OECD

Principles of
Corporate Governance

1 By Amitha Singhvi, ICWA, M.Com

 ORGANISATION FOR
ECONOMIC CO-
OPERATION
AND DEVELOPMENT

2 By Amitha Singhvi, ICWA, M.Com

 OECD – Introduction….
An international economic organisation of
33 countries.
Originated in 1948 as the Organisation for
European Economic Co-operation (OEEC), led by
Robert Marjolin of France.
In 1961, it was reformed into the Organisation for
Economic Co-operation and Development by the
Convention on the Organisation for Economic Co-
operation and Development..

3 By Amitha Singhvi, ICWA, M.Com

 ……OECD – Introduction
Most OECD members are high-income
economies with a high Human Development
Index (HDI) and are regarded as developed
countries
The OECD's headquarters are at the
Château de la Muette in Paris, France.

4 By Amitha Singhvi, ICWA, M.Com

 The OECD Principles of
Corporate Governance

5 By Amitha Singhvi, ICWA, M.Com

 The OECD Principles of Corporate
Governance were 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.

6 By Amitha Singhvi, ICWA, M.Com

 Since the Principles were agreed in
1999, they have formed the basis for
corporate governance initiatives in both
OECD and non-OECD countries alike.

7 By Amitha Singhvi, ICWA, M.Com

 I. Ensuring the Basis for an Effective
Corporate
Governance Framework
The 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.

8 By Amitha Singhvi, ICWA, M.Com

 A. The corporate governance framework
should be developed with a view to its
impact on overall economic performance,
market integrity and the incentives it
creates for market participants and the
promotion of transparent and efficient
markets.

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 B. The legal and regulatory requirements
that affect corporate governance
practices in a jurisdiction should be
consistent with the rule of law,
transparent and enforceable.

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 C. The division of responsibilities among
different authorities in a jurisdiction
should be clearly articulated and ensure
that the public interest is served.

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

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 II. The Rights of Shareholders
and Key Ownership Functions

The corporate governance framework

should protect and facilitate the
exercise of shareholders’ rights.

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 A. Basic shareholder rights include the right to:

 secure methods of ownership registration;

 convey or transfer shares;
 obtain relevant information on the corporation
on a timely and regular basis;
 participate and vote in general shareholder
meetings;
 elect members of the board; and
 share in the profits of the corporation.

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 B. Shareholders have the right
to participate in, and to be
sufficiently informed on,
decisions concerning
fundamental corporate
changes.
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 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.
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 D. Capital structures and
arrangements that enable certain
shareholders to obtain a degree
of control disproportionate to
their equity ownership should be
disclosed.

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 E. Markets for corporate control
should be allowed to function in an
efficient and transparent manner.
F. Shareholders, including
institutional investors, should
consider the costs and benefits of
exercising their voting rights.

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 G. 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.

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 III. The 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 the opportunity to obtain
effective redress for violation of their
rights.

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 A. Allshareholders of the same class should
be treated equally.
B. Insider trading and abusive self-dealing
should be prohibited.
C. Members of the board and managers
should be required to disclose any
material interests in transactions or
matters affecting the corporation.

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 IV. The Role of Stakeholders in Corporate Governance
The corporate governance framework
should recognize the rights of
stakeholders as established by law and
encourage active co-operation
between corporations and
stakeholders in creating wealth, jobs,
and the sustainability of financially
sound enterprises.
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 A. Thecorporate governance framework
should assure that the rights of
stakeholders that are protected by law are
respected.
B. Where stakeholder interests are
protected by law, stakeholders should
have the opportunity to obtain effective
redress for violation of their rights.

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 C. The corporate governance
framework should permit
performance-enhancing mechanisms
for stakeholder participation.
D. Where stakeholders participate in
the corporate governance process,
they should have access to relevant
information.
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 F. The corporate governance framework
should be complemented by an effective,
efficient insolvency framework and by
effective enforcement of creditor rights.

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 V. 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,
ownership, and governance of the
company.

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 A.Disclosure should include, but not
be limited to, material information
B. Information should be prepared,
audited, and disclosed in accordance
with high quality standards of
accounting, financial and non-
financial disclosure, and audit.

27 By Amitha Singhvi, ICWA, M.Com

 C. 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.
D. Channels for disseminating information
should provide for fair, timely and cost-
efficient access to relevant information by
users.
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 E. 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.

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 VI. 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.
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 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.

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

C. The board should ensure compliance

with applicable law and take into account
the interests of stakeholders.

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 D. The board should carry certain key functions
in proper manner.

E. The board should be able to exercise

objective judgement on corporate affairs
independent, in particular, from management.
F. In order to fulfill their responsibilities, board
members should have access to accurate,
relevant and timely information.

33 By Amitha Singhvi, ICWA, M.Com

 Thank You
Amita Singhvi

34 By Amitha Singhvi, ICWA, M.Com