The OECD Principles

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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

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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

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What is corporate governance?

• A set of relationships between a companys
  management, its board, its shareholders and other
  stakeholders
• A structure through which the companys
  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)

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The OECDs 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

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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.

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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 boards accountability to the company and
  the shareholders.

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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

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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

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The SOE Guidelines

• Rationale for developing the SOE Guidelines
• Main characteristics of the SOE Guidelines
• Priorities

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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

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Main characteristics of SOE Guidelines

• Complementary to the OECD Principles
• Non-binding
• Do not preclude or alter privatisation policies

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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

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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