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The OECD

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Title: The OECD


1
The OECDs Work on Corporate Governance-Related
Dispute ResolutionCategories of Disputes
  • Janet Holmes
  • Senior Legal Adviser, Corporate Affairs Division
  • OECD

2
Overview
  • Background to the OECDs work on corporate
    governance and dispute resolution
  • Categories of corporate governance-related
    disputes

3
Background
  • Revised OECD Principles on Corporate Governance
    include a chapter on structure and quality of
    regulatory framework
  • Chapter I stresses the need for effective
    enforcement of corporate governance (CG)
    standards
  • Criminal / quasi-criminal enforcement
  • Administrative enforcement
  • Civil enforcement
  • Market discipline
  • Efficient dispute resolution mechanisms are
    crucial to effective civil enforcement of CG
    standards
  • Need for effective enforcement and remedies
    emphasised throughout new OECD Methodology
  • OECD Principles and Methodology are
    outcome-oriented and emphasise functional
    equivalence

4
Background (contd)
  • Discussions in Regional Corporate Governance
    Roundtables
  • Highlighted institutional weaknesses affecting
    traditional civil enforcement mechanisms in
    non-OECD countries
  • Improving enforcement of CG standards
    efficiency of CGDR mechanisms is a high priority
    for many participants
  • OECD Steering Group on Corporate Governance has
    also expressed a strong interest in this subject
  • Effective and/or efficient civil enforcement of
    CG standards is also a challenge in some OECD
    countries

5
OECDs Work to Date
  • Exploratory meeting in Vienna (June 2003) on
    arbitration of company law disputes
  • Organised jointly by OECD, UNCITRAL and the ICC
  • Synthesis Note for Vienna meeting available in
    Events Archive at www.oecd.org/daf/corporate-affai
    rs
  • More broadly focused experts meeting on CGDR
    mechanisms held in Stockholm in March 2006
  • Synthesis Note for Stockholm meeting available at
    www.oecd/org/daf/corporate-affairs
  • Questionnaire on CG disputes and qualities for
    resolution of CG disputes discussed

6
Initial Categorisation of CG Disputes at
Stockholm Meeting(expert groups priorities
marked with a )
  • Disclosure documents delivery, accuracy,
    completeness
  • Annual accounts granting or withholding
    shareholder approval
  • Nomination / appointment of board members
  • Individual discharge of board members /
    executives
  • Share / bond issues
  • Alleged mismanagement
  • Self-interested transactions
  • Minority shareholders rights
  • Suspension of payments / bankruptcy
  • MA transactions
  • Takeovers
  • Share valuation
  • (Non-) compliance with CG codes
  • Works councils

7
Alternative Approaches to Categorisation of CG
Disputes
  • Categorisation based on, e.g.
  • Chapters II-VI of OECD Principles
  • Identity and characteristics of complainant
    defendant
  • Nature of activity that is subject of complaint
  • Nature of alleged harm and/or remedy requested

8
Classification Based on OECD Principles
  • II Rights of shareholders key ownership
    functions
  • e.g. timely receipt of relevant, material
    information exercise of voting rights sharing
    in company profits
  • III Equitable treatment of shareholders
  • e.g. protection of minority shareholders from
    abusive actions by or in interests of controlling
    shareholders
  • IV Role of stakeholders
  • e.g. effective remedies for stakeholder rights
    protected by law effective enforcement of
    creditor rights
  • V Disclosure transparency
  • e.g. external auditors accountable to
    shareholders owe duty to company to exercise
    professional care in conduct of audit
  • VI Board responsibilities
  • e.g. boards duties to company board members
    rights to information

9
Examples of Classifications Basedon Identity of
Complainant Defendant
  • Complainant
  • Shareholder
  • Company
  • Board
  • Board committee
  • Individual board member
  • Executive
  • Employee
  • Creditor
  • External auditor
  • Offeror / bidder
  • Defendant
  • Company
  • Shareholder
  • Board
  • Individual board member
  • Management
  • Individual executive
  • External auditors
  • Custodian
  • Broker
  • Offeror / bidder
  • Company adviser?
  • Analyst?

10
Examples of Classification Based on Identity or
Characteristics of Complainant
  • e.g. sub-categories of shareholders
  • Controlling shareholder, significant shareholder
    or small shareholder
  • Institutional investor or individual (retail)
    investor
  • Passive investor or activist investor
  • Portfolio investor or strategic investor
  • Domestic investor or foreign investor
  • Registered shareholder, beneficial shareholder or
    ADR holder
  • e.g. characteristics of complainants
  • Value of investment or interest relative to
    expected costs and potential benefits of pursuing
    claim / seeking to resolve dispute
  • Incentives and disincentives to initiate or
    participate in CG dispute (free rider problems,
    extent to which complainant has been able to
    diversify investments (, human capital))
  • Relative power of complainant in relation to
    defendant (voting power, access to information,
    alliances, other sources of influence)
  • Obstacles to exercise of influence or pursuit of
    remedy (e.g. need to involve intermediaries to
    exercise rights, exert influence or pursue
    claims)
  • Knowledge level

11
Example of Classification Based on Activity
Subject to Complaint
  • e.g. routine / recurring events versus
    extraordinary events
  • Routine matters - e.g. receipt of disclosure
    documents exercise of voting rights, declaration
    payment of dividends shareholder approval of
    annual accounts / discharge of auditors,
    management and board
  • Extraordinary events - e.g. takeovers, mergers
    substantial acquisitions or dispositions
    squeeze-out transactions exercise of appraisal
    rights allegations of misuse of confidential
    information material related party transactions

12
Examples of Classification Based on Alleged Harm
or Remedy Requested
  • Alleged harm
  • Exercise of right denied or frustrated or
    instructions disregarded
  • Ability to fulfil obligation frustrated
  • Failure to receive required documents or
    information
  • Misappropriation of corporate assets
  • Loss of position (e.g. retaliation against
    complainant)
  • Diminution in value of investment
  • Remedy requested
  • Derivative action vs personal action
  • Mandatory order / specific performance
  • Action (e.g. approval of transaction) annulled
  • Injunction of proposed action
  • Payment of damages / restitution
  • Removal of individual from board
  • Removal of firm (e.g. external audit firm)
  • Rescission of contract

13
Next Steps in OECD Project
  • Develop inventory of corporate governance-related
    dispute resolution mechanisms to facilitate
    policy dialogue provide guidance for reform
  • Inventory not intended to favour any particular
    form of dispute resolution
  • Inventory intended to raise awareness of
  • Range of options that exist
  • How they can or could function in corporate
    governance context
  • Range of experiences in different contexts for
    different types of disputes
  • Inventory to take advantage of expertise
    experience in Regional Roundtables, OECD Steering
    Group informal experts groups
  • Format
  • Base set of case studies, written by country
    experts, focusing on dispute resolution
    mechanisms in particular countries
  • Supplementary notes and comments
  • Describing how similar mechanisms work in other
    countries, or
  • Evaluating potential for adaptation of mechanisms
    in particular countries or regions
  • Lead paper to key themes in depth and/or provide
    template for analysing options

14
For More Information
  • OECD Principles and Methodology available at
    www.oecd.org/daf/corporate-affairs
  • Contact
  • Janet Holmes
  • 2, rue André Pascal
  • 75775 Paris Cedex 16, France
  • janet.holmes_at_oecd.org
  • Tel 33 (0)1 4524 9048
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