer Shares

Obtain relevant information on the corporation on a timely basis

Participate and vote in general shareholder meetings

Elect and remove members of the board

Share in the profits of the corporation

Basic Rights

Amendments to the statutes or articles of incorporation Authorization of additional shares

Extraordinary transactionsFundamentalRights

Shareholders should be furnished with the date, location and agenda

Should ask questions to the board and propose resolutions

Effective shareholder participation in key corporate governance decisions

Remuneration policy for board members and key executives; equitycomponent of compensation schemes subject to shareholder approval

Should be able to vote in person or in absentia

GeneralMeetings


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Capital structures and engagements that enable certain shareholdersto obtain a degree of control disproportionate to their equityownership should be disclosed

Markets for corporate control should be allowed to function in anefficient and transparent manner Rules and procedures governing the acquisition of corporate control in the

capital markets should be clearly articulated and disclosed Anti-take-over devices should not be used to shield management and the board

from accountability

Exercise of ownership rights by all shareholders including institutionalinvestors should be facilitated Institutional investors acting in a fiduciary capacity should disclose their overall

corporate governance and voting policies

They should also disclose how they manage material conflicts of interest

Shareholders, including institutional shareholders, should be allowedto consult with each other on issues concerning their basic shareholderrights subject to exceptions to prevent abuse


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III. The Equitable Treatment

of ShareholdersThe Corporate Governance framework should ensure the equitable treatment

of all shareholders, including minority and foreign shareholders. Allshareholders should have the opportunity to obtain effective redress for

violation of their rights.


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Equitabletreatment ofShareholders

Minority andforeign

shareholders

If rightsviolated,Opportunityfor effective

actions

Within any series of class, Shares should carry thesame rights

Investors should have information about all seriesand classes of shares before they purchase

Any changes in voting rights should be subject toapproval by those classes of shares which arenegatively affected

Minority shareholders protection against abusiveactions by controlling shareholders

Votes should be cast by custodians or nominees in amanner agreed with beneficial owners of shares

Elimination of Impediments to cross border voting Processes and procedures should allow equitable

treatment and should not make it costly or difficultto cast votes

Equitable

treatment ofShareholders

Prohibition ofInsider Trading &

Abusive selfdealing

Members shoulddisclose, if any

directly affectingcorporation material

interest intransaction or

matter


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IV. The Role of Stakeholders

in Corporate GovernanceThe Corporate Governance framework should recognize the rights of

stakeholders established by law or through mutual agreements andencourage active co-operation between corporations and stakeholders in

creating wealth, jobs and the sustainability of financially sound enterprises.


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Respect the rights of stakeholders established bylaw or through mutual agreements .

Stakeholders should have opportunity to obtain

effective redress for violation of their rights, if itsprotected by Law

Develop Performance enhancing mechanism fremployee participation.

Access to relevant , sufficient and reliableinformation on timely & regular basis, wherestakeholders participate in CG

Stakeholders including employees and theirrepresentative bodies should be able to freelycommunicate their concerns about illegal,unethical practises to the board & with nocompromise

Effective and efficient insolvency framework s&effective enforcement of creditor rights shouldcomplement CG framework

Role of

stakeholdersin CG

Recognition ofrights of stake

holders eitherthough law ormutualagreements

Encourage co-operation between

corporations &stakeholders increation wealth,jobs &sustainabilityenterprise


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V. Disclosure and Transparency

The Corporate Governance framework should ensure that timely and accuratedisclosure is made on all material matters regarding the corporation,

including the financial situation, performance, ownership, and governance

of the Company.


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Disclosure and Transparency

Disclosure should include:

1. Financial and Operating Results

2. Company Objectives

3. Major Share Ownership and Voting Rights

4. Remuneration Policy and Information of Board


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5. Related Party Transactions

6. Foreseeable Risk Factors

7. Issues regarding employees and other stakeholders

8. Governance Structures and Policies


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Preparation and Disclosure of information inaccordance with high quality standards

Conducting of Annual Audit by an independent,

competent and qualified Auditor

Due exercise of professional care by External Auditors

Equal, Timely and Cost-Efficient access to relevant

information by users Effective Approach towards Corporate Governance

Framework


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VI. The Responsibilities of

the BoardThe Corporate Governance framework should ensure the strategic guidance of

the company, the effective monitoring of management by the board, andthe boards accountability to the company and the shareholders.


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A.Board members should act on afully informed basis, in good faith, withdue diligence and care, and in the best interest of the company and theshareholders.

B. Treat all shareholders fairly, where board decisions may affect differentshareholder groups differently.

C. Board should apply high ethical standards.

D. Board should fulfil certain key functions:1. Review and guide corporate strategy, major plans of action, risk policy, annual

budgets; setting performance objectives ; monitoring implementation and corporate

performance; and overseeing major capital expenditures, acquisitions and

divestitures.

2. Monitor effectiveness of companys governance practices and make changes as

needed.

3. Hire, compensate, monitor and, when necessary, replace key executives and oversee

succession planning

4. Align key executive and board remuneration with long term interests of company and

its shareholders.


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5. Ensure a formal and transparent board nomination and election process.

6. Monitor and manage potential conflicts of interest of management, boardmembers and shareholders, including misuse of corporate assets andabuse in related party transactions.

7. Ensure integrity of corporation accounting and financial reporting systemsincluding independent audit

8. Oversee the process of disclosure and communications.

E. The board should be able to exercise objective independentjudgementon corporate affairs.

1. Board should assign sufficient number of non-executive board members who

would exercise independent judgement when there is a potential for conflictof interest.

2. The mandate, composition and working procedures of committees of boardshould be well defined and disclosed by the board.

3. Board members should effectively commit themselves effectively to theirresponsibilities


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F. Board members should have access to accurate, relevant and timelyinformation.

To conclude, corporate governance framework shouldensure

Strategicguidance of

company

Effectivemonitoring ofmanagement

by board

Board saccountability

to company andshareholders


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THANK YOU

Documents

OECD corporate governance