Frankfurt School contributes to the future of corporate governance

The Corporate Governance Institute (CGI) at Frankfurt School recently contributed to a significant agenda item in the global corporate governance discussion by submitting on 13 October 2022 its official comments on the Draft Revisions to the G20/OECD Principles of Corporate Governance. The comments, available on the CGI website, will be taken into account in future discussions on revising the Principles, which are to be concluded in 2023.

Last revised in 2015, the G20/OECD Corporate Governance Principles constitute a leading international corporate governance standard and are used as a benchmark by many countries. Major challenges in recent years, including climate change and the COVID-19 pandemic, raised questions about whether the current frameworks continue to serve their purpose, which led to the start of the Principles’ revision in 2021. The OECD made the draft revisions public for the first time on 19 September 2022 and launched a public consultation process.

A major addition to the Principles is the inclusion of a new chapter dedicated to sustainability and resilience, which offers guidance on sustainability disclosures and the management of climate change and other ESG risks. Another important addition is a discussion of bondholders’ role and rights in corporate governance, which recommends facilitating the exercise of those rights. The revised Principles also address issues that came under the spotlight with the pandemic, such as virtual shareholder meetings and digital security risks.

The CGI broadly welcomes the revisions and was glad to see that these new issues were addressed, and existing ones considered more deeply, including external auditors, stewardship codes, company groups, board diversity, board committees, and boards’ risk management oversight duties. In addition to detailed chapter-based comments, the CGI made some overarching comments. First, the CGI suggested the continued use of a reasonably decisive tone and the avoidance of tentative language, such as the use of “may” clauses or conditional statements when addressing essential corporate governance issues. Second, it was recommended to keep the conventional definition of “stakeholders” and avoid the revised definition, which excludes shareholders. Third, more emphasis on consistent, comparable, and reliable disclosure was suggested.

The CGI comments, along with other comments received, will be made public on the OECD’s dedicated webpage following the consultation period. If you request more information or are interested in other CGI work, please contact the CGI Office (cgi@fs.de).