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The Organisation for Economic Co-Operation and Development (OECD) Principles of Corporate Governance
Questions & Answers
1. What is corporate governance?
Corporate governance is the system by which business corporations are
directed and controlled. The corporate governance structure specifies
the distribution of rights and responsibilities among different
participants in the corporation, such as, the board, managers,
shareholders and other stakeholders, and spells out the rules and
procedures for making decisions on corporate affairs.
By doing this, it also provides the structure
through which the company objectives are set, and the means of
attaining those objectives and monitoring performance.
2. Why is it important?
Good corporate governance is an important step in building market
confidence and encouraging more stable, long-term international
investment flows. The business-corporation is an increasingly important
engine for wealth creation worldwide, and how companies are run will
influence welfare in society as a whole.
In order to serve this wealth creating function,
companies must operate within a framework that keeps them focused on
their objectives and accountable for their actions. That is to say,
they need to establish adequate and credible corporate governance
Many countries see better corporate governance
practices as a way to improve economic dynamism and thus enhance
overall economic performance. The importance of good corporate
governance has also been highlighted by the recent turbulence in
3. Why did the OECD develop Principles of Corporate Governance?
The OECD has a long experience in the area of corporate governance. A
large number of reviews of corporate governance regimes in specific
countries have been carried out within the process of the annual
country surveys. Work on various aspects of corporate governance has
been carried out by specialised OECD groups working on topics such as
accounting, financial markets and private sector development.
The OECD also is working to improve understanding
of the implications of corporate governance on economic performance.
From the very outset, this work has built on consultations with a broad
range of government officials, private sector practitioners and
In line with this approach, a special Business
Sector Advisory Group with representatives from OECD Member countries
was established. After broad consultations, this Group, which included
widely acknowledged experts such as Ira Millstein, Sir Adrian Cadbury
and Michel Albert, pointed out some areas where international standards
or guidelines might be useful.
In April 1998, the OECD Ministers gave the
Organisation a mandate to develop a set of principles in the area of
corporate governance. The initiative subsequently received the support
of the G7 and other international groupings.
4. Who has participated in developing the Principles?
The immediate responsibility for developing the Principles was assigned
to an Ad Hoc Task Force chaired by the OECD Deputy Secretary-General,
Joanna R. Shelton. The Task Force includes representatives from all
OECD countries, as well as relevant international organisations, such
as the World Bank, the IMF, BIS and IOSCO.
Also on the Task Force are representatives from the
corporate sector, the investment community and trade unions. During its
work, the Task Force has consulted widely with the private sector,
non-OECD countries and other representatives from civil society. In
addition, drafts of the Principles have been made available for public
comment on the OECD Internet Website.
5. Which issues are covered by the Principles?
Following an introductory preamble, the Principles cover five basic aspects of corporate governance:
- The Rights of Shareholders
- The Equitable Treatment of Shareholders
- The Role of Stakeholders
- Disclosure and Transparency
- The Responsibilities of the Board
Each of the five sections contains a set of principles that are
followed by annotations which provide commentary intended to help
readers understand the rationale of the Principles. The annotations
also include descriptions of dominant trends and offer alternatives and
examples that may be useful in making the Principles operational.
6. What kind of companies do the Principles focus on?
The Principles focus primarily on publicly traded companies. However,
to the extent that they are applicable, they might also be a useful
tool for improving corporate governance in privately held and
7. Who will use the Principles?
The Principles are primarily intended to provide assistance to
governments as they pursue their own efforts to evaluate and improve
the legal, institutional and regulatory framework that affects
corporate governance. They also provide guidance and direction for
stock-exchanges, investors, corporations and other parties that have a
role in developing good corporate governance.
Find more at the OECD website