G20, OECD announce new corporate governance code

news
05 September 2015

Finance ministers of the Group of 20 emerging and developed economies meeting in Ankara, Turkey, have announced a new set of corporate governance principles for listed companies and regulators of member countries, including India.

India's finance minister Arun Jaitley and Reserve Bank governor Raghuram Rajan are participating in the G20 meeting of finance ministers and central bank governors.

To meeting, which brings together policy makers of G20 and the developed country grouping, the Organisation for Economic Cooperation and Development (OECD), said the new governance principles would help safeguard minority shareholders' interests and promote capital market as a key platform to raise funds.

The new corporate governance norms, announced on the sidelines of the G20 meeting of finance ministers and central bankers, call for protecting shareholders' rights and keeping CEO salaries reasonable, while making adequate disclosures for the benefit of investors.

Safeguarding minority shareholders' interests and promoting capital market are key to money flows into emerging and developing markets. It also shows the clout of buy-out funds in global capital markets. 

The new code calls for enhanced cross-border cooperation among regulators, including through bilateral and multilateral arrangements for exchange of information.

It also states that the impediments to cross-border voting by shareholders should be eliminated, while shareholders should be allowed to consult each other.

Besides, the new code contains recommendations for financial disclosures by the companies, behaviour of large institutional investors and the functionalities of the stock markets. It also asks regulators to ensure that conflict of interest in related party transactions are addressed effectively.

The new G20 / OECD Principles of Corporate Governance were released here by the OECD secretary general, Angel Gurria, and Turkish deputy prime minister, Cevdet Yilmaz, on the sidelines of the ongoing G20 minister level meetings.

Yilmaz said at a press conference that G20 is trying to promote the role of capital markets for fund-raising, especially in the light of constraints faced by banks following the global financial crisis of 2007-08.

However, the companies need to adopt internationally accepted corporate governance norms to ensure that they get the required capital and the shareholders' interest is safeguarded.

The G20 / OECD code tells governments how to deal with issues such as shareholder rights, executive remuneration, financial disclosure, behaviour of institutional investors and the way stock markets should function.

In India, capital market regulator Securities and Exchange Board of India (Sebi) generally follows all the principles formulated by OECD and G20 to make its regulations robust and in line with the best international practices.

The revised principles would be applicable to all members of G20 as well as OECD.

On remuneration of board members and key executives, OECD said the link between the executive pay and the company's long-term performance is a key information for the shareholders and must be adequately disclosed.

Besides, other information about board members, including their qualifications, selection process, other company directorships and whether they are regarded as independent, also need to be disclosed actively.

The code also prescribes detailed suggestions for the responsibilities of the board.

OECD, however, said the principles are non-binding and are not aimed at providing detailed prescriptions for national legislation. Rather, they seek to identify objectives and suggest various means for achieving them.

Policymakers and regulators in emerging economies, including India, will update their regulations for the listed firms in line with the new code.





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