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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 arrangements.

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 financial markets.

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 independent experts.

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 state-owned companies.

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

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Last modified 14/06/2009