CORPORATE GOVERNANCE: THE OECD PRICNCIPLES AND THEIR RELEVANCE TO SOUTHEAST EUROPE

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Board Accountability, Stakeholders and the OECD
Instruments for Corporate Responsibility

Presentation for the Fourth Eurasian Corporate
Governance Roundtable, Dr. Rainer Geiger, Deputy
Director, OECD
Bishkek, October 2003
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Directors responsibilities are not limited to
carrying out the core functions of conducting
business and obeying laws

• Businesses also have to respond to the
  expectations of the democratic societies in which
  they operate expectations that are often not
  written down as formal laws.
• Corporate responsibility refers to the actions
  taken by businesses in response to such
  expectations in order to enhance the mutually
  dependent relationship between business and
  societies.
• Shareholders expect their corporations to meet
  societys demands, consistent with maximising the
  value of the firm.
• Experience has shown that companies that do so
  are the best performers in the long run.

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The challenges of meeting these expectations have
become more complex in todays global economy

• Globalisation has raised legitimate public
  concerns
• Some of them are directed at multinational
  enterprises (MNEs), as agents of globalisation
• MNEs are often accused of being party to serious
  problems corruption of public officials, human
  and labour rights abuses, environmental damage
• If ignored, such concerns may lead to legal or
  ethical troubles and would affect company
  profitability and financial performance by an
  impact on
• Company reputation
• Cost reductions (reduction of gas emissions may
  increase energy efficiency, waste-disposal may
  create additional revenues
• Litigation and regulatory cushion or safety zone

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Both corporate responsibility and corporate
governance concerns encourage corporations to
focus on serving shareholders or stakeholders

• Generally refers to responsibly grounded business
  decision-making that
• Considers the broad impact of corporate actions
  on
• people,
• community and
• environment

Corporate responsibility

• CG focuses specifically on the legal and other
  mechanisms that hold the corporation accountable
  to shareholders and other stakeholders in
  achieving corporate goals.

Corporate governance

The goal of providing the goods and services
needed or desired by members of society can be
and should be fully compatible with addressing
corporate responsibility concerns and vice versa.
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The OECD Declaration on International Investment
and MNEs and Guidelines for MNEs

• Promotes a comprehensive and balanced approach
  for
• Governments treatment of foreign direct
  investment (FDI) and for
• Enterprises activities in adhering countries.

The Delcaration

• A multilaterally enforced, non-binding code,
  addressed to MNE
• One of four main instruments of the Declaration
• The other three include the National Treatment
  instrument (non less favourable then for domestic
  enterprises
• On Conflicting Requirements on MNEs calls for
  their avoidance by governments in different
  countries
• International Investment Incentives and
  Disincentives calls for improved multilateral
  co-operation on this issue

The Guidelines
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Main Characteristics of the Guidelines

• The OECD recognises that MNEs have the
  opportunity to implement policies for development
  that will ensure coherence between social,
  economic and environmental objectives.
• Many such enterprises have shown that high
  standards for business conduct can enhance growth
• Adopted by the governments of 30 OECD member
  countries and 7 non-members (Argentina, Brazil,
  Chile, Estonia, Israel, Lithuania and Slovenia)

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Main Characteristics of the Guidelines (contd)

• The aim of these governments is to encourage the
  positive contributions MNEs make to society and
  minimise the difficulties caused by their
  operations
• Adhering countries are the source of most of the
  worlds FDI and are home to most major MNEs.
• In spite of the multitude of business codes of
  conduct currently available, the Guidelines are
  the only multilaterally endorsed and
  comprehensive code

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The Guidelines are broken down in sections

• General policies
• Disclosure
• Employment and Industrial relations
• Environment
• Combating bribery
• Consumer interests
• Science and technology
• Competition
• Taxation

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Key provisions of some of these sections.
Companies should

• Regularly disclose information regarding their
  activities, structure and financial performance
• Provide high standards for disclosure,
  accounting, auditing, and social/environmental
  reporting

Disclosure

• Respect the rights of free association and
  collective bargaining
• Contribute to the abolition of child and forced
  labour
• Refrain from discrimination
• Provide a safe working environment
• When possible, employ local personnel with a
  view of training them

Employment Industrial Relations
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Implementation of the Guidelines

• The National Contact Point (NCP) - often a
  government office is responsible for
  encouraging observance and for ensuring that the
  Guidelines are well known and understood
  nationally.
• Governments promote the Guidelines in
  conferences, mailings to businesses, but also
  through concrete measures in the trade and
  investment area.
• The Committee on International Investment and
  MNEs is the OECD body responsible for overseeing
  the functioning of the Guidelines by
• taking steps to enhance their effectiveness
• issuing clarifications on their application
• consulting with the OECD business and labour
  advisory committees and NGOs.

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To conclude
The Guidelines cover the full range of areas
relevant to standards of responsible business
conduct and so provide to corporations a most
valuable international benchmark of societys
expectations Good corporate governance and
corporate responsibility are no-longer add-ons
to markets, they are integral to them. They are
the basis on which public-private partnerships
can grow. Further improving the fit between
corporations and societies in which they
operate is a key goal of the OECD
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For More Information on the Guidelines

• www.oecd.org
• www/oecd.org/daf/investment/guidelines
• Rainer.Geiger_at_oecd.org