|Global Knowledge Gateway||
Revision of the OECD Corporate Governance Principles
The Corporate Governance Committee of the Organisation for Economic Co-operation and Development (OECD) is about to embark a revision of its OECD Principles of Corporate Governance (the Principles) in 2014. Through its membership in the Business and Industry Advisory Committee to the OECD, IFAC is directly participating in these revisions.
Established in 1961, the OECD provides a forum for governments to work together to share experiences and seek solutions to common problems. The OECD works with governments to understand what drives economic, social, and environmental change. It sets international standards for many industries.
Initially released in May 1999 and revised in 2004, the Principles are one of the 12 key standards for international financial stability of the Financial Stability Board. The Principles provide specific guidance for policymakers, regulators, and market participants to improve the legal, institutional, and regulatory framework that underpins corporate governance with a focus on publicly traded companies. They also provide practical suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance.
In 2010, the OECD published a set of ambitious action plans for improvements in priority areas, such as remuneration, risk management, board practices, and the exercise of shareholder rights, to address severe shortcomings in corporate governance revealed by the financial crisis. These recommendations also address how the implementation of existing standards can be improved.
IFAC believes that successful organizations have a governance structure and culture that go beyond conformance with regulations to also support the organization’s efforts to improve its performance. Good governance, therefore, involves giving appropriate attention to both conformance and performance, and is the backbone of sustainable value creation, resource utilization, and accountability of an organization. These factors were set out in IFAC’s International Good Practice Guidance, Evaluating and Improving Governance in Organizations. According to that guidance, “the creation and optimization of sustainable stakeholder value should be the objective of governance” and, therefore, “good governance should be fully integrated into the organization.”
Reconciliation of IFAC’s Good Practice Guidance and the OECD Principles
The IFAC governance guidance is designed to complement existing governance codes, such as the OECD Principles, by encouraging organizations to evaluate and further improve their already existing governance systems and to achieve a balance between conformance with rules and regulations and driving organizational performance. Additionally, the OECD principles are intended to assist governments and to provide guidance for stock exchanges, investors, corporations, and other parties. The IFAC guidance is also specifically focused on what professional accountants in business can/should do to evaluate and improve governance in their organizations.
The OECD principles are written from a more legalistic and regulatory angle and are primarily oriented on the roles and rights of the various stakeholders, to deal with the problems that result from the separation of ownership and control. Although the main causes of the financial crisis are probably not the non-existence of suitable governance codes and standards but rather poor implementation, application, and oversight, the OECD code could seize the opportunity of the upcoming revision to better demonstrate that good governance is not just about protecting shareholders’ interests or a compliance exercise to satisfy the requirements of regulators. Instead, the revised OECD Principles should better support building sustainable value in organizations and society by expanding its perspectives, for example, from shareholder to stakeholder or from financial performance to building more sustainable value for society.
Help IFAC improve the Global Knowledge Gateway.
Click to recommend this article.
March 26, 2015 - Accounting Today
March 23, 2015 - The Daily Star
March 18, 2015 - Daily Times
March 17, 2015 - Organisation for Economic Cooperation and Development
July 2, 2014 - IFAC, Chartered Institute of Public Finance and Accountancy
January 31, 2009 - IFAC
May 31, 2007 - IFAC
January 27, 2004 - Organisation for Economic Co-operation and Development
Suggest a Resource, News Item, Event, or Discussion Topic