OECD Principles of Corporate Governance 2023 PDF

G20/OECD Principles of Corporate Governance G20/OECD Principles of Corporate Governance 2023 The G20/OECD Principles of Corporate Governance are set out in the Appendix to the OECD Recommendation on Principles of Corporate Governance [OECD/LEGAL/0413] adopted by the OECD Council on 8 July 2015...

G20/OECD Principles of Corporate Governance G20/OECD Principles of Corporate Governance 2023 The G20/OECD Principles of Corporate Governance are set out in the Appendix to the OECD Recommendation on Principles of Corporate Governance [OECD/LEGAL/0413] adopted by the OECD Council on 8 July 2015 and revised on 8 June 2023. The Principles were endorsed by the G20 in September 2023. For access to the official text of the Recommendation, as well as other related information, please consult the Compendium of OECD Legal Instruments at https://legalinstruments.oecd.org. This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2023), G20/OECD Principles of Corporate Governance 2023, OECD Publishing, Paris, https://doi.org/10.1787/ed750b30-en. ISBN 978-92-64-45168-1 (print) ISBN 978-92-64-76182-7 (pdf) ISBN 978-92-64-64495-3 (HTML) ISBN 978-92-64-34658-1 (epub) Photo credits: Cover © Andrew Esson/Baseline Arts Ltd. Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2023 The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at https://www.oecd.org/termsandconditions. 3 Preface The G20/OECD Principles of Corporate Governance provide guidance to help policy makers evaluate and improve the legal, regulatory and institutional framework for corporate governance, with a view to supporting market confidence and integrity, economic efficiency, sustainable growth and financial stability. As the main international benchmark for good corporate governance, the Principles have a global reach and reflect the experiences and ambitions of a wide variety of jurisdictions with varying legal systems and at different stages of development. They are also one of the Financial Stability Board’s Key Standards for Sound Financial Systems. These revised Principles are the outcome of 18 months of work. They reflect a strong desire from all OECD and G20 Members to see the Principles offer guidance on companies’ sustainability and resilience, and will help companies manage environmental and social risks, with insights on disclosure, the roles and rights of shareholders as well as stakeholders and the responsibilities of company boards. First, they help companies improve access to finance, particularly from capital markets. By doing so, they promote investment, innovation, and productivity growth, and foster economic dynamism more broadly. Second, they provide a framework to protect investors, which include households with invested savings. A formal structure of procedures that promotes the transparency and accountability of board members and executives to shareholders helps to build trust in markets. Third, they support the sustainability and resilience of corporations which, in turn, contributes to the sustainability and resilience of the broader economy. The objectives are to help improve companies’ access to financial markets in an environment where investor expectations are evolving and to support investor confidence on the basis of more transparent market information and reinforced investor rights. The Principles will help address the growing role of institutional investors by promoting stewardship codes, and the disclosure of conflicts of interest by advisory services, like proxy advisors and Environmental, Social and Governance index providers. They also include new recommendations which reflect the increasing importance of corporate debt and the role of bondholders in capital markets. Policy makers, regulators, international organisations and market participants have an important role to play in putting the Principles to good use so that countries and corporations may continue benefitting from good corporate governance. The OECD will keep on working closely with all relevant national authorities and other partners to promote the implementation of the Principles globally. Mathias Cormann, OECD Secretary-General G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 4 Foreword The G20/OECD Principles of Corporate Governance are the leading international standard for corporate governance. They aim to help policy makers and regulators evaluate and improve legal, regulatory and institutional frameworks for corporate governance, with a view to supporting market confidence and integrity, economic efficiency, and financial stability. The Principles underwent a comprehensive review in 2021-2023 to update them in light of recent evolutions in corporate governance and capital markets. The revised Principles were adopted by the OECD Council at Ministerial Level in June 2023 (the Principles are embodied in the OECD Recommendation on Principles of Corporate Governance [OECD/LEGAL/0413]) and endorsed by G20 Leaders in September 2023. The Principles are also one of the Financial Stability Board’s Key Standards for Sound Financial Systems, and form the basis for the World Bank Reports on the Observance of Standards and Codes (ROSC) in the area of corporate governance. The review had two major objectives: to support national efforts to improve the conditions for companies’ access to finance from capital markets, and to promote corporate governance policies that support the sustainability and resilience of corporations which, in turn, may contribute to the sustainability and resilience of the broader economy. Accordingly, a major evolution in the Principles is the new Chapter on “Sustainability and resilience” which reflects the growing challenges corporations face in managing climate-related and other sustainability risks and opportunities. This new Chapter also incorporates Chapter IV on “The Role of Stakeholders in Corporate Governance” of the previous version of the Principles. A substantial number of new recommendations have also been developed and integrated within the existing chapters of the Principles, whose structure remains otherwise unchanged. The review of the Principles was undertaken by the OECD Corporate Governance Committee, chaired by Mr Masato Kanda. OECD, G20 and FSB members participate in the Committee and contributed to the review on an equal footing. Important contributions were also received from the OECD’s regional corporate governance roundtables in Asia and Latin America, and from Business at OECD (BIAC) and the Trade Union Advisory Committee (TUAC). An online public consultation and in-person stakeholder consultation were also held, and experts from relevant international organisations, notably the Financial Stability Board, the International Monetary Fund, and the World Bank Group, participated in the review. In order to ensure the continued accuracy and relevance of the Principles, the review was supported and informed by extensive empirical and analytical work examining recent changes in both capital markets and corporate governance policies and practices. The reports developed informed both the Committee’s choice of priority areas for consideration during the review as well as the revisions themselves. The OECD, G20 and relevant stakeholders will now endeavour to promote and monitor the effective implementation of the revised Principles globally. This will include a review of the Methodology for Assessing the Implementation of the Principles of Corporate Governance and the regular publication of the OECD Corporate Governance Factbook which assesses implementation of the Principles in a large number of countries. G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 5 Table of contents Preface 3 Foreword 4 About the Principles 6 I. Ensuring the basis for an effective corporate governance framework 9 II. The rights and equitable treatment of shareholders and key ownership functions 14 III. Institutional investors, stock markets, and other intermediaries 22 IV. Disclosure and transparency 27 V. The responsibilities of the board 34 VI. Sustainability and resilience 44 Follow OECD Publications on: https://twitter.com/OECD https://www.facebook.com/theOECD https://www.linkedin.com/company/organisation-eco-cooperationdevelopment-organisation-cooperation-developpement-eco/ https://www.youtube.com/user/OECDiLibrary https://www.oecd.org/newsletters/ G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 6 About the Principles The Principles of Corporate Governance (“the Principles”) are intended to help policy makers evaluate and improve the legal, regulatory, and institutional framework for corporate governance, with a view to supporting economic efficiency, sustainable growth and financial stability. This is primarily achieved by providing shareholders, board members and executives, the workforce and relevant stakeholders, as well as financial intermediaries and service providers with the right information and incentives to perform their roles and help to ensure accountability within a framework of checks and balances. Corporate governance involves a set of relationships between a company’s management, board, shareholders and stakeholders. Corporate governance also provides the structure and systems through which the company is directed and its objectives are set, and the means of attaining those objectives and monitoring performance are determined. The Principles are non-binding and do not aim to provide detailed prescriptions for national legislation. The Principles are not a substitute for nor should they be considered to override domestic law and regulation. Rather, they seek to identify objectives and suggest various means for achieving them, typically involving elements of legislation, regulation, listing rules, self-regulatory arrangements, contractual undertakings, voluntary commitments and business practices. A jurisdiction’s implementation of the Principles will depend on its national legal and regulatory context. The Principles aim to provide a robust but flexible reference for policy makers and market participants to develop their own frameworks for corporate governance. To remain competitive in a changing world, corporations must innovate and adapt their corporate governance practices to meet new demands and grasp new opportunities. Taking into account the costs and benefits of regulation, governments have an important responsibility for shaping an effective regulatory framework that provides for sufficient flexibility to allow markets to function effectively and to respond to new expectations of shareholders and stakeholders. The Principles themselves are evolutionary in nature and are reviewed in light of significant changes in circumstances in order to maintain their role as the leading international standard to assist policy makers in the area of corporate governance. Well-designed corporate governance policies can play an important role in contributing to the achievement of broader economic objectives and three major public policy benefits. First, they help companies to access financing, particularly from capital markets. By doing so, they promote innovation, productivity and entrepreneurship, and foster economic dynamism more broadly. For those who provide capital, either directly or indirectly, good corporate governance serves as an assurance that they can participate and share in the company’s value creation on fair and equitable terms. It therefore affects the cost at which corporations can access capital for growth. This is of significant importance in today’s globalised capital markets. International flows of capital enable companies to access financing from a much larger pool of investors. If companies and countries are to reap the full benefits of global capital markets and attract long-term “patient” capital, corporate governance frameworks must be credible, well understood both domestically and across borders, and aligned with internationally accepted principles. G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 7 Second, well-designed corporate governance policies provide a framework to protect investors, which include households with invested savings. A formal structure of procedures that promotes the transparency and accountability of board members and executives to shareholders helps to build trust in markets, thereby supporting corporations’ access to finance. A substantial part of the general public invests in public equity markets, either directly as retail investors or indirectly through pension and investment funds. Providing them with a system in which they can share in corporate value creation, knowing their rights are protected, will give households access to investment opportunities that may help them to achieve higher returns for their savings and retirement. Given that institutional investors increasingly allocate a large share of their portfolios to foreign markets, policies to protect investors should also cover cross-border investments. Third, well-designed corporate governance policies also support the sustainability and resilience of corporations and in turn, may contribute to the sustainability and resilience of the broader economy. Investors have increasingly expanded their focus on companies’ financial performance to include the financial risks and opportunities posed by broader economic, environmental and societal challenges, and companies’ resilience to and management of those risks. In some jurisdictions, policy makers also focus on how companies’ operations may contribute to addressing such challenges. A sound framework for corporate governance with respect to sustainability matters can help companies recognise and respond to the interests of shareholders and different stakeholders, as well as contribute to their own long term success. Such a framework should include the disclosure of material sustainability-related information that is reliable, consistent and comparable, including related to climate change. In some cases, jurisdictions may interpret concepts of sustainability-related disclosure and materiality in terms of applicable standards articulating information that a reasonable shareholder needs in order to make investment or voting decisions. The Principles are intended to be concise, understandable, and accessible to all actors with a role in developing and implementing good corporate governance globally. On the basis of the Principles, it is the role of government, semi-government or private sector initiatives to assess the quality of the corporate governance framework and develop more detailed mandatory or voluntary provisions that can take into account country-specific economic, legal, and cultural differences. The Principles focus on publicly traded companies, both financial and non-financial. To the extent they are deemed applicable, the Principles may also be a useful tool to improve corporate governance in companies whose shares are not publicly traded. While some of the Principles may be more appropriate for larger companies than for smaller ones, policy makers may wish to raise awareness of good corporate governance for all companies, including smaller and unlisted companies as well as those that issue debt securities. The OECD Guidelines on Corporate Governance of State-Owned Enterprises complement the Principles. Other factors relevant to a company’s decision-making processes, such as environmental, anti-corruption or ethical concerns, are considered not only in the Principles but also in a number of other international standards including the OECD Guidelines for Multinational Enterprises, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the UN Guiding Principles on Business and Human Rights, and the ILO Declaration on Fundamental Principles and Rights at Work, which are referenced in the Principles. The Principles do not intend to prejudice or second-guess the business judgement of market participants, board members and management. What works in one or more companies or for one or more investors may not necessarily be generally applicable. Companies vary in maturity, size and complexity. There is therefore no single model of good corporate governance. However, the Principles follow an outcome-oriented approach, suggesting some common elements that underlie good corporate governance. The Principles build on these common elements and are formulated to embrace the different models that exist. For example, they do not advocate any particular board structure and the term “board” as used in the Principles is intended to embrace the different national models of board structures. In the typical two-tier system, found in some jurisdictions, “board” as used in the Principles refers to the “supervisory board” while “key executives” refers to the “management board”. In systems where the unitary board is overseen by an G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 8 internal auditor’s body, the Principles applicable to the board are also, mutatis mutandis, applicable. As the definition of the term “key executive” may vary among jurisdictions and depending on context, for example concerning remuneration or related party transactions, the Principles leave it to individual jurisdictions to define this term in a functional manner that meets the intended outcome of the Principles. The terms “corporation” and “company” are used interchangeably in the text. Throughout the Principles, the term “stakeholders” refers to non-shareholder stakeholders and includes, among others, the workforce, creditors, customers, suppliers and affected communities. The Principles are widely used as a benchmark by individual jurisdictions around the world. They are also one of the Financial Stability Board’s Key Standards for Sound Financial Systems and provide the basis for assessment of the corporate governance component of the Reports on the Observance of Standards and Codes (ROSC) of the World Bank. The Principles are also used as a benchmark in developing sectoral corporate governance guidance by other international standard-setting bodies, including the Basel Committee on Banking Supervision. Implementation of the Principles is monitored and supported through the OECD Corporate Governance Factbook, peer reviews on thematic issues that compare practices across jurisdictions and corporate governance regional and country reviews. The Principles are presented in six chapters: I) Ensuring the basis for an effective corporate governance framework; II) The rights and equitable treatment of shareholders and key ownership functions; III) Institutional investors, stock markets, and other intermediaries; IV) Disclosure and transparency; V) The responsibilities of the board; and VI) Sustainability and resilience. Each chapter is headed by a single Principle that appears in bold italics and is followed by a number of supporting Principles and their sub-Principles in bold. The Principles are supplemented by annotations that contain commentary on the Principles and sub-Principles and are intended to help readers understand their rationale. The annotations may also contain descriptions of dominant or emerging trends and offer alternative implementation methods and examples that may be useful in making the Principles operational. G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 9 I. Ensuring the basis for an effective corporate governance framework The corporate governance framework should promote transparent and fair markets, and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement. Effective corporate governance requires a sound legal, regulatory and institutional framework that market participants can rely on when establishing their private contractual relations. By promoting transparent and fair markets, this framework also plays an important role in fostering the trust in markets that is necessary to underpin the achievement of broader economic objectives. The corporate governance framework typically comprises elements of legislation, regulation, listing rules, self-regulatory arrangements, contractual undertakings, voluntary commitments and business practices that are the result of a country’s specific circumstances, history and tradition. The desirable mix between these elements will therefore vary from country to country. The legislative and regulatory elements of the corporate governance framework can usefully be complemented by soft law elements such as corporate governance codes which are often based on a “comply or explain” principle in order to allow for flexibility and to address specificities of individual companies. What works well in one company, for one investor or a particular stakeholder may not necessarily be applicable to corporations, investors and stakeholders that operate in another context and under different circumstances. Thus, any particular element of a specific corporate governance framework may not be effective in addressing a particular governance issue in all situations. Rather, the methods for encouraging or requiring good corporate governance practices should aim to achieve desired outcomes by adapting approaches to fit particular circumstances. For example, the desired outcome of ensuring effective implementation of certain corporate governance practices may be achieved more efficiently in markets where institutional investors play a strong role in improving such practices in line with soft law code recommendations, while in markets where investors adopt a more passive role, the regulator may choose to require and enforce the implementation of certain corporate governance standards. As new experiences accrue and business circumstances change, the various provisions of the corporate governance framework should be reviewed and, when necessary, adjusted. Jurisdictions seeking to implement the Principles should monitor their corporate governance framework with the objective of maintaining and strengthening its contribution to market integrity, access to capital markets, economic performance, and transparent and well-functioning markets. As part of this, it is important to consider the interactions and complementarity between different elements of the corporate governance framework and its overall ability to promote ethical, responsible and transparent corporate governance practices. Such analysis is an important tool in the process of developing an effective corporate governance framework. To this end, effective and timely consultation with the public is an essential element. In some jurisdictions, this may need to be complemented by initiatives to inform companies and their stakeholders about the benefits of implementing sound corporate governance practices. Moreover, in developing a corporate governance framework, national legislators and regulators should consider the need for, and the results of, effective international dialogue and co-operation. If these conditions G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 10  are met, the corporate governance framework is more likely to avoid over-regulation, support the exercise of entrepreneurship, and limit the risks of damaging conflicts of interest in both the private sector and in public institutions. I.A. The corporate governance framework should be developed with a view to its impact on corporate access to finance, overall economic performance and financial stability, the sustainability and resilience of corporations, market integrity, and the incentives it creates for market participants and the promotion of transparent and well functioning markets. Capital markets play a key role in providing companies with funds that allow them to innovate and support economic growth, as well as efficiently diversify their financing sources. Equity and bond financing also support companies’ resilience to overcome temporary downturns while meeting their obligations to the workforce, creditors and suppliers. Policy makers and regulators need to consider how the corporate governance framework may encourage and impact corporate access to market-based financing. The corporate form of organisation of economic activity serves as a powerful force for growth. The regulatory and legal environment within which corporations operate is therefore of key importance to overall economic outcomes. Policy makers also have a responsibility to put in place a framework that is capable of meeting the needs of corporations operating in widely different circumstances, facilitating their development of new opportunities to create value, and to determine the most efficient deployment of resources. Where appropriate, corporate governance frameworks should therefore allow for proportionality, in particular with respect to the size of publicly traded companies. Other factors that may call for flexibility include the company’s ownership and control structure, geographical presence, sectors of activity, and the company’s development stage. Policy makers should remain focused on ultimate economic outcomes, and when considering policy options they will need to undertake an analysis of the impact on key variables that affect the functioning of markets, for example in terms of incentive structures, the efficiency of self-regulatory systems, and dealing with systemic conflicts of interest. Transparent and well-functioning markets serve to discipline market participants and promote accountability. I.B. The legal and regulatory requirements that affect corporate governance practices should be consistent with the rule of law, transparent and enforceable. Corporate governance codes may offer a complementary mechanism to support the development and evolution of companies’ best practices, provided that their status is duly defined. If new laws and regulations are needed, such as to deal with clear cases of market imperfections, they should be designed in a way that makes it possible to implement and enforce them in an efficient and even-handed manner covering all parties. Consultation by government and other regulatory authorities with corporations, their representative organisations, shareholders, and stakeholders, is an effective way of doing this. Mechanisms should also be established for parties to protect their rights. In order to avoid over-regulation, unenforceable rules, and unintended consequences that may impede or distort business dynamics, policy measures should be designed with a view to their overall costs and benefits. Public authorities should have effective enforcement and sanctioning powers to deter dishonest behaviour and provide for sound corporate governance practices. In addition, enforcement can also be pursued through private action, and the effective balance between public and private enforcement will vary depending upon the specific features of each jurisdiction. Corporate governance objectives are also formulated in codes and standards that do not generally have the status of law or regulation. Good practices recommended in such codes are usually encouraged through “comply or explain” disclosure mechanisms or other variations such as “apply and/or explain”. While such codes can play an important role in improving corporate governance arrangements and practices, they might leave shareholders and stakeholders with uncertainty concerning their status and implementation. When codes and principles are used as a national standard or as a complement to legal G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023  11 or regulatory provisions, market credibility requires that their status in terms of coverage, implementation, compliance and sanctions is clearly specified. I.C. The division of responsibilities among different authorities and self-regulatory bodies should be clearly articulated and designed to serve the public interest. Corporate governance requirements and practices are typically influenced by an array of legal domains, such as company law, securities regulation, accounting and auditing standards, listing rules, insolvency law, contract law, labour law, tax law, as well as potentially international law. Corporate governance practices of individual companies are also often influenced by human rights and environmental laws, and increasingly laws related to digital security, data privacy and personal data protection. Under these circumstances, there is a risk that the variety of legal influences may cause unintentional overlaps and even conflicts, which may frustrate the ability to pursue key corporate governance objectives. It is important that policy makers are aware of this risk and take measures to ensure a coherent and stable institutional and regulatory framework. Effective enforcement also requires that the allocation of responsibilities for supervision, implementation and enforcement among different authorities is clearly defined and formalised so that the competencies of complementary bodies and agencies are respected and used most effectively. Potentially conflicting objectives, for example where the same institution is charged with attracting business and sanctioning violations, should be avoided or managed through clear governance provisions. Overlapping and perhaps contradictory regulations between jurisdictions is also an issue that should be monitored to avoid regulatory arbitrage and so that no regulatory vacuum is allowed to develop (i.e. issues slipping through for which no authority has explicit responsibility) as well as to minimise the cost of compliance with multiple systems. When regulatory responsibilities or oversight are delegated to non-public bodies, notably stock exchanges, it is desirable to explicitly assess why, and under what circumstances, such delegation is desirable. In addition, the public authority should maintain effective safeguards to ensure that the delegated authority is applied fairly, consistently, and in accordance with the law. It is also essential that the governance structure of any such delegated institution be transparent and encompass the public interest, including appropriate safeguards to address potential conflicts of interest. I.D. Stock market regulation should support effective corporate governance. Stock markets can play a meaningful role in enhancing corporate governance by establishing and enforcing requirements that promote effective corporate governance by their listed issuers. Also, stock markets provide facilities by which investors can express interest or disinterest in a particular issuer’s governance by allowing them to buy or sell the issuer’s securities, as appropriate. The quality of stock exchanges’ rules for listing and for governing trading on their facilities is therefore an important element of the corporate governance framework. What traditionally were called “stock exchanges” today come in a variety of shapes and forms. Most of the large stock exchanges are now profit maximising and themselves publicly traded joint stock companies that operate in competition with other profit maximising stock exchanges and trading venues. Regardless of the particular structure of the stock market, policy makers and regulators should assess the proper role of stock exchanges and trading venues in terms of standard setting, supervision and enforcement of corporate governance rules. This requires an analysis of how the particular business models of stock exchanges affect the incentives and ability to carry out these functions. I.E. Supervisory, regulatory and enforcement authorities should have the authority, autonomy, integrity, resources and capacity to fulfil their duties in a professional and objective manner. Moreover, their rulings should be timely, transparent and fully explained. Supervisory, regulatory and enforcement responsibilities should be vested with bodies that are operationally independent and accountable in the exercise of their functions and responsibilities, have adequate powers, proper resources, and the capacity to perform their functions and exercise their powers, including with G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 12  respect to corporate governance. Many jurisdictions have addressed the issue of political independence of the securities supervisor through the creation of a formal governing body (a board, council or commission) whose members are given fixed terms of appointment. Some jurisdictions also stagger appointments and make them independent from the political calendar to further enhance independence. Some jurisdictions have sought to reduce potential conflicts of interest by introducing policies to restrict post-employment movement to industry through mandatory time gaps or cooling-off periods. Such restrictions should take into consideration the regulators’ ability to attract senior staff with relevant experience. These bodies should be able to pursue their functions without conflicts of interest and their decisions should be subject to judicial or administrative review. At the same time, supervisory staff should be adequately protected against the costs related to defending their actions and/or omissions made while discharging their duties in good faith. To guard against conflicts of interest (including the potential for political or business interference in supervisory and enforcement processes), operational independence may be reinforced by autonomy over budgetary and human resource management decisions. Such autonomy should be coupled with high ethical standards and accountability mechanisms, including timely, transparent and fully explained decisions that are open to public and judicial scrutiny. When the number of corporate events and the volume of disclosures increase, the resources of supervisory, regulatory and enforcement authorities may come under strain. As a result, they will have a significant demand for fully qualified staff to provide effective oversight and investigative capacity which will require adequate funding. Many jurisdictions impose levies on supervised entities in combination with, or as an alternative to, government funding. This may support greater financial autonomy from governments to carry out their mandates, while structuring such fees to avoid impeding supervisory independence from regulated industry participants and providing adequate transparency on the criteria adopted to set the fees. The ability to attract staff on competitive terms is also important to enhance the quality and independence of supervision and enforcement. I.F. Digital technologies can enhance the supervision and implementation of corporate governance requirements, but supervisory and regulatory authorities should give due attention to the management of associated risks. Many jurisdictions use digital technologies to enhance the efficiency and effectiveness of supervisory and enforcement processes related to corporate governance, with benefits, for example, for market integrity. They can also alleviate the regulatory burden on regulated entities, which can themselves use digital tools to lower compliance costs and enhance risk management capabilities. Digital technologies may also be leveraged to make regulatory compliance less onerous for companies, with a view to maintaining the rigour and scope of corporate governance regulation and corporate disclosure through improvements in the functioning of the existing framework. Adopting digital solutions in regulatory and supervisory processes also comes with challenges and risks. Important considerations include ensuring the quality of data; ensuring that staff have proper technical competence; considering interoperability between systems in the development of reporting formats; and managing third-party dependencies and digital security risks. When artificial intelligence and algorithmic decision-making are used in supervisory processes, it is critical to maintain a human element in place to mitigate against risks of incorporating existing biases in algorithmic models and the risks from an overreliance on models and digital technologies. At the same time, regulators in most jurisdictions espouse the value of a technology neutral approach that does not discourage innovation and the adoption of alternative technological solutions. As technologies evolve and may serve to strengthen corporate governance practices, the regulatory framework may require review and adjustments to facilitate their use. G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023  13 I.G. Cross-border co-operation should be enhanced, including through bilateral and multilateral arrangements for exchange of information. High levels of cross-border ownership and trading require strong international co-operation among regulators, including through bilateral and multilateral arrangements for exchange of information or joint supervisory actions. International co-operation is becoming increasingly relevant for corporate governance, notably when companies or company groups are active in many jurisdictions through both listed and unlisted entities, and seek multiple stock market listings on exchanges in different jurisdictions. I.H. Clear regulatory frameworks should ensure the effective oversight of publicly traded companies within company groups. Well-managed company groups that operate under adequate corporate governance frameworks can help to achieve benefits based on economies of scale, synergies and other efficiencies. Nevertheless, company groups in some cases may be associated with risks of inequitable treatment of shareholders and stakeholders. The prevalence of company groups in many jurisdictions has therefore heightened the need for regulators to ensure that the corporate governance framework provides means to effectively monitor them. If not, the extensive and complex structures of company groups may pose risks to shareholders and stakeholders of publicly traded parent or subsidiary companies within group structures, including through abusive related party transactions. Some group companies may also be used to shift funds within the group as part of the group’s tax planning strategies, or may use the funds for board/executive remuneration or dividend payments. Company groups operating in different sectors and across borders call for co-operation between domestic regulators and across jurisdictions to strengthen the effectiveness and consistency of regulatory oversight. Such efforts may include information sharing on the activities of company groups for supervisory and enforcement purposes. To this end, jurisdictions are encouraged to develop a practical definition and criteria for the oversight of company groups focusing on aspects such as the controlling relationship of group companies and their parent, companies’ domicile, and appropriateness of inclusion in consolidated financial reporting, among other aspects. In some jurisdictions, companies have adopted protocols and governance guidelines at group level as a tool to self-regulate group activity. G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 14  II. The rights and equitable treatment of shareholders and key ownership functions The corporate governance framework should protect and facilitate the exercise of shareholders’ rights and 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 at a reasonable cost and without excessive delay. Equity investors have certain property rights. For example, an equity share in a publicly traded company can be bought, sold, or transferred. An equity share also entitles the investor to participate in the profits of the corporation, with liability limited to the amount of the investment. In addition, ownership of an equity share provides a right to information about the corporation and a right to influence the corporation, primarily by participating and voting in general shareholder meetings. As a practical matter, however, the corporation cannot be managed by shareholder referendum. The shareholding body is made up of individuals and institutions whose interests, goals, investment horizons and capabilities vary. Moreover, the corporation’s management must be able to take business decisions rapidly. In light of these realities and the complexity of managing the corporation’s affairs in fast moving and ever changing markets, shareholders are not expected to assume responsibility for managing corporate activities. The responsibility for corporate strategy and operations is typically placed in the hands of the board and a management team that is selected, motivated and, when necessary, replaced by the board. Shareholders’ rights to influence the corporation centre on certain fundamental issues, such as the election of board members, or other means of influencing the composition of the board, amendments to the company’s organic documents, approval of extraordinary transactions, and other basic issues as specified in company law and internal company statutes. These are the most basic rights of shareholders and they are recognised by law in most jurisdictions. Additional rights have also been established in various jurisdictions, such as direct nomination of individual board members or board member slates; the ability to pledge shares; the approval of distributions of profits; shareholder ability to vote on board member and/or key executive remuneration; approval of material related party transactions; and others. Investors’ confidence that the capital they provide will be protected from misuse or misappropriation by corporate managers, board members or controlling shareholders is an important factor in the development and proper functioning of capital markets. On the contrary, an inefficient corporate governance mechanism may allow corporate boards, managers and controlling shareholders the opportunity to engage in activities that advance their own interests at the expense of non-controlling shareholders. In providing protection to investors, a distinction can usefully be made between ex ante and ex post shareholder rights. Ex ante rights are, for example, pre-emptive rights and qualified majorities for certain decisions. Ex post rights allow the seeking of redress once rights have been violated. In jurisdictions where the enforcement of the legal and regulatory framework is weak, it can be desirable to strengthen the ex ante rights of shareholders such as G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023  15 through low share ownership thresholds for placing items on the agenda of the shareholders meeting or by requiring a supermajority of shareholders for certain important decisions. The Principles support equal treatment of foreign and domestic shareholders in corporate governance. They do not address government policies to regulate foreign direct investment. One of the ways in which shareholders can enforce their rights is to be able to initiate legal and administrative proceedings against management and board members. Experience has shown that an important determinant of the degree to which shareholders’ rights are protected is whether effective methods exist to obtain redress for grievances at a reasonable cost and without excessive delay. The confidence of minority investors is enhanced when the legal system provides mechanisms for minority shareholders to bring lawsuits when they have reasonable grounds to believe that their rights have been violated. Some countries have found that derivative lawsuits filed by minority shareholders on behalf of the company serve as an efficient additional tool for enforcing directors’ fiduciary duties, if the distribution of litigation costs is adequately set. The provision of such enforcement mechanisms is a key responsibility of legislators and regulators, and the capacity and quality of courts also play an important role. There is some risk that a legal system that enables any investor to challenge corporate activity in the courts can become prone to excessive litigation. Thus, many legal systems have introduced provisions to protect management and board members against litigation abuse in the form of screening mechanisms, such as a pre-trial procedure to evaluate whether the claim is non-meritorious, and safe harbours for management and board member actions (such as the business judgement rule) as well as safe harbours for the disclosure of information. In the end, a balance must be struck between allowing investors to seek remedies for infringement of ownership rights and avoiding excessive litigation. Many jurisdictions have found that alternative adjudication procedures, such as administrative hearings or arbitration procedures organised by the securities regulators or other bodies, are an efficient method to protect shareholder rights, at least at the first instance level. Specialised court procedures can also be a practical instrument to obtain timely injunctions and to gather evidence on an alleged infringement, ultimately facilitating the effective redress for violations of shareholders’ rights. II.A. 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; 6) share in the profits of the corporation; and 7) elect, appoint or approve the external auditor. II.B. Shareholders should be sufficiently informed about, and have the right to approve or participate in decisions concerning fundamental corporate changes such as: 1) amendments to the statutes, articles of incorporation or similar governing documents of the company; 2) the authorisation of additional shares; and 3) extraordinary transactions, including the transfer of corporate assets that in effect result in the sale of the company. The ability of companies to form partnerships and related companies, and to transfer operational assets, cash flow rights and other rights and obligations to them, is important for business flexibility and for delegating authority in complex organisations. It also allows a company to divest itself of operational assets and to become only a holding company. However, without appropriate checks and balances, such possibilities may also be abused. II.C. 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. II.C.1. Shareholders should be furnished with sufficient and timely information concerning the date, format, location and agenda of general meetings, as well as fully detailed and timely information regarding the issues to be decided at the meeting. G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 16  II.C.2. Processes, format 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. The right to participate in general shareholder meetings is a fundamental shareholder right. Management and controlling investors have at times sought to discourage non-controlling or foreign investors from trying to influence the direction of the company. Some companies have charged fees for voting. Other potential impediments include prohibitions on proxy voting, requiring personal attendance at general shareholder meetings to vote, bundling of unrelated resolutions, holding the meeting in a remote location, and allowing voting by show of hands only. Still other procedures may make it practically impossible to exercise ownership rights. Voting materials may be sent too close to the time of general shareholder meetings to allow investors adequate time for reflection and consultation. Many companies are seeking to develop better channels of communication and decision-making with shareholders. Efforts by companies to remove artificial barriers to participation in general meetings are encouraged and the corporate governance framework should facilitate the use of electronic voting in absentia, including the electronic distribution of proxy materials and reliable vote confirmation systems. In jurisdictions where private enforcement is weak, regulators should be in a position to curb unfair voting practices. II.C.3. General shareholder meetings allowing for remote shareholder participation should be permitted by jurisdictions as a means to facilitate and reduce the costs to shareholders of participation and engagement. Such meetings should be conducted in a manner that ensures equal access to information and opportunities for participation of all shareholders. Virtual or hybrid (where certain shareholders attend the meeting physically and others virtually) general shareholder meetings can help improve shareholder engagement by reducing their time and costs of participating. By using virtual platform providers, companies may incur additional costs but also streamline shareholders’ access to agendas and related information, and provide a secure infrastructure and more efficient means for considering and addressing shareholder comments and questions. However, due care is required to ensure that remote meetings do not decrease the possibility for shareholders to engage with and ask questions to boards and management in comparison to physical meetings. Some jurisdictions have issued guidance to facilitate the conduct of remote meetings, including for handling shareholder questions, responses and their disclosure, with the objective of ensuring transparent consideration of questions by boards and management, including how questions are collected, combined, answered and disclosed. Such guidance may also address how to deal with technological disruptions that may impede virtual access to meetings. Many companies rely on technology vendors to manage remote participation. When choosing service providers, it is important to consider that they have the appropriate professionalism as well as data handling and digital security capacity to support the conduct of fair and transparent shareholder meetings, with technical and organisational security measures in place for each of the processing operations carried out by virtue of their service, especially concerning personal data, which require stricter security measures. Such processes should allow for the verification of shareholders’ identity through secured authentication of attendees and ensure equal participation as well as the confidentiality and security of votes cast prior to the meeting. II.C.4. Shareholders should have the opportunity to ask questions to the board, including on the annual external audit, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. In order to encourage shareholder participation in general meetings, many jurisdictions have improved the ability of shareholders to place items on the agenda through a simple and clear process of filing amendments and resolutions, and to submit questions in advance of the general meeting and to obtain appropriate replies from management and board members in a manner that ensures their transparency. Shareholders should also be able to ask questions relating to the external audit report. Companies are justified in assuring that G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023  17 abuses of such opportunities do not occur. It is reasonable, for example, to require that in order for shareholder resolutions to be placed on the agenda, they need to be supported by shareholders holding a specified market value or percentage of shares or voting rights. This threshold should be determined taking into account the degree of ownership concentration, in order to ensure that minority shareholders are not effectively prevented from putting any items on the agenda. Shareholder resolutions that are approved and fall within the competence of the shareholder meeting should be addressed by the board. II.C.5. 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, including through votes at shareholder meetings, on the remuneration of board members and/or key executives, as applicable. The equity component of compensation schemes for board members and employees should be subject to shareholder approval. Electing the members of the board is a basic shareholder right. For the election process to be effective, shareholders should be able to participate in the nomination of board members and vote on individual nominees or on different lists of nominees. To this end, shareholders have access in a number of jurisdictions to the company’s voting materials which are made available to shareholders, subject to conditions to prevent abuse. With respect to nomination of candidates, boards in many companies have established nomination committees to ensure proper compliance and transparency with established nomination procedures and to facilitate and co-ordinate the search for a balanced, diverse and qualified board. It is regarded as good practice for independent board members to have a key role on this committee. To further improve the selection process, the Principles also call for full and timely disclosure of the experience and background of candidates for the board and the nomination process, which will allow an informed assessment of the abilities and suitability of each candidate. It is required or considered good practice in some jurisdictions to also disclose information about any other board positions or committee memberships that nominees hold, and in some jurisdictions also positions that they are nominated for. The Principles call for the disclosure of remuneration of board members and key executives. In particular, it is important for shareholders to know the remuneration policy, as well as the total value and structure of remuneration arrangements made pursuant to this policy. Shareholders also have an interest in how remuneration and company performance are linked when they assess the capability of the board and the qualities they should seek in nominees for the board. The different forms of say-on-pay (binding or advisory vote, ex ante and/or ex post, board members and/or key executives covered, individual and/or aggregate compensation, remuneration policy and/or actual remuneration) play an important role in conveying the strength and tone of shareholder sentiment to the board. In the case of equity-based schemes, their potential to dilute shareholders’ capital and to powerfully determine managerial incentives means that they should be approved by shareholders, either for individuals or for the policy of the scheme as a whole. Shareholder approval should also be required for any material changes to existing schemes. II.C.6. 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. The objective of facilitating shareholder identification and participation suggests that jurisdictions and/or companies promote the enlarged use of information technology in voting, including secure electronic voting in all publicly traded companies for both remote and in person meetings. The Principles recommend that voting by proxy be generally accepted. Indeed, it is important for the promotion and protection of shareholder rights that investors can rely on directed proxy voting. The corporate governance framework should ensure that proxies are voted in accordance with the direction of the proxy holder. In those jurisdictions where companies are allowed to obtain proxies, it is important to disclose how the chair of the meeting (as the usual recipient of shareholder proxies obtained by the company) will exercise the voting rights attached to undirected proxies. Where proxies are held by the board or management for company pension funds and for employee stock ownership plans, the directions for voting should be disclosed. It is required or considered G20/OECD PRINCIPLES OF CORPORATE GOVERNANCE © OECD 2023 18  good practice in many jurisdictions that treasury shares and shares of the company held by subsidiaries should not be allowed to vote, nor be counted for quorum purposes. II.C.7. Impediments to cross-border voting should be eliminated. Foreign investors often hold their shares through chains of intermediaries. Shares are typically held in accounts with securities intermediaries who in turn hold accounts with other intermediaries and central securities depositories in other jurisdictions, while the publicly traded company resides in a third jurisdiction. Such cross-border chains cause special challenges with respect to determining the entitlement of foreign investors to use their voting rights, and the process of communicating with such investors. In combination with business practices which provide only a very short notice period, shareholders are often left with only very limited time to react to a convening notice by the company and to make informed decisions concerning items for decision. This makes cross-border voting difficult. The legal and regulatory framework should clarify who is entitled to control the voting rights in cross-border situations and where necessary to simplify the depository chain. Moreover, notice periods should ensure that foreign investors in effect have the same opportunities to exercise their ownership functions as domestic investors. To further facilitate voting by foreign investors, laws, regulations and corporate practices should allow participation through electronic means in a non-discriminatory way. II.D. 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. It has long been recognised that in companies with dispersed ownership, individual shareholders might have too small a stake in the company to warrant the cost of taking action or for making an investment in monitoring performance. Moreover, if small shareholders did invest resources in such activities, others would also gain without having contributed (i.e. they are “free riders”). In many instances institutional investors limit their ownership stake in individual companies because it is beyond their capacity or would require investing more of their assets in one company than may be prudent or permitted. To overcome this asymmetry which favours diversification, they should be allowed, and even encouraged, to co-operate and co-ordinate their actions in nominating and electing board members, placing proposals on the agenda, and holding discussions directly with a company in order to improve its corporate governance, subject to shareholders’ compliance with applicable law, including, for example, beneficial ownership reporting requirements. Some major institutional investors have established initiatives to facilitate the co-ordination of their engagement, for example to address climate-related concerns. When publicly traded companies have