OECD Principles of Corporate Governance: A Critical Evaluation

Abstract

The Organization for Economic Co-operation and Development (OECD) Principles of Corporate Governance comprises of certain elements of corporate governance significant for the purpose of managing a corporation. It ensures good corporate governance in the OECD as well as the non-OECD countries. It came into existence for the reconstruction of a devastated market system by application of US-financed Marshall Plan after World War II. The first set of OECD principles on good corporate governance were published in 1999 and revised in 2004. It includes the rights and treatment of shareholders, the role of stakeholders in corporate governance and their rights and responsibility of the board for disclosures and maintenance of transparency. These principles have been used extensively for framing a policy dialogue for the purpose of promoting regional corporate governance reforms and roundtables in non- OECD member countries as well. Since 1995, India has been associated with OECD, as non-member economy. The corporate governance code of India has major provisions in compliance with the OECD principles. These principles can be criticized on the basis of certain issues such as its convergence towards the anglo-American way of corporate governance, the share-holder’s primacy form of governance which negates the stakeholders’ interest. But on the other hand, these principles alter the corporate governance systems of the countries to attract and suit foreign investors. Besides its adoption, proper implementation is essential, which includes having a proper corporate governance code, an audit committee, principle of accountability and director’s responsibility of acting with due diligence and proper care.