Methodology for Assessing the Implementation of the G20/OECD Principles of Corporate Governance 2025

A. Methodological issues and procedures

Introduction

This update of the Methodology for Assessing the Implementation of the G20/OECD Principles of Corporate Governance follows the 2023 revision of the G20/OECD Principles of Corporate Governance (hereafter “The Principles or G20/OECD Principles”) (OECD, 2023[1]). Together, the Principles and the Methodology form the basis for voluntary self-assessments by interested bodies and jurisdictions, for assessments undertaken by the World Bank/ International Monetary Fund (IMF) either in the form of a Review of Observance of Standards and Codes (ROSC) or as part of the Financial Sector Assessment Programme (FSAP), and for OECD corporate governance assessments, including in the context of accession to the OECD by candidate jurisdictions. The G20/OECD Principles have been designated by the Financial Stability Board as a Key Standard for Sound Financial Systems. The Methodology supports the Principles by explaining how to assess their implementation.

The use and scope of the Methodology

The Methodology is intended to underpin an assessment of the implementation of the Principles in a jurisdiction and to provide a framework for policy discussions. It does not create any new Principles or different benchmarks. The ultimate purpose of an assessment is to identify the nature and extent of specific strengths and weaknesses in corporate governance, and thereby support policy dialogue that may identify reform priorities leading to the improvement of corporate governance and economic performance. Since the Principles are concerned in part with company law, securities regulation and the enforcement/legal system, the term “jurisdiction” rather than country is used in the Methodology. Reviewers should note that because sometimes a country may have several different geographical jurisdictions with separate regulatory frameworks, a country level assessment, if indeed this is meaningful, would need to take this factor fully into account.

Reflecting the Principles, the Methodology places emphasis on “outcomes” and, therefore, on “functional equivalence”. The latter means that there are many different ways to achieve the “outcomes” advocated by the Principles, including through institutions, laws and companies’ internal rules. Thus, it is recognised in the introduction to the Principles (“About the Principles”) that implementation needs to be adapted to national circumstances and take into account jurisdiction‑specific economic, legal, and cultural differences. For example, the protection and enforcement of minority shareholder rights might be achieved via private arrangements, such as by majority shareholders agreeing to restrict the use of their powers to appoint the whole board, special investigation procedures and/or class enforcement procedures. These alternatives are often deeply rooted in legal and social traditions.

The criteria to judge whether a principle has been implemented, therefore, have to be selected in a way that does not imply a value judgement about the “means”, but rather about the effectiveness and efficiency of current arrangements in terms of achieving the outcome. The Methodology does, however, recognise that the relative costs and benefits of alternative “means” of implementation might vary over time as, inter alia, the composition of publicly traded companies and the structure of ownership and control in the jurisdiction evolves. The need for a dynamic perspective for policy dialogue is thereby recognised. To underpin policy dialogue, the Methodology, like the Principles, treats jurisdictions consistently, despite their widely different institutional structures and traditions. This feature is intended to facilitate a discussion about different remedies for similar problems and the transferability of experience between jurisdictions.

The Methodology does not, however, encourage any summary ranking of jurisdictions against each other or the construction of a single, overall rating. Rather, it is intended to assess jurisdictions qualitatively against what they could and should achieve in relation to the Principles, and to provide a framework for identifying policy options to improve corporate governance.

This Methodology aims to provide the tools for assessors to carry out comprehensive assessments against the Principles. These may be voluntary self-assessments, carried out for example in the context of a jurisdiction’s consideration of becoming an Adherent to the Principles, or to support required assessments as part of a jurisdiction’s accession process to become a Member of the OECD. The Methodology also serves as a basis for other formal reviews such as ROSCs and FSAPs by the World Bank and IMF, respectively.

The Methodology can also be used to carry out more focused reviews on certain corporate governance topics, which may take into consideration elements of all of the six chapters of the Principles or be more specific to one of the chapters. Focused reviews on certain topics of a corporate governance framework against the Principles (or a subset thereof) should always be accompanied by a review of the corporate governance landscape (Part B of the Methodology). The corporate governance landscape the elements of which are described in Part B provides necessary background information to understand the institutional and legal framework for corporate governance and should be regarded as a necessary pre-condition to analyse and assess more specific topics of corporate governance.

Focused reviews may cover topics such as: protection and enforcement of minority shareholder rights, sustainability, access to finance and the development of capital markets, corporate governance of company groups, and the functioning of corporate governance codes. These reviews may be conducted by chapter(s) of the Principles or by thematic areas across chapters. In both cases, the cross-references provided following each principle and sub-principle in Part C may be a useful tool for assessors to understand which other principles are complementary to form an assessment on a certain topic.

How to assess outcomes

Making an informed judgement

The Principles are outcome-oriented. What is being assessed to determine the implementation of individual principles is a combination of the legal framework and other implementation measures, enforcement, corporate practices, and the functioning of markets. The corporate governance framework comprises legislation, regulation, standards including as defined via case law or judicial decisions, codes and principles and business practices. They are the result of a jurisdiction’s specific circumstances, history and tradition so that the desirable mix will therefore vary from jurisdiction to jurisdiction. For example, forming an assessment about whether boards are diligent is likely to depend on judgements about the implementation of other principles, such as those covering shareholder rights, transparency and the efficacy of the enforcement mechanism. An assessment about whether the Principles are implemented in a jurisdiction is therefore necessarily a matter of informed judgement based on a variety of sources of information.

The fact that the Methodology is focused on jurisdictions and not on individual companies also gives rise to some specific challenges. As companies in a jurisdiction usually vary in their own governance practices, there is a question as to how widespread a practice should be, or how important any abuse should be, for the jurisdiction as a whole to be considered as implementing or not implementing the Principles. It is difficult to set out clear-cut guidelines and checklists to cover such a situation. Perhaps the best approach to assessing implementation therefore is to rely on “a reasonable assessor” or “reasonable observer” type procedure, the practicalities of which are developed further in the following sub-section.

The comprehensive scope of the Principles means that individual principles might often be closely related to others, the outcome being similar but looking at the issue from a different angle. This implies that informed judgements about a given principle might at least be checked for consistency or complementarity with the judgement for other closely related principles. To aid the reviewer and to restrict the room for ad hoc judgement in an individual case, the Methodology therefore includes a number of cross references to related principles that form the basis for a consistency/complementarity check. Furthermore, the Principles make references to a number of other OECD and non-OECD instruments. Where applicable, reviewers may wish to take into account relevant reporting mechanisms associated with these instruments.

An assessment must be sufficiently in-depth to allow a judgement about whether a principle is fulfilled in practice, not just in concept. This will involve examining both implementation and enforcement issues, addressed in further detail below.

A qualitative assessment scheme

The approach of the Methodology to making an assessment is principally qualitative: although the Methodology may take into account certain quantitative measures (e.g. the structure of company pyramids), the assessment cannot be reduced to a quantitative score or set of quantitative scores. No use is made of indicators based on the number of “yes” and “no” answers because the importance of some responses will be different across jurisdictions, depending on such variables as company law, ownership concentration and company groups. The responses to the essential criteria for each principle and sub-principle may help the assessor in forming the basis of a fully implemented rating. However, counting “yes” and “no” answers is dependent on agreement about the number of elements judged to be important (even if the indicator is expressed as a percentage) and the relationship between the individual questions. This does not preclude the development of statistical indicators once there is consensus about what is to be measured and how, and in the context of functional equivalence.

To support the assessment process, the Methodology follows an assessment scale similar to that used by the other standard setters of FSB Key Standards and by the World Bank, which classify according to observed/implemented, broadly observed/implemented, partly observed/implemented, and not observed/implemented. The classification also reflects a judgement about the effectiveness of enforcement and the operation of markets. For each principle, “essential criteria” are specified that seek to make the principle’s outcome more specific and easier to verify by a reviewer for effective evaluation of implementation, while preserving functional equivalence. These essential criteria have been formulated in the form of questions in order to make it easier for an assessor (or self-assessor) to focus on the information and questions most necessary to address to help them form a judgement. However, the essential criteria are an aid to making an assessment and are not a substitute for a careful judgement about actual outcomes. A summary of the assessment scheme and guidance on the application of its criteria is provided in Table 1.

For the purpose of policy dialogue, the assessment outcome may not be as important as the reasons advanced by the reviewer. This is particularly so for the classification “partly implemented”. In particular, it is important for the reviewer to note whether partial implementation predominantly reflects an inadequate legal framework, poor enforcement by the authorities, lack of or inefficient private redress mechanisms, weak market mechanisms or limited private sector observance, or a combination of some or all these. In some cases, the legal and regulatory framework might be so new that the influence on corporate practices cannot yet be properly assessed. In other cases, the essential criteria associated with a principle involve the assessment of complex and specialised topics (e.g. the operation of central securities depositories, creditor rights) that might stretch the resources of a reviewer. Nevertheless, a reviewer is still expected to form a reasoned judgement to the extent feasible after consulting with relevant specialists, while noting the uncertainty and preliminary nature of the assessment. To enhance its use as an analytical tool, it is also important for the reviewer to take note of any trend and current and proposed developments concerning each principle, although they should not form part of the assessment. Such information is essential for prioritising policy recommendations and when considering the potential need for complementary policy actions.

Table 1. Summary of assessment scheme

Fully Implemented	A Fully Implemented assessment is likely appropriate when all of the applicable essential criteria are implemented in all material respects. However, the essential criteria are an aid to making an assessment and are not a substitute for a careful judgement about actual outcomes. Where the essential criteria refer to standards (i.e. practices that should be required, encouraged (e.g. through code recommendations or market-based incentives) or, conversely, prohibited or discouraged), all material aspects of the standards are present. Where the essential criteria refer to corporate governance practices, the relevant practices are widespread. Where the essential criteria refer to enforcement mechanisms, there are adequate, effective enforcement mechanisms. Where the essential criteria refer to remedies, there are adequate, effective and accessible remedies.
Broadly Implemented	A Broadly Implemented assessment is likely appropriate where one or more of the applicable essential criteria are less than fully implemented in all material respects, but, at a minimum: all of the applicable essential criteria are implemented to some extent; the core elements of the standards are present (e.g. general standards may be in place although some of the specific details may be missing); and incentives and/or disciplinary forces are operating with some effect to encourage at least a majority of market participants, including significant companies, to adopt the recommended practices.
Partly Implemented	A Partly Implemented assessment is likely appropriate in the following situations: One or more core elements of the standards described in a minority of the applicable essential criteria are missing, but the other applicable essential criteria are fully or broadly implemented in all material respects (including those aspects of the essential criteria relating to corporate governance practices, enforcement mechanisms and remedies); The core elements of the standards described in all of the applicable essential criteria are present, but incentives and/or disciplinary forces are not operating effectively to encourage at least a significant minority of market participants to adopt the recommended practices; or The core elements of the standards described in all of the applicable essential criteria are present, but implementation levels are low because some or all of the standards are new, it is too early to expect high levels of implementation and it appears that the reason for low implementation levels is the newness of the standards (rather than other factors, such as low incentives to adopt the standards).
Not Implemented	A Not Implemented assessment is likely appropriate where there are major shortcomings, for example where: The core elements of the standards in a majority of the applicable essential criteria are not present; and/or Incentives and/or disciplinary forces are not operating effectively to encourage at least a significant minority of market participants to adopt the recommended practices.
Not Applicable	A Not Applicable assessment is appropriate where a Principle (or one of the essential criteria) does not apply due to structural, legal or institutional features (e.g. institutional investors acting in a fiduciary capacity may not exist).

Many principles are broken down into sub-principles. Assessments against each principle and its sub-principle(s) are necessary to form a judgement on the implementation (Table 1). Where the reviewer considers it important to form a judgement about the principle as a whole, in the absence of good arguments to the contrary, the overall judgement should take into account the assessment against the weakest sub-principle. For example, with respect to Principle IV.A., there might be adequate implementation of sub-Principle IV.A.1. regarding financial disclosure, but if there is inadequate disclosure about major shareholdings, including beneficial ownership and voting rights (sub-Principle IV.A.4.), the principle should not be considered as fully implemented, but rather as broadly implemented. The more detailed assessment is more useful than an overall assessment since deficiencies are clearly identified and an implicit weighting scheme on the part of the reviewer is avoided at the first stage of the assessment, and made transparent in the summary stage.

Implementation and enforcement

Determining whether the Principles are implemented in a jurisdiction implies a holistic evaluation of different elements, which, depending on the principle and/or sub-principle may encompass legal requirements, soft law and corporate governance code recommendations, other corporate governance guidelines, corporate disclosures, reporting to and data collected by supervisory authorities and self-regulatory organisations (SROs), as well as evidence of implementation or non-implementation. This implies that the assessor has to evaluate whether the recommendations of the Principles are implemented in practice.

In assessing implementation, some aspects of the Principles will be set out in law and regulations, but other elements of the corporate governance framework may also encourage adoption of certain practices such as guidelines, self-regulation, instructions and other documents, as well as more intangible market pressures that may be exerted through shareholder engagement, proxy advisory guidance, or trading of shares. A mandatory company law system might appear to ease the task of the reviewer in that all companies must adopt the same arrangements. However, a principle may also be considered implemented if it is effectively encouraged through soft law code recommendations, industry guidance or other market pressures, and if information concerning market practices indicates that the practice is widespread. While not repeated explicitly as an essential criterion for each principle, the reviewer must still form an overall judgement about whether a practice recommended by a principle is widespread regardless of whether it is mandated, and when mandated, whether the mandated features are complied with and consistent with the Principles. In more enabling company law systems, the reviewer will need to form a judgement about the balance of actual practices and whether these might lead to the Principles not being implemented.

Additionally, corporate governance is intrinsically related to enforcement mechanisms, as governance frameworks are not effective without a solid enforcement environment. The reviewer should consider both public and private elements of enforcement (Table 2). Jurisdictions apply a mix of the two elements and differ in the relative weight given to each. Hence a fair and full picture of a system’s effectiveness and robustness requires that the functioning of both approaches is understood.

Enforcement is here taken to mean actions taken by organs of the state such as the securities regulator, public prosecutor, company registrar, etc., as well as by institutions exercising devolved authority such as SROs. Effective enforcement requires the availability of effective, proportionate and dissuasive sanctions in the event of non-compliance with company law, securities law, listing rules and other related regulations.

Enforcement can also be exercised through effective means of redress for shareholders and stakeholders in courts as well as through alternative dispute resolution (ADR) mechanisms. Effective mechanisms for challenging corporate actions could include, among others, court proceedings, administrative proceedings and arbitration, which is used in some jurisdictions as an alternative dispute resolution mechanism. Effective remedies could include, among others, enjoining, unwinding or mandating corporate actions, fines or penalties, damages or restitutionary awards, and enforceable rights to have one’s shares purchased at a fair value determined without giving effect to the corporate action that the shareholders have challenged. In some jurisdictions, individual shareholders have extensive rights of redress, while in others such rights might reside with the general meeting of shareholders. For the reviewer, it is important to form a judgement about how effectively these rights can be exercised. Judging whether enforcement is effective or deficient in a given situation will require not only an examination of the record of enforcement, the fines and redress actually imposed, and the number of cases dismissed on procedural grounds at lower courts, but also understanding the viewpoint of investors in terms of the time, cost, competence, reliability and independence of the judiciary and of courts competent to adjudicate the jurisdiction’s corporate disputes. Investors with experience of other systems might be consulted as they are likely to be sensitive to procedural difficulties and the costs of enforcement activities. An overall judgement on the effectiveness of enforcement should also take into consideration available data on both public and private enforcement actions, such as number of cases involving listed companies, length of time taken to resolve disputes, average amounts of sanctions in different categories, recourse to ADR mechanisms, etc.

Table 2. Public and private enforcement mechanisms

Public enforcement		Private enforcement mechanisms
Mechanism	Actor	Mechanism	Actor
Sanctions for non-compliance with market rules and listing requirements or other actions addressing company governance (e.g. issuing rulings on the validity of an AGM, ordering an issuer to take remedial action, issuing warnings, etc.)	Securities regulator Public prosecutor Stock exchange SROs	Civil lawsuits (shareholder complaints, derivative lawsuits, class actions)	Judiciary and courts
		ADR mechanisms	ADR centres (arbitration, mediation, conciliation)

Different enforcement mechanisms should be evaluated as to how they complement each other. The reviewer should form an understanding of the ability to make use of courts as well as ADR mechanisms. In practice, a reviewer will have to arrive at a careful judgement on whether the strengths and weaknesses of one method of enforcement outweigh those of another method, and whether market forces are strong enough by themselves to reduce the need for supporting measures. For example, the question that might have to be asked is whether in a jurisdiction with weak courts, the enforcement activities of an ADR mechanism or of the regulator constitute an effective alternative. Enforcement might also not be considered as effective if, for example, rights of enforcement reside only with a regulator or company registrar who may not have the right incentives or resources to enforce the law or when seeking redress through courts is not time and/or cost efficient for shareholders.

An assessment of essential criteria for the majority of principles and sub-principles should generally also take into account the effectiveness of enforcement. However, to avoid repeating the same essential criteria throughout, it is important to clarify that this Methodology does not list an essential criterion concerning the effectiveness of enforcement for each principle and sub-principle. While enforcement is relevant for the assessment of most principles, it would likely overburden the assessor to seek enforcement data and assess effectiveness with respect to each individual principle. Nevertheless, at a more general level, a reviewer should consider whether there are means for effective enforcement even when it is not underlined as one of the essential criteria for a particular principle. For principles for which enforcement represents a particularly essential element for their implementation, an explicit essential criterion is included to reinforce the importance of specifically assessing the adequacy, effectiveness and accessibility of enforcement mechanisms. These are: Principle I.B., Principle I.C., Principle I.E., Principle II.F., Principle II.G., Principle III.E., sub-Principle IV.A.7., Principle IV.B., Principle IV.C., Principle V.A., and sub-Principles of VI.D. (Table 3).

It is also necessary to form a judgement about the strength and effectiveness of market forces in promoting implementation of the Principles. Market forces will vary considerably from jurisdiction to jurisdiction and not only on account of the legal/regulatory environment, which may be more or less market friendly. For example, disclosure about corporate governance arrangements might be effectively implemented by the market itself in systems with capital markets that are attuned to examining such disclosures and pricing company shares accordingly. Effective shareholder rights might stimulate companies to adopt policies and bylaws that result in improved corporate governance standards. However, relying on market forces might be entirely ineffective in systems characterised by concentrated ownership and shallow capital markets, so that other enforcement mechanisms might be required, including, for example, monitoring by the capital markets regulator of corporate governance reports and practices.

Table 3. Key principles for assessing enforcement

Key principles	Issue covered
Principle I.B.	Transparency and enforceability of the corporate governance framework
Principle I.C.	Division of institutional responsibilities for corporate governance
Principle I.E.	Institutional framework for corporate governance
Principle II.F.	Managing related party transactions and conflicts of interest
Principle II.G.	Minority shareholders’ redress
Principles III.E.	Enforcement of insider trading
Sub-Principle IV.A.7.	Disclosure of related party transactions
Principle IV.B.	Disclosure in accordance with internationally recognised accounting and disclosure standards
Principle IV.C.	External audit
Principle V.A.	Board fiduciary duties
Sub-Principles of VI.D.	Sub-principles related to the enforcement of stakeholder rights

The reviewer and the assessment process

The process of assessing each of the principles requires a judgemental weighting of numerous elements that only qualified assessors with practical experience can provide. Many reviewers of standards seek to ensure both this and inter-jurisdiction consistency by including in their teams members with broad international experience. Under all circumstances, in-depth consultations with individuals and constituencies with first-hand experience of the assessed jurisdiction is an absolute necessity and may, in addition to relevant authorities, also include market participants, such as accountants/auditors, board members and investors, as well as researchers, academics, rating agencies, and other relevant stakeholders. Moreover, in view of the complexity of corporate governance systems, an iterative process between the reviewer and the authorities and other parties is required in order to deepen the basis of the assessment and a consideration of policy priorities. The assessor should have free access to a range of information from different parties. The information necessary to carry out an assessment may include not only published information, such as laws, regulations and guidelines, but also internal information, provided by supervisory and regulatory authorities.

It is valuable to enhance national debate and national expertise with experience from other jurisdictions. This process can take several forms, one end of the spectrum being full peer reviews, the other being a policy dialogue hosted by international fora, such as the OECD Corporate Governance Committee. The OECD Corporate Governance Factbook (“Factbook”), published every two years, can also be used as a reference for common practices in OECD, G20 and FSB jurisdictions (OECD, 2023[2]). Certain widespread practices across these jurisdictions are cited under principles and sub-principles to provide a reviewer with relevant examples. An assessment should not be seen as a static exercise but should form the basis for a policy dialogue that can identify reform priorities and support the reform process. In its other activities, the OECD uses other methods such as policy dialogue of regional corporate governance roundtables, thematic and country-focused assessments to provide a basis for consideration of corporate governance reform options, and follow-up seminars and discussions in the jurisdictions concerned. The World Bank might also include technical assistance and training in any follow-up to a ROSC.

The structure of this Methodology

Part B of the Methodology discusses the various kinds of legal, regulatory and institutional information and data that are essential for putting the assessment into a national/jurisdictional context by achieving a solid understanding of the corporate governance landscape.

Part C follows the structure of the G20/OECD Principles and is divided into the six chapters of the Principles: I) Ensuring the basis for an effective corporate governance framework; II) The rights and equitable treatment of shareholders and key ownership functions; III) Institutional investors, stock markets, and other intermediaries; IV) Disclosure and transparency; V) The responsibilities of the board; and VI) Sustainability and resilience.

Each chapter is headed by a single principle that appears in bold italics and is followed by a number of supporting principles and their sub-principles in bold. The Principles are supplemented by annotations intended to help readers understand the rationale of the principles and sub-principles. An example is provided in Table 4. The annotations may also contain descriptions of dominant or emerging trends and offer examples of implementation methods that may be useful in making the Principles operational and that may be further expanded on through the Methodology.

Table 4. Example of the structure of the Principles

Examples from the Principles	Classification
The corporate governance framework should promote transparent and fair markets, and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement.	Principle opening Chapter I
II.C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings, and should be informed of the rules, including voting procedures, that govern general shareholder meetings.	Principle
II.C.1. Shareholders should be furnished with sufficient and timely information concerning the date, format, location and agenda of general meetings, as well as fully detailed and timely information regarding the issues to be decided at the meeting. II.C.2. Processes, format and procedures for general shareholder meetings should allow for equitable treatment of all shareholders. Company procedures should not make it unduly difficult or expensive to cast votes.	Sub-Principles
The right to participate in general shareholder meetings is a fundamental shareholder right. Management and controlling investors have at times sought to discourage non-controlling or foreign investors from trying to influence the direction of the company. Some companies have charged fees for voting. Other potential impediments include prohibitions on proxy voting, requiring personal attendance at general shareholder meetings to vote, bundling of unrelated resolutions, holding the meeting in a remote location, and allowing voting by show of hands only. Still other procedures may make it practically impossible to exercise ownership rights. Voting materials may be sent too close to the time of general shareholder meetings to allow investors adequate time for reflection and consultation. Many companies are seeking to develop better channels of communication and decision-making with shareholders. Efforts by companies to remove artificial barriers to participation in general meetings are encouraged and the corporate governance framework should facilitate the use of electronic voting in absentia, including the electronic distribution of proxy materials and reliable vote confirmation systems. In jurisdictions where private enforcement is weak, regulators should be in a position to curb unfair voting practices.	Annotations

The treatment of each chapter of the Principles follows a common pattern and comprises two main parts:

• Introduction

• Issues and assessment criteria

The Introduction briefly discusses the general understanding of the overarching principle that opens each chapter of the Principles. Building on the annotations to the principle, the introduction also discusses special concerns and aspects that should be taken into account when considering implementation of the principle. The main section of each chapter in Part C is the Issues and assessment criteria, where each individual principle and its sub-principle(s) are treated under a separate heading. Related principles and sub-principles that are considered relevant for a comprehensive assessment against a certain principle or sub-principle are also noted under each heading, and can be used as a consistency check or reference to understand complementarities between different principles. After briefly outlining the intent of the principle or sub-principle, the following section (Likely practices to be examined) briefly discusses the actual situation and practices that a reviewer might confront. Guidance is given as to how actual situations might be assessed against the outcome recommended by the principle/sub-principle. In line with the discussion and the intent of the principle, an associated set of essential criteria are specified, with specific questions a reviewer may ask to determine whether such criteria are met and if not, what elements may be missing to determine the level of implementation (as set out in Table 1).

Forming policy options and recommendations

This section deals with how all the chapters of the Principles and associated assessments should be drawn together in a final assessment, including a discussion of policy priorities and specific measures that might be considered. This section draws heavily on Chapter I of the Principles, “Ensuring the basis for an effective corporate governance framework”, which is discussed in Part C of this Methodology. The assessment would cover not just the assessed strengths and weaknesses of individual principles and sub-principles but also indicate how they serve to evaluate the functioning and efficiency of the overall corporate governance framework. The emphasis is on how the corporate governance framework actually functions as a system: the whole can be greater than the sum of the parts which is important to take into account when considering policy priorities. In discussing policy priorities, the assessment also needs to consider the presence of complementarities whereby some policy measures might be ineffective until accompanied by other initiatives, either by companies or by the authorities.

The format of a review is open to the choice of the user of the Methodology. However, generally reviews are in written form and, at a minimum, include a short executive summary including a summary of key findings and recommendations. The main body of the accompanying documentation would also include a table summarising the assessments of each principle and sub-principle. It should be noted that the World Bank’s ROSCs follow a specific format. If the intention of the user is to request a ROSC assessment, the World Bank should be consulted about their requirements.

The concern in this section is with the content and process of deriving conclusions and establishing policy options and priorities rather than the format of a written report. Three inter-related elements need to be taken into consideration and presented in a transparent manner by the reviewer: assessing the corporate governance landscape; summarising what has been learnt from the assessment of individual principles; forming a judgement about the resulting policy implications and priorities.

Forming an assessment about policy options and priorities

The corporate governance landscape

The reviewer needs to identify the nature and extent of corporate governance strengths and weaknesses in the jurisdiction by considering the corporate structure, current ownership and control systems, and how these have become established and have evolved in recent years. The elements underlying a certain corporate governance landscape might include recent privatisations, past industrial and trade policies, policy measures in response to emergency situations (e.g. a pandemic) and a history of uncertainty due to, for example, property confiscations. Current forces for change also need to be considered, including international agreements that have implications for corporate law. To maintain transparency of the review process, the legal, regulatory and enforcement structures would be considered and the lessons drawn from any recent corporate governance failure discussed. In short, this element of the review process would identify how the major corporate governance issues (i.e. agency costs) are arising and why the situation, covered in more detail as part of the assessment of some principles, has arisen.

Summarising what has been learnt from the assessment of implementation

The review needs to provide a summary of assessments for each principle and sub-principle together with the main reasons for the assessment (e.g. inadequate laws, poor enforcement, not a widespread company practice). In some cases it will be useful to specify which essential criterion is the primary reason of the assessment. Such a comprehensive process serves to make clear that the jurisdiction has been reviewed against the Principles as a whole, and minimise any chance of overlooking important elements. Not all principles need to be covered in the same detail depending on the judgement about their importance, considering also the objective of the assessment and the corporate governance concerns that need to be considered in a jurisdiction. The complementarity between principles would also be considered. For example, the effective exercise of shareholder rights is related to assessments about transparency and the functioning of the board. The review would also consider those areas where the jurisdiction is judged to have broadly or fully implemented the Principles, and indeed might have gone beyond the recommendations of the Principles and is now developing “good practices”. Areas of strength as well as weaknesses would thus be taken into account. Detailed assessments for each principle and sub-principle and the corresponding essential criteria may or may not form part of any report depending in part on whether confidential information has been used in forming an assessment of an essential criterion. However, they are an essential input for the reviewer in forming a judgement about priorities and identifying recommendations to enhance implementation of the Principles.

Forming a judgement about policy implications and priorities to strengthen implementation of the Principles

This part of the process involves moving from individual assessments of each principle to developing policy options and priorities. For the reviewer, a judgement that a principle or sub-principle is only partly or even not implemented carries by itself little information about what measures might be required, and about the relative importance of each weakness. Chapter I of the Principles offers important guidance to the reviewer in this situation. The reviewer should, after taking into account the assessment of all the principles of Chapters I-VI, form a judgement about where and how corporate governance weaknesses are likely to impact on overarching objectives of promoting corporate access to finance, ensuring the protection of investors and supporting the sustainability and resilience of corporations. It will also be important to assess how such weaknesses may impact on overall economic growth and stability and the promotion of transparent and fair markets. Potential policy options and priorities should be formed with due regard to the interaction with other aspects of the corporate governance framework and the likely cost/benefit relation or overall impact, emphasising first those measures with the greatest likely benefits and the lowest likely costs, both direct and indirect, including any relevant considerations about benefits/costs over time. This distinction should not be confused with the division between short term and long term. For example, reforming a failed, unfair, inefficient or biased judiciary and court system might take a long time to be effective, but should nevertheless be undertaken as a priority if the regulatory impact promises to be great. However, the lesson is that other measures taken in the meantime should not be grounded on the assumption that the court system might function well anytime soon.

Two further examples are useful to illustrate the process of forming options and priorities. An initiative to increase the flexibility of companies with respect to financing and decision-making by boards might be judged a positive development in line with broader objectives of the Principles. However, seen from a systems-wide perspective, this judgement might be misleading and depend on a number of other factors. In a situation of concentrated ownership, strong board control of shareholder meetings and poor minority protection, such an increase in flexibility might actually result in a deterioration of corporate governance standards which may weaken shareholder confidence in the jurisdiction and thereby damage corporate access to finance. The methodology outlined in Principle I.A. calls for the reviewer to focus attention on where the agency costs can occur and the existence of complementarities. In the case where the reviewer considers that private benefits of control are the issue, the focus will need to be on strengthening minority rights starting with the most cost/benefit efficient measures. This is where the reviewer needs to move from identifying broad priorities to considering policy options.

In the case of minority rights, improved transparency is one option together with clearly defining and, if necessary, widening the responsibilities of the board. At the other end of the cost/benefit scale would be majority-of-the-minority approval for related party transactions and the ability of minority shareholders with only a low threshold of votes to call a meeting of shareholders or to initiate litigation on an individual shareholder basis. These latter measures have a potential cost in terms of reduced entrepreneurial flexibility, but the benefits might also be great if the initial situation is highly distorted. Complementarities are an important factor. In this example, the lack of active capital markets or means of either public or private enforcement might make increased transparency a not very effective response; the corporate landscape and existing institutions need to be considered. On the other hand, where capital markets are active and enforcement is recognised as an obstacle, increased transparency mighty prove highly effective.

In presenting a range of policy options, the reviewer might also refer to the experience in other jurisdictions. However, the transferability of experiences from other jurisdictions would need to be carefully considered, including whether required complementarities (e.g. particular institutions) are present in the current corporate governance framework. The principle of functional equivalence needs to be part of the review process.

Principle I.E. addressing the role of supervisory, regulatory and enforcement authorities is particularly important for an overall assessment, aiding the reviewer to avoid considering policy priorities from the assessment of individual principles on a case by case basis. Doing so could lead, for example, to 30 different recommendations for more enforcement and more resources for regulatory and enforcement authorities. From a system perspective, the regulatory cost could be heavier than anticipated by individual recommendations. With respect to regulatory resources, the key question should also involve prioritisation by the authorities: the effective allocation of scarce resources to maximise regulatory impact.

References

[1] OECD (2023), G20/OECD Principles of Corporate Governance 2023, OECD Publishing, Paris, https://doi.org/10.1787/ed750b30-en.

[2] OECD (2023), OECD Corporate Governance Factbook 2023, OECD Publishing, Paris, https://doi.org/10.1787/6d912314-en.