Skip to main content

Principles of Corporate Governance

Go Search
New Atlas
Atlas, A-Z
Atlas Maps
MPP/MPA Programs
Core Topics
Illustrative Courses
Topic Encyclopedia
Concept Dictionary
Career Tips
Best Practices Project


Practice Advice on Strategy and Structure

Principles of Corporate Governance (OECD)

Summary Advice: The OECD recommends that the following best practices can be applied in order to evaluate and improve the legal, institutional and regulatory framework of corporate governance, and to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance.  The Principles focus on publicly traded companies, both financial and non-financial. However, to the extent they are deemed applicable, they might also be a useful tool to improve corporate governance in non-traded companies, for example, privately held and stateowned enterprises.

Main Points:

The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.

  • The corporate governance framework should be developed with a view to its impact on overall economic performance, market integrity and the incentives it creates for market participants and the promotion of transparent and efficient markets.
  • The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be consistent with the rule of law, transparent and enforceable.
  • The division of responsibilities among different authorities in a jurisdiction should be clearly articulated and ensure that the public interest is served.
  • Supervisory, regulatory and enforcement authorities should have the authority, integrity and resources to fulfil their duties in a professional and objective manner. Moreover, their rulings should be timely, transparent and fully explained.

The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.

  • Basic shareholder rights should include the right to: 1) secure methods of ownership registration; 2) convey or transfer shares; 3) obtain relevant and material information on the corporation on a timely and regular basis; 4) participate and vote in general shareholder meetings; 5) elect and remove members of the board; and 6) share in the profits of the corporation.
  • Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as: 1) amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2) the authorisation of additional shares; and 3) extraordinary transactions, including the transfer of all or substantially all assets, that in effect result in the sale of the company.
  • Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings:
    • Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting.
    • Shareholders should have the opportunity to ask questions to the board, including questions relating to the annual external audit, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations.
    • Effective shareholder participation in key corporate governance decisions, such as the nomination and election of board members, should be facilitated. Shareholders should be able to make their views known on the remuneration policy for board members and key executives. The equity component of compensation schemes for board members and employees should be subject to shareholder approval.
    • Shareholders should be able to vote in person or in absentia, and equal effect should be given to votes whether cast in person or in absentia.
  • Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed.
  • Markets for corporate control should be allowed to function in an efficient and transparent manner.
    • The rules and procedures governing the acquisition of corporate control in the capital markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class.
    • Anti-take-over devices should not be used to shield management and the board from accountability.
  • The exercise of ownership rights by all shareholders, including institutional investors, should be facilitated.
    • Institutional investors acting in a fiduciary capacity should disclose their overall corporate governance and voting policies with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights.
    • Institutional investors acting in a fiduciary capacity should disclose how they manage material conflicts of interest that may affect the exercise of key ownership rights regarding their investments.
  • Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.

The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

  • All shareholders of the same series of a class should be treated equally.
    • Within any series of a class, all shares should carry the same rights. All investors should be able to obtain information about the rights attached to all series and classes of shares before they purchase. Any changes in voting rights should be subject to approval by those classes of shares which are negatively affected.
    • Minority shareholders should be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and should have effective means of redress.
    • Votes should be cast by custodians or nominees in a manner agreed upon with the beneficial owner of the shares.
    • Impediments to cross border voting should be eliminated.
    • Processes and procedures for general shareholder meetings should allow for equitable treatment of all shareholders. Company procedures should not make it unduly difficult or expensive to cast votes.
  • Insider trading and abusive self-dealing should be prohibited.
  • Members of the board and key executives should be required to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the corporation.

The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

  • The rights of stakeholders that are established by law or through mutual agreements are to be respected.
  • Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.
  • Performance-enhancing mechanisms for employee participation should be permitted to develop.
  • Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.
  • Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this.
  • The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.

The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.

  • Disclosure should include, but not be limited to, material information on:
    • The financial and operating results of the company.
    • Company objectives.
    • Major share ownership and voting rights.
    • Remuneration policy for members of the board and key executives, and information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board.
    • Related party transactions.
    • Foreseeable risk factors.
    • Issues regarding employees and other stakeholders.
    • Governance structures and policies, in particular, the content of any corporate governance code or policy and the process by which it is implemented.
  • Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosure.
  • An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.
  • External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.
  • Channels for disseminating information should provide for equal, timely and costefficient access to relevant information by users.
  • The corporate governance framework should be complemented by an effective approach that addresses and promotes the provision of analysis or advice by analysts, brokers, rating agencies and others, that is relevant to decisions by investors, free from material conflicts of interest that might compromise the integrity of their analysis or advice.

The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

  • Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.
  • Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly.
  • The board should apply high ethical standards. It should take into account the interests of stakeholders.
  • The board should fulfil certain key functions, including:
    • Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures.
    • Monitoring the effectiveness of the company’s governance practices and making changes as needed.
    • Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.
    • Aligning key executive and board remuneration with the longer term interests of the company and its shareholders.
    • Ensuring a formal and transparent board nomination and election process.
    • Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.
    • Ensuring the integrity of the corporation’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
    • Overseeing the process of disclosure and communications.
  • The board should be able to exercise objective independent judgement on corporate affairs.
    • Boards should consider assigning a sufficient number of non-executive board members capable of exercising independent judgement to tasks where there is a potential for conflict of interest. Examples of such key responsibilities are ensuring the integrity of financial and non-financial reporting, the review of related party transactions, nomination of board members and key executives, and board remuneration.
    • When committees of the board are established, their mandate, composition and working procedures should be well defined and disclosed by the board.
    • Board members should be able to commit themselves effectively to their responsibilities.
  • In order to fulfil their responsibilities, board members should have access to accurate, relevant and timely information.

Source: OECD (2004). OECD, “OECD Principles of Corporate Governance” at (accessed 1 March 2013).

Page Created By: Matthew Seddon on March 1, 2013. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.

 Concepts relevant to this Best Practice

There are currently no favorite links to display.

 Other Best Practices relevant to this Best Practice

There are currently no favorite links to display.

 Other Resources relevant to this Best Practice

There are currently no favorite links to display.

Important Notices
© University of Toronto 2008
School of Public Policy and Governance