Ankit Singh Mehar, Executive | corplaw@vinodkothari.com

The G20 leaders in the recent G20 Summit held on 8th -10th September,  2023, endorsed the revised ‘G20/OECD Principles of Corporate Governance’ (‘Revised Principles’). The Revised Principles replace the extant set of principles released in 2015 in light of the evolution in capital markets and global economy, following a review of the erstwhile principles over a period from 2021-2023. 

As stated in the Summit Declaration, the Revised Principles have been endorsed by the G20 leaders “with the aim to strengthen policy and regulatory frameworks for corporate governance that support sustainability and access to finance from capital markets, which in turn can contribute to the resilience of the broader economy.”

The Revised Principles, besides making alterations to the existing principles, also introduce two new chapters, viz., 

Chapter III – ‘Institutional investors, stock markets, and other intermediaries’ focussing on  engagement of institutional investors with the investee company, essential disclosure requirement and management of conflict of interest pursuant to exercise of their key ownership rights. 

Chapter VI – ‘Sustainability and resilience’ focussing on corporate governance policies for managing the risks and opportunities of sustainability and resilience 

Below we summarise the key highlights of the Revised Principles. 

Key Highlights of revised principles:

1. Sustainability and resilience – a new theme to the mainstream corporate governance
   • Corporate governance framework to consider and incentivise decision-making and risk management contributing to the sustainability and resilience of the corporation
     1. Allow dialogue between a company, its shareholders and stakeholders to exchange views on relevant sustainability matters and assessment of material matters
     2. Due consideration for dissenting shareholders rights in case of companies adopting both for-profit and public benefit objectives
   • Board’s responsibility towards sustainability and resilience
     1. To ensure adequate consideration of material sustainability risks and opportunities
     2. Ensuring company’s  lobbying activities are coherent with their sustainability related goals and targets
     3. Assessing compatibility of company’s capital structure with strategic goals and associated risk appetite
   • Sustainability related disclosure to be consistent with internationally recognised standards, so as to facilitate comparability, and include retrospective and forward-looking material information 
     1. Disclosure of sustainability matters, financial reporting and other corporate information should be connected
     2. Annual assurance attestation for an external and objective assessment of sustainability related disclosures
     3. To include regular disclosure of reliable metrics w.r.t publicly set sustainability related goals to assess its credibility and progress towards meeting the target 
   • Stakeholders and their rights and role in sustainability and resilience 
     1. Encourage active co-operation between companies, shareholders and stakeholders in creating value, quality jobs, and sustainable and resilient companies
     2. Developing mechanisms for employees participation in corporate governance
     3. Establishing a confidential whistleblowing policy for reporting ethical and illegal practices of company by stakeholders or any other person outside company
     4. Respect right of stakeholders that are established by law or through mutual agreement
     5. Opportunity to obtain effective redressal for violation of their rights at a reasonable cost and without excessive delay
     6. Access to relevant, sufficient and reliable information on a timely and regular basis
2. Increasing role of Institutional Investors (‘II’) in corporate governance
   • Disclose their policies for corporate governance and voting with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights
   • Disclose management of material conflicts of interest that may affect the exercise of key ownership rights regarding their investments
   • Dialogue between II and portfolio companies on matters affecting the portfolio of II.   
   • Stewardship codes to act as complementary mechanism for disclosure requirement of II on their engagement and voting policy
   • Regulated entities and professionals providing advice to investors to disclose and minimise conflict of interest, including public disclosure of the methodologies used by regulated service providers
   • Prohibition of insider trading and market manipulation 
3. Increasing use of digital technologies
   • Adopting digital technologies for supervision and implementation of corporate governance
   • Equipping  with digital technology to ensure participating through e-voting
   • Having  mechanisms in place for handling data privacy and digital security risks
4. Disclosure of capital structures, group structures and their control arrangements
   • Closely monitoring the shareholding agreement which affects the control within group structures
   • Necessitating the need for disclosures of group structures and control arrangements
   • Proper identification of related party in complex group structures
   • Redistribution of control through voting caps 
5. Increasing the role of shareholders and promote equitable treatment 
   • Permitting consultation among shareholders including institutional shareholders on issues concerning their basic shareholders rights
   • Remote shareholder participation in shareholders meetings with equal access to information and opportunities for participation
   • To remove practical difficulties in cross-border votings
   • Inclusion of right to appoint or approve appointment of external auditor as basic shareholder’s right 
6. Focus on cross-border cooperation between policy makers and regulators through bilateral and multilateral arrangements
7. Corporate debt and rights of bondholders
   • Disclosure of material information on debt contracts, impact of material risk associated with breach of covenants and likelihood of its occurrence etc
   • Facilitating the exercise of rights of bondholders of publicly traded companies by
     1. Incentivising institutional investors to monitor and engage with companies
     2. Enacting regulation w.r.t independent bond trustee, eligibility for him and his duties prior to and during a default
     3. Avoiding use of adjustable financial metrics that leave issuers the discretion to define whether they comply with covenants
8. Effective corporate governance through stock market regulations 
   • Provide fair and efficient price discovery as a means to help promote effective corporate governance

For a track version of the amendments from 2015 to 2023, please see the attached file below

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