OECD corporate governance
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Transcript of 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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Disclosure and Transparency
5. Related Party Transactions
6. Foreseeable Risk Factors
7. Issues regarding employees and other stakeholders
8. Governance Structures and Policies
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Disclosure and Transparency
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