G20/OECD Principles of Corporate Governance
Increasingly, governments have recognised the synergy between macroeconomic and structural policies in achieving fundamental policy goals. Corporate governance is one key element in improving growth and ensuring market integrity and financial stability. Corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of a company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring. The Principles focus on publicly traded companies both financial and nonfinancial but might also be a useful tool to improve corporate governance in non-traded companies. They do not aim at detailed prescriptions for national legislation. Rather, they seek to identify objectives or outcomes and suggest various means for achieving them. Their purpose is thus to serve as a reference point. They can be used by policy makers as they examine and develop the legal and regulatory frameworks for corporate governance that reflect their own economic, social, legal and cultural circumstances, and by market participants as they develop their own practices. The Principles cover six key areas. They call for measures to ensure the basis for an effective corporate governance framework including appropriate supervisory, regulatory and enforcement institutions. The rights of shareholders, including equitable treatment, and key ownership functions are specified. The Principles deal with the role of stakeholders in corporate governance and outline in a principles-based manner what is needed to ensure timely and accurate disclosure on all material matters regarding the corporation. Finally, they specify what is needed to ensure the strategic guidance of the company by its board and the effective monitoring of management.
The Methodology for Assessing Implementation of the G20/OECD Principles of Corporate Governance provides detailed guidance for how an evaluator might reach conclusions about whether and to what extent the outcomes advanced by the Principles are being achieved. In so doing, it recognises functional equivalence: there may be a number of ways in which a given outcome might be achieved. The Methodology, which has been revised in 2016 in accordance with the revision of the G20/OECD Principles, also provides criteria for assessing the relative importance of particular principles in different jurisdictions thereby drawing attention to policy issues. As part of the Reports on the Observance of Standards and Codes (ROSC) initiative, the World Bank uses the Methodology to benchmark member countries' corporate governance framework and company practices against the G20/OECD Principles for Corporate Governance.