TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

01/03/2004

Public distrust of the corporation is now widespread in OECD countries and beyond. At the
start of the new millennium unrealistic profit expectations and the accompanying equity
market bubble came to an abrupt halt amid a series of corporate and financial scandals. These
crises have continued and have spread from the spectacular corporate failures of Enron and
Parmalat to a wide array of companies across the international scene. Powerful corporate
insiders have been manipulating widespread conflicts of interest to enrich themselves; not by
creating wealth, but by redistributing income to themselves at the expense of employees,
shareholders, taxpayers and the public. These cases have revealed lax corporate regulation,
cosy corporate boards and passive shareholders. Meanwhile employees have lost their jobs,
retirees have lost their retirement security, and the productive resources of corporations have
been diverted and destroyed. A wedge has been driven between the private interests of insider
business elites and the wider public purpose of the corporation.
This calls into question the foundations of the corporate governance model that has prevailed
over the past quarter century, particularly in the Anglo-American world. According to that
view, the corporation is simply a private property whose only social obligation is to make
money for shareholders. Regulation is unnecessary, and the sole problem is to align the
interests of managers with those of shareholders. However, mainland European countries
require participation of other stakeholders, including workers. Yet the shareholder value
model is gaining ground and poses challenges to those with systems that involve deep-rooted
social dialogue. From the labour movement’s perspective, the corporation is a social
institution accountable to all stakeholders that engage in firm specific investment.
Shareholders are not alone in bearing “residual risk” in the corporation justifying control
rights. Workers too invest their commitment and specific knowledge to their company’s
success, which cannot be fully covered by wage agreements. They too bear residual risk. They
too have a legitimate claim to residual control rights. There is now a global concern about the
need for effective economic governance in general. It is the responsibility of governments to
ensure an open and inclusive debate on corporate governance and to give the lead in helping
to restore corporate accountability. Voluntary standards and codes of governance can be
useful, but inadequate without effective and enforced overarching regulation based upon a set
of common international principles, rights and mechanisms.
In the United States the labour movement through the AFL-CIO continues to campaign for a
more worker-friendly corporate governance regime, and one that encourages and empowers
responsible investors. In Europe, the trade unions through the ETUC are campaigning for a
pan-European framework of rules and regulations to plug the corporate governance gap. At
the international level and through the ICFTU, WCL and Global Union Federations the power
of workers is being mobilised through their capital in pension funds across international
borders in support of corporate accountability and governance. At the OECD, TUAC have
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campaigned for the leading industrialised countries to re-negotiate the OECD Principles of
Corporate Governance and make them relevant to the current real-life situation.
To date the response of OECD governments that are home to the world’s most powerful
companies has been disappointing. We would have expected that they would use the current
opportunity to establish high standards of corporate governance. Instead they have shown
little collective political will. The current OECD text fails to send a clear signal that the power
of the imperial CEO will be curbed, that executive remuneration will be reined in, that
company boards will be independent, diverse and accountable to all corporate constituents,
including workers, that conflicts of interest among corporate gate-keepers and business
service providers will be checked, and that institutional investors will be empowered to
exercise their ownership responsibilities. Failure to act will amount to a missed opportunity
that is most glaring in the case of the rights of employees and other stakeholders to participate
in the corporate governance process.
Ministers will be asked to sign off on the revised Principles at the 13-14 May 2004 OECD
Council meeting. As things stand, some changes have been proposed to marginally enhance
incentives for institutional investor shareholder activism as well a role for shareholders in the
nomination of board members and in the setting of the equity element of executive pay. The
“imperial CEO” and the core contradiction involved in combining that job with the position of
Chair of the board, along with board independence are feebly dealt with. As regards
stakeholders’ rights the current text merely calls on companies to respect existing laws. Set
against today’s need for workers to have a voice in the corporate decision-making process,
such feeble language is totally inadequate. Moreover these changes are watered down
versions of previous proposals, or are buried in the text, and fall far short of the standards
needed to re-build the bridge of confidence between citizens and their corporations.
In our view further changes are required that will raise effective standards of corporate
governance. We call on governments to revert to the earlier strengthened text, and to
substantially revise the stakeholder chapter. If time does not allow this before the May OECD
Council of Ministers meeting, then Ministers must give a mandate for the negotiations to
continue. We believe that the credibility of the OECD as a serious voice in setting standards
on corporate governance is at stake.
John Evans (General Secretary, Trade Union Advisory Committee to the OECD)
Philip Jennings (Chair, Global Union Federations’ Conference)
John Monks (General Secretary, European Trade Union Confederation)
Guy Ryder (General Secretary, International Confederation of Free Trade Unions)
Willy Thys (General Secretary, World Confederation of Labour)