This report presents the results of the second thematic peer review based on the OECD Principles of Corporate Governance. The report is focused on the role of institutional investors in promoting good corporate governance practices including the incentives they face to promote such outcomes. It covers 26 different jurisdictions, including in-depth reviews of Australia, Chile and Germany.
The OECD Principles of Corporate Governance embrace the underlying assumption that shareholders can best look after their own interests, provided they have sufficient rights and access to information. The increased presence of large institutional investors in the last decade fostered the expectation that a new breed of highly skilled and well resourced professional shareholders would make informed use of their rights, promoting good corporate governance in companies in which they invest. Those prospects are reflected in Principles II.F and II.G, added in 2004 to cover disclosure of voting policies, managing conflicts of interest and co-operation between investors. However, institutional investors are not like other shareholders but have a unique set of costs, benefits and objectives. Accordingly, they have not always behaved as desired. This report investigates their behaviour by way of three peer reviews on the implementation of Principles II.F and II.G (Australia, Chile and Germany) and a general review of academic research and country experience.
Assessment and Recommendations
The proposition that shareholders can best look after their own interests subject to having sufficient rights and access to information is basic to the OECD Principles and domestic law in many jurisdictions. Nevertheless, at the time of the last revision of the OECD Principles of Corporate Governance in 2004, the need to deal with the emerging reality of large institutional shareholders was already apparent and led to several new principles being agreed by consensus, especially Principles II.F and II.G covering disclosure of voting policies, managing conflicts of interest and co-operation between investors. The Annotations to the Principles went on to note that,
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