1 Bishkek, October 2003 Board Accountability, Stakeholders and the OECD Instruments for Corporate Responsibility Presentation for the Fourth Eurasian Corporate Governance Roundtable, Dr. Rainer Geiger, Deputy Director, OECD

2 Directors responsibilities are not limited to carrying out the core functions of conducting business and obeying laws Businesses also have to respond to the expectations of the democratic societies in which they operate – expectations that are often not written down as formal laws. “Corporate responsibility” refers to the actions taken by businesses in response to such expectations in order to enhance the mutually dependent relationship between business and societies. Shareholders expect their corporations to meet society’s demands, consistent with maximising the value of the firm. Experience has shown that companies that do so are the best performers in the long run.

3 The challenges of meeting these expectations have become more complex in today’s global economy Globalisation has raised legitimate public concerns: Some of them are directed at multinational enterprises (MNEs), as agents of globalisation MNEs are often accused of being party to serious problems: corruption of public officials, human and labour rights abuses, environmental damage If ignored, such concerns may lead to legal or ethical troubles and would affect company profitability and financial performance by an impact on:  Company reputation;  Cost reductions (reduction of gas emissions may increase energy efficiency, waste-disposal may create additional revenues  Litigation and regulatory “cushion” or safety zone

4 Both corporate responsibility and corporate governance concerns encourage corporations to focus on serving shareholders or stakeholders Corporate responsibility Generally refers to responsibly grounded business decision-making that Considers the broad impact of corporate actions on:  people,  community and  environment Corporate governance CG focuses specifically on the legal and other mechanisms that hold the corporation accountable to shareholders and other stakeholders in achieving corporate goals. The goal of providing the goods and services needed or desired by members of society can be – and should be – fully compatible with addressing corporate responsibility concerns and vice versa.

5 The OECD Declaration on International Investment and MNEs and Guidelines for MNEs Promotes a comprehensive and balanced approach for:  Governments’ treatment of foreign direct investment (FDI) and for  Enterprises’ activities in adhering countries. The Delcaration The Guidelines A multilaterally enforced, non-binding code, addressed to MNE:  One of four main instruments of the Declaration  The other three include the National Treatment instrument (non less favourable then for domestic enterprises;  On Conflicting Requirements on MNEs: calls for their avoidance by governments in different countries  International Investment Incentives and Disincentives – calls for improved multilateral co- operation on this issue

6 Main Characteristics of the Guidelines The OECD recognises that MNEs have the opportunity to implement policies for development that will ensure coherence between social, economic and environmental objectives. Many such enterprises have shown that high standards for business conduct can enhance growth Adopted by the governments of 30 OECD member countries and 7 non-members (Argentina, Brazil, Chile, Estonia, Israel, Lithuania and Slovenia)

7 Main Characteristics of the Guidelines (cont’d) The aim of these governments is to encourage the positive contributions MNEs make to society and minimise the difficulties caused by their operations Adhering countries are the source of most of the world’s FDI and are home to most major MNEs. In spite of the multitude of business codes of conduct currently available, the Guidelines are the only multilaterally endorsed and comprehensive code

8 The Guidelines are broken down in sections General policies Disclosure Employment and Industrial relations Environment Combating bribery Consumer interests Science and technology Competition Taxation

9 Key provisions of some of these sections. Companies should: Regularly disclose information regarding their activities, structure and financial performance Provide high standards for disclosure, accounting, auditing, and social/environmental reporting Regularly disclose information regarding their activities, structure and financial performance Provide high standards for disclosure, accounting, auditing, and social/environmental reporting Respect the rights of free association and collective bargaining Contribute to the abolition of child and forced labour Refrain from discrimination Provide a safe working environment When possible, employ local personnel with a view of training them Respect the rights of free association and collective bargaining Contribute to the abolition of child and forced labour Refrain from discrimination Provide a safe working environment When possible, employ local personnel with a view of training them Disclosure Employment & Industrial Relations

10 Implementation of the Guidelines ● The National Contact Point (NCP) - often a government office – is responsible for encouraging observance and for ensuring that the Guidelines are well known and understood nationally. ●Governments promote the Guidelines in conferences, mailings to businesses, but also through concrete measures in the trade and investment area. ●The Committee on International Investment and MNEs is the OECD body responsible for overseeing the functioning of the Guidelines by:  taking steps to enhance their effectiveness;  issuing clarifications on their application;  consulting with the OECD business and labour advisory committees and NGOs. ● The National Contact Point (NCP) - often a government office – is responsible for encouraging observance and for ensuring that the Guidelines are well known and understood nationally. ●Governments promote the Guidelines in conferences, mailings to businesses, but also through concrete measures in the trade and investment area. ●The Committee on International Investment and MNEs is the OECD body responsible for overseeing the functioning of the Guidelines by:  taking steps to enhance their effectiveness;  issuing clarifications on their application;  consulting with the OECD business and labour advisory committees and NGOs.

11 To conclude The Guidelines cover the full range of areas relevant to standards of responsible business conduct and so provide to corporations a most valuable international benchmark of society’s expectations Good corporate governance and corporate responsibility are no-longer add-ons to markets, they are integral to them. They are the basis on which public-private partnerships can grow. Further improving the “fit” between corporations and societies in which they operate is a key goal of the OECD The Guidelines cover the full range of areas relevant to standards of responsible business conduct and so provide to corporations a most valuable international benchmark of society’s expectations Good corporate governance and corporate responsibility are no-longer add-ons to markets, they are integral to them. They are the basis on which public-private partnerships can grow. Further improving the “fit” between corporations and societies in which they operate is a key goal of the OECD

12 For More Information on the Guidelines www/oecd.org/daf/investment/guidelines