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Flexibility and Proportionality in Corporate Governance

image of Flexibility and Proportionality in Corporate Governance

The quality of corporate governance regulations matters. If they are well designed, they can help governments achieve important policy objectives, such as higher levels of investment, increased productivity and better business sector dynamics. But for this to happen, the rules and regulations must be allowed to evolve over time. They must also be able to meet the many different needs of those entrepreneurs, investors and stakeholders who are supposed to implement them.

This is why the G20/OECD Principles of Corporate Governance state that policy makers have a responsibility to shape a regulatory framework that can meet the needs of corporations that operate under widely different circumstances.

Importantly, this concept of flexibility and proportionality is not about less demanding rules or the acceptance of sub-standard practices. On the contrary, it represents a functional and outcome oriented approach to regulation that facilitates implementation and makes enforcement more effective.

This OECD report presents the results of an OECD review on flexibility and proportionality practices in seven different areas of corporate governance regulation. The review covers 39 jurisdictions and six in-depth country case studies.

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Introduction

This section offers an introduction to the topic of the thematic review, describing the background against which the work was conducted. It covers the concepts of flexibility and proportionality; their use in the G20/OECD Principles of Corporate Governance; and describes the rationale for a flexible and proportional approach to corporate governance by offering historical and contemporary examples. It also highlights its applicability to some of the opportunities and challenges that come with current capital market developments.

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