Corporate Governance is important as it creates a system of processes, practices and rules that determines how a company operates and aligns with the interest of various stakeholders. It has become even more relevant now as the sector recovers from the impact of COVID-19 around the globe and would be critical for developing resilience to any such crisis in the future. In this context, the current issue of ‘the Hub’ highlights the recently released OECD Corporate Governance Factbook 2021. It provides comparative information across jurisdictions on institutional, legal and regulatory frameworks. The factbook is divided into the following four sections focusing on:

 

1. The corporate, market and ownership landscape

The stock markets play a key role in providing companies with capital and meet temporary downturns like the financial crisis of 2008 and the ongoing COVID-19 pandemic. A record USD 629 billion was raised by non-financial companies in 2020, with major share (47%) going to Asian region, which was driven by surge in Chinese IPOs. On the other hand, almost 30000 companies, mostly smaller growth companies in advanced economies, have delisted from the stock markets globally since 2005, raising a concern that only fewer and larger companies are accessing stock markets for funds.

 

The increase in institutional ownership stands as one of the most significant changes in the ownership structure of the world’s listed companies. At global aggregate level, institutional investors represent the largest investor category by holding 43% of the world market capitalisation. Asian listed companies also have a significant portion of their shares held by other corporations.

 

 

2. The corporate governance framework

All surveyed jurisdictions have public regulators- securities regulators, financial regulators or a combination of two or Central Bank- that have the authority to supervise and enforce the corporate governance practices of listed companies. To ensure independence of the institutions, separate budget funded by fees assessed on regulated entities or a mix of fees and fines has been established. In some jurisdictions, the regulatory institutions are funded by the national budget.

 

3. The rights of shareholders and key ownership functions

Almost all jurisdictions follow the principles that protect the rights of shareholders. This includes right to obtain information on shareholder meetings, place items on the agenda, voting rights etc. The Factbook also covers mechanisms for review of related party transactions, corporate takeover bids, and the roles and responsibilities of institutional investors and related intermediaries.

 

4. The corporate board of directors

Most of the jurisdictions follow one-tier board structure with a very few following two-tier boards (supervisory and management boards) or allowing both types. However, nearly all jurisdictions recommend boards to be composed of at least 50% of independent directors. Definition of independent director has also evolved in last few years. More jurisdictions are now opting for separation of the board chair and the CEO. To improve the participation of females, the requirement to disclose gender composition of the boards has also increased.