OECD PRINCIPLES OF CORPORATE GOVERNANCE

Group 9: Shivam Gupta 12PGDM049 Shobhit Birla 12PGDM050 Shubho Bhattacharya 12PGDM051 Shubhy Gupta 12PGDM052 Sneha Sethi 12PGDM053 Sohini Sadhu 12PGDM054

Introduction
Aim - To develop a set of corporate governance standards

and guidelines with national governments, private sector and international organizations. Facts: Developed on 28-29 april,1998. Adopted as one of 12 key standards for sound financial system by Financial Stability Forum. Form basis for CG component of the World Bank/ IMF. Assessment team- Steering group + World Bank +IMF + BIS + FSF+ IOSCO.

Consultations also included experts from a large number of countries and interested parties such as : Business Sectors Investors Professional Groups Trade unions Civil Society organizations International trade settling bodies Principles were put on OECD website for public comment. It was decided that principles should be revised to take into account new developments and concerns. Also recognized the need to adapt implementation to varying economic and cultural circumstances round the world.

PREAMBLE

1.

Formed to assist OECD and non-OECD to evaluate and improve Legal Institutional Regulatory framework and guidance to Stock exchanges Investors Corporations and other parties

2. 2.

They are concise, understandable and accessible to international community Corporate governance improves economic efficiency and growth as well as enhancing investor confidence It provides the structure through which the objectives of the company are set, means of attaining those objectives and monitoring performance are determined. Should provide proper incentives for the board and management to pursue objectives that are in the interests of the company.

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6. Corporate governance system in an individual company and across an economy as a whole, helps to provide a degree of confidence. As a result, the cost of capital is lower and firms are encouraged to use resources more efficiently, thereby underpinning growth. 7. CG framework also depends on factors such as business ethics, corporate awareness

of the environmental and societal interests of the communities in which a company operates.
8. Principles focus on governance problems that result from the separation of ownership and control.

not simply an issue of the relationship between shareholders and management it also caters to the issues arise from the power of certain controlling shareholders over minority shareholders
9. Corporate governance is affected by the relationships among participants in the

governance system. Shareholders, family holdings, bloc alliances acting through holding company can influence corporate behavior. institutional investors are increasingly demanding a voice in corporate governance

10. The degree to which corporations have principles of good corporate governance is an important factor for investment decisions.

If countries are to reap the full benefits of the global capital market and attract long-term capital, corporate governance arrangements must be credible, well understood across borders and adhere to internationally accepted principles.
11. The Principles are non-binding and do not aim at detailed prescriptions for national legislation. Rather, they seek to identify objectives and suggest various means for achieving them. Their purpose is to serve as a reference point.

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

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

 The 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
Legal and regulatory requirements to be consistent with the

rule of law, transparent and enforceable

Division of responsibilities to be articulated clearly and

ensuring public interest is served

Supervisory, regulatory and enforcement authorities should

have the authority, integrity and resources to fulfill their duties in a professional and objective manner. 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

Basic Rights

Secure Methods of Ownership Registration Convey or Transfer Shares Obtain relevant information on the corporation on a timely basis Participate and vote in general shareholder meetings Elect and remove members of the board Share in the profits of the corporation

Fundamental Rights

Amendments to the statutes or articles of incorporation Authorization of additional shares Extraordinary transactions

General Meetings

Shareholders should be furnished with the date, location and agenda Should ask questions to the board and propose resolutions Effective shareholder participation in key corporate governance decisions Remuneration policy for board members and key executives; equity component of compensation schemes subject to shareholder approval Should be able to vote in person or in absentia

 Capital structures and engagements that enable certain shareholders

to obtain a degree of control disproportionate to their equity ownership should be disclosed

Markets for corporate control should be allowed to function in an

efficient and transparent manner

Rules and procedures governing the acquisition of corporate control in the capital markets should be clearly articulated and disclosed Anti-take-over devices should not be used to shield management and the board from accountability

Exercise of ownership rights by all shareholders including institutional

investors should be facilitated

Institutional investors acting in a fiduciary capacity should disclose their overall corporate governance and voting policies They should also disclose how they manage material conflicts of interest

Shareholders, including institutional shareholders, should be allowed

to consult with each other on issues concerning their basic shareholder rights 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.

Equitable treatment of Shareholders

If rights violated, Opportunity for effective actions

Minority and foreign shareholders

Equitable treatment of Shareholders

Within any series of class, Shares should carry the same rights Investors should have information about 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 Minority shareholders protection against abusive actions by controlling shareholders Votes should be cast by custodians or nominees in a manner agreed with beneficial owners of shares Elimination of Impediments to cross border voting Processes and procedures should allow equitable treatment and should not make it costly or difficult to cast votes

Prohibition of Insider Trading & Abusive self dealing

Members should disclose, if any directly affecting corporation material interest in transaction or matter

IV. The Role of Stakeholders in Corporate Governance

The Corporate Governance framework should recognize 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.

Role of stakeholders in CG
Recognition of rights of stake holders either though law or mutual agreements Encourage cooperation between corporations & stakeholders in creation wealth, jobs & sustainability enterprise

Respect the rights of stakeholders established by law or through mutual agreements . Stakeholders should have opportunity to obtain effective redress for violation of their rights, if its protected by Law Develop Performance enhancing mechanism fr employee participation. Access to relevant , sufficient and reliable information on timely & regular basis, where stakeholders participate in CG Stakeholders including employees and their representative bodies should be able to freely communicate their concerns about illegal, unethical practises to the board & with no compromise Effective and efficient insolvency framework s& effective enforcement of creditor rights should complement CG framework

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.

Disclosure and Transparency

Disclosure should include:
1. Financial and Operating Results

2. Company Objectives

3. Major Share Ownership and Voting Rights

4. Remuneration Policy and Information of Board

Disclosure and Transparency

5. Related Party Transactions

6. Foreseeable Risk Factors

7. Issues regarding employees and other stakeholders

8. Governance Structures and Policies

Disclosure and Transparency

Preparation and Disclosure of information in

accordance with high quality standards Conducting of Annual Audit by an independent, competent and qualified Auditor Due exercise of professional care by External Auditors Equal, Timely and Cost-Efficient access to relevant information by users Effective Approach towards Corporate Governance Framework

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 boards accountability to the company and the shareholders.

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. Treat all shareholders fairly, where board decisions may affect different shareholder groups differently. C. Board should apply high ethical standards. D. Board should fulfil certain key functions:
A.
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2.
3. 4.

Review and guide corporate strategy, major plans of action, risk policy, annual budgets; setting performance objectives ; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. Monitor effectiveness of companys governance practices and make changes as needed. Hire, compensate, monitor and, when necessary, replace key executives and oversee succession planning Align key executive and board remuneration with long term interests of company and its shareholders.

5. 6. 7. 8.

Ensure a formal and transparent board nomination and election process. Monitor and manage potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions. Ensure integrity of corporation accounting and financial reporting systems including independent audit Oversee the process of disclosure and communications.

E. The board should be able to exercise objective independent

judgement on corporate affairs.

1. Board should assign sufficient number of non-executive board members who would exercise independent judgement when there is a potential for conflict of interest. 2. The mandate, composition and working procedures of committees of board should be well defined and disclosed by the board. 3. Board members should effectively commit themselves effectively to their responsibilities

F. Board members should have access to accurate, relevant and timely

information.

To conclude, corporate governance framework should ensure

Strategic guidance of company
Effective monitoring of management by board Board s accountability to company and shareholders

THANK YOU