(upbeat music)
-: The Financial Times has claimed that big investors
ignore proxy advisors on controversial votes,
which can lead to frustration when other shareholders
are trying to pursue change and governance improvements.
There are certain governance mechanisms
that try to help avoid these types of situations.
The Organisation of Economic Cooperation and Development
first published the OECD Principles of corporate governance
in 1999.
And since then, these have been updated twice,
with the latest release being in September, 2015.
These are called the G20/OECD Principles
of Corporate Governance, as they were endorsed
by both the OECD council and the G20 leaders summit.
The OECD principles are written and directed
towards government or policy makers who write up the laws
and regulations within specific jurisdictions.
These principles are aimed at providing international
best practises, which will serve as a benchmark
for individual legislators to ensure that new requirements
are aligned with these best practises.
As such the OECD principles take a principle based approach
offering a guideline or framework rather than a set
of strict rules to follow.
The OECD Principles of corporate governance
are made up of six core principles, ensuring the basis
for effective corporate governance framework,
the rights and equitable treatment of shareholders
and key ownership functions, institutional investors,
stock markets and other intermediaries,
the role of stakeholders in corporate governance,
disclosure and transparency,
and the responsibilities of the board.
To understand the principles properly,
you need to ask yourself the following questions.
What is the intention or desired result of this principle?
What is it aiming to achieve?
And how are the goals
of each core principle going to be achieved?
This will give you a good working knowledge
of why the principal is there,
and what are the recommendations to achieve this principle?
As an example, let's look at core principle two.
The intention of this principle is to protect shareholders
rights or entitlements and empower shareholders
so that they influence corporate behaviour.
This principle focuses not only on fair treatment
of major shareholders, but all shareholders
including minority and foreign shareholders.
So how does this principle achieve its intended purpose?
From a high level overview of core principle two,
there are four important things.
These include basic rights, the right to be informed,
the right to participate and vote,
and the right to fair treatment.
We can now expand on these by asking, what are basic rights?
We're not referring to freedom of speech
and other basic rights, but rather to the basic rights
related to their shareholding,
for example, the right to share in profits
or to transfer and sell shares.
These are the primary reasons why people buy shares,
so it makes sense that these are the basic rights
given to shareholders.
Imagine a situation where you were prohibited
from selling your shares,
or there were taken away from you without compensation,
without enshrining these rights into laws
shareholders will have very limited protection.
We can expand on the right to be informed by asking,
what should shareholders be informed about?
This does not refer to the employment of a new
staff member who will be doing administrative tasks,
but rather to information that would affect the value
of buying and selling decisions
related to the company shares.
For example, the authorization of changes of articles
of association, new shares and proposed mergers
and acquisition plans.
With the right to participate
and vote at shareholders meetings,
we need to consider what other duties
and responsibilities arise as a result of this right.
For example, shareholders have to be furnished
with relevant information, such as dates, venues, agendas
and other meeting materials.
These need to be sent in advance to give shareholders
sufficient notice of the meeting
and sufficient time to prepare or ask any questions.
Lastly, with the right to fair treatment,
this will encompass things
like recognising all classes of shares,
treating all shareholders fairly,
managing conflicts of interest
and prohibiting insider trading.
So you can see that reading
through the material is only one step
of your learning of the OECD principles,
you need to go through each principle
and critically analyse and ask relevant questions.
Look at current articles
and check your understanding of the principles.
You should attempt an analysis
of the other core principles using the same approach
we used in core principle two.
To recap the OECD Principles of corporate governance
is comprised of six core principles.
You need to not only read them,
but also be able to understand the intention
behind each core principle
and critically analyse how each principle is to be achieved.