OECD urges more investor protection

Leading industrialised countries are proposing to tighten corporate governance rules in the wake of recent scandals, to give investors greater protection and improve the ability to act against abuses and fraud by rogue managements and controlling shareholders.
The Organisation for Economic Co-operation and Development (OECD), whose original corporate governance principles adopted in 1999 by its 30-member governments have established a benchmark, is today to publish a revised draft of the principles for public comment. Governments are subsequently due to approve the revised principles at their annual ministerial meeting in Paris in May.
Donald Johnston, the OECD's general secretary, said the consultation process would be taken "very seriously" and could lead to a further toughening of the revised proposals.
It was now urgent to re-establish public confidence in corporate behaviour at a time when everybody was "getting a black eye", he said.
"All has changed with these terrible scandals. In 1999 we never contemplated these kinds of issues," Mr Johnston said. At the time, the biggest problem appeared to involve governance standards in emerging market economies but in retrospect the problems had erupted in the heart of the industrialised world.
Mr Johnston added that if tighter standards had been put into place five years ago, some of the frauds recently unearthed might not have happened. "I believed there was a distinction between criminal behaviour and bad corporate governance. But the public does not see it like that and I now believe good corporate governance makes it more difficult to conduct fraud," he said.
A new opening chapter in the revised draft of the OECD principles calls for transparent and enforceable legal and regulatory requirements with mechanisms to allow shareholders to bring claims against management and auditors. Investors should also have the right to nominate directors and a more forceful role in electing them. They should be able to express their views on compensation policies for board members and executives and question auditors.
Auditors, whose role is again under fire in the Parmalat scandal, should be accountable to shareholders and the board and not to management, as is often the case. Whistleblowers should also be protected, allowing them access on a confidential basis to the board and regulators.
Mr Johnston would like to see included in the revised principles the separation of the roles of chief executive and chairman.
The OECD is also preparing guidelines for stateowned enterprises. Experts from OECD countries are increasingly concerned by political interference.