OECD Principles of Corporate

Governance
(ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT)
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and
which came into force on 30th e!tember 1961, the "#CD shall !romote !olicies
designed$
to achieve the highest sustainable economic growth and employment and a
rising standard of living in member countries, while maintaining financial
stabilit%, and thus to contribute to the develo!ment of the world econom%&
to contribute to sound economic expansion in member as well as non'member
countries in the !rocess of economic develo!ment& and
to contribute to the e(!ansion of world trade on a multilateral, non'discriminator%
basis in accordance with international obligations)
The OECD Principles of Corporate Governance have become an international
benchmark for policy makers, investors, corporations and other stakeholders
worldwide
*he Princi!les also !rovide the basis for an e(tensive !rogramme of coo!eration between
"#CD and non'"#CD countries and under!in the cor!orate governance com!onent of
+orld ,an-./01 2e!orts on the "bservance of tandards and Codes 32"C4)
*he Princi!les are intended to assist "#CD and non'"#CD governments in their efforts
to evaluate and im!rove the legal, institutional and regulator% framewor- for cor!orate
governance in their countries, and to !rovide guidance and suggestions for stoc-
e(changes, investors, cor!orations, and other !arties that have a role in the !rocess of
develo!ing good cor!orate governance)
CO!PO!"#E GO$E!%"%CE
Cor!orate governance involves a set of relationshi!s between a com!an%5s management,
its board, its shareholders and other sta-eholders)
Cor!orate governance also !rovides the structure through which the ob6ectives of the
com!an% are set, and the means of attaining those ob6ectives and monitoring !erformance
are determined)
7ood cor!orate governance should !rovide !ro!er incentives for the board and
management to !ursue ob6ectives that are in the interests of the com!an% and its
shareholders and should facilitate effective monitoring)
*he !resence of an effective cor!orate governance s%stem, within an individual com!an%
and across an econom% as a whole, hel!s to !rovide a degree of confidence that is
necessar% for the !ro!er functioning of a mar-et econom%) As a result, the cost of ca!ital
is lower and firms are encouraged to use resources more efficientl%, thereb% under!inning
growth)
1actors such as business ethics and cor!orate awareness of the environmental and societal
interests of the communities in which a com!an% o!erates can also have an im!act on its
re!utation and its long'term success)
*here is no single model of good cor!orate governance)
8owever, wor- carried out in both "#CD and non'"#CD countries and within the
"rganisation has identified some common elements that underlie good cor!orate
governance)
1or e(am!le, the% do not advocate an% !articular board structure and the term 9board: as
used in this document is meant to embrace the different national models of board
structures found in "#CD and non'"#CD countries)
/n the t%!ical two tier system, found in some countries, 9board: as used in the Princi!les
refers to the 9su!ervisor% board: while 9-e% e(ecutives: refers to the 9management
board:)
&n systems where the unitary board is overseen by an internal auditor's body, the
Principles are non(binding and do not aim at detailed prescriptions for national
legislation
2ather, the% see- to identif% ob6ectives and suggest various means for achieving them)
*heir !ur!ose is to serve as a reference !oint) *he% can be used b% !olic% ma-ers as the%
e(amine and develo! the legal and regulator% framewor-s for cor!orate governance that
reflect their own economic, social, legal and cultural circumstances, and b% mar-et
!artici!ants as the% develo! their own !ractices)
*he following document is divided into two !arts) *he Principles !resented in the first
!art of the document cover the following areas$
&) Ensuring the basis for an effective corporate governance framework*
&&) #he rights of shareholders and key ownership functions*
&&&) #he e+uitable treatment of shareholders*
&$) #he role of stakeholders*
$) Disclosure and transparency* and
$&) #he responsibilities of the board
#ach of the sections is headed b% a single Princi!le that a!!ears in bold italics and is
followed b% a number of su!!orting sub'!rinci!les)
I. Ensuring the Basis for an Effective Corporate Governance
Framework
The corporate governance framework should promote transarent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities
" *he cor!orate governance framewor- should be develo!ed with a view to its im!act
on overall economic !erformance, mar-et integrit% and the incentives it creates for
mar-et !artici!ants and the !romotion of trans!arent and efficient mar-ets)
, *he legal and regulator% re;uirements that affect cor!orate governance !ractices in a
6urisdiction should be consistent with the rule of law, trans!arent and enforceable)
CCG!,
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C *he division of res!onsibilities among different authorities in a 6urisdiction should be
clearl% articulated and ensure that the !ublic interest is served)
&'C
being
regulator
for
!auritius
D u!ervisor%, regulator% and enforcement authorities should have the authorit%,
integrit% and resources to fulfil their duties in a !rofessional and ob6ective manner)
0oreover, their rulings should be timel%, trans!arent and full% e(!lained)
&inancial
'eporting
'eview at
&'C
II. The Rights of Shareholders and e! "wnership Functions
The corporate governance framework should protect and facilitate the e)ercise of
shareholders* rights
" ,asic shareholder rights should include the right to$ 14 secure methods of ownershi!
registration& <4 conve% or transfer shares& 34 obtain relevant and material information
on the cor!oration on a timel% and regular basis& 44 !artici!ate and vote in general
shareholder meetings& =4 elect and remove members of the board& and 64 share in the
!rofits of the cor!oration)
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, hareholders should have the right to !artici!ate in, and to be sufficientl% informed
on, decisions concerning fundamental cor!orate changes such as$ 14 amendments to
the statutes, or articles of incor!oration or similar governing documents of the
com!an%& <4 the authorisation of additional shares& and 34 e(traordinar% transactions,
including the transfer of all or substantiall% all assets, that in effect result in the sale of
the com!an%)
Co "ct
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C hareholders should have the o!!ortunit% to !artici!ate effectivel% and vote in
general shareholder meetings and should be informed of the rules, including voting
!rocedures, that govern general shareholder meetings)
Co "ct
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1) hareholders should be furnished with sufficient and timel% information
concerning the date, location and agenda of general meetings, as well as full
and timel% information regarding the issues to be decided at the meeting)
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<) hareholders should have the o!!ortunit% to as- ;uestions to the board, including
;uestions relating to the annual e(ternal audit, to !lace items on the agenda of
general meetings, and to !ro!ose resolutions, sub6ect to reasonable limitations)
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3) #ffective shareholder !artici!ation in -e% cor!orate governance decisions, such
as the nomination and election of board members, should be facilitated)
hareholders should be able to ma-e their views -nown on the remuneration
!olic% for board members and -e% e(ecutives) *he e;uit% com!onent of
com!ensation schemes for board members and em!lo%ees should be sub6ect to
shareholder a!!roval)
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CCG!
4) hareholders should be able to vote in !erson or in absentia, and e;ual effect
should be given to votes whether cast in !erson or in absentia)
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D Ca!ital structures and arrangements that enable certain shareholders to obtain a
degree of control dis!ro!ortionate to their e;uit% ownershi! should be disclosed)
+", #-
and #.
E 0ar-ets for cor!orate control should be allowed to function in an efficient and
trans!arent manner)
1) *he rules and !rocedures governing the ac;uisition of cor!orate control in the
ca!ital mar-ets, and e(traordinar% transactions such as mergers, and sales of
substantial !ortions of cor!orate assets, should be clearl% articulated and
disclosed so that investors understand their rights and recourse) *ransactions
should occur at trans!arent !rices and under fair conditions that !rotect the rights
of all shareholders according to their class)
<) Anti'ta-e'over devices should not be used to shield management and the board
from accountabilit%)
- *he e(ercise of ownershi! rights b% all shareholders, including institutional
investors, should be facilitated)
1) /nstitutional investors acting in a fiduciar% ca!acit% should disclose their overall
cor!orate governance and voting !olicies with res!ect to their investments,
including the !rocedures that the% have in !lace for deciding on the use of their
voting rights)
<) /nstitutional investors acting in a fiduciar% ca!acit% should disclose how the%
manage material conflicts of interest that ma% affect the e(ercise of -e%
ownershi! rights regarding their investments)
G hareholders, including institutional shareholders, should be allowed to consult with
each other on issues concerning their basic shareholder rights as defined in the
Princi!les, sub6ect to e(ce!tions to !revent abuse)
III. The E#uita$le Treatment of Shareholders
The corporate governance framework should ensure the e/uitable treatment of all
shareholders, including minority and foreign shareholders "ll shareholders should have
the opportunity to obtain effective redress for violation of their rights
" All shareholders of the same series of a class should be treated e;uall%)
1) +ithin an% series of a class, all shares should carr% the same rights) All investors
should be able to obtain information about the rights attached to all series and
classes of shares before the% !urchase) An% changes in voting rights should be
sub6ect to a!!roval b% those classes of shares which are negativel% affected)
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<) 0inorit% shareholders should be !rotected from abusive actions b%, or in the
interest of, controlling shareholders acting either directl% or indirectl%, and
should have effective means of redress)
3) >otes should be cast b% custodians or nominees in a manner agreed u!on with the
beneficial owner of the shares)
4) /m!ediments to cross border voting should be eliminated)
=) Processes and !rocedures for general shareholder meetings should allow for
e;uitable treatment of all shareholders) Com!an% !rocedures should not ma-e it
undul% difficult or e(!ensive to cast votes)
, /nsider trading and abusive self'dealing should be !rohibited)
C 0embers of the board and -e% e(ecutives should be re;uired to disclose to the board
whether the%, directl%, indirectl% or on behalf of third !arties, have a material interest
in an% transaction or matter directl% affecting the cor!oration)
I%. The Role of Stakeholders in Corporate Governance
The corporate governance framework should recognise the rights of stakeholders
established by law or through mutual agreements and encourage active co0operation
between corporations and stakeholders in creating wealth, 1obs, and the sustainability of
financially sound enterprises
" *he rights of sta-eholders that are established b% law or through mutual agreements
are to be res!ected)
, +here sta-eholder interests are !rotected b% law, sta-eholders should have the
o!!ortunit% to obtain effective redress for violation of their rights)
C Performance'enhancing mechanisms for em!lo%ee !artici!ation should be !ermitted
to develo!)
D +here sta-eholders !artici!ate in the cor!orate governance !rocess, the% should have
access to relevant, sufficient and reliable information on a timel% and regular basis)
'eporting
of
Corporate
governanc
e in the
"nnual
report
E ta-eholders, including individual em!lo%ees and their re!resentative bodies, should
be able to freel% communicate their concerns about illegal or unethical !ractices to the
board and their rights should not be com!romised for doing this)
CCG!
- *he cor!orate governance framewor- should be com!lemented b% an effective,
efficient insolvenc% framewor- and b% effective enforcement of creditor rights)
%. &isclosure and Transparenc!
The corporate governance framework should ensure that timely and accurate disclosure is
made on all material matters regarding the corporation, including the financial situation,
performance, ownership, and governance of the company
" Disclosure should include, but not be limited to, material information on$
1) *he financial and o!erating results of the com!an%) CCG!
<) Com!an% ob6ectives) CCG!
3) 0a6or share ownershi! and voting rights) CCG!
4) 2emuneration !olic% for members of the board and -e% e(ecutives, and
information about board members, including their ;ualifications, the
selection !rocess, other com!an% directorshi!s and whether the% are regarded
as inde!endent b% the board)
CCG!
=) 2elated !art% transactions) CCG!
6) 1oreseeable ris- factors) CCG!
?) /ssues regarding em!lo%ees and other sta-eholders) CCG!
@) 7overnance structures and !olicies, in !articular, the content of an% cor!orate
governance code or !olic% and the !rocess b% which it is im!lemented)
CCG!
, /nformation should be !re!ared and disclosed in accordance with high ;ualit%
standards of accounting and financial and non'financial disclosure)
CCG!
C An annual audit should be conducted b% an inde!endent, com!etent and ;ualified,
auditor in order to !rovide an e(ternal and ob6ective assurance to the board and
shareholders that the financial statements fairl% re!resent the financial !osition and
!erformance of the com!an% in all material res!ects)
CCG!
D #(ternal auditors should be accountable to the shareholders and owe a dut% to the
com!an% to e(ercise due !rofessional care in the conduct of the audit)
CCG!
E Channels for disseminating information should !rovide for e;ual, timel% and cost
efficient
access to relevant information b% users)
- *he cor!orate governance framewor- should be com!lemented b% an effective
a!!roach that addresses and !romotes the !rovision of anal%sis or advice b% anal%sts,
bro-ers, rating agencies and others, that is relevant to decisions b% investors, free
from material conflicts of interest that might com!romise the integrit% of their
anal%sis or advice)
%I. The Responsi$ilities of the Board
The corporate governance framework should ensure the strategic guidance of the
company, the effective monitoring of management by the board, and the board*s
accountability to the company and the shareholders
" ,oard members should act on a full% informed basis, in good faith, with due diligence
and care, and in the best interest of the com!an% and the shareholders)
CCG!
, +here board decisions ma% affect different shareholder grou!s differentl%, the board
should treat all shareholders fairl%)
C *he board should a!!l% high ethical standards) /t should ta-e into account the
interests of sta-eholders)
CCG!
D *he board should fulfill certain -e% functions, including$ CCG!
1) 2eviewing and guiding cor!orate strateg%, ma6or !lans of action, ris- !olic%,
annual budgets and business !lans& setting !erformance ob6ectives& monitoring
im!lementation and cor!orate !erformance& and overseeing ma6or ca!ital
e(!enditures, ac;uisitions and divestitures)
CCG!
<) 0onitoring the effectiveness of the com!an%5s governance !ractices and ma-ing
changes as needed)
CCG!
3) electing, com!ensating, monitoring and, when necessar%, re!lacing -e%
e(ecutives and overseeing succession !lanning)
CCG!
4) Aligning -e% e(ecutive and board remuneration with the longer term interests of
the com!an% and its shareholders)
CCG!
=) #nsuring a formal and trans!arent board nomination and election !rocess) CCG!
6) 0onitoring and managing !otential conflicts of interest of management, board
members and shareholders, including misuse of cor!orate assets and abuse in
related !art% transactions)
CCG!
?) #nsuring the integrit% of the cor!oration5s accounting and financial re!orting
s%stems, including the inde!endent audit, and that a!!ro!riate s%stems of
control are in !lace, in !articular, s%stems for ris- management, financial and
o!erational control, and com!liance with the law and relevant standards)
CCG!
@) "verseeing the !rocess of disclosure and communications) CCG!
E *he board should be able to e(ercise ob6ective inde!endent 6udgement on cor!orate
affairs)
CCG!
1) ,oards should consider assigning a sufficient number of non'e(ecutive board
members ca!able of e(ercising inde!endent 6udgement to tas-s where there is a
!otential for conflict of interest) #(am!les of such -e% res!onsibilities are
ensuring the integrit% of financial and non'financial re!orting, the review of
CCG!
related !art% transactions, nomination of board members and -e% e(ecutives,
and board remuneration)
<) +hen committees of the board are established, their mandate, com!osition and
wor-ing !rocedures should be well defined and disclosed b% the board)
CCG!
3) ,oard members should be able to commit themselves effectivel% to their
res!onsibilities)
CCG!
- /n order to fulfil their res!onsibilities, board members should have access to
accurate, relevant and timel% information)
CCG!