OECD Committee RecommendationPresented by: Sanjeev kumar jha OECD (Organization for Economic Co-operation and Development) The OECD originated in 1948 as the Organization for European Economic Co-operation (OEEC), led by Robert Marjolin of France, to help administer the Marshall Plan for the reconstruction of Europe after World War II. Later, its membership was extended to non-European states. In 1961, it was reformed into the Organization for Economic Cooperation and Development by the Convention on the Organization for Economic Co-operation and Development. Most OECD members are high-income economies with a high Human Development Index (HDI) and are regarded as developed countries. OECD Principles The OECD is an international economic organization of 33 countries founded in 1961 to stimulate economic progress and world trade. It was one of the earliest non-governmental organizations to work on and spell out principles and practices that should govern corporate in their goal to attain long-term shareholder value. In summary, they include the following aspects of corporate governance: The rights of shareholders Equitable treatment of shareholders The role of stakeholders in corporate governance Disclosure and transparency The responsibilities of the board 1. 2. 3. 4. 5. I. Rights of Shareholders Protection of shareholders¶ rights and the capability of shareholders to influence behaviour of the corporation are pillars of good corporate governance I. Rights of Shareholders Secure ownership and registration, Participation in decisions on sale, Full disclosure of information, Voting rights Modification of corporate assets, mergers and new share issues. II. Equitable Treatment of Shareholders The OECD is concerned with protecting minority shareholders rights by setting up systems that keep insiders, including managers and directors, from taking advantage of their roles. For example, Insider trading is explicitly prohibited and directors should disclose any material interest regarding transactions. III. The Role of Stakeholders 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. The rights of stakeholders that are established by law or through mutual agreements are to be respected. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights. Performance-enhancing mechanisms for employee participation should be permitted to develop. The Role of Stakeholders cont. Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis. 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. The corporate governance framework would be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights. IV. Disclosure and Transparency A strong financial and non financial disclosure regime is the heart of corporate governance 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. Financial and operating results Company objectives Ownership and control structure Board and executive information and recommendation Foreseeable risk factors Stakeholder information Governance information V. 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. The OECD guidelines provide a great deal of details the functions of the board in protecting the company and its shareholders. These include concerns about corporate strategy, risk, executive compensation and performance as well as accounting and reporting systems. 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. Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly. The board should apply high ethical standards. It should take into account the interests of stakeholders. The board should be able to exercise objective independent judgment on corporate affairs. In order to fulfill their responsibilities, board members should have access to accurate, relevant and timely information. Often there is a tension between markets vs.. the law. The Principles do not address this issue. They provide a conceptual framework of issues. These are taken up in the OECD/World Bank Round tables and discussed in all the regions of the world. So these regions can provide their own agenda for reform and improvement of corporate governance. OECD Guidelines Countries should be required to establish independent share registries. All too often, newly privatized or partially privatized firms dilute stock or simply fail to register shares purchased through foreign direct investment Standards for transparency and reporting of the sales of underlying assets need to be spelled out along with enforcement mechanisms and procedures by which investors can seek to recover damages The discussion of stakeholder participation in the OECD guidelines needs to be balanced by discussion of conflict of interest and insider trading issues. Property rights and their protection Internationally accepted accounting standards should be explicitly required and national standards should be brought into alignment with international standards Internal company audit functions and the inclusion of outside directors on audit committees need to be made explicit. The best practice would be to require that only outside, independent directors be allowed to serve on audit committees THANK U