Title: The OECD
1The OECDs Work on Corporate Governance-Related
Dispute ResolutionCategories of Disputes
- Janet Holmes
- Senior Legal Adviser, Corporate Affairs Division
- OECD
2Overview
- Background to the OECDs work on corporate
governance and dispute resolution - Categories of corporate governance-related
disputes
3Background
- 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
4Background (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
5OECDs 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
6Initial 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
7Alternative 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
8Classification 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
9Examples 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?
10Examples 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
11Example 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
12Examples 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
13Next 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
14For 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