Corporate governance

International Corporate Governance Network (ICGN) Annual Conference


Opening remarks by Angel Gurría, OECD Secretary-General, at the ICGN annual conference

Seoul, 19 June, 2008

Good morning Ladies and Gentlemen,

It is a great pleasure to participate in this International Corporate Governance Network (ICGN) Annual Conference.

The recent global financial crisis and its impact on global economic confidence and growth prospects have highlighted the great relevance of corporate governance, and its key contribution to stability.

I wouldn’t claim that the financial crisis was triggered by bad corporate governance but some of the negative effects could probably have been mitigated, or even perhaps avoided by better corporate governance, for example in terms of risk management, board awareness and evaluation policies.

Good corporate governance underpins the success and integrity of corporations, institutions and markets. Thus, it is a top priority for OECD. Maintaining open markets is critical for reaping the benefits of globalisation. For more than a decade we have been an international standard-setter and a forum for dialogue on corporate governance. I am pleased to note that ICGN was one of the first international organisations to endorse the OECD Principles of Corporate Governance and I am very glad to be back to address your annual conference.

Identifying emerging trends so that governments, regulators and businesses shape consensus and adapt their policies to changing circumstances is particularly important in the world of corporate governance.  Today, the international ownership and governance landscape is changing rapidly. New owners such as private equity firms, hedge funds and sovereign wealth funds are entering the arena. They have become more active and more visible. 

The arrival of these and other global investors is obviously welcome. It provides countries and companies with deeper capital markets and a wider range of capital providers. This should result in lower cost of capital, greater investment, growth and employment. But we would fool ourselves if we didn’t realise that this process will also create tensions, when national corporate cultures, investor attitudes and business traditions meet and blend or sometimes clash. This is unavoidable and can only be dealt with through an ongoing dialogue and a permanent updating and upgrading of the underlying framework. In any case, the political objective must be to ensure an open investment regime.

It is against this background that we at OECD have analysed the role of private equity firms and activist hedge funds. We concluded that they generally play a positive role in corporate governance. But we also detected that their ownership practices revealed potential shortcomings in our regulatory systems. 

We have therefore looked closer at issues such as takeover rules and conflicts of interest. We will also be looking at the issue of  “acting in concert”, which I know is also of interest to the membership of ICGN. We will present our findings later this year. Our analyses and recommendations in these areas are a good example of how we constantly need to fine-tune and adapt our regulatory systems to accommodate new market developments.

While most of you are familiar with the debate about private equity firms, hedge funds and sovereign wealth funds, I would like to point toward a group of players that has received less attention so far. I am referring to the state-owned enterprises. These companies are playing an increasingly important role in the ownership landscape and in global markets. 

Only four years ago, the world’s ten largest listed companies in terms of market value were all private commercial entities, domiciled in the United States and Europe. Today, five of the top-ten publicly traded corporations are government controlled. Three of these are Chinese including Petro China. Another is Russian (Gazprom) and one Brazilian (Petrobras). 

Partially state-owned enterprises, such as Electricité de France, ENI, ENEL and the telecom companies of Germany and France, are all among the worlds’ 100 largest publicly traded companies. State-owned companies are increasingly operating on a world scale, as they consolidate in their home markets and then seek to become globally competitive. This trend will probably continue. 

But government ownership in publicly traded companies is only the tip of the iceberg. In many countries, a significant proportion of commercial assets is in the hands of corporate entities that are 100 percent owned by the public sector ─or run directly as government departments. Here are some figures:

  • Recently, the OECD estimated that South African state-owned enterprises control more than 20% of the country’s total capital stock.
  • In China, state-owned enterprises may have lost ground to the private sector, but they still account for 40% of GDP.
  • India’s state-owned enterprises (including commercial activities by the government not necessarily classified as corporate) account for nearly 25% of GDP. With a regular staff of 1.6 million employees, Indian Railways ─for example─ compete with WalMart for the position as the world’s largest corporate employer.

State-owned enterprises sometimes become significant forces in both home and host countries.  Thus they will be a major focus of our future corporate governance work.  We are well equipped for the job. It requires a common international understanding about basic principles of transparency and accountability. And the OECD Guidelines for Corporate Governance of State-Owned Enterprises is a most  appropriate basis for such a discussion.

Our work will tackle three main challenges.

First, there is a lack of data while the market value of publicly traded state-owned enterprises is amply documented, data about non-quoted, wholly state-owned companies and their role in the economic system is not compiled systematically by any organisation. This information is nevertheless essential  for informed policy decisions.

Second is the issue of efficiency and growth, but also the closely related issue of the competitiveness of private sector companies that depend on state-owned enterprises for essential goods and services; for example, telecommunications, transportation and energy.

Since many state-owned enterprises represent significant economic assets of the countries involved, we aim to provide guidance on how to reform them and make them more efficient. We will address the main obstacles for reform and point to successful examples. Again, our Guidelines for State-Owned Enterprises are a very useful starting point. Good corporate governance is one of the essential pillars for building efficient and sustainable corporations.   

A third challenge of increasing multilateral relevance is that, as was mentioned above, many state-owned enterprises are now stepping up their investments and operations abroad. This has given rise to a number of concerns. Some are worried that state-controlled investors may have access to privileged information provided by their governments. Others are concerned about “re-nationalisation” via foreign governments of previously privatised assets in the host countries. And yet others have concerns about the objectives, transparency and accountability of foreign state-owned enterprises. Even if these and other concerns may be unfounded, it is in everybody’s interest that we address them upfront, in an open and informed dialogue.

In light of the sovereign wealth funds debate, state-owned enterprises themselves should ensure that the corporate governance challenges arising from their international operations are properly addressed. By applying high standards of transparency, accountability and other key corporate governance measures they will not only improve their own efficiency, but can also dispel many of the concerns of the host governments, the markets and the general public about  the nature and impacts of their operations. 

In the OECD Guidelines for State-Owned Enterprises, the OECD countries have already committed themselves to improve such standards. We now want to take this work further and address the particular corporate governance issues that may arise when state-owned Enterprises operate and invest outside their home country. And we want to involve as many countries and stakeholders as possible in this work.
OECD’s work on corporate governance has always been truly global. It involves and engages a large number of non-OECD countries that actively contribute to shape our policy proposals. This co-operation is a two-way street where experiences from emerging markets and developing countries are contributing to forge a true global consensus.

This openness doesn’t only improve the quality of our work. It also gives it credibility. Many of you have personally contributed by participating in our regional roundtables. These roundtables have engaged thousands of people over the years. In Asia, China, Latin America, the Middle East and North Africa, Russia and Southeast Europe.

This brings me to some very interesting, innovative work that OECD is doing with its Asian partners. The OECD Asia Roundtable on Corporate Governance – which actually had its first meeting here in Seoul; has grown into a recognized regional hub for policy dialogue.  

Just last month, the Roundtable met in Hong Kong. The meeting agreed to focus its work on a set of recommendations to  curb abusive related-party transactions. Abusive related-party transactions is one of the most challenging tasks in emerging markets and we expect that the work in Asia will be valuable for other regions as well.  I expect the recommendations to be finalised by the time the Roundtable meets in the Philippines next year. 

Before leaving the podium, I would like to turn to my good friend Ira Millstein. Ira has been a close partner and friend of the OECD for many years. I am very proud to be on the stage with him to present our most recent joint opus: A practical boardroom guide to the OECD Principles. I will let Ira talk about this important piece of work in a moment. Thank you Ira for your inspiration, your guidance and your support.

Ladies and gentlemen, thank you for your attention. We live in exciting times with profound changes in corporate ownership and governance practices. These are OECD times. The OECD is committed to continue its role as the hub for setting standards and detonating meaningful dialogue on global issues. I look forward to your involvement in our work and to new ways to develop our partnership.

Thank you very much.


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