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Revised OECD Corporate Governance Principles – What Can Companies in Latin America Do to Promote Sustainability and Investor Confidence?

Manuel Arias  | 
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On February 13, 2024, experts from the OECD and the accountancy profession, along with a board director and a corporate governance leader, came together to discuss what companies can do to promote sustainability and investor confidence under the revised OECD Corporate Governance Principles in a regional (Latin America) webinar, which attracted over 400 live attendees across more than 15 jurisdictions.

The revised G20/OECD Principles of Corporate Governance published in 2023 and its complementary publication, the 2023 Factbook, take account of global evolutions in corporate governance and capital markets. They also reflect shifts in stakeholder expectations, including expectations responding to climate change. In 2023,  these principles included recommendations on sustainability for the first time. IFAC, the accountancy profession's global voice, participated in all the phases of the principles' review.

Francisco Sant'Anna, an IFAC Board member and the IBRACON Chair of Board of Directors, set the scene for the importance of the webinar. "Effective governance is underpinned by purpose, vision, values and ethics, which are reflected in the behaviors and actions of the board and management team and cascade throughout the organization. The Board, in conjunction with management, is responsible for setting the tone at the top, shaping the culture of the organization, and setting strategic direction. Organizations need to be proactive in driving improvements in their governance beyond adherence only to minimum requirements."

Caio de Oliveira, OECD Manager – Sustainable Finance, and Adriana De La Cruz, OECD Policy Analyst, provided a high-level overview of the key changes. They highlighted the strategic priorities of the principles, which were to:

  1. promote access to financing, innovation, and entrepreneurship;
  2. provide a framework to protect investors; and
  3. support the sustainability and resilience of the business sector.

The revised principles have a new chapter on Sustainability and Resilience. It focuses on three major elements: the disclosure of sustainability-related information, the responsibilities of the Board on sustainability matters, and the dialogue between a company and its shareholders and stakeholders on sustainability. A key cross-cutting focus of the revision, relevant to all three objectives, is to ensure the accountability of board members and executives.

Manuel Arias, Principal at IFAC, moderated an insightful panel discussion that featured:

  • Francisco Sant'Anna, IFAC board member and Chairman of the Board of IBRACON
  • Santiago Gallichio, Presidente, Instituto de Gobernanza Empresarial y Pública, Argentina
  • Vania Borgerth, Member of various Boards, Brazil

Highlights of the panel included Francisco Sant'Anna's speaking on the importance of audits and audit professionals to corporate governance. He mentioned, "Corporate failures and scandals across countries often spark political and regulatory attention on the audit profession and expose serious corporate governance failings. The result is often increased debate globally on audit and governance regulatory reform. Companies do not fail because of poor quality audits. An audit is designed to enhance confidence in financial reporting. It provides investors and other stakeholders with reasonable assurance as to whether the financial statements, taken as a whole, are prepared in accordance with the applicable financial reporting framework and are free from material misstatement. Audits help directors and others responsible for oversight of a reporting entity to assess the robustness of the financial information prepared by management and obtain critical insights into an entity's financial controls and associated risks. However, an audit does not relieve management or those charged with governance of their responsibilities. Ultimately, corporate failures and the resulting impacts on financial statements are consequences of poor governance and decisions."

Touching on the related subject of sustainability and regulation, Santiago Gallichio said, "The sustainability of the company requires an adequate balance between its stakeholders, but the Board of Directors can only incorporate the environment or other ESG reporting if they are in the regulation. Without regulation, companies generally do not follow all the best practices."

Vania Borgerth pointed out the importance of involving professional accountants in ESG-related work. She said, "IFAC's role in promoting the revised G20/OECD Principles of Corporate Governance is important, especially the new chapter on Sustainability and Resilience. As professional accountants, we have a critical role in this area. Our professional background allows us the technical expertise to report this area. Any board member must understand the new societal requirement to provide more information on ESG; it is a risk-limiting decision to only financial information; it is critical to have a holistic view of the company".

In conclusion, Manuel Arias summarized why the accountancy profession in Latin America should understand and promote best practices, such as the revised G20/OECD Principles of Corporate Governance. The details of the summary included:

Emphasis on Transparency and Accountability: The Principles promote transparency and accountability in companies, which requires accurate and reliable financial information. This underlines the importance of the profession's work in financial information and decision-making in companies.

Risk Management and Internal Control: The update emphasizes the need for effective risk management and internal control systems. Professionals play a crucial role in evaluating and improving these systems, ensuring companies adequately manage their financial and operational risks.

Improvements in Corporate Governance: By encouraging better corporate governance practices, the revised Principles contribute to strengthening trust in companies and financial markets. This, in turn, benefits the accountancy profession by raising the quality and reliability of the financial information they prepare and audit. A clear and rigorous framework where all parties know their role and act appropriately facilitates transparency and accountability. All professionals, as actors of change, are fundamental in this transition.

Sustainability: With a growing focus on sustainability, the revised Principles urge companies to consider their economic, social, and environmental impact. This creates a demand for the profession to integrate sustainability considerations into financial reporting and develop competencies in non-financial reporting. It is necessary to accelerate the development of capabilities in the region to advance sustainability, impacting professional accountants across various roles.

It is necessary to work with universities, updating curricular programs and launching certification courses on sustainability, specifically ISSB; we must accelerate continuous training on sustainability and work hand in hand with regulators to have an adequate reporting system in which interested parties contribute to their role. And we must educate and raise awareness among companies so that they can initiate this change. The Latam region tends to wait for a regulatory change to initiate changes, but we firmly believe that, in matters of sustainability, change comes from society and consumers, as well as companies, who can drive change and better, more sustainable corporate governance practices, regardless of whether they are listed or not.

In summary, the revised G20/OECD Principles of Corporate Governance are important for the accountancy profession, establishing a framework for good corporate governance that demands accurate, transparent, and accountable financial and non-financial reporting while addressing emerging challenges such as sustainability. This reinforces accountants' essential role in promoting ethical and sustainable business practices.

Manuel Arias
Manuel Arias

Principal, IFAC

Manuel Arias serves as a Principal at the International Federation of Accountants (IFAC), where he plays a pivotal role in enhancing membership engagement, shaping policy, and organizing data collection within the financial regulatory landscape. Manuel coordinates with diverse stakeholders across Latin America, North America, and select European regions. His collaborations extend to professional accountancy organizations, regulatory bodies, public authorities, professional firms, development banks, and various non-accountancy entities, fostering robust partnerships and advancing the profession's objectives.

Manuel started his career in the Colombian Red Cross before transitioning into the accountancy profession with the Colombian National Institute of Public Accountants, leading the strategy and public policy before joining IFAC in 2014, where he has helped to drive the organization's strategic initiatives.

Manuel has a Master of Business Administration (MBA) from the Universidad de Los Andes—Colombia and a degree in Economics from the Universidad Nacional de Colombia.