OECD Principles of Corporate Governance

2023年12月25日发(作者：注册会计师年薪多少万)

«OECD PrinciplesofCorporateGovernance2004

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OECD Principles

ofCorporate Governance2004ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATIONAND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960,and which came into force on 30th September 1961, the Organisation for EconomicCo-operation and Development (OECD) shall promote policies designed:–to achieve the highest sustainable economic growth and employment and arising standard of living in member countries, while maintaining financialstability, and thus to contribute to the development of the world economy;–to contribute to sound economic expansion in member as well as non-membercountries in the process of economic development; and–to contribute to the expansion of world trade on a multilateral, non-discriminatorybasis in accordance with international original member countries of the OECD are Austria, Belgium, Canada, Denmark,France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway,Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United following countries became members subsequently through accession at the datesindicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia(7thJune1971), New Zealand (29thMay1973), Mexico (18th May 1994), the Czech Republic(21stDecember 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea(12thDecember 1996) and the Slovak Republic (14th December 2000). The Commissionofthe European Communities takes part in the work of the OECD (Article 13 of theOECDConvention).Publié en français sous le titre :Principes de gouvernement d’entreprise de l’OCDE2004© OECD 2004Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through theCentre français d’exploitation du droit de copie (CFC), 20,rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70,fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtainedthroughthe Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA,orCCC Online: . All other applications for permission to reproduce or translate all or part of this bookshould be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France.

Foreword

The OECD Principles of Corporate Governance were endorsed by

OECD Ministers in 1999 and have since become an international benchmark

for policy makers, investors, corporations and other stakeholders worldwide.

They have advanced the corporate governance agenda and provided specific

guidance for legislative and regulatory initiatives in both OECD and non

OECD countries. The Financial Stability Forum has designated the

Principles as one of the 12 key standards for sound financial systems. The

Principles also provide the basis for an extensive programme of co-operation between OECD and non-OECD countries and underpin the

corporate governance component of World Bank/IMF Reports on the

Observance of Standards and Codes (ROSC).

The Principles have now been thoroughly reviewed to take account of

recent developments and experiences in OECD member and non-member

countries. Policy makers are now more aware of the contribution good

corporate governance makes to financial market stability, investment and

economic growth. Companies better understand how good corporate

governance contributes to their competitiveness. Investors – especially

collective investment institutions and pension funds acting in a fiduciary

capacity – realise they have a role to play in ensuring good corporate

governance practices, thereby underpinning the value of their investments.

In today’s economies, interest in corporate governance goes beyond that of

shareholders in the performance of individual companies. As companies

play a pivotal role in our economies and we rely increasingly on private

sector institutions to manage personal savings and secure retirement

incomes, good corporate governance is important to broad and growing

segments of the population.

The review of the Principles was undertaken by the OECD Steering

Group on Corporate Governance under a mandate from OECD Ministers

in 2002. The review was supported by a comprehensive survey of how

member countries addressed the different corporate governance challenges

they faced. It also drew on experiences in economies outside the OECD area

where the OECD, in co-operation with the World Bank and other sponsors,

4 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

organises Regional Corporate Governance Roundtables to support regional

reform efforts.

The review process benefited from contributions from many parties.

Key international institutions participated and extensive consultations were

held with the private sector, labour, civil society and representatives from

non-OECD countries. The process also benefited greatly from the insights of

internationally recognised experts who participated in two high level

informal gatherings I convened. Finally, many constructive suggestions

were received when a draft of the Principles was made available for public

comment on the internet.

The Principles are a living instrument offering non-binding standards

and good practices as well as guidance on implementation, which can be

adapted to the specific circumstances of individual countries and regions.

The OECD offers a forum for ongoing dialogue and exchange of

experiences among member and non-member countries. To stay abreast of

constantly changing circumstances, the OECD will closely follow

developments in corporate governance, identifying trends and seeking

remedies to new challenges.

These Revised Principles will further reinforce OECD’s contribution

and commitment to collective efforts to strengthen the fabric of corporate

governance around the world in the years ahead. This work will not

eradicate criminal activity, but such activity will be made more difficult as

rules and regulations are adopted in accordance with the Principles.

Importantly, our efforts will also help develop a culture of values for

professional and ethical behaviour on which well functioning markets

depend. Trust and integrity play an essential role in economic life and for

the sake of business and future prosperity we have to make sure that they are

properly rewarded.

Donald J. Johnston

OECD Secretary-General

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

ACKNOWLEDGEMENTS

I would like to express my appreciation to members of the Steering Group and

its Chair, Ms. Veronique Ingram, whose dedication and expertise made it

possible to complete the review so effectively in a short period of time. I would

also thank all those officials and experts from around the world who

participated in our consultations, submitted comments or otherwise contributed

to ensuring the continued relevance of the OECD Principles of Corporate

Governance in changing times.

Special thanks are due to Ira Millstein and Sir Adrian Cadbury who have

contributed so much since OECD’s corporate governance work first began and

indeed to all the participants in the two high level gatherings I convened in Paris

and other distinguished experts who contributed to the review, including: Susan

Bies, Susan Bray, Ron Blackwell, Alain-Xavier Briatte, David Brown, Luiz

Cantidiano, Maria Livanos Cattaui, Peter Clifford, Andrew Crockett, Stephen

Davis, Peter Dey, Carmine Di Noia, John Evans, Jeffrey Garten, Leo

Goldschmidt, James Grant, Gerd Häusler, Tom Jones, Stephen Joynt, Erich

Kandler, Michael Klein, Igor Kostikov, Daniel Lebegue, Jean-François Lepetit,

Claudine Malone, Teruo Masaki, Il-Chong Nam, Taiji Okusu, Michel Pebereau,

Caroline Phillips, Patricia Peter, John Plender, Michel Prada, Iain Richards,

Alastair Ross Goobey, Albrecht Schäfer, Christian Schricke, Fernando Teixeira

dos Santos, Christian Strenger, Barbara Thomas, Jean-Claude Trichet, Tom

Vant, Graham Ward, Edwin Williamson, Martin Wassell, Peter Woicke,David Wright and Eddy Wymeersch.

In addition to participants from all OECD countries, the OECD Steering Group

on Corporate Governance includes regular observers from the World Bank, the

International Monetary Fund (IMF) and the Bank for International Settlements

(BIS). For the purpose of the review of the Principles, the Financial Stability

Forum (FSF), the Basel Committee on Banking Supervision, and the

International Organization of Securities Commissions (IOSCO) were invited as

ad hoc observers.

I am also pleased to acknowledge the constructive contributions of the OECD’s

Business and Industry Advisory Committee (BIAC) and the Trade Union

Advisory Committee (TUAC) whose representatives participated actively

throughout the review process, including the regular meetings of the Steering

Group.

Finally, I thank the OECD Secretariat staff in the Directorate for Financial and

Enterprise Affairs who devoted long hours to serve the Steering Group with

dedication and excellence: William Witherell, Rainer Geiger, Rinaldo Pecchioli,

Robert Ley, Mats Isaksson, Grant Kirkpatrick, Alessandro Goglio, Laura

Holliday and other members of the Corporate Affairs Division.

Table of Contents

Part One

The OECD Principles of Corporate Governance

II.

III.

IV.

VI.

Ensuring the Basis for an Effective Corporate 17

The Rights of Shareholders and Key 18

The Equitable Treatment .20

The Role of Stakeholders in 21

Disclosure 22

The Responsibilities of 24

Part Two

Annotations to the OECD Principles of Corporate Governance

II.

III.

IV.

Ensuring the Basis for an Effective Corporate 29

The Rights of Shareholders and Key 32

The Equitable Treatment .40

The Role of Stakeholders in 46

Disclosure 49

VI. The Responsibilities of 58

OECD Principles of Corporate Governance

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. Since the

Principles were agreed in 1999, they have formed the basis for corporate

governance initiatives in both OECD and non-OECD countries alike.

Moreover, they have been adopted as one of the Twelve Key Standards for

Sound Financial Systems by the Financial Stability Forum. Accordingly,

they form the basis of the corporate governance component of the World

Bank/IMF Reports on the Observance of Standards and Codes (ROSC).

The OECD Council Meeting at Ministerial Level in 2002 agreed to

survey developments in OECD countries and to assess the Principles in light

of developments in corporate governance. This task was entrusted to the

OECD Steering Group on Corporate Governance, which comprises

representatives from OECD countries. In addition, the World Bank, the

Bank for International Settlements (BIS) and the International Monetary

Fund (IMF) were observers to the Group. For the assessment, the Steering

Group also invited the Financial Stability Forum, the Basel Committee, and

the International Organization of Securities Commissions (IOSCO) as ad

hoc observers.

In its review of the Principles, the Steering Group has undertaken

comprehensive consultations and has prepared with the assistance of

members the Survey of Developments in OECD Countries. The

consultations have included experts from a large number of countries which

have participated in the Regional Corporate Governance Roundtables that

the OECD organises in Russia, Asia, South East Europe, Latin America and

Eurasia with the support of the Global Corporate Governance Forum and

others, and in co-operation with the World Bank and other non-OECD

countries as well. Moreover, the Steering Group has consulted a wide range

of interested parties such as the business sector, investors, professional

groups at national and international levels, trade unions, civil society

organisations and international standard setting bodies. A draft version of

10 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

the Principles was put on the OECD website for public comment and

resulted in a large number of responses. These have been made public on the

OECD web site.

On the basis of the discussions in the Steering Group, the Survey and the

comments received during the wide ranging consultations, it was concluded

that the 1999 Principles should be revised to take into account new

developments and concerns. It was agreed that the revision should be

pursued with a view to maintaining a non-binding principles-based

approach, which recognises the need to adapt implementation to varying

legal economic and cultural circumstances. The revised Principles contained

in this document thus build upon a wide range of experience not only in the

OECD area but also in non-OECD countries.

Preamble

The Principles are intended to assist OECD and non-OECD

governments in their efforts to evaluate and improve the legal, institutional

and regulatory framework for corporate governance in their countries, and to

provide guidance and suggestions for stock exchanges, investors,

corporations, and other parties that have a role in the process of developing

good corporate governance. The Principles focus on publicly traded

companies, both financial and non-financial. However, to the extent they are

deemed applicable, they might also be a useful tool to improve corporate

governance in non-traded companies, for example, privately held and state-owned enterprises. The Principles represent a common basis that OECD

member countries consider essential for the development of good

governance practices. They are intended to be concise, understandable and

accessible to the international community. They are not intended to

substitute for government, semi-government or private sector initiatives to

develop more detailed “best practice” in corporate governance.

Increasingly, the OECD and its member governments have recognised

the synergy between macroeconomic and structural policies in achieving

fundamental policy goals. Corporate governance is one key element in

improving economic efficiency and growth as well as enhancing investor

confidence. Corporate governance involves a set of relationships between a

company’s management, its board, its shareholders and other stakeholders.

Corporate governance also provides the structure through which the

objectives of the company are set, and the means of attaining those

objectives and monitoring performance are determined. Good corporate

governance should provide proper incentives for the board and management

to pursue objectives that are in the interests of the company and its

shareholders and should facilitate effective monitoring. The presence of an

effective corporate governance system, within an individual company and

across an economy as a whole, helps to provide a degree of confidence that

is necessary for the proper functioning of a market economy. As a result, the

cost of capital is lower and firms are encouraged to use resources more

efficiently, thereby underpinning growth.

12 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

Corporate governance is only part of the larger economic context in

which firms operate that includes, for example, macroeconomic policies and

the degree of competition in product and factor markets. The corporate

governance framework also depends on the legal, regulatory, and

institutional environment. In addition, factors such as business ethics and

corporate awareness of the environmental and societal interests of the

communities in which a company operates can also have an impact on its

reputation and its long-term success.

While a multiplicity of factors affect the governance and decision-making processes of firms, and are important to their long-term success, the

Principles focus on governance problems that result from the separation of

ownership and control. However, this is not simply an issue of the

relationship between shareholders and management, although that is indeed

the central element. In some jurisdictions, governance issues also arise from

the power of certain controlling shareholders over minority shareholders. In

other countries, employees have important legal rights irrespective of their

ownership rights. The Principles therefore have to be complementary to a

broader approach to the operation of checks and balances. Some of the other

issues relevant to a company’s decision-making processes, such as

environmental, anti-corruption or ethical concerns, are taken into account

but are treated more explicitly in a number of other OECD instruments

(including the Guidelines for Multinational Enterprises and the Convention

on Combating Bribery of Foreign Public Officials in International

Transactions) and the instruments of other international organisations.

Corporate governance is affected by the relationships among

participants in the governance system. Controlling shareholders, which may

be individuals, family holdings, bloc alliances, or other corporations acting

through a holding company or cross shareholdings, can significantly

influence corporate behaviour. As owners of equity, institutional investors

are increasingly demanding a voice in corporate governance in some

markets. Individual shareholders usually do not seek to exercise governance

rights but may be highly concerned about obtaining fair treatment from

controlling shareholders and management. Creditors play an important role

in a number of governance systems and can serve as external monitors over

corporate performance. Employees and other stakeholders play an important

role in contributing to the long-term success and performance of the

corporation, while governments establish the overall institutional and legal

framework for corporate governance. The role of each of these participants

and their interactions vary widely among OECD countries and among non-OECD countries as well. These relationships are subject, in part, to law and

regulation and, in part, to voluntary adaptation and, most importantly, to

market forces.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

The degree to which corporations observe basic principles of good

corporate governance is an increasingly important factor for investment

decisions. Of particular relevance is the relation between corporate

governance practices and the increasingly international character of

investment. International flows of capital enable companies to access

financing from a much larger pool of investors. If countries are to reap the

full benefits of the global capital market, and if they are to attract long-term

“patient” capital, corporate governance arrangements must be credible, well

understood across borders and adhere to internationally accepted principles.

Even if corporations do not rely primarily on foreign sources of capital,

adherence to good corporate governance practices will help improve the

confidence of domestic investors, reduce the cost of capital, underpin the

good functioning of financial markets, and ultimately induce more stable

sources of financing.

There is no single model of good corporate governance. However, work

carried out in both OECD and non-OECD countries and within the

Organisation has identified some common elements that underlie good

corporate governance. The Principles build on these common elements and

are formulated to embrace the different models that exist. For example, they

do not advocate any particular board structure and the term “board” as used

in this document is meant to embrace the different national models of board

structures found in OECD and non-OECD countries. In the typical two tier

system, found in some countries, “board” as used in the Principles refers to

the “supervisory board” while “key executives” refers to the “management

board”. In systems where the unitary board is overseen by an internal

auditor’s body, the principles applicable to the board are also, mutatis

mutandis, applicable. The terms “corporation” and “company” are used

interchangeably in the text.

The Principles are non-binding and do not aim at detailed prescriptions

for national legislation. Rather, they seek to identify objectives and suggest

various means for achieving them. Their purpose is to serve as a reference

point. They can be used by policy makers as they examine and develop the

legal and regulatory frameworks for corporate governance that reflect their

own economic, social, legal and cultural circumstances, and by market

participants as they develop their own practices.

The Principles are evolutionary in nature and should be reviewed in

light of significant changes in circumstances. To remain competitive in a

changing world, corporations must innovate and adapt their corporate

governance practices so that they can meet new demands and grasp new

opportunities. Similarly, governments have an important responsibility for

shaping an effective regulatory framework that provides for sufficient

flexibility to allow markets to function effectively and to respond to

14 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

expectations of shareholders and other stakeholders. It is up to governments

and market participants to decide how to apply these Principles in

developing their own frameworks for corporate governance, taking into

account the costs and benefits of regulation.

The following document is divided into two parts. The Principles

presented in the first part of the document cover the following areas: I)

Ensuring the basis for an effective corporate governance framework; II) The

rights of shareholders and key ownership functions; III) The equitable

treatment of shareholders; IV) The role of stakeholders; V) Disclosure and

transparency; and VI) The responsibilities of the board. Each of the sections

is headed by a single Principle that appears in bold italics and is followed by

a number of supporting sub-principles. In the second part of the document,

the Principles are supplemented by annotations that contain commentary on

the Principles and are intended to help readers understand their rationale.

The annotations may also contain descriptions of dominant trends and offer

alternative implementation methods and examples that may be useful in

making the Principles operational.

Part One

The OECD Principles of Corporate Governance

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.

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.

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.

C. The division of responsibilities among different authorities in a jurisdiction should

be clearly articulated and ensure that the public interest is served.

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.

II. The Rights of Shareholders and

Key Ownership Functions

The corporate governance framework should protect and facilitate

the exercise of shareholders’ rights.

A. Basic shareholder rights should include the right to: 1) secure methods of ownership

registration; 2) convey or transfer shares; 3) obtain relevant and material

information on the corporation on a timely and regular basis; 4) participate and vote

in general shareholder meetings; 5) elect and remove members of the board; and 6)

share in the profits of the corporation.

B. Shareholders should have the right to participate in, and to be sufficiently informed

on, decisions concerning fundamental corporate changes such as: 1) amendments to

the statutes, or articles of incorporation or similar governing documents of the

company; 2) the authorisation of additional shares; and 3) extraordinary

transactions, including the transfer of all or substantially all assets, that in effect

result in the sale of the company.

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:

1. Shareholders should be furnished with sufficient and timely information

concerning the date, location and agenda of general meetings, as well as full and

timely information regarding the issues to be decided at the meeting.

2. Shareholders should have the opportunity to ask questions to the board,

including questions relating to the annual external audit, to place items on the

agenda of general meetings, and to propose resolutions, subject to reasonable

limitations.

3. Effective shareholder participation in key corporate governance decisions, such

as the nomination and election of board members, should be facilitated.

Shareholders should be able to make their views known on the remuneration

policy for board members and key executives. The equity component of

compensation schemes for board members and employees should be subject to

shareholder approval.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

4. Shareholders should be able to vote in person or in absentia, and equal effect

should be given to votes whether cast in person or in absentia.

D. Capital structures and arrangements that enable certain shareholders to obtain a

degree of control disproportionate to their equity ownership should be disclosed.

E. Markets for corporate control should be allowed to function in an efficient and

transparent manner.

1. The rules and procedures governing the acquisition of corporate control in the

capital markets, and extraordinary transactions such as mergers, and sales of

substantial portions of corporate assets, should be clearly articulated and

disclosed so that investors understand their rights and recourse. Transactions

should occur at transparent prices and under fair conditions that protect the

rights of all shareholders according to their class.

2. Anti-take-over devices should not be used to shield management and the board

from accountability.

F. The exercise of ownership rights by all shareholders, including institutional

investors, should be facilitated.

1. Institutional investors acting in a fiduciary capacity should disclose their overall

corporate governance and voting policies with respect to their investments,

including the procedures that they have in place for deciding on the use of their

voting rights.

2. Institutional investors acting in a fiduciary capacity should disclose how they

manage material conflicts of interest that may affect the exercise of key

ownership rights regarding their investments.

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.

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.

A. All shareholders of the same series of a class should be treated equally.

1. Within any series of a class, all shares should carry the same rights. All

investors should be able to obtain information about the rights attached to all

series and classes of shares before they purchase. Any changes in voting rights

should be subject to approval by those classes of shares which are negatively

affected.

2. Minority shareholders should be protected from abusive actions by, or in the

interest of, controlling shareholders acting either directly or indirectly, and

should have effective means of redress.

3. Votes should be cast by custodians or nominees in a manner agreed upon with

the beneficial owner of the shares.

4. Impediments to cross border voting should be eliminated.

5. Processes and procedures for general shareholder meetings should allow for

equitable treatment of all shareholders. Company procedures should not make it

unduly difficult or expensive to cast votes.

B. Insider trading and abusive self-dealing should be prohibited.

C. Members of the board and key executives should be required to disclose to the

board whether they, directly, indirectly or on behalf of third parties, have a material

interest in any transaction or matter directly affecting the corporation.

IV. The Role of Stakeholders in Corporate Governance

The corporate governance framework should recognise the rights

of stakeholders established by law or through mutual agreements

and encourage active co-operation between corporations and

stakeholders in creating wealth, jobs, and the sustainability of

financially sound enterprises.

A. The rights of stakeholders that are established by law or through mutual agreements

are to be respected.

B. Where stakeholder interests are protected by law, stakeholders should have the

opportunity to obtain effective redress for violation of their rights.

C. Performance-enhancing mechanisms for employee participation should be permitted

to develop.

D. Where stakeholders participate in the corporate governance process, they should

have access to relevant, sufficient and reliable information on a timely and regular

basis.

E. Stakeholders, including individual employees and their representative bodies,

should be able to freely communicate their concerns about illegal or unethical

practices to the board and their rights should not be compromised for doing this.

F. The corporate governance framework should be complemented by an effective,

efficient insolvency framework and by effective enforcement of creditor rights.

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.

A. Disclosure should include, but not be limited to, material information on:

1. The financial and operating results of the company.

2. Company objectives.

3. Major share ownership and voting rights.

4. Remuneration policy for members of the board and key executives, and

information about board members, including their qualifications, the selection

process, other company directorships and whether they are regarded as

independent by the board.

5. Related party transactions.

6. Foreseeable risk factors.

7. Issues regarding employees and other stakeholders.

8. Governance structures and policies, in particular, the content of any corporate

governance code or policy and the process by which it is implemented.

B. Information should be prepared and disclosed in accordance with high quality

standards of accounting and financial and non-financial disclosure.

C. An annual audit should be conducted by an independent, competent and qualified,

auditor in order to provide an external and objective assurance to the board and

shareholders that the financial statements fairly represent the financial position and

performance of the company in all material respects.

D. External auditors should be accountable to the shareholders and owe a duty to the

company to exercise due professional care in the conduct of the audit.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

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

F. 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.

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.

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.

B. Where board decisions may affect different shareholder groups differently, the

board should treat all shareholders fairly.

C. The board should apply high ethical standards. It should take into account the

interests of stakeholders.

D. The board should fulfil certain key functions, including:

1. Reviewing and guiding corporate strategy, major plans of action, risk policy,

annual budgets and business plans; setting performance objectives; monitoring

implementation and corporate performance; and overseeing major capital

expenditures, acquisitions and divestitures.

2. Monitoring the effectiveness of the company’s governance practices and

making changes as needed.

3. Selecting, compensating, monitoring and, when necessary, replacing key

executives and overseeing succession planning.

4. Aligning key executive and board remuneration with the longer term interests of

the company and its shareholders.

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

6. Monitoring and managing potential conflicts of interest of management, board

members and shareholders, including misuse of corporate assets and abuse in

related party transactions.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

7. Ensuring the integrity of the corporation’s accounting and financial reporting

systems, including the independent audit, and that appropriate systems of

control are in place, in particular, systems for risk management, financial and

operational control, and compliance with the law and relevant standards.

8. Overseeing the process of disclosure and communications.

E. The board should be able to exercise objective independent judgement on corporate

affairs.

1. Boards should consider assigning a sufficient number of non-executive board

members capable of exercising independent judgement to tasks where there is a

potential for conflict of interest. Examples of such key responsibilities are

ensuring the integrity of financial and non-financial reporting, the review of

related party transactions, nomination of board members and key executives,

and board remuneration.

2. When committees of the board are established, their mandate, composition and

working procedures should be well defined and disclosed by the board.

3. Board members should be able to commit themselves effectively to their

responsibilities.

F. In order to fulfil their responsibilities, board members should have access to

accurate, relevant and timely information.

Part Two

Annotations to the

OECD Principles of Corporate Governance

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.

To ensure an effective corporate governance framework, it is necessary

that an appropriate and effective legal, regulatory and institutional

foundation is established upon which all market participants can rely in

establishing their private contractual relations. This corporate governance

framework typically comprises elements of legislation, regulation, self-regulatory arrangements, voluntary commitments and business practices that

are the result of a country’s specific circumstances, history and tradition.

The desirable mix between legislation, regulation, self-regulation, voluntary

standards, etc. in this area will therefore vary from country to country. As

new experiences accrue and business circumstances change, the content and

structure of this framework might need to be adjusted.

Countries seeking to implement the Principles should monitor their

corporate governance framework, including regulatory and listing

requirements and business practices, with the objective of maintaining and

strengthening its contribution to market integrity and economic

performance. As part of this, it is important to take into account the

interactions and complementarity between different elements of the

corporate governance framework and its overall ability to promote ethical,

responsible and transparent corporate governance practices. Such analysis

should be viewed as an important tool in the process of developing an

effective corporate governance framework. To this end, effective and

continuous consultation with the public is an essential element that is widely

regarded as good practice. Moreover, in developing a corporate governance

framework in each jurisdiction, national legislators and regulators should

duly consider the need for, and the results from, effective international

dialogue and cooperation. If these conditions are met, the governance

system is more likely to avoid over-regulation, support the exercise of

entrepreneurship and limit the risks of damaging conflicts of interest in both

the private sector and in public institutions.

30 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

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.

The corporate form of organisation of economic activity is a powerful force

for growth. The regulatory and legal environment within which corporations

operate is therefore of key importance to overall economic outcomes. Policy

makers have a responsibility to put in place a framework that is flexible

enough to meet the needs of corporations operating in widely different

circumstances, facilitating their development of new opportunities to create

value and to determine the most efficient deployment of resources. To achieve

this goal, policy makers should remain focussed on ultimate economic

outcomes and when considering policy options, they will need to undertake an

analysis of the impact on key variables that affect the functioning of markets,

such as incentive structures, the efficiency of self-regulatory systems and

dealing with systemic conflicts of interest. Transparent and efficient markets

serve to discipline market participants and to promote accountability.

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.

If new laws and regulations are needed, such as to deal with clear cases of

market imperfections, they should be designed in a way that makes them

possible to implement and enforce in an efficient and even handed manner

covering all parties. Consultation by government and other regulatory

authorities with corporations, their representative organisations and other

stakeholders, is an effective way of doing this. Mechanisms should also be

established for parties to protect their rights. In order to avoid over-regulation,

unenforceable laws, and unintended consequences that may impede or distort

business dynamics, policy measures should be designed with a view to their

overall costs and benefits. Such assessments should take into account the need

for effective enforcement, including the ability of authorities to deter dishonest

behaviour and to impose effective sanctions for violations.

Corporate governance objectives are also formulated in voluntary codes and

standards that do not have the status of law or regulation. While such codes

play an important role in improving corporate governance arrangements, they

might leave shareholders and other stakeholders with uncertainty concerning

their status and implementation. When codes and principles are used as a

national standard or as an explicit substitute for legal or regulatory

provisions, market credibility requires that their status in terms of coverage,

implementation, compliance and sanctions is clearly specified.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

C. The division of responsibilities among different authorities in a jurisdiction

should be clearly articulated and ensure that the public interest is served.

Corporate governance requirements and practices are typically influenced by

an array of legal domains, such as company law, securities regulation,

accounting and auditing standards, insolvency law, contract law, labour law

and tax law. Under these circumstances, there is a risk that the variety of

legal influences may cause unintentional overlaps and even conflicts, which

may frustrate the ability to pursue key corporate governance objectives. It is

important that policy-makers are aware of this risk and take measures to limit

it. Effective enforcement also requires that the allocation of responsibilities

for supervision, implementation and enforcement among different authorities

is clearly defined so that the competencies of complementary bodies and

agencies are respected and used most effectively. Overlapping and perhaps

contradictory regulations between national jurisdictions is also an issue that

should be monitored so that no regulatory vacuum is allowed to develop

(i.e. issues slipping through in which no authority has explicit responsibility)

and to minimise the cost of compliance with multiple systems by

corporations.

When regulatory responsibilities or oversight are delegated to non-public

bodies, it is desirable to explicitly assess why, and under what circumstances,

such delegation is desirable. It is also essential that the governance structure

of any such delegated institution be transparent and encompass the public

interest.

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.

Regulatory responsibilities should be vested with bodies that can pursue their

functions without conflicts of interest and that are subject to judicial review.

As the number of public companies, corporate events and the volume of

disclosures increase, the resources of supervisory, regulatory and enforcement

authorities may come under strain. As a result, in order to follow

developments, they will have a significant demand for fully qualified staff to

provide effective oversight and investigative capacity which will need to be

appropriately funded. The ability to attract staff on competitive terms will

enhance the quality and independence of supervision and enforcement.

II. The Rights of Shareholders

and Key Ownership Functions

The corporate governance framework should protect and facilitate

the exercise of shareholders’ rights.

Equity investors have certain property rights. For example, an equity

share in a publicly traded company can be bought, sold, or transferred. An

equity share also entitles the investor to participate in the profits of the

corporation, with liability limited to the amount of the investment. In

addition, ownership of an equity share provides a right to information about

the corporation and a right to influence the corporation, primarily by

participation in general shareholder meetings and by voting.

As a practical matter, however, the corporation cannot be managed by

shareholder referendum. The shareholding body is made up of individuals

and institutions whose interests, goals, investment horizons and capabilities

vary. Moreover, the corporation’s management must be able to take business

decisions rapidly. In light of these realities and the complexity of managing

the corporation’s affairs in fast moving and ever changing markets,

shareholders are not expected to assume responsibility for managing

corporate activities. The responsibility for corporate strategy and operations

is typically placed in the hands of the board and a management team that is

selected, motivated and, when necessary, replaced by the board.

Shareholders’ rights to influence the corporation centre on certain

fundamental issues, such as the election of board members, or other means

of influencing the composition of the board, amendments to the company's

organic documents, approval of extraordinary transactions, and other basic

issues as specified in company law and internal company statutes. This

Section can be seen as a statement of the most basic rights of shareholders,

which are recognised by law in virtually all OECD countries. Additional

rights such as the approval or election of auditors, direct nomination of

board members, the ability to pledge shares, the approval of distributions of

profits, etc., can be found in various jurisdictions.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

A. Basic shareholder rights should include the right to: 1) secure methods of

ownership registration; 2) convey or transfer shares; 3) obtain relevant and

material information on the corporation on a timely and regular basis;

4) participate and vote in general shareholder meetings; 5) elect and remove

members of the board; and 6) share in the profits of the corporation.

B. Shareholders should have the right to participate in, and to be sufficiently

informed on, decisions concerning fundamental corporate changes such as: 1)

amendments to the statutes, or articles of incorporation or similar governing

documents of the company; 2) the authorisation of additional shares; and 3)

extraordinary transactions, including the transfer of all or substantially all

assets, that in effect result in the sale of the company.

The ability of companies to form partnerships and related companies and to

transfer operational assets, cash flow rights and other rights and obligations to

them is important for business flexibility and for delegating accountability in

complex organisations. It also allows a company to divest itself of operational

assets and to become only a holding company. However, without appropriate

checks and balances such possibilities may also be abused.

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:

1. Shareholders should be furnished with sufficient and timely information

concerning the date, location and agenda of general meetings, as well as full

and timely information regarding the issues to be decided at the meeting.

2. Shareholders should have the opportunity to ask questions to the board,

including questions relating to the annual external audit, to place items on

the agenda of general meetings, and to propose resolutions, subject to

reasonable limitations.

In order to encourage shareholder participation in general meetings, some

companies have improved the ability of shareholders to place items on the

agenda by simplifying the process of filing amendments and resolutions.

Improvements have also been made in order to make it easier for

shareholders to submit questions in advance of the general meeting and to

obtain replies from management and board members. Shareholders should

also be able to ask questions relating to the external audit report. Companies

are justified in assuring that abuses of such opportunities do not occur. It is

reasonable, for example, to require that in order for shareholder resolutions

to be placed on the agenda, they need to be supported by shareholders

holding a specified market value or percentage of shares or voting rights.

34 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

This threshold should be determined taking into account the degree of

ownership concentration, in order to ensure that minority shareholders are

not effectively prevented from putting any items on the agenda.

Shareholder resolutions that are approved and fall within the competence of

the shareholders’ meeting should be addressed by the board.

3. Effective shareholder participation in key corporate governance decisions,

such as the nomination and election of board members, should be

facilitated. Shareholders should be able to make their views known on the

remuneration policy for board members and key executives. The equity

component of compensation schemes for board members and employees

should be subject to shareholder approval.

To elect the members of the board is a basic shareholder right. For the

election process to be effective, shareholders should be able to participate in

the nomination of board members and vote on individual nominees or on

different lists of them. To this end, shareholders have access in a number of

countries to the company’s proxy materials which are sent to shareholders,

although sometimes subject to conditions to prevent abuse. With respect to

nomination of candidates, boards in many companies have established

nomination committees to ensure proper compliance with established

nomination procedures and to facilitate and coordinate the search for a

balanced and qualified board. It is increasingly regarded as good practice in

many countries for independent board members to have a key role on this

committee. To further improve the selection process, the Principles also call

for full disclosure of the experience and background of candidates for the

board and the nomination process, which will allow an informed

assessment of the abilities and suitability of each candidate.

The Principles call for the disclosure of remuneration policy by the board.

In particular, it is important for shareholders to know the specific link

between remuneration and company performance when they assess the

capability of the board and the qualities they should seek in nominees for

the board. Although board and executive contracts are not an appropriate

subject for approval by the general meeting of shareholders, there should

be a means by which they can express their views. Several countries have

introduced an advisory vote which conveys the strength and tone of

shareholder sentiment to the board without endangering employment

contracts. In the case of equity-based schemes, their potential to dilute

shareholders’ capital and to powerfully determine managerial incentives

means that they should be approved by shareholders, either for

individuals or for the policy of the scheme as a whole. In an increasing

number of jurisdictions, any material changes to existing schemes must

also be approved.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

4. Shareholders should be able to vote in person or in absentia, and equal

effect should be given to votes whether cast in person or in absentia.

The Principles recommend that voting by proxy be generally accepted.

Indeed, it is important to the promotion and protection of shareholder

rights that investors can place reliance upon directed proxy voting. The

corporate governance framework should ensure that proxies are voted in

accordance with the direction of the proxy holder and that disclosure is

provided in relation to how undirected proxies will be voted. In those

jurisdictions where companies are allowed to obtain proxies, it is

important to disclose how the Chairperson of the meeting (as the usual

recipient of shareholder proxies obtained by the company) will exercise

the voting rights attaching to undirected proxies. Where proxies are held

by the board or management for company pension funds and for

employee stock ownership plans, the directions for voting should be

disclosed.

The objective of facilitating shareholder participation suggests that

companies consider favourably the enlarged use of information

technology in voting, including secure electronic voting in absentia.

D. Capital structures and arrangements that enable certain shareholders to obtain

a degree of control disproportionate to their equity ownership should be

disclosed.

Some capital structures allow a shareholder to exercise a degree of control

over the corporation disproportionate to the shareholders’ equity ownership in

the company. Pyramid structures, cross shareholdings and shares with limited

or multiple voting rights can be used to diminish the capability of non-controlling shareholders to influence corporate policy.

In addition to ownership relations, other devices can affect control over the

corporation. Shareholder agreements are a common means for groups of

shareholders, who individually may hold relatively small shares of total

equity, to act in concert so as to constitute an effective majority, or at least the

largest single block of shareholders. Shareholder agreements usually give

those participating in the agreements preferential rights to purchase shares if

other parties to the agreement wish to sell. These agreements can also contain

provisions that require those accepting the agreement not to sell their shares

for a specified time. Shareholder agreements can cover issues such as how the

board or the Chairman will be selected. The agreements can also oblige those

in the agreement to vote as a block. Some countries have found it necessary to

closely monitor such agreements and to limit their duration.

36 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

Voting caps limit the number of votes that a shareholder may cast, regardless

of the number of shares the shareholder may actually possess. Voting caps

therefore redistribute control and may affect the incentives for shareholder

participation in shareholder meetings.

Given the capacity of these mechanisms to redistribute the influence of

shareholders on company policy, shareholders can reasonably expect that all

such capital structures and arrangements be disclosed.

E. Markets for corporate control should be allowed to function in an efficient and

transparent manner.

1. The rules and procedures governing the acquisition of corporate control in

the capital markets, and extraordinary transactions such as mergers, and

sales of substantial portions of corporate assets, should be clearly

articulated and disclosed so that investors understand their rights and

recourse. Transactions should occur at transparent prices and under fair

conditions that protect the rights of all shareholders according to their

class.

2. Anti-take-over devices should not be used to shield management and the

board from accountability.

In some countries, companies employ anti-take-over devices. However,

both investors and stock exchanges have expressed concern over the

possibility that widespread use of anti-take-over devices may be a serious

impediment to the functioning of the market for corporate control. In some

instances, take-over defences can simply be devices to shield the

management or the board from shareholder monitoring. In implementing

any anti-takeover devices and in dealing with take-over proposals, the

fiduciary duty of the board to shareholders and the company must remain

paramount.

F. The exercise of ownership rights by all shareholders, including institutional

investors, should be facilitated.

As investors may pursue different investment objectives, the Principles do not

advocate any particular investment strategy and do not seek to prescribe the

optimal degree of investor activism. Nevertheless, in considering the costs and

benefits of exercising their ownership rights, many investors are likely to

conclude that positive financial returns and growth can be obtained by

undertaking a reasonable amount of analysis and by using their rights.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

1. Institutional investors acting in a fiduciary capacity should disclose their

overall corporate governance and voting policies with respect to their

investments, including the procedures that they have in place for deciding

on the use of their voting rights.

It is increasingly common for shares to be held by institutional investors.

The effectiveness and credibility of the entire corporate governance

system and company oversight will, therefore, to a large extent depend on

institutional investors that can make informed use of their shareholder

rights and effectively exercise their ownership functions in companies in

which they invest. While this principle does not require institutional

investors to vote their shares, it calls for disclosure of how they exercise

their ownership rights with due consideration to cost effectiveness. For

institutions acting in a fiduciary capacity, such as pension funds,

collective investment schemes and some activities of insurance

companies, the right to vote can be considered part of the value of the

investment being undertaken on behalf of their clients. Failure to exercise

the ownership rights could result in a loss to the investor who should

therefore be made aware of the policy to be followed by the institutional

investors.

In some countries, the demand for disclosure of corporate governance

policies to the market is quite detailed and includes requirements for

explicit strategies regarding the circumstances in which the institution

will intervene in a company; the approach they will use for such

intervention; and how they will assess the effectiveness of the strategy. In

several countries institutional investors are either required to disclose

their actual voting records or it is regarded as good practice and

implemented on an “apply or explain” basis. Disclosure is either to their

clients (only with respect to the securities of each client) or, in the case of

investment advisors to registered investment companies, to the market,

which is a less costly procedure. A complementary approach to

participation in shareholders’ meetings is to establish a continuing

dialogue with portfolio companies. Such a dialogue between institutional

investors and companies should be encouraged, especially by lifting

unnecessary regulatory barriers, although it is incumbent on the company

to treat all investors equally and not to divulge information to the

institutional investors which is not at the same time made available to the

market. The additional information provided by a company would

normally therefore include general background information about the

markets in which the company is operating and further elaboration of

information already available to the market.

38 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

When fiduciary institutional investors have developed and disclosed a

corporate governance policy, effective implementation requires that they

also set aside the appropriate human and financial resources to pursue this

policy in a way that their beneficiaries and portfolio companies can

expect.

2. Institutional investors acting in a fiduciary capacity should disclose how

they manage material conflicts of interest that may affect the exercise of

key ownership rights regarding their investments.

The incentives for intermediary owners to vote their shares and exercise

key ownership functions may, under certain circumstances, differ from

those of direct owners. Such differences may sometimes be commercially

sound but may also arise from conflicts of interest which are particularly

acute when the fiduciary institution is a subsidiary or an affiliate of

another financial institution, and especially an integrated financial group.

When such conflicts arise from material business relationships, for

example, through an agreement to manage the portfolio company’s funds,

such conflicts should be identified and disclosed.

At the same time, institutions should disclose what actions they are taking

to minimise the potentially negative impact on their ability to exercise key

ownership rights. Such actions may include the separation of bonuses for

fund management from those related to the acquisition of new business

elsewhere in the organisation.

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.

It has long been recognised that in companies with dispersed ownership,

individual shareholders might have too small a stake in the company to

warrant the cost of taking action or for making an investment in monitoring

performance. Moreover, if small shareholders did invest resources in such

activities, others would also gain without having contributed (i.e. they are

“free riders”). This effect, which serves to lower incentives for monitoring, is

probably less of a problem for institutions, particularly financial institutions

acting in a fiduciary capacity, in deciding whether to increase their ownership

to a significant stake in individual companies, or to rather simply diversify.

However, other costs with regard to holding a significant stake might still be

high. In many instances institutional investors are prevented from doing this

because it is beyond their capacity or would require investing more of their

assets in one company than may be prudent. To overcome this asymmetry

which favours diversification, they should be allowed, and even encouraged,

to co-operate and co-ordinate their actions in nominating and electing board

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

members, placing proposals on the agenda and holding discussions directly

with a company in order to improve its corporate governance. More generally,

shareholders should be allowed to communicate with each other without

having to comply with the formalities of proxy solicitation.

It must be recognised, however, that co-operation among investors could also

be used to manipulate markets and to obtain control over a company without

being subject to any takeover regulations. Moreover, co-operation might also

be for the purposes of circumventing competition law. For this reason, in

some countries, the ability of institutional investors to co-operate on their

voting strategy is either limited or prohibited. Shareholder agreements may

also be closely monitored. However, if co-operation does not involve issues of

corporate control, or conflict with concerns about market efficiency and

fairness, the benefits of more effective ownership may still be obtained.

Necessary disclosure of co-operation among investors, institutional or

otherwise, may have to be accompanied by provisions which prevent trading

for a period so as to avoid the possibility of market manipulation.

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.

Investors’ confidence that the capital they provide will be protected

from misuse or misappropriation by corporate managers, board members or

controlling shareholders is an important factor in the capital markets.

Corporate boards, managers and controlling shareholders may have the

opportunity to engage in activities that may advance their own interests at

the expense of non-controlling shareholders. In providing protection to

investors, a distinction can usefully be made between ex-ante and ex-post

shareholder rights. Ex-ante rights are, for example, pre-emptive rights and

qualified majorities for certain decisions. Ex-post rights allow the seeking of

redress once rights have been violated. In jurisdictions where the

enforcement of the legal and regulatory framework is weak, some countries

have found it desirable to strengthen the ex-ante rights of shareholders such

as by low share ownership thresholds for placing items on the agenda of the

shareholders meeting or by requiring a supermajority of shareholders for

certain important decisions. The Principles support equal treatment for

foreign and domestic shareholders in corporate governance. They do not

address government policies to regulate foreign direct investment.

One of the ways in which shareholders can enforce their rights is to be

able to initiate legal and administrative proceedings against management

and board members. Experience has shown that an important determinant of

the degree to which shareholder rights are protected is whether effective

methods exist to obtain redress for grievances at a reasonable cost and

without excessive delay. The confidence of minority investors is enhanced

when the legal system provides mechanisms for minority shareholders to

bring lawsuits when they have reasonable grounds to believe that their rights

have been violated. The provision of such enforcement mechanisms is a key

responsibility of legislators and regulators.

There is some risk that a legal system, which enables any investor to

challenge corporate activity in the courts, can become prone to excessive

litigation. Thus, many legal systems have introduced provisions to protect

management and board members against litigation abuse in the form of tests

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

for the sufficiency of shareholder complaints, so-called safe harbours for

management and board member actions (such as the business judgement

rule) as well as safe harbours for the disclosure of information. In the end, a

balance must be struck between allowing investors to seek remedies for

infringement of ownership rights and avoiding excessive litigation. Many

countries have found that alternative adjudication procedures, such as

administrative hearings or arbitration procedures organised by the securities

regulators or other regulatory bodies, are an efficient method for dispute

settlement, at least at the first instance level.

A. All shareholders of the same series of a class should be treated equally.

1. Within any series of a class, all shares should carry the same rights. All

investors should be able to obtain information about the rights attached to

all series and classes of shares before they purchase. Any changes in voting

rights should be subject to approval by those classes of shares which are

negatively affected.

The optimal capital structure of the firm is best decided by the

management and the board, subject to the approval of the shareholders.

Some companies issue preferred (or preference) shares which have a

preference in respect of receipt of the profits of the firm but which

normally have no voting rights. Companies may also issue participation

certificates or shares without voting rights, which would presumably trade

at different prices than shares with voting rights. All of these structures

may be effective in distributing risk and reward in ways that are thought

to be in the best interests of the company and to cost-efficient financing.

The Principles do not take a position on the concept of “one share one

vote”. However, many institutional investors and shareholder associations

support this concept.

Investors can expect to be informed regarding their voting rights before

they invest. Once they have invested, their rights should not be changed

unless those holding voting shares have had the opportunity to participate

in the decision. Proposals to change the voting rights of different series

and classes of shares should be submitted for approval at general

shareholders meetings by a specified majority of voting shares in the

affected categories.

2. Minority shareholders should be protected from abusive actions by, or in

the interest of, controlling shareholders acting either directly or indirectly,

and should have effective means of redress.

Many publicly traded companies have a large controlling shareholder.

While the presence of a controlling shareholder can reduce the agency

42 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

problem by closer monitoring of management, weaknesses in the legal

and regulatory framework may lead to the abuse of other shareholders in

the company. The potential for abuse is marked where the legal system

allows, and the market accepts, controlling shareholders to exercise a

level of control which does not correspond to the level of risk that they

assume as owners through exploiting legal devices to separate ownership

from control, such as pyramid structures or multiple voting rights. Such

abuse may be carried out in various ways, including the extraction of

direct private benefits via high pay and bonuses for employed family

members and associates, inappropriate related party transactions,

systematic bias in business decisions and changes in the capital structure

through special issuance of shares favouring the controlling shareholder.

In addition to disclosure, a key to protecting minority shareholders is a

clearly articulated duty of loyalty by board members to the company and

to all shareholders. Indeed, abuse of minority shareholders is most

pronounced in those countries where the legal and regulatory framework

is weak in this regard. A particular issue arises in some jurisdictions

where groups of companies are prevalent and where the duty of loyalty of

a board member might be ambiguous and even interpreted as to the group.

In these cases, some countries are now moving to control negative effects

by specifying that a transaction in favour of another group company must

be offset by receiving a corresponding benefit from other companies of

the group.

Other common provisions to protect minority shareholders, which have

proven effective, include pre-emptive rights in relation to share issues,

qualified majorities for certain shareholder decisions and the possibility to

use cumulative voting in electing members of the board. Under certain

circumstances, some jurisdictions require or permit controlling

shareholders to buy-out the remaining shareholders at a share-price that is

established through an independent appraisal. This is particularly

important when controlling shareholders decide to de-list an enterprise.

Other means of improving minority shareholder rights include derivative

and class action law suits. With the common aim of improving market

credibility, the choice and ultimate design of different provisions to

protect minority shareholders necessarily depends on the overall

regulatory framework and the national legal system.

3. Votes should be cast by custodians or nominees in a manner agreed upon

with the beneficial owner of the shares.

In some OECD countries it was customary for financial institutions which

held shares in custody for investors to cast the votes of those shares.

Custodians such as banks and brokerage firms holding securities as

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

nominees for customers were sometimes required to vote in support of

management unless specifically instructed by the shareholder to do

otherwise.

The trend in OECD countries is to remove provisions that automatically

enable custodian institutions to cast the votes of shareholders. Rules in

some countries have recently been revised to require custodian

institutions to provide shareholders with information concerning their

options in the use of their voting rights. Shareholders may elect to

delegate all voting rights to custodians. Alternatively, shareholders may

choose to be informed of all upcoming shareholder votes and may decide

to cast some votes while delegating some voting rights to the custodian. It

is necessary to draw a reasonable balance between assuring that

shareholder votes are not cast by custodians without regard for the wishes

of shareholders and not imposing excessive burdens on custodians to

secure shareholder approval before casting votes. It is sufficient to

disclose to the shareholders that, if no instruction to the contrary is

received, the custodian will vote the shares in the way it deems consistent

with shareholder interest.

It should be noted that this principle does not apply to the exercise of

voting rights by trustees or other persons acting under a special legal

mandate (such as, for example, bankruptcy receivers and estate

executors).

Holders of depository receipts should be provided with the same ultimate

rights and practical opportunities to participate in corporate governance as

are accorded to holders of the underlying shares. Where the direct holders

of shares may use proxies, the depositary, trust office or equivalent body

should therefore issue proxies on a timely basis to depository receipt

holders. The depository receipt holders should be able to issue binding

voting instructions with respect to the shares, which the depositary or trust

office holds on their behalf.

4. Impediments to cross border voting should be eliminated.

Foreign investors often hold their shares through chains of intermediaries.

Shares are typically held in accounts with securities intermediaries, that in

turn hold accounts with other intermediaries and central securities

depositories in other jurisdictions, while the listed company resides in a

third country. Such cross-border chains cause special challenges with

respect to determining the entitlement of foreign investors to use their

voting rights, and the process of communicating with such investors. In

combination with business practices which provide only a very short

notice period, shareholders are often left with only very limited time to

44 – OECD PRINCIPLES OF CORPORATE GOVERNANCE

react to a convening notice by the company and to make informed

decisions concerning items for decision. This makes cross border voting

difficult. The legal and regulatory framework should clarify who is

entitled to control the voting rights in cross border situations and where

necessary to simplify the depository chain. Moreover, notice periods

should ensure that foreign investors in effect have similar opportunities to

exercise their ownership functions as domestic investors. To further

facilitate voting by foreign investors, laws, regulations and corporate

practices should allow participation through means which make use of

modern technology.

5. Processes and procedures for general shareholder meetings should allow

for equitable treatment of all shareholders. Company procedures should

not make it unduly difficult or expensive to cast votes.

The right to participate in general shareholder meetings is a fundamental

shareholder right. Management and controlling investors have at times

sought to discourage non-controlling or foreign investors from trying to

influence the direction of the company. Some companies have charged

fees for voting. Other impediments included prohibitions on proxy voting

and the requirement of personal attendance at general shareholder

meetings to vote. Still other procedures may make it practically

impossible to exercise ownership rights. Proxy materials may be sent too

close to the time of general shareholder meetings to allow investors

adequate time for reflection and consultation. Many companies in OECD

countries are seeking to develop better channels of communication and

decision-making with shareholders. Efforts by companies to remove

artificial barriers to participation in general meetings are encouraged and

the corporate governance framework should facilitate the use of electronic

voting in absentia.

B. Insider trading and abusive self-dealing should be prohibited.

Abusive self-dealing occurs when persons having close relationships to the

company, including controlling shareholders, exploit those relationships to the

detriment of the company and investors. As insider trading entails

manipulation of the capital markets, it is prohibited by securities regulations,

company law and/or criminal law in most OECD countries. However, not all

jurisdictions prohibit such practices, and in some cases enforcement is not

vigorous. These practices can be seen as constituting a breach of good

corporate governance inasmuch as they violate the principle of equitable

treatment of shareholders.

The Principles reaffirm that it is reasonable for investors to expect that the

abuse of insider power be prohibited. In cases where such abuses are not

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

specifically forbidden by legislation or where enforcement is not effective, it

will be important for governments to take measures to remove any such gaps.

C. Members of the board and key executives should be required to disclose to the

board whether they, directly, indirectly or on behalf of third parties, have a

material interest in any transaction or matter directly affecting the

corporation.

Members of the board and key executives have an obligation to inform the

board where they have a business, family or other special relationship outside

of the company that could affect their judgement with respect to a particular

transaction or matter affecting the company. Such special relationships

include situations where executives and board members have a relationship

with the company via their association with a shareholder who is in a position

to exercise control. Where a material interest has been declared, it is good

practice for that person not to be involved in any decision involving the

transaction or matter.

IV. The Role of Stakeholders in Corporate Governance

The corporate governance framework should recognise the rights

of stakeholders established by law or through mutual agreements

and encourage active co-operation between corporations and

stakeholders in creating wealth, jobs, and the sustainability of

financially sound enterprises.

A key aspect of corporate governance is concerned with ensuring the

flow of external capital to companies both in the form of equity and credit.

Corporate governance is also concerned with finding ways to encourage the

various stakeholders in the firm to undertake economically optimal levels of

investment in firm-specific human and physical capital. The competitiveness

and ultimate success of a corporation is the result of teamwork that

embodies contributions from a range of different resource providers

including investors, employees, creditors, and suppliers. Corporations

should recognise that the contributions of stakeholders constitute a valuable

resource for building competitive and profitable companies. It is, therefore,

in the long-term interest of corporations to foster wealth-creating co-operation among stakeholders. The governance framework should recognise

that the interests of the corporation are served by recognising the interests of

stakeholders and their contribution to the long-term success of the

corporation.

A. The rights of stakeholders that are established by law or through mutual

agreements are to be respected.

In all OECD countries, the rights of stakeholders are established by law (e.g.

labour, business, commercial and insolvency laws) or by contractual relations.

Even in areas where stakeholder interests are not legislated, many firms make

additional commitments to stakeholders, and concern over corporate

reputation and corporate performance often requires the recognition of

broader interests.

B. Where stakeholder interests are protected by law, stakeholders should have the

opportunity to obtain effective redress for violation of their rights.

The legal framework and process should be transparent and not impede the

ability of stakeholders to communicate and to obtain redress for the violation

of rights.

OECD PRINCIPLES OF CORPORATE GOVERNANCE –

C. Performance-enhancing mechanisms for employee participation should be

permitted to develop.

The degree to which employees participate in corporate governance depends

on national laws and practices, and may vary from company to company as

well. In the context of corporate governance, performance enhancing

mechanisms for participation may benefit companies directly as well as

indirectly through the readiness by employees to invest in firm specific skills.

Examples of mechanisms for employee participation include: employee

representation on boards; and governance processes such as works councils

that consider employee viewpoints in certain key decisions. With respect to

performance enhancing mechanisms, employee stock ownership plans or

other profit sharing mechanisms are to be found in many countries. Pension

commitments are also often an element of the relationship between the

company and its past and present employees. Where such commitments

involve establishing an independent fund, its trustees should be independent

of the company’s management and manage the fund for all beneficiaries.

D. Where stakeholders participate in the corporate governance process, they

should have access to relevant, sufficient and reliable information on a timely

and regular basis.

Where laws and practice of corporate governance systems provide for

participation by stakeholders, it is important that stakeholders have access to

information necessary to fulfil their responsibilities.

E. Stakeholders, including individual employees and their representative bodies,

should be able to freely communicate their concerns about illegal or unethical

practices to the board and their rights should not be compromised for doing

this.

Unethical and illegal practices by corporate officers may not only violate the

rights of stakeholders but also be to the detriment of the company and its

shareholders in terms of reputation effects and an increasing risk of future

financial liabilities. It is therefore to the advantage of the company and its

shareholders to establish procedures and safe-harbours for complaints by

employees, either personally or through their representative bodies, and others

outside the company, concerning illegal and unethical behaviour. In many

countries the board is being encouraged by laws and or principles to protect

these individuals and representative bodies and to give them confidential

direct access to someone independent on the board, often a member of an

audit or an ethics committee. Some companies have established an

ombudsman to deal with complaints. Several regulators have also established

confidential phone and e-mail facilities to receive allegations. While in certain

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