Review of the OECD Principles of Corporate Governance: Continuing action on corporate governance reform needed
Statement by the TUAC
27/04/2004
Downloads
- 0404t_gf_cgreviewpdf
(see also Revised OECD Principles)
On 22 April 2004, the OECD disclosed a revised version of its
Principles of corporate governance endorsed by the 30 member
governments. This brings an end to a year-long review process that
has come at times of repeated corporate and financial scandals and
widespread public distrust of the corporation in OECD countries and
beyond. National level responses have gone some way to help restore
the public’s confidence in corporations. But they still fall short
of what is needed. The review of the Principles, the only
international standard in this area, was an opportunity to guide
national level debates and to deepen the dialogue on corporate
governance reform.
TUAC and its affiliates and partners have been active in the review
process. TUAC has repeatedly called for a strong revision of the
Principles taking a renewed approach to corporate governance beyond
the restrictive shareholder–manager problematic. TUAC was convinced
that the review of the Principles had the potential to inform on
what a good company should aspire to for its internal governance
and accountability mechanisms. TUAC was particularly concerned with
the legitimate rights of internal constituents of the corporation,
including employees and responsible investors to be empowered to
hold CEOs and boards accountable for their actions, whilst ensuring
responsibility to external constituents.
Within the revised Principles, some improvements appear to head in
the right direction in addressing those concerns. New principles on
the requirement of institutional investors to disclose their voting
policy, on the protection of minority shareholders and on the duty
of external auditors to the company are welcome. TUAC also notes
the improvements that were made late in the review process to the
chapter on the stakeholders on the insistence of a key member
state. The Principle on the protection of whistleblowers is
welcome. In that chapter the rights of stakeholders are now defined
beyond those “as established by law” (original wording) to include
“mutual agreements”. “Performance enhancing mechanisms” (e.g. works
councils, board level employee representation, employee share
ownership) should be permitted to develop. Those changes were
necessary for the recognition by the OECD of the existing various
forms of worker participation in corporate governance.
However, TUAC remains convinced that much more needs to be done
beyond the outcome of the review to address tomorrow’s challenges
of corporate governance policy reform. Shareholders have a
responsibility to be informed owners acting in long term interest
of the company. There is a need for tightened control over director
compensation, and for increased diversity of board composition
notably through shareholders’ access to the nomination process.
Disclosure of institutional investors voting records and of
individual board member remuneration must become a priority. There
is a need for strong rules to prevent conflicts of interests that
may affect dominant shareholders, institutional investors,
financial analysts, brokers and rating agencies, directors that
cumulate multiple board memberships. Finally, separation of chair
and CEO functions must be considered as a basic requirement of
checks and balance of the governing body of corporations.
There was no agreement between governments to address these issues
in the revised Principles; but TUAC and its affiliates will
continue to press for further action in these areas. We reaffirm
our support for high quality international standards on the
governance and accountability of corporations. The Principles have
the potential for becoming such standard. More important therefore
than the actual outcome, it is ability of the governments,
responsible investors, workers and other stakeholders to continue
dialogue at the international level on corporate governance and
accountability reform. On the formal adoption of the revised
Principles at the OECD Ministerial Council on 13&14 May 2004,
governments must give the OECD a clear mandate and resources to
develop a multi-stakeholder dialogue, alongside a monitoring
process of member government’s corporate governance reforms. They
should inform a forward looking work programme to further develop
and strengthen the Principles.