4. The corporate board of directors

One-tier board structures are favoured in 23 jurisdictions compared to eight for two-tier boards, but a growing number of jurisdictions allow both structures.

Different models of board structures are found around the world. Among the 49 surveyed jurisdictions, one-tier boards, whereby executive and non-executive board members may be brought together in a unitary board system, are most common (in 23 jurisdictions). Nine jurisdictions have exclusively two-tier boards that separate supervisory and management functions. In such systems, the supervisory board typically comprises non-executives board members, while the management board is composed entirely of executives. However, there are variations in how these board structures are applied across jurisdictions, as detailed in Table 4.2 and Table 4.3 (and some footnotes of Table 4.1). Overall, a growing number of jurisdictions (15), mainly from within the European Union, offer the choice of either single or two-tier boards, consistent with EU regulation for European public limited-liability companies (Societas Europaea) (Council Regulation (EC), 2001) (Table 4.1). In addition, three jurisdictions (Italy, Japan, and Portugal) have hybrid systems that each allow for three options and provide for an additional statutory body mainly for audit purposes (Table 4.4).

Most Factbook jurisdictions impose minimum limits on board size, usually ranging from three to five members.

Ninety percent of surveyed jurisdictions require or recommend a minimum board size most commonly set at three members, regardless of board structures. Limits on the maximum size for boards are rare and exist in only nine out of 49 jurisdictions, ranging from five in Brazil under its two-tier system to 21 in Mexico. In some jurisdictions, minimum board size requirements vary depending on the company’s market capitalisation and the size of its voting shareholder base (Chile and India). For management boards in two-tier systems, only the People’s Republic of China (hereafter ‘China’) (19) and France (seven) establish a maximum size requirement, while 18 jurisdictions set a minimum size requirement, usually in the range of one to three members.

All but nine of the 49 surveyed jurisdictions have established maximum terms of office for board members before re-election, with three-year terms being the most common practice, and annual re-election for all board members being required or recommended in six jurisdictions.

The maximum term of office for board members before re-election varies from one to six years, with the largest number (13) requiring or recommending that it be set at three years. Annual re-election for all board members is required or recommended in seven jurisdictions (Canada, Denmark, Finland, Japan, Sweden, Switzerland, and the United Kingdom). In some of the other jurisdictions, a number of companies have moved to require that their directors stand for re-election annually. For instance, in the United States, while Delaware law and exchange rules permit a company to have a classified board which typically has three classes of directors serving staggered three-year board terms, many companies have adopted annual re-election, and the classified board system has become less prevalent. In France, it is recommended that the terms of office of the board members be staggered. In Hong Kong (China), each director should be subject to retirement from office by rotation at least once every three years.

Despite differences in board structures, almost all jurisdictions have introduced a requirement or recommendation with regard to a minimum number or ratio of independent directors. The most common requirement is for two to three board members (or at least 30% of the board) to be independent, while the most common recommendation is for boards to be composed of at least 50% of independent directors.

Principle V.E of the G20/OECD Principles calls for boards to exercise objective independent judgement on corporate affairs, while sub-Principle V.E.1 further specifies that “[b]oards should consider assigning a sufficient number of independent board members capable of exercising independent judgement to tasks where there is a potential for conflicts of interest” (OECD, 2023[1]). All but two of the surveyed jurisdictions (Luxembourg and the Slovak Republic) require or recommend a minimum number or ratio of independent directors. Six jurisdictions have established binding requirements for 50% or more independent board members for at least some companies (Hungary, India, Korea, Portugal, South Africa, and the United States). By contrast, a much larger group of 20 jurisdictions have established code recommendations for a majority of the board to be independent on a “comply or explain” basis, including eight jurisdictions with one-tier boards, seven jurisdictions with two-tier boards, and five with both systems (Table 4.6, Figure 4.2). Fifteen jurisdictions have established minimum independence requirements for at least two to three board members and/or at least 30% of the board. Many jurisdictions have at least two standards: a legally mandated minimum requirement for independent board members usually coupled with a more ambitious voluntary recommendation for high numbers (including Brazil, Greece, Israel, Italy, Japan, New Zealand, and Norway).

Six of the surveyed jurisdictions link board independence requirements or recommendations with the ownership structure of a company (Table 4.7). In four of these jurisdictions (Chile, France, Israel and the United States), companies with more concentrated ownership are subject to less stringent requirements or recommendations. The role of independent directors in controlled companies is different than in dispersed ownership companies, since the nature of the agency problem is different (i.e. in controlled companies the vertical agency problem between ownership and management is less common and the horizontal agency problem involving controlling and minority shareholders greater). In Italy, a stricter requirement for a majority of independent directors is imposed in cases involving integrated company groups with pyramid structures that may contribute to more concentrated control. In addition, a large number of jurisdictions have established more specific provisions to help ensure that minority shareholders have the possibility to elect at least one director in companies with controlling shareholders, as detailed in Table 4.15.

While only 34% of jurisdictions with one-tier board systems require the separation of the functions of board chair and CEO, an additional 40% encourage it through code recommendations or incentive mechanisms.

Thirteen of 38 jurisdictions with one-tier board systems require and 15 such jurisdictions recommend the separation of the functions of board chair and CEO in “comply or explain” codes. In addition, India and Singapore encourage the separation of the two functions through an incentive mechanism by requiring a higher minimum ratio of independent directors (50% instead of 33%). For two-tier board systems, the separation of the functions is assumed to be required as part of the usual supervisory board/management board structure.

National approaches to defining the ‘independence’ of independent directors vary considerably, particularly with regard to maximum tenure and independence from a significant shareholder. Many jurisdictions also establish a maximum tenure for board members to be considered independent.

Principle V.E. of the G20/OECD Principles of Corporate Governance, as revised in 2023, states that “[w]hile national approaches to defining independence vary, a range of criteria are used, such as the absence of relationships with the company, its group and its management, the external auditor of the company and substantial shareholders, as well as the absence of remuneration, directly or indirectly, from the company or its group other than directorship fees.” The legal or regulatory approaches vary among jurisdictions, particularly with regard to independence from a significant shareholder and maximum tenure. While the large majority of jurisdictions’ definitions of independent directors include requirements or recommendations that they be independent of substantial shareholders (86%), the threshold for substantial shareholding ranges from 2% to 50%, with 10-15% the most common share (in 14 jurisdictions).

There are also significant differences concerning maximum tenure. Twenty-eight jurisdictions set a maximum tenure for independent directors, ranging from 5 to 15 years (with eight to ten years being the most common length). Twenty-two jurisdictions require or recommend that these directors no longer be considered as independent at the end of their tenure, and seven jurisdictions that an explanation be provided regarding their independence (Figure 4.5). A number of jurisdictions have introduced or strengthened requirements and recommendations for maximum term limits. For example, Costa Rica introduced new criteria for independence to take effect by the beginning of 2026 that will phase in a maximum tenure of nine years within a 12-year period. In Malaysia, a mandatory 12-year maximum tenure for independent directors was introduced as a listing rule and took effect on 1 June 2023, in addition to the shorter nine-year limit that applies as a recommendation. The listing rule requires that if an individual has cumulatively served as an independent director of a company or its related companies for more than 12 years and observed the requisite three-year cooling off period, the company must provide a statement to justify the nomination of the person as an independent director and explain why there is no other eligible candidate.

Only China and some European countries have requirements for employee representation on the board.

No jurisdiction prohibits publicly listed companies from having employee representatives on the board. Ten European countries and China have established legal requirements regarding the minimum share of employee representation on the board, which varies from one member to half of board members, with one-third the most common share. In Denmark and Sweden, there is no requirement for employee board representation but there is a statutory right for employees to appoint up to two to three representatives depending on the size of the company (Table 4.8).

All but five jurisdictions require the establishment of an audit committee with provisions to promote their independence. Nomination and remuneration committees are not mandatory in most jurisdictions, but most jurisdictions at least recommend that they be established and often that they be comprised wholly or largely of independent directors.

Audit committees have traditionally been a key component of corporate governance regulation. The G20/OECD Principles of Corporate Governance, as revised in 2023, emphasises the important role of audit committees by stating that “[b]oards should consider setting up specialised committees to support the full board in performing its functions, in particular the audit committee – or equivalent body – for overseeing disclosure, internal controls and audit-related matters” (sub-Principle V.E.2). The roles of the audit committee as further elaborated in the Principles also include oversight of the internal audit activities (IV.C) and may include support for the board’s oversight of risk management (V.D.2).

All surveyed jurisdictions require or recommend listed companies to establish an independent audit committee. Forty-four jurisdictions have binding rules for audit committees and five recommend them on a “comply or explain” basis. Some jurisdictions (Brazil, Finland and Sweden) are considered as requiring the establishment of audit committees although they allow some flexibility for alternative arrangements (in Brazil, fiscal councils can be used to carry out most audit committee functions, while in Finland and Sweden the functions of the audit committee are explicitly required but may be carried out by the full board). In the United States, the Sarbanes-Oxley Act of 2002 requires exchanges to adopt rules requiring independent audit committees to oversee a company’s accounting and financial reporting processes and audits of a company’s financial statements. These rules require independent audit committees to be directly responsible for the appointment, compensation, retention and oversight of the work of external auditors engaged in preparing or issuing an audit report, and the issuer must provide appropriate funding for the audit committee.

With regard to nomination and remuneration committees, the revised G20/OECD Principles provide for more flexibility by stating that “[o]ther committees, such as remuneration, nomination […] may provide support to the board depending upon the company’s size, structure, complexity and risk profile (Sub-Principle V.E.2).” The majority (61%) of jurisdictions have code recommendations to establish these committees, while nomination committees are mandatory in only 24% of jurisdictions and remuneration committees in 31%.

Full or majority independent membership is required or recommended for all three committees in most of the jurisdictions. A majority of jurisdictions (55%) require the audit committee to have at least a majority of independent directors, while 24% recommend such independence in their codes. Eight jurisdictions set a requirement for the minimum number of independent directors, from one to three members. Code recommendations are more common than legal requirements to encourage nomination and remuneration committees to have at least a majority of independent members (49% and 47% respectively). Concerning the independence of committee chairs, requirements are also most common for audit committees (in 61% of jurisdictions), and it is more frequently a code recommendation for nomination and remuneration committees.

More than 90% of jurisdictions require or recommend assigning a risk management role to the board. Provisions for internal control and risk management systems are also required or recommended in the majority of jurisdictions, a significant evolution since 2015.

Explicit legal requirements or recommendations on risk management grew significantly after the 2008 financial crisis. The revised G20/OECD Principles have a new sub-Principle V.D.2 on the board’s responsibility for reviewing and assessing risk management policies and procedures. Approximately 60% of jurisdictions now have requirements regarding the board’s responsibilities with respect to risk management in the law or regulations (including 14% that have both rules and code provisions), while another 33% recommend it solely in codes (similar to 2020 levels). Nearly all surveyed jurisdictions (96%) require or recommend implementing an enterprise-wide internal control and risk management system (beyond ensuring the integrity of financial reporting) (Figure 4.8).

A large majority of jurisdictions now require or recommend board-level committees to play a role in risk management oversight. The revised G20/OECD Principles (Sub-Principle V.E.2) point out that “[w]hile risk committees are commonly required for companies in the financial sector, a number of jurisdictions also regulate risk management responsibilities of non-financial companies, requiring or recommending assigning this role to either the audit committee or a dedicated risk committee. The separation of the functions of the audit and risk committees may be valuable given the greater recognition of risks beyond financial risks, to avoid audit committee overload and to allow more time for risk management issues.” Taking into account both requirements and recommendations, the audit committee is the preferred choice for risk oversight in 38 jurisdictions, while risk committees are required or recommended in 16 jurisdictions (Figure 4.9).

On sustainability, the revised Principles outline that “the board should ensure that material sustainability matters are considered” (V.D.2). The Principles also note that “[s]ome boards have created a sustainability committee to advise the board on social and environmental risks, opportunities, goals and strategies, including related to climate” (V.D.2). In terms of regulatory frameworks, South Africa is the only jurisdiction that requires this type of committee; listed companies are required to establish a social and ethics committee that is tasked to review sustainability issues. Another five jurisdictions recommend establishing a separate sustainability committee (Chile, France, Italy, Luxembourg, and Malaysia), while the remaining 43 jurisdictions do not have requirements or recommendations for a stand-alone sustainability committee. However, some jurisdictions address sustainability matters in other board-level committees. For example, in India, the role of the risk management committee includes formulation of a detailed risk management policy which includes a framework for identification of sustainability risks.

The G20/OECD Principles of Corporate Governance recognise the importance of the quality of a company’s financial reporting, supported by an independent external audit, to ensure market confidence, accountability and good corporate governance. In particular, Principle IV.C outlines that “[a]n annual external audit should be conducted by an independent, competent and qualified auditor in accordance with internationally recognised auditing, ethical and independence standards in order to provide reasonable assurance to the board and shareholders on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.”

While the shareholders have the primary responsibility for appointing and/or approving the external auditor in the majority of Factbook jurisdictions, the board is often required to recommend suitable candidates for shareholder’s final approval.

All jurisdictions require that an external auditor be appointed to perform an audit of the financial statements of publicly listed companies, including assessing compliance with applicable federal/state or industry-specific regulations, laws, and standards. In 42 jurisdictions, the shareholders have the primary responsibility for appointing and/or approving the external auditor. In the remaining seven jurisdictions, the board has the primary responsibility (Brazil, Costa Rica, Korea, Mexico, New Zealand, Poland, and the United States). Among the jurisdictions where shareholders are primarily responsible for appointing/approving an external auditor, a number also require the involvement of the board in the process to assist the shareholders’ decision. For example, in 19 jurisdictions, the board is required to recommend appropriate candidates for shareholders’ appointment/approval. Furthermore, some jurisdictions also provide for the board to appoint the auditor in certain cases, for example where the shareholders fail to do so, or where the position remains vacant within a given period of a company’s registration (Australia, Canada, Ireland, Israel, Singapore, and the Netherlands). In Indonesia, the board of commissioners can be the party that appoints the external auditor if shareholders mandate it to do so.

The audit committee is required or recommended to play a role in the selection and removal process of the auditor as well as in reviewing the audit’s scope and adequacy in nearly all jurisdictions, while its role is less commonly required or recommended in setting audit fees.

The G20/OECD Principles, as revised, state that it is good practice that external auditors be recommended by an audit committee independent of the board (IV.D). In 48 out of the 49 surveyed jurisdictions, the audit committee is required or recommended to play a role in the selection and appointment or removal process of the external auditor of listed companies. In the United Kingdom, legislation requires all companies with securities traded on regulated markets, as well as all deposit holders and insurers, to have an audit committee to select the auditor for the board to recommend to the shareholders. For the largest public companies, the board must accept the audit committee’s recommendation, and for others, the shareholders must be informed of any departure by the board from the recommendation. Reviewing the audit’s scope and adequacy is also a major role that the audit committee plays, and it is required or recommended in 92% of jurisdictions. Requirements and recommendations concerning the involvement of the audit committee in setting the audit fees is less common (53%).

In order to promote the independence and accountability of external auditors for publicly listed companies, jurisdictions have adopted provisions such as mandating auditor rotation, and prohibiting or restricting external auditors from providing non-audit services such as tax services to their audit clients.

Two-thirds of Factbook jurisdictions have requirements for listed companies to rotate their external audit providers after a given period and three have code recommendations, while provisions for audit partner rotation have been established in all but four jurisdictions.

For the 36 jurisdictions that have established requirements or recommendations for the rotation of their external audit providers, the maximum term duration before rotation is required ranges between five to 24 years, with 68% of these jurisdictions requiring rotation after ten years or more. In half of the jurisdictions with a maximum term duration before rotation, the term can be exceptionally extended. This is in line with the rules introduced by the 2014 European Audit Regulation, which requires public interest entities to rotate their audit providers at least every ten years, with a possibility to extend this period to a maximum of 20 years where a public tender is held after ten years, or 24 years for joint audits. Overall, many jurisdictions subject to the European Audit Regulation have set the initial duration of engagement at ten years, and are using the option to allow extensions of the term. Among jurisdictions outside of the EU, the most common approach to rotation of audit firms is to have shorter limits, in the five to ten-year range.

All but four jurisdictions have provisions requiring or recommending audit partner rotation after a given period. Some jurisdictions set a maximum term duration before audit partner rotation, mostly between five to seven years and often accompanied by a cooling-off period. For example, in Singapore, audit partners can be appointed for a maximum of five years before rotation with a minimum two-year period before they can be re-appointed by the same issuer. Indonesia has a shorter maximum period of three consecutive years. In the United States, while lead and concurring partners (or engagement quality reviewers) are required to rotate off an engagement after a maximum of five years and must be off the engagement for five consecutive years, other audit partners are subject to rotation after seven years on the engagement and must be off the engagement for two consecutive years.

The revised G20/OECD Principles put additional emphasis on the importance of audit oversight and audit regulation, stating that “a system of audit oversight and audit regulation plays an important role in enhancing auditor independence and audit quality. Consistent with the Core Principles of the International Forum of Independent Audit Regulators (IFIAR), the designation of an audit regulator, independent from the profession, and who, at a minimum, conducts recurring inspections of auditors undertaking audits of public interest entities, contributes to ensuring high quality audits that serve the public interest” (Principle IV.C).

Funding is a relevant aspect for the independence of the public oversight body from the audit profession. Public oversight bodies for audit most frequently are financed via fees levied on the audit profession or audited entities (in 21 jurisdictions), while public oversight bodies rely on both fees and government funding in 14 jurisdictions. Oversight bodies rely exclusively on the government budget to fund their operations in only 11 jurisdictions (Table 4.13).

In most jurisdictions (38), the public oversight body is in charge of supervising or directly carrying out quality assurance reviews or inspections for audits of all listed entities that prepare financial reports. These responsibilities are split between the professional and public body in ten jurisdictions, while assigning such responsibility exclusively to a professional accountancy bodies is quite rare (one jurisdiction). The public oversight body is also responsible for carrying out investigative and disciplinary procedures for professional accountants in a majority of jurisdictions (30), while the responsibility is split between the professional and public body in 17 surveyed jurisdictions.

Compared to the responsibilities described above, more jurisdictions rely on delegation to professional accountancy bodies for the approval and registration of auditors and audit firms (nine) and the adoption of audit standards (15). However, in most jurisdictions public bodies take on these roles either exclusively or as a shared responsibility (for details see Figure 4.12). These figures have not changed significantly since first reported in the 2021 edition of the Factbook.

In almost all jurisdictions, shareholders can nominate board members or propose candidates. The number of jurisdictions that have established majority voting requirements has nearly doubled since 2015.

Shareholders can generally nominate board members or propose candidates. Some jurisdictions set a minimum shareholding requirement for a shareholder to nominate, usually at the same level as the shareholders’ right to place items on the agenda of general meetings (Table 3.2, Figure 3.4).

Regarding board elections, a substantial majority of jurisdictions have established majority voting requirements for board elections (78%, up from 39% in 2015), in most cases for individual candidates (i.e. not for a slate) (Table 4.14, Figure 4.13). In the United States, the Delaware Law’s default rule is plurality voting, although companies may provide for cumulative voting.

More than half of the jurisdictions (26) allow cumulative voting for electing members of the board, of which three allow it with limitations (Figure 4.14). Although a majority of jurisdictions allow cumulative voting, it has not been widely used by companies in jurisdictions where it is optional. Only two jurisdictions require cumulative voting, China and Saudi Arabia. In China, besides the election of directors, a cumulative voting system is required in the election of supervisors if a listed company whose single shareholder and its person acting in concert hold 30% or more shares.

Regarding the qualifications of candidates, 36 jurisdictions (73%) set a requirement or recommendation for qualifications for all board members while some of these and some additional jurisdictions (14) set more specific requirements or recommendations for the qualifications of at least some board appointees (e.g. independent directors, audit committee members). While most jurisdictions have established general requirements or recommendations for the qualifications of all board candidates, some jurisdictions give more emphasis to the balance of skills, experience and knowledge of the board, rather than to the qualifications of individual board members.

For example, Singapore’s code states that the board should comprise directors who as a group provide core competencies such as accounting or finance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge. Some jurisdictions set a requirement or recommendation only for certain board members, such as members of audit committees (11 jurisdictions) or independent directors (8 jurisdictions) (Table 4.16, Figure 4.15).

Nearly two-thirds of jurisdictions (32) require or recommend that some of the candidates go through a formal screening process, such as approval by the nomination committee (Table 4.16). In most cases, such screening processes are recommended as good practice in national codes. For example, in the United Kingdom, it is recommended that nomination committees evaluate the balance of skills, experience, independence and knowledge on the board and, in light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.

A much smaller number of jurisdictions have established legal or listing requirements for screening processes, including in several Asian jurisdictions (China, India, Indonesia and Malaysia). Other jurisdictions with such requirements include Chile, where the Corporations Law requires that candidates for an independent director provide an affidavit stipulating their compliance with the legal requirements in the same article, and Türkiye, where large listed companies must prepare a list of independent board member candidates based on a report from the nomination committee and submit this list to the securities regulator for review. China has established a listing requirement for the stock exchange to review independent board member candidates’ qualifications. If the exchange raises an objection to a candidate, the board of directors of the listed company shall not propose that person as an independent director candidate for vote at the shareholders’ general meeting.

The number of jurisdictions requiring or at least recommending disclosure of relevant information to shareholders about board candidates has continued to increase.

The number of jurisdictions requiring or recommending disclosure of information on candidates’ qualifications more than doubled between 2015 and 2022, from 41% to 91% of reporting jurisdictions. Twenty-five jurisdictions establish this requirement in law/regulation, 13 recommend it in a code and five have it in both. The number of jurisdictions requiring disclosure of information on the candidate’s relationship with the firm has also more than doubled over the same period, from 37% of reporting jurisdictions in 2015 to 88% in 2022. Twenty-five jurisdictions establish this requirement in law/regulation, 11 recommend it in a code and six have it in both. All 48 jurisdictions surveyed have a requirement or recommendation to provide the names of candidates. This is a major change from 2015, when 11 jurisdictions lacked such requirements or recommendations. (Figure 4.16).

Nearly all jurisdictions have introduced mechanisms for normative controls on remuneration, most often through the “comply or explain” system.

Since the 2008 financial crisis, much attention has been paid to the governance of the remuneration of board members and key executives. Besides measures to improve firm governance via independent board-level committees, 94% of jurisdictions have introduced general criteria on the structure of remuneration. Provisions tend to provide companies with substantial flexibility, with 47% establishing recommendations through the “comply or explain” system, and requirements often providing broad guidance (Figure 4.17).

For example, China’s code recommends the use of long-term incentive mechanisms such as equity incentives, employee stock option plans, etc., while articles related to severance of payments “should be fair and without prejudice to the legitimate rights of listed companies.” In the European Union, where a company awards variable remuneration, the remuneration policy shall set clear, comprehensive and varied criteria for the award of the variable remuneration. It shall indicate the financial and non-financial performance criteria, including, where appropriate, criteria relating to corporate social responsibility, and explain how they contribute to the company’s business strategy and long-term interests and sustainability (Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement). The Norwegian Code recommends that the company should not grant share options to board members, and that their remuneration not be linked to the company’s performance. Türkiye’s code recommends that independent director remuneration should not be based on profitability, share options or company performance.

A majority of jurisdictions with general criteria also set forth some more specific measures in their laws, rules or codes. Long-term incentive mechanisms are most common, required or recommended in 33 jurisdictions (67%). These may set two-to-three year time horizons and may involve stock options or equity incentives. In addition, provisions to limit or cap severance pay are required in 11 jurisdictions (22%) and are recommended in an additional six jurisdictions (12%) (Figure 4.18). In Australia, recommendations state that severance payments are not be provided to board members (specifically, non-executive directors). Only two jurisdictions have set maximum limits on remuneration. Saudi Arabia establishes a SAR 500 000 (Saudi Riyal) (USD 133 000) upper limit for board member remuneration. In India, if the aggregate pay for all directors exceeds 11% of profits or other specific limits in cases where the company does not have profits, then the director pay must be approved not only by shareholders but also by the government. Requirements or recommendations for ex post risk adjustments (including, provisions on golden parachutes, malus and/or clawback provisions) are rare for non-financial listed companies around the world.

Most jurisdictions now give shareholders a say on remuneration policy and pay levels, with 88% having provisions for binding or advisory shareholder votes on remuneration policy. Binding votes on remuneration levels are a requirement in over half of jurisdictions (51%), with another 27% requiring or recommending advisory votes. Besides the distinction between binding and advisory, there are wide variations in “say on pay” mechanisms in the scope of approval.

Many jurisdictions have adopted rules on prior shareholder approval of equity-based incentive schemes for board members and key executives. Twenty-five jurisdictions require a binding vote on remuneration policy, one jurisdiction recommends a binding vote, and five allow choosing between shareholder approval or alternative mechanisms determined through a company’s articles of association. Norway requires a binding vote only if the company chooses to use incentive pay, while China’s requirement for a shareholder vote only applies to directors. In Costa Rica, remuneration policy for the board and key executives should always be approved by shareholders if it includes variable performance-based bonuses in company shares.

Another 11 jurisdictions require or recommend advisory shareholder votes (Figure 4.19). In Colombia, the recommendation is that the remuneration policy for the board should always be approved by shareholders; for key executives the remuneration policy should always be approved by the board of directors. In Singapore, the Listing Manual states that issuers’ articles of association must contain a provision stating that fees payable to directors shall not be increased except pursuant to a resolution passed at a general meeting.

Jurisdictions also have a mix of provisions with respect to requirements or recommendations for shareholder approval of the level and/or amount of remuneration (Figure 4.20). In addition to the distinction between binding and advisory votes, there is a wide diversity of “say on pay” mechanisms in terms of the scope of approval, mainly with regard to two dimensions: voting on the remuneration policy (its overall objectives and approach) and/or total amount or level of remuneration; and voting on the remuneration for board members (which typically include the CEO) and/or the remuneration for key executives. Since 2020, the number of jurisdictions with requirements for binding votes remains high at 51% compared to just 4% who recommend it (Table 4.18).

The extent to which remuneration disclosure is now required marks a major transformation of legal and regulatory frameworks since the early 2010s. An OECD survey of listed companies in 35 jurisdictions carried out in 2010 (OECD, 2011[2]) found that disclosure of individual remuneration in all listed companies was taking place in only seven jurisdictions (20%) and in a substantial majority of listed companies (80% or above) in only 15 jurisdictions (43%). Disclosure of the total individual remuneration is now a requirement in 94% of jurisdictions. These requirements usually apply to all board members and a certain number of key executives, although in some cases apply only above a certain income threshold. Only three jurisdictions do not require or recommend it (Colombia, Costa Rica, and Mexico).

The increasing attention given to remuneration by shareholders has benefited from, and has also contributed to, enhanced disclosure requirements. All jurisdictions now require or recommend that companies disclose remuneration policy, and nearly all jurisdictions require or recommend the disclosure of total aggregate remuneration.

New Zealand has one of the most transparent remuneration disclosure policies, requiring it for all directors and employees earning above NZD 100 000 (USD 63 500). Some jurisdictions take a more nuanced approach. For example, in Hong Kong (China), the listing rules require issuers to disclose the remuneration of the five highest paid individuals in aggregate and by band in their annual reports, unless any of them are directors of the issuers and in that case, the identities and emoluments of each of these directors must be disclosed.

Some jurisdictions limit required reporting at the individual level. For example, in Brazil, only the highest, lowest and the average paid to directors is required. In the United States, the requirement concerns all directors, the CEO, CFO and the three most highly compensated officers other than the CEO and CFO (and above USD 100 000). In Malaysia, the recommendation is for listed issuers to disclose the remuneration component of the top five senior management in bands of RM 50 000 (USD 11 355) and to fully disclose the detailed remuneration of every senior management personnel. Japan has an amount threshold (above JPY 100 million; USD 760 000), as does Korea – directors above KRW 500 million (USD 395 900) and five employees above KRW 500 million (USD 395 900).

The G20/OECD Principles, as revised in 2023, recognise in sub-Principle V.E.4 the importance of bringing a diversity of thought to board discussions, and suggest in this regard that “[t]o enhance gender diversity, many jurisdictions require or recommend that publicly traded companies disclose the gender composition of boards and of senior management. Some jurisdictions have established mandatory quotas or voluntary targets for female participation on boards with tangible results. Jurisdictions and companies should also consider additional and complementary measures to strengthen the female talent pipeline throughout the company and reinforce other policy measures aimed at enhancing board and management diversity.” The Principles also recommend that boards regularly evaluate “whether they possess the right mix of background and competences, including with respect to gender and other forms of diversity.”

Since 2018, more jurisdictions have adopted measures to encourage women’s participation on corporate boards and in senior management, most often via disclosure requirements and regulatory measures such as mandated quotas and/or voluntary targets.

With regards to disclosure requirements, 60% of the 49 surveyed jurisdictions have mandatory provisions on the gender composition of boards of listed companies, whereas only 27% mandate disclosure of the gender composition of senior management (see Figure 4.22). Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies and related measures is expected to have a sweeping impact, as it requires that countries mandate listed companies to provide competent authorities with information annually about the gender composition of their boards. If the Directive’s targets (described further below) are not being met, companies will need to explain how they plan to meet these objectives, including through more transparency in the qualification criteria and the selection process for directors. In the United States, a 2020 amendment to a US Securities and Exchange Commission regulation requires public companies to provide a description of their human capital resources to the extent that they are material to the company’s business (SEC, 2020[3]).

Argentina has a mixed approach, with companies required to disclose board composition to the securities regulator at the time of board election, while a recent change in the Corporate Governance Code also recommends companies to disclose board composition diversity on an ongoing basis. Hong Kong (China) recently introduced a requirement that listed companies disclose and explain in the corporate governance section of their annual report how and when gender diversity on boards will be achieved, including targets and timelines, as well as how a pipeline of potential board candidates to achieve gender diversity is being developed. Korea has also recently introduced mandatory disclosure for listed companies. In Singapore, listed companies are required to disclose board diversity policies in their annual reports as well as their targets for achieving diversity, including plans and timelines.

Fifteen of the 49 jurisdictions have established mandatory quotas for women’s participation on boards of listed companies. Four jurisdictions require at least 40% of women on boards (France, Iceland, Italy and Norway), six require between 20-35%, and five mandate “at least one” female director (Finland, India, Israel, Korea and Malaysia). Requirements for specific companies vary across jurisdictions, with criteria commonly applicable to companies above a certain threshold which may take account of company size, number of employees or board members and/or level of assets. Sanctions for non-compliance exist in almost all jurisdictions with quotas, and take various forms, such as warning systems, fines, board seats remaining vacant, void nominations and delisting for non-compliant companies.

A significant boost is expected with the new EU Directive to improve gender balance amongst directors of listed companies, setting quotas for large, listed EU companies (more than 250 employees). At least 40% of the under-represented sex among non-executive board members or 33% among all directors will be required by 30 June 2026. Member states have two years to transpose the Directive’s provisions into national law. In addition, large listed companies will also have to undertake individual commitments to reach gender balance among their executive board members. Companies that fail to meet this objective will have to report the reasons and the measures they are taking to address this shortcoming. Member states will be required to set up a penalty system that is effective, proportionate, and dissuasive for companies that fail to meet the new standards by 2026 (European Commission, 2012[4]).

Fourteen of the 49 jurisdictions have introduced recommended targets for listed companies or require listed companies to set their own numerical targets either in their corporate governance codes, applicable on a comply-or-explain basis, or in legislation. Six jurisdictions have set targets at 40% of women on boards, compared to four that have set mandatory quotas at the same level. Based on data comparing a subset of the largest listed companies in each jurisdiction, the average participation of women on boards across all 49 jurisdictions reached 27% in 2022, a significant increase from 19% in 2017.

Jurisdictions have adopted a range of approaches to promote greater gender diversity on boards. Notwithstanding the policy approach, significant progress has been achieved by many jurisdictions since 2017, even in those without quotas or targets. While binding quotas have yielded the highest levels of gender diversity on average over the last six years (as seen in Figure 4.23 below), jurisdictions applying targets or adopting other measures to encourage gender diversity have experienced a similar rate of growth in levels of gender diversity, while starting from a lower base. The progress achieved in jurisdictions with no quota or target in place shows that alternative and complementary measures ranging from shareholder initiatives in support of greater diversity to promoting a more enabling environment for the advancement of women on boards and in leadership positions can also play an important role in achieving results.

In terms of outcomes, the largest and most actively traded companies in eight jurisdictions with quotas met or exceeded their prescribed quotas in 2022, while this was the case in only a few jurisdictions with targets. Among the jurisdictions that have yet to achieve their quotas, one was very recently introduced.

Of particular note, ten jurisdictions (Austria, Brazil, Chile, Indonesia, Japan, Korea, Malaysia, Poland, Portugal, and the Slovak Republic) have at a minimum doubled since 2017 the percentage of women participating on boards (for Korea, the increase is six-fold). Another notable case is New Zealand, a jurisdiction without a quota or target, which nevertheless had one of the highest shares of women on boards in 2022. New Zealand’s progress may have been supported by advocacy initiatives by associations and independent bodies. Institutional investor pressure, including votes against the re-election of directors in companies that fail to encourage diversity, has also had an important influence in some jurisdictions without quotas or targets (OECD, 2020[6])). For instance, in the United States, firms where the three largest institutional investors were categorised as having comparatively higher ownership stakes increased gender diversity on boards following pressure through voting strategies and influential campaigns (Gormley et al., 2023[7]).

Complementary initiatives also exist in jurisdictions where quotas have been adopted. For example, the Israel Securities Authority established in October 2021 Forum +35 to promote gender diversity on boards of reporting corporations and other entities supervised by the ISA. The Forum’s objective is to have female directors comprise at least 35% of the boards of all supervised entities by 2026. The Forum includes representatives from the public, private and NGO sectors who contribute a broad perspective on this issue, and voluntary representatives of supervised entities whose boards have at least 35% of female directors.

With regards to women in management, as defined by the International Labour Organization, while the average of women in management (34%) exceeded the average of women on boards (27%) in 2022, the percentage of women on boards has grown by 8 percentage points since 2017, whereas the percentage of women in management has only grown by 2 percentage points.

Some jurisdictions are also extending mandatory quotas or targets to senior executives. For example, in France companies with more than 1 000 employees will have to meet 30% and then 40% quotas for more equal gender representation among senior executives and management committee members. From 2022, companies must publish annually on their websites an analysis of gender representation for their senior executive roles and management committee membership. From 2026, companies will have two years to ensure that women hold 30% or more of senior executive roles and management committee seats, and to negotiate corrective measures or implement measures in the absence of an agreement. From 2029, companies will have two years to comply with the 40% quota, and sanctions for non-compliance will take effect in 2031. Switzerland also started to require at least 20% of women on the management board beginning in 2021 (in addition to its 30% quota for women on boards). Furthermore, Germany is requiring listed companies to set individual targets for the executive board and the two management levels below the board. If the executive board of a listed company consists of four or more persons, at least one woman shall be appointed as a member of the board.