Major emerging challenges have been putting capital markets and corporate governance frameworks under pressure. The G20/OECD Principles of Corporate Governance are currently being revised to ensure their continued relevance as they guide policy makers and regulators working to strengthen legal, regulatory and institutional frameworks for corporate governance worldwide. As the OECD launches a public consultation on the draft revised Principles, the OECD’s Carmine Di Noia describes why strong frameworks for corporate governance are so important for the corporate sector.
Major challenges of recent years – whether climate change, the COVID-19 pandemic or geopolitical conflicts – have had far-reaching impacts on corporations, putting their adaptability and resilience to the test and raising questions as to whether current frameworks for corporate governance remain fit for purpose.
As capital markets and corporate governance frameworks evolve to address these major economic, environmental and societal challenges, the OECD Corporate Governance Committee has decided that it’s time to revise the G20/OECD Principles of Corporate Governance. The Committee is chaired by Japan’s Vice Minister of Finance Masato Kanda and brings together relevant ministries and securities market regulators from more than 50 countries, including all OECD, G20 and Financial Stability Board (FSB) members.
This revision is important to ensure that the Principles continue to serve their purpose of guiding policy makers and regulators from both advanced and emerging market economies in improving their legal, regulatory and institutional frameworks for corporate governance.
To ensure an inclusive process, the Committee needs to hear from all relevant stakeholders to benefit from their experience and expertise as the revision progresses. This is why the OECD has launched a public consultation that will run until 21 October 2022. The public’s input will inform the Committee’s future discussions as it endeavours to finalise the revision in 2023.
Two OECD publications released last year laid the groundwork for the update of the Principles: The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis and the 2021 edition of the OECD Corporate Governance Factbook.
The Factbook provides a comprehensive comparison of institutional and legal corporate governance frameworks across all OECD, G20 and FSB members. It also provides a means to monitor trends in corporate governance regulation and offers a broad-based view on the state of implementation of corporate governance requirements and recommendations around the world.
These two reports guided the decision to focus on the following 10 priority issues in the revision:
- Corporate ownership and increased concentration
- The management of environmental, social and governance (ESG) risks
- The role of institutional investors and stewardship
- The growth of new digital technologies and emerging opportunities and risks
- Crisis and risk management
- Excessive risk taking in the non-financial corporate sector
- The role and rights of debtholders in corporate governance
- Executive remuneration
- The role of board committees
- Diversity on boards and in senior management
Importantly, OECD and G20 countries have agreed that the revised Principles should offer clear guidance with respect to the management and disclosure of climate and other ESG risks. The OECD report Climate Change and Corporate Governance was prepared to inform the revisions in this area. It also informed two events the OECD has organised as part of the review process: a G20/OECD Corporate Governance Forum in Indonesia during the G20 Finance Ministers and Central Bank Governors’ meeting in July, and a High-Level Roundtable during the OECD Ministerial Council Meeting in June.
Six additional OECD papers prepared to inform the review look at: global trends in the ownership of listed companies, digitalisation, debtholder rights, diversity on boards and in senior management, board committees, and the role of institutional investors and stewardship. These papers are published in parallel with the public consultation to support stakeholders in their consideration of the proposed revisions.
The revised Principles will also seek to promote corporate access to capital markets. That is a crucial aspect of corporate sector resilience, enabling companies to overcome temporary downturns while meeting their obligations to employees, creditors and suppliers. By promoting access to market-based financing, the revised Principles will support the development of new businesses and business models that can provide the innovation and investment needed to support the green and digital transitions.
The update of the G20/OECD Principles of Corporate Governance comes at an important juncture for the corporate sector, and the stakes are high for all market participants and stakeholders, from investors to companies, their employees and indeed the broader public. We therefore very much look forward to a strong and broad engagement in the public consultation on the draft revisions which will run until 21 October 2022.