1 The 6th Asian Roundtable on Corporate Governance Implementation and Enforcement in Corporate Governance Louis Bouchez Corporate Affairs Division OECD ASIA ROUNDTABLE ON CORPORATE GOVERNANCE – DISCUSSION ON IMPLEMENTATION AND ENFORCEMENT OF CORPORATE GOVERNANCE AND THE FUTURE WORK OF THE ASIAN ROUNDTABLE Seoul, Korea 2-3 November 2004 The views expressed in this paper are those of the author and do not necessarily represent the opinions of the OECD or its Member countries or the World Bank

2 What we would like to discuss this afternoon 1. Reform Priorities set out in the White Paper on Corporate Governance in Asia 2. How can the Roundtable support implementation and enforcement of corporate governance? 3. The future work of the Asia Roundtable on Corporate Governance

3 The White Paper on Corporate Governance in Asia “The next phase of the Roundtable will focus on implementation and enforcement issues and include a stock-taking of developments and progress in two years time.” Priorities for Reform

4 The White Paper on Corporate Governance in Asia Priority 1: Public- and private-sector institutions should continue to raise awareness among companies, directors, shareholders and other interested parties of the value of good corporate (i) Public sector initiatives: Legal reform Changes in administrative practice Improved enforcement Training and research (ii) Private sector initiatives: Issuance and adoption of codes of conduct Development and self-regulation of professional ethics Changes in culture and behaviour Training and research

5 The White Paper on Corporate Governance in Asia Priority 2: All jurisdictions should strive for effective implementation and enforcement of corporate-governance laws and regulations (i)Securities commissions, stock exchanges and SROs to focus on implementation and enforcement (ii)Strengthen capacity (knowledge) building of judiciary (iii)Agencies and courts to develop objective, understandable, open and fair procedures (iv)Balance the sophistication of regulation with ease and costs of implementation (v)Governments to exemplify integrity, professionalism and even- handedness in public service

6 The White Paper on Corporate Governance in Asia Priority 3: Asian Roundtable Countries should work towards full convergence with international standards and practices for accounting, audit and non-financial disclosure. Where, for the time being, full convergence is not possible, divergences from international standards and practices (and the reasons for these divergences) should be disclosed by standards setters; company financial statements should repeat or reference these disclosures where relevant to specific items (i) to increase transparency fully adopt accounting and audit standards and financial disclosure practices (ii) promote IAS convergence, disclose IAS divergence (iii) secure monitoring of standard setting bodies to prevent political interference

7 The White Paper on Corporate Governance in Asia Priority 4: Boards of directors must improve their participation in strategic planning, monitoring of internal control systems and independent review of transactions involving managers, controlling shareholders and other insiders. (i)directors training, voluntary codes of conduct (ii)Increase directors’ independence by clear personal liability and sanctions for violation of duties of care and loyalty (iii)Provide non-controlling shareholders with rights to seek redress and ensure directors’accountability

8 The White Paper on Corporate Governance in Asia Priority 5: The legal and regulatory framework should ensure that non-controlling shareholders are protected from exploitation by insiders and controlling shareholders. (i)strengthen disclosure requirements (ii)Ensure capacity of the regulator (iii)Strengthen and clarify fiduciary duties of directors (iv)Prohibit indemnification of directors by companies for breach of fiduciary duties (v)Provide shareholders with private and collective actions against controlling shareholders and directors (vi)Compulsory disclosure of related party transactions by insiders and controlling shareholders, and if possible seek approval for material transactions

9 The White Paper on Corporate Governance in Asia Priority 6: Governments should intensify their efforts to improve the regulation and corporate governance of banks (i)Policy makers and regulators to promote sound corporate governance in banking (ii)Ownership and financial relations to be disclosed (iii)Self-dealing and related party transactions subject to both banking and corporate governance restrictions (iv)Bank directors to meet fit and proper-test (v)Insolvency laws to protect creditor rights and provide effective liquidation scenarios

10 White Paper on Corporate Governance in Asia 2003 Other priorities? –Are there any other specific crucial priorities not identified in the White Paper, which are however essential to be considered by the Roundtable

11 How can the Roundtable support implementation and enforcement of corporate governance? 1. Stock-taking exercise to monitor progress 2. In depth analysis of agreed issues 3. Country focus

12 How can the Roundtable support implementation and enforcement of corporate governance? The scope of the stock-take/monitoring exercise

13 How can the Roundtable support implementation and enforcement of corporate governance? Identify 2 or 3 topics for investigation to be mandated by the Roundtable for further in dept research by the Task Forces: 1.Corporate governance of bank groups 2.Related party transactions 3.Convergence to IAS

14 How can the Roundtable support implementation and enforcement of corporate governance? Task Forces: –group of participants that are interested –Possible with outside experts –To report back to Roundtable in 2005 –Meeting on a regular basis Policy brief: -Formulate concrete policy options, and/or -roadmap to implementation process

15 The future work of the Asia Roundtable Question: –How can the Roundtable most effectively monitor and promote progress in implementing the White Paper?

16 The future work of the Asia Roundtable Keep in mind: –The original Asia Roundtable goals Policy dialogue on realising the OECD Principles in the context of each country of the region Self Assessment and regional comparison of successes and areas requiring further effort Knowledge sharing and networking among key regional decision makers –The original Asia Roundtable format Peer discussion among senior policy makers, academics and businessmen using the OECD Principles of Corporate Governance as a conceptual framework

17 The future of the Asia Roundtable Programme 2005: –Stock-taking –Task Forces –Other topics