Edited transcript of a presentation by ob体育 Deputy Chairman Jeremy Cooper to OECD-ADBI 8th Round Table, Tokyo 11 & 12 October 2006
Background
Any discussion of corporate governance invariably involves a reference to the聽Organisation for Economic Co-operation and Development (OECD) Principles of聽Corporate Governance.
By way of background, the OECD Principles were originally developed in 1999, with聽the OECD releasing its revised Principles in 2004. Since their development, the聽significance of the Principles to the development of corporate governance practices聽has been recognised by a number of international bodies. The Principles have been聽endorsed by the Financial Stability Forum as one of the 12 key standards for financial聽stability.
The International Organisation of Securities Commissions' (IOSCO) interest in聽corporate governance, like so many regulatory reforms, finds it origins in financial聽frauds such as Parmalat Finanziaria SpA. Following the collapse of Parmalat, IOSCO聽formed the Securities Fraud Task Force to examine ways that international securities聽regulators could strengthen important mechanisms in combating financial frauds.
The report of the Securities Fraud Task Force focused on seven separate areas that聽had featured prominently in recent collapses:
- corporate governance;
- auditors and audit standards;
- issuer disclosure requirements;
- bond market regulation and transparency;
- the role and obligations of market intermediaries;
- the use of complex corporate structures and special purpose entities; and
- the role of private sector information analysts.
The work of IOSCO's Securities Fraud Task Force confirmed in the mind of IOSCO聽members the link between strong corporate governance, as espoused by the OECD聽Principles, and strong financial markets.
The Securities Fraud Task Force identified the following corporate governance issues聽as being critical, given the circumstances contributing to the collapse of Parmalat, and聽other financial frauds:
- the ability of the board to exercise independent judgement; and
- the importance of protection for minority shareholders.
The Securities Fraud Task Force noted that the presence of strong independent聽directors might have the effect of discouraging majority shareholders from engaging聽in conduct to derive a private benefit at the expense of other shareholders.聽Independent directors provide a means by which minority shareholders can monitor聽how majority shareholders and management utilise corporate assets.
Independent directors can also be one of a number of mechanisms that provide a聽safeguard against abusive related party transactions.
While it was recognised that majority shareholders have the same interest as minority聽shareholders in maintaining the viability of the corporation, the controlling聽shareholder may be in a position to expropriate assets of the corporation for its own聽benefit at the expense of minority shareholders.
Corporate laws generally counter predatory conduct by imposing duties on the聽directors of the corporation to act on behalf of all shareholders. Many jurisdictions聽also provide specific protections to minority shareholders.