oecd principles

What Are the OECD Principles of Corporate Governance?

The OECD Principles of Corporate Governance are the global reference point for what constitutes good governance practice for both public and private organisations.

They are recommendations rather than law, but have been used to shape policies that improve economic efficiency and oversight, as well as driving growth for companies of all sizes. The principles are implemented across 52 economies, including all OECD, G20 and Financial Stability Board jurisdictions.

The principles in brief

The principles are structured around six areas for boards to translate into practice:

• An effective governance framework featuring clear internal rules and controls. This makes individual and collective responsibilities clear and builds a basis for informed decision-making. It encourages companies to build proportionate compliance processes that support strategic growth, rather than impeding it.
• Shareholder rights and equitable treatment, including providing fair, timely access to information and meaningful voting on key matters such as director elections and major transactions. Safeguard minority holders by preventing unfair dilution, managing related-party dealings transparently and offering effective complaint channels.
• Roles of institutional investors, markets and intermediaries. Engage constructively with investors and stewardship teams to disclose how their feedback is considered. Companies should ensure voting instructions and records are accurate and auditable.
• Encourage disclosure and transparency by publishing reliable, comparable reports on performance, ownership and control. Be open about material risks and related-party transactions, supported by strong internal controls and audit.
• Be clear on the responsibilities of the board. Set the company’s purpose and strategy and use that as a guiding principle to appoint and oversee the CEO, align pay with long-term value and ensure effective risk management and internal control. Maintain the right mix of skills and independence on the board and run regular evaluations to improve performance.
• Ensure sustainability and resilience by identifying material environmental and social factors that affect your model and integrate them into strategy. Stress-test plans, build supply chain and operational resilience and disclose how the company will adapt to shocks while creating long-term value.

These pillars guide corporate governance professionals to develop an approach to stewarding their companies in a compliant manner that is in the best interests of the business and its stakeholders.

History of the principles

• 1999: The first OECD Principles of Corporate Governance were published in the wake of the late-1990s financial crises to restore investor confidence and support cross-border capital.
• 2004: Following a range of corporate failures, such as the collapse of Enron, the principles were updated to focus on practical ways to enforce better governance measures. This included internal controls, clearer board dutiesand the importance of independence on boards.
• 2015: The principles were reissued under the name of the G20/OECD Principles. The new version reflected lessons learned from the global financial crisis of 2008 and 2009. It added stronger expectations over expectations for risk management and board oversight.
• 2023: The latest version focused on sustainability risks, the advancement of digitalisation in board work and matters such as board diversity and resilience.

What this means for boards

• Sustainability and assurance: With mandatory sustainability disclosure now a part of corporate life, audit and risk committees need clear ownership of non-financial reporting controls, data quality and assurance plans.
• Investor stewardship: Shareholders expect transparency over the workings of the board in relation to the company’s journey towards its goals. Engaging investors builds trusted bonds, making it essential to report voting outcomes, the rationale behind remuneration decisions and other such aspects of the board’s work.
• Meeting formats: If you use virtual or hybrid meetings, you should document how you ensure all participants have equal access to the floor and how you manage discussions to give all board members a voice. Be open about the cybersecurity measures you have in place and ensure your chair has the skills to manage an orderly and productive meeting.
• Composition and succession: Board skills matrices and nomination plans should address how you create better diversity across the board, including for the board chair and committee chairs, too. Track your progress against board composition targets.