INTERNATIONAL CORPORATE GOVERNANCE NETWORK (ICGN) – CORPORATE GOVERNANCE PRINCIPLES

The International Corporate Governance Network (ICGN), founded in 1995 at the instigation of major institutional investors, represents investors, companies, financial intermediaries, academics and other parties interested in the development of global corporate governance practices. One of its objectives is to facilitate international dialogue on issues of concern to investors. High standards of corporate governance, including effective dialogue between companies and their shareholders, the ICGN believes, are a prerequisite for companies to compete effectively and for economies to prosper. The ICGN also believes that it is in the public interest to encourage and enable the owners of corporations to participate in their governance.

The ICGN has in the past developed Global Corporate Governance Principles to contribute to achieving these objectives, and particularly to fulfil its objective to promote high standards of corporate governance. The policies such framed act as guidelines for the countries which Frame Corporate Governance Code in their respective Countries.

In this article we are going to discuss some of the Principles so framed by the ICGN with regard to Disclosure and Transparency and Shareholders Rights in order to guide and facilitate its objective of Corporate Governance Practices.

Shareholders Rights

1. Accountability – Shareholders expect to have appropriate rights to ensure that boards are accountable for their actions.
2. Corporate charter – Companies should publicly disclose their corporate charter or articles of association in which, among other things, the rights of shareholders are clearly set out. Any changes to these should be subject to shareholder approval.
3. Shareholder protections – Boards should treat all the company’s shareholders equitably and should respect and not prejudice the rights of all investors. Boards should do their utmost to enable shareholders to exercise their rights, especially the right to vote, and should not impose unnecessary hurdles.
   1. Unequal voting rights – Companies’ ordinary or common shares should feature one vote for each share. Divergence from a ‘one-share, one-vote’ standard which gives certain shareholders power disproportionate to their equity ownership should be both disclosed and justified. Companies should keep such structures under regular review, and put their retention up for regular approval by shareholders. Any such structures should be accompanied by commensurate extra protections for minority shareholders.
   2. Shareholder participation in governance – Shareholders should have the right to participate in key corporate governance decisions, such as the right to nominate, appoint and remove directors on an individual basis and also the right to appoint the external auditor.
   3. Major decisions – The nature of a company that shareholders have invested in should not change without shareholders having the opportunity to give their approval to that change. Such changes include major transactions, the issue of significant portions of shares and changes to the articles or by-laws.
   4. Pre-emption – New issues of shares should be made on a pre-emptive basis, that is offered proportionately to existing shareholders. Shares should not be issued on a non-pre-emptive basis unless existing shareholders have given their prior approval.
   5. Shareholders’ right to call a meeting of shareholders – Companies should enable holders of a specified portion of its outstanding shares or a specified number of shareholders to call a meeting of shareholders for the purpose of transacting the legitimate business of the company. While it is appropriate to limit vexatious proposals, these hurdles should be low enough to enable appropriate accountability of the company to its shareholders.
   6. Shareholder questions – Shareholders should be provided with the right to ask questions of the board, management and the external auditor both before and at meetings of shareholders, including questions relating to the board, its governance and the external audit.
   7. Consultation among institutional shareholders – Institutional shareholders should not face regulatory barriers to discussions regarding forthcoming voting decisions or concerning other basic shareholder rights. Concert party rules and/or takeover regulations should not prevent ongoing shareholders from sharing perspectives about companies in which they have mutual interests.
4. Voting-related rights
   1. Shareholder ownership rights – The exercise of ownership rights by all shareholders should be facilitated, including giving shareholders timely and adequate notice of all matters proposed for shareholder vote.
   2. Vote execution –  Votes cast by intermediaries should be cast only in accordance with the instructions of the beneficial owner or its authorized agent.
   3. Vote count –  Equal effect should be given to votes whether cast in person or in absentia and meeting procedures should ensure that all votes are properly counted and recorded.
   4. Disclosing voting results – Companies should make a timely announcement of the outcome of a vote and publish voting levels for each resolution promptly after the meeting.
5. Shareholder rights of action – Shareholders should be afforded rights of action and remedies which are readily accessible in order to redress conduct of a company which treats them inequitably. Minority shareholders should be afforded protection and remedies against abusive or oppressive conduct.
6. Record of ownership of a company’s shares – Every company should maintain a record of the registered owners of its shares or those holding voting rights over its shares. Every company should be entitled to require registered owners to provide the company with the identity of beneficial owners or holders of voting rights. Shareholders should be able to review this record of registered owners of shares or those holding voting rights over shares.
7. Promoting shareholder rights – Where the rights discussed above are not available in particular jurisdictions, local regulators are to be encouraged to put these rights in place. Where local law does not prevent it, companies should themselves enable shareholders to exercise these rights.

Disclosure and transparency

1. Transparent and open communication – Every company should aspire to transparent and open communication about its aims, its challenges, its achievements and its failures.
2. Timely disclosure – Companies should disclose relevant and material information concerning themselves on a timely basis, in particular meeting market guidelines where they exist, so as to allow investors to make informed decisions about the acquisition, ownership obligations and rights, and sale of shares.
3. Affirmation of financial statements – The board of directors and the appropriate officers of the company should affirm at least annually the accuracy of the company’s financial statements or financial accounts.
4. Accounting standards – To attract international investors, companies should apply accounting and financial reporting standards which are generally accepted high-quality international accounting standards. The audit committee of the board should maintain oversight of key accounting policies and key accounting judgements taken under those policies. The accounting policies should be disclosed in the company’s annual report.
5. Non-financial business reporting – The reporting of relevant and material non-financial information is an essential part of the disclosure required to enable shareowners and investors to make informed decisions on their investments. The expectations of ICGN members in this regard are set out in detail in the ICGN Statement and Guidance on Non-financial Business Reporting.
6. Disclosure of ownership – In addition to financial and operating results, company objectives, risk factors, stakeholder issues and governance structures, the disclosures should include a description of the relationship of the company to other companies in the corporate group, data on major shareholders and any other information necessary for a proper understanding of the company’s relationships with its public shareholders.

The aim of these Principles is to assert standards of corporate governance to which ICGN believes that all companies should aspire. By seeking to live up to high quality corporate governance standards, companies will be better able to take the decisions which will protect and enhance value for their Long-term Shareholders as well as Stakeholders. Boards with high standards of corporate governance will be better able to make robust strategic decisions, to challenge and promote the effectiveness of management’s operational oversight of the business and to oversee the approach to risk management. This process enhances investor returns over time. If one can observe most of these practices are already part of the Indian Corporate Governance code and are being followed by the Spirit of the Law. India being a member of ICGN has contributed and immensely benefited from its guidelines which shows in the stability of our economy during the crisis situations.