The OECD Principles &The OECD Guidelines on Corporate Governance of State-Owned Enterprises Eurasian Corporate Governance Roundtable Task Force on Corporate Governance of Banks in Eurasia Janet Holmes, Senior Legal Adviser Corporate Affairs Division, OECD
Overview of Presentation • The OECD Principles of Corporate Governance • Core elements of the OECD Principles • Introduction to new Assessment Methodology • The OECD Guidelines on Corporate Governance of State-Owned Enterprises • Priorities in the SOE Guidelines
What is corporate governance? • A set of relationships between a company’s management, its board, its shareholders and other stakeholders • A structure through which the company’s objectives are set • A means for determining how to achieve those objectives and monitor performance • Should provide incentives for the board and management to pursue objectives that are in the interests of the company • Should facilitate monitoring (e.g. by shareholders, stakeholders and regulators)
The OECD’s Corporate Governance Principles • First issued in 1999 • Revised Principles issued in 2004 • OECD Methodology for Assessing Implementation of the OECD Principles released in December 2006
Core Elements of the OECD Principles • Chapter 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 • Chapter II: Basic rights of shareholders and key ownership functions • The corporate governance framework should protect and facilitate the exercise of shareholders’ rights • Chapter III: 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.
The OECD Principles (continued) • Chapter IV: 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. • Chapter 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. • Chapter VI: Board responsibilities • 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.
Assessment Methodology • Methodology developed by OECD Steering Group on Corporate Governance to support implementation of the Principles • Experimental study of corporate governance in Turkey (the “Pilot Study”) carried out to test the draft Methodology • Pilot Study published in November 2006 • Final Methodology published in December 2006 • What is in the Methodology? • General advice on how to use Methodology • Qualitative assessment scheme: not a “check the box” approach • For each of the 60+ Principles/sub-Principles: • Description of “likely practices” to be examined • One or more essential criteria to be assessed • Advice on how to bring Principle-by-Principle assessments should be pulled together into a final assessment
What is special about the OECD Principles and Methodology? • Emphasise “functional equivalence” - the means used to achieve the desired outcomes might vary, depending on: • Legal and institutional frameworks • Economic conditions & market structures • Political and socio-cultural environment • Therefore, the Principles can be applied in any jurisdiction • Effect on overall economic performance, market integrity and incentives for market participants to be considered • Assessments require an evaluation of: • Scope and content of laws, regulations & voluntary codes • Company practices – how widespread is adherence to Principles? • Accessibility and effectiveness of remedies • Efficiency & effectiveness of regulatory supervision & enforcement
The SOE Guidelines • Rationale for developing the SOE Guidelines • Main characteristics of the SOE Guidelines • Priorities
Rationale for the SOE Guidelines • Scale and scope of the state sector in many countries • Impact of SOEs on economic performance • Pressure for reform deriving from globalisation and liberalisation • Expected benefits from improving SOE governance • Strong demand from non-OECD economies • Unique governance challenges
Main characteristics of SOE Guidelines • Complementary to the OECD Principles • Non-binding • Do not preclude or alter privatisation policies
Priorities in the SOE Guidelines • Ensure a level playing field between SOEs and private companies • The state should act as an informed and active owner • Establish a clear ownership policy • State should not be involved in day-to-day management • Transparency and accountability • Provide for equitable treatment of minority shareholders • State ownership policy should fully recognise SOEs’ responsibilities to stakeholders • Improve transparency of SOEs’ objectives and performance • Strengthen and empower SOE boards
For more information … • Go to www.oecd.org/daf/corporate-affairs for • Revised OECD Principles • New Methodology • SOE Guidelines • Comparative surveys • Roundtable proceedings • Pilot Study of Corporate Governance in Turkey