6.6 OECD

The Organisation for Economic Co-operation and Development (OECD) has published the OECD Principles of Corporate Governance (OECD 2004). The latest version dates back to 2004 and is the successor of the edition of 1999. The 2004 edition is a thorough review of the earlier edition by the OECD Steering Group on Corporate Governance and is based on a survey among OECD member countries. The aim is to increase the quality of corporate governance in member states with non-binding standards and good practices for corporate governance (OECD 2004: 3-4).

The document consists of two parts: principles of corporate governance and annotations to these principles. Both parts are divided into six chapters or subjects, of which responsibilities of the board focuses – among other things – on independence of the board. Principle VI.E states that the ‘board should be able to exercise objective independent judgement on corporate affairs.’ According to the annotation to this principle, this means that there should be a sufficient number of NEDs who are independent of management (OECD 2004: 63-66). The recommendations are focused on unitary board structures; dual board structures are practically not addressed in this document. This independence is not worked out further, because different board structures, ownership patterns and other characteristics require a tailor-made approach for board composition recommendations. However, it is mentioned that independence requires a lack of family, economic or other ties with the company itself or its management and no employment by the company or affiliated companies. The OECD mentions practices by some countries to include lists of independence criteria. These lists of negative criteria, which determine when a director is non-independent, should be complemented with positive criteria about competences and qualities, according to the annotations of the OECD. Furthermore, CEO duality is not regarded as a good practice. The roles of CEO and chairman should be separated. However, in situations of CEO duality a NED should act as a lead director, who chairs the meetings with the NEDs.

The OECD offers three supporting principles with the main principle. The first requires having a sufficient number of supervisors to give independent judgements on tasks that are vulnerable to conflicts of interest, such as integrity of reporting, review of related party transactions and the nomination and remuneration of board members. The annotation suggests establishing board committees in areas where conflicts of interest are likely to arise. These board committees must consist entirely of supervisors. However, nothing is specified about independent supervisors. Second, these committees should have a well-defined mandate, composition and procedures that are disclosed. The market can evaluate the board committees based on the disclosures. Third, the supervisors should commit themselves to the board. Too many board positions can interfere with the performance on a board. The performance can be enhanced by training programmes as well.