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OECD to overhaul global corporate governance code in wake of pandemic

Priorities will include climate-related disclosures, and managing health, supply chain and environmental risks

The Organisation for Economic Co-operation and Development (OECD), which represents the world’s leading economies, is to review the Principles of Corporate Governance in a bid to adapt its key elements to “the post-Covid-19 environment”.

The G20-endorsed Principles, which were developed by the OECD in 1999 and most recently updated in 2015, have been adopted by the Financial Stability Board and underpin banking guidelines issued by the Basel Committee on Banking Supervision. In addition, the Principles are used by the World Bank as the basis for its country reviews.

According to a new report released by the Paris-based OECD, a number of regulatory priorities have been identified ahead of the revamp, including developing “comprehensive ESG frameworks” to support climate risk assessment and disclosures, and establishing “clear lines” of board-level oversight for ESG risks.

The OECD also called for stronger corporate governance policies to address health, supply chain, reputational and environmental risks, as well as issues such as audit quality, stock price manipulation and insider trading.

It warned that the use of increasingly complex company group structures could encourage “potential abusive practices”, and highlighted the increase in ownership concentration and concerns over executive remuneration policies. The OECD also acknowledged instances where the quality of risk disclosures had “raised concerns and triggered lawsuits” during the pandemic.

Finally, the authors suggested that insolvency and restructuring frameworks would need to be reviewed by policymakers in light of the severe economic consequences of the pandemic and to ensure creditors are dealt with fairly. This will “allow for efficient and swift exits of non-viable companies and successful restructurings of viable ones”, said the OECD.

The upcoming review will be undertaken by the OECD Corporate Governance Committee, according to the report. Additional information on the project’s timeline and drafting process were unavailable.

At the same time, the OECD has released a new corporate governance resource which summarises the institutional, legal and regulatory frameworks for corporate governance across 50 jurisdictions worldwide.