Skip to content

14 August, 2022

Subscribe Advertise About Us
  • My Account
  • Register
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
    • Categoriess

      • View All
      • Board Moves
    • News round-up: this week in governance

      PwC fined for BT audit; greenwashing sanctions; cost of living crisis; $300m pay deal; US...

    • Twitter Elon Musk Twitter drops due diligence bombshell

      The high-profile lawsuit brought by Twitter against Elon Musk raises an issue close to all...

    • short selling investors How to beat short selling activism

      What would you do if your company was targeted by short-selling activist investors? Communication is...

  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • short selling investors

      How to beat short selling activism

      What would you do if your company was targeted by short-selling activist investors? Communication is...

    • ESG debate

      The ESG debate needs to be more nuanced

      The issues boards face are rarely straightforward, and ESG is no exception. It is time...

    • AI

      How to ensure governance of artificial intelligence (AI)

      An ISO standard issued this year gives guidance to boards on the governance implications of...

  • Comment
      • View all
    • global warming

      ESG is not a ‘distraction’

      We must not let ESG become a scapegoat for the systemic failure of our society...

    • Man with magnifying glass The 30-year itch: time to ditch the UK Corporate Governance Code

      Now that governance has come of age, businesses should be able to innovate within the...

    • notebook on boardroom table The UK needs a code of conduct for company directors

      A formal code of conduct for company directors would signal their willingness to apply high...

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • Board members discussing ESG Stakeholder pressure increases urgency on ESG

      Experts say pressure to act on ESG is coming from regulators, investors and a new...

    • Empty boardroom Many executives ‘fail to understand the role and value of boards’

      A recent webinar on board effectiveness discussed the mix of competence and courage required from...

    • Businessman looking at stormy sky Disaster or disruption? Crisis management requires clear definitions

      Identifying and categorising crises, and developing a methodology to deal with them, can help boards...

  • Careers
      • View all
      • Selection
      • Board Moves
    • News round-up: this week in governance

      PwC fined for BT audit; greenwashing sanctions; cost of living crisis; $300m pay deal; US...

    • US boards diversity US boards slow diversity with poor retirement policies

      Only 6% of organisations have term limits for directors, and there is reluctance around mandatory...

    • News round-up: this week in governance

      Tory leadership contest; Grant Thornton fined; Norwegian insider dealing; virtual AGMs; US environmental disclosures; diversity...

  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Corporate & Advisory Services
    • Stakeholder Engagement: A Roadmap for UK Plc Boards

      This guide aims to provide directors and their colleagues with advice on how to ensure...

    • Board Duties in Ensuring Company Engagement with Affected Stakeholders

      This guidance note gives a brief overview of the role of corporate boards of directors...

    • C-Suite Barometer 2021

      At the end of 2021, Mazars surveyed over 1,000 executives around the world for its...

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Selection
    • Board Expertise
    • finance
    • Technology
  • Magazine
      • View All
      • Sustainability Works
      • Tomorrow's Leaders
      • Renumeration Tightrope
      • Governance Ascendance
      • Sense In Sustainability
      • Invisible Enemies

Governance revisited

by Gavin Hinks on November 23, 2015

The OECD has revealed its new governance principles after years of research. Mats Isaksson, the man who directed the project, explains the findings that underpin the latest review.

Mats Isaksson, OECD
Mats Isaksson, OECD.

Some things just need time. So it is with the OECD’s freshly reviewed corporate governance principles that emerged dusted down and revamped in September this year during a G20 meeting in Ankara.

A little overdue, you might assume, given that this was a mandate to probe governance following the financial crisis of 2008. But the OECD didn’t just set about overhauling its guide to governance—it set about asking some bedrock questions about capital markets first.

“What we said to ourselves after the financial crisis in 2008, is let’s take a step back and ask if there are other fundamental changes and challenges in the way capital markets and corporations operate that need to be analysed before we issue a new set of principles,” says Mats Isaksson, the OECD man in charge of the review.

In the end the new governance principles were not just a reaction to the financial crisis, but also addressed some fundamental shifts in the way capital markets have changed.

Sequel

This was not the first set of governance principles produced by the OECD. In fact, the organisation made its debut in this arena in 1999 following scandals that also led to the Cadbury Code.

A revision then followed in 2004 in the wake of the Enron and Worldcom catastrophies. The latest principles see the OECD acting on behalf of the Financial Stability Board of the G20 group of nations and provide a global framework for good governance.

The principles themselves are structured around six thematic chapters: the basis for an effective governance framework; the rights and treatment of shareholders; institutional investors, stock markets and other intermediaries; the role of stakeholders; disclosure and transparency; and responsibilities of the board.

Under Isaksson the OECD undertook an analysis of developments for stock markets, institutional investors and corporate governance regulation.

The principles will affect G20 members, especially when they come to review their national governance codes or guidelines. But they will also affect OECD members, as well as provide a standard for countries more widely as they grapple with the need for governance.

Undeniably, it’s taken some time since the post-crisis impetus of the G20’s reform agenda. But that time has been used to lay the groundwork for the current principles.

Under Isaksson the OECD undertook an analysis of developments for stock markets, institutional investors and corporate governance regulation.

“We thought that was important because even if we bring in the best policy experts and the most experienced policy makers and practitioners, we want them to have at their disposal all the facts that will allow them to understand what the reality looks like, what changes have taken place, [and] what are the possible implications for the way we address corporate governance…” he says.

Drivers

The OECD came up with four main findings. The first was that boards should be responsible for designing and overseeing governance structures (no surprise from a British standpoint, but important for countries where corporate governance is still in its infancy).

The next was that there has been a surge globally in listed companies in the developing world, but a reduction in the developed world. Isaksson says this has an important implication because developing world companies usually have a “a controlling owner” in contrast to the “dispersed” ownership of developed world corporates. It makes a difference therefore when it comes to governance.

OECD
Photo: OECD, Flickr.

Thirdly, the dominance of institutional investors has only increased and with that has come an increase in indexed investment (20% of all investments, according to some sources).

Lastly, stock exchanges have moved from being quasi-national institutions to private entities which are themselves listed.

The change in the nature of stock exchanges has been important for the OECD, especially if governance regulation is delegated to them.

Isaksson explains: “…when governments of regulators decide to delegate regulatory or supervisory functions to stock markets to stock exchange—which may be legitimate—they understand and appreciate the business model of the stock exchange. Do they have the right incentives to do the job well?” He adds that stock exchanges must be in a position to regulate “in the interests of a society as a whole”.

Engagement

But perhaps the most interesting part of the new principles is its focus on investors. Isaksson stresses that governments cannot just demand that shareholders exercise governance without taking into account their business models.

“One of the takeaways is that exercising informed corporate governance is a cost. It requires a lot of work and you have to set aside the resources.”

–Mats Isaksson, OECD

“One of the takeaways is that exercising informed corporate governance is a cost. It requires a lot of work and you have to set aside the resources.

“What we are saying is that if this is not part of the investor’s business model, if this is just an indexed fund and the model is primarily fee-driven, it may be very difficult to incentivise them to take on the costs of active and informed governance,” he says.

He adds: “I was talking to a large pension fund the other day, saying I thought they would be a little pissed with me because I’m not hailing them as the avant-garde in corporate governance.

“But they said they appreciated that the principles recognise that investors are also different and that investors need to play different roles.”

Does that make blanket stewardship codes pointless? “In certain circumstances a stewardship code can be useful,”says Isaksson. “But I think one needs to have realistic expectations of how investors will apply it. It’s not a silver bullet.”

Future view

From now on the OECD will be involved in carrying what it calls “thematic peer reviews” to measure how its new principles are used and to gather information on the details of implementation in different countries. It will also ask what works and doesn’t.

But there is a warning. Not every company crisis will be viewed as a systemic failure.

“Of course, if there are obvious failures on very fundamental issues and if they are systemic this will be identified,” says Isaksson.

“If we ran away and created regulation for every corporate failure that would be very problematic. We need in every case to see what is of systemic importance and what is unique to the individual case.”

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • Experts set to explore the evolution of governance
    May 19, 2017

    Conference at Cass Business School will see academics and campaigners discuss corporate governance evolution.

  • The Five Governance Questions Issuers and Investors Need to Ask
    November 3, 2016
    Broadridge-director-insight

    This article, originally published in 2016, is part of the Broadridge Insights series.

  • Trump's travel ban and the challenge to governance
    February 1, 2017

    Donald Trump's travel ban not only presents a challenge to civil liberties, but also to the development of modern corporate governance.

  • The governance of cybersecurity
    October 8, 2018
    Cyber-resilience, cybersecurity, cyber governance

    Cybersecurity cannot simply be relegated to the IT department. Top teams need to understand and address the threats.

For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

Mats Isaksson, OECD

Search


Sign up to our Newsletter

Receive independent news, thoughtful journalism & expert insights about leadership, corporate governance & key boardroom issues straight to your inbox every week.

SIGN UP

Follow Us


 

 

 

 

 

Most Popular

  • Twitter drops due diligence bombshell
  • Ben & Jerry’s governance tested in court
  • ESG is not a ‘distraction’
  • Virtual AGMs fall out of favour
  • The ESG debate needs to be more nuanced

 


 

Featured Partner Profile

Diligent

Diligent

Diligent Corporation, which was founded in 2001, is headquartered in New York, NY with a European HQ in London. Diligent’s modern governance platform empowers leaders and teams at every level of the organisation to digitally transform and create ...

Featured Partner Resources

Board Transformation 2021: Leadership in Transition

There can be little doubt that the global Covid-19...

Digital Boards: How Technology Adoption is Driving Culture Change and Resiliency

Digital tools proved their worth to boards during ...
EQ 2021 AGM Season report

2021 AGM Season: Successful AGMs in the Pandemic and Beyond

With the impacts of Covid-19 hitting just as the s...
Leadership in AI report

Leadership in AI 2021

This report from Board Agenda and Mazars, in assoc...
Creativity in a Crisis: a Boardroom Map for Innovation

Creativity in a Crisis: a Boardroom Map for Innovation

In the uncertain times at the height of any crisis...
Board Directors Guide to D&O Liability Insurance - November 2020 - AIG & Board Agenda

Board Directors' Guide to D&O Liability Insurance

Directors face liability over a range of new threa...
Leadership-in-Risk-Management-Board-Report

Leadership in Risk Management: Board Report

Board Agenda, in association with Mazars and INSEA...
Director's Guide to Internal Investigations

A Director's Guide to Conducting Internal Investigations

An internal investigation must be handled meticulo...

Global Business Complexity Index 2021

The Global Business Complexity Index 2021 provides...

 


 

ADVERTISE – FREE CORPORATE LISTING

FREE - Add your company profile to our Corporate & Advisory Directory.
ADD

ADVERTISE – PROMOTE YOUR REPORTS & WHITEPAPERS

FREE - Add your company profile to our Corporate & Advisory Directory.
Add Resource

Register Free

Register to receive free article views, selected resource downloads, and all the latest news alerts straight to your inbox. Register


  • Editors & Contributors
  • Corporate & Advisory Services
  • Media Marketing Solutions
  • Contact Us
  • Careers
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
  • Sitemap
|