Oecd Principles

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The OECD Principles of Corporate Governance
What are the Principles and what issues do they address? How to strengthen the ownership role of shareholders? How do the Principles deal with conflicts of interest? How do the Principles help strengthen company oversight by boards? How can governments use the Principles? How was the review of the Principles carried out? What happens next? For further information For further reading Where to contact us?

Introduction
The integrity of businesses and markets is central to the vitality and stability of our economies. So good corporate governance – the rules and practices that govern the relationship between the managers and shareholders of corporations, as well as stakeholders like employees and creditors – contributes to growth and financial stability by underpinning market confidence, financial market integrity and economic efficiency. Recent corporate scandals have focussed the minds of governments, regulators, companies, investors and the general public on weaknesses in corporate governance systems and the need to address this issue. The OECD Principles of Corporate Governance provide specific guidance for policymakers, regulators and market participants in improving the legal, institutional and regulatory framework that underpins corporate governance, with a focus on publicly traded companies. They also provide practical suggestions for stock exchanges, investors, corporations and other parties that have a role in the process of developing good corporate governance. They have been endorsed as one of the Financial Stability Forum’s 12 key standards essential for financial stability. The OECD Principles were originally issued in 1999 and have since become the international benchmark for corporate governance, forming the basis for a number of reform initiatives, both by governments and the private sector. The Principles were revised in 2003 to take into account developments since 1999, through a process of extensive and open consultations, and drawing on the work of the Regional Corporate Governance Roundtables for non-OECD countries. The new Principles were agreed by OECD governments in April 2004. This Policy Brief outlines the salient features of the Principles and illustrates how they address key corporate governance issues. ■

© OECD 2004

Organisation for Economic Co-operation and Development

August 2004

POLICY BRIEF

Policy Brief

The OECD Principles of Corporate Governance

What are the Principles and what issues do they address?
The Principles cover six key areas of corporate governance – ensuring the basis for an effective corporate governance framework; the rights of shareholders; the equitable treatment of shareholders; the role of stakeholders in corporate governance; disclosure and transparency; and the responsibilities of the board (see Box 1). There are explanatory annotations for each area that also indicate the range of policy measures which have proved useful in achieving them. Key to the success of the Principles is that they are principles-based and non-prescriptive so that they retain their relevance in varying legal, economic and social contexts. The basic requirements of the institutional and legal/ regulatory framework needed to support effective

corporate governance are an integral part of the Principles. The text includes principles for developing such a framework and addresses the need for laws and regulations which are both enforceable and are backed by effective enforcement agencies. Experience around the world shows that although the powerful concept of a listed company has been successfully introduced in many countries, the accompanying legal and regulatory system has often lagged, leading in some cases to abuse of minority shareholders and to reduced growth prospects when financial markets lose credibility – or fail to achieve it in the first place. Other areas covered by the Principles are aimed at establishing an effective...
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