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OECD Forum 2009 – The Crisis and Beyond

Serena Lillywhite Sep 25, 2009
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June 2009 was a particularly busy time for the OECD. The OECD Forum 2009 and the Ministerial Council meeting followed ‘hot on the heels’ of the Investment Committee annual conference on CSR, and meeting of National Contact Points.

The Global Forum, The Crisis and Beyond – for a stronger, cleaner, fairer economy, was a significant event. It attracted more than 600 delegates, Han Seung-soo, Prime Minister of Korea gave the opening address, and David Eades, Presenter with BBC World News, was a very capable and engaging moderator, and set a cautionary scene well.

David Eades noted the risks of not re-organising and attending to regulatory failures as some early “green shoots” of global recovery appear. The OECD has an important role to play in corruption and bribery, dismantling tax havens, ensuring enhanced engagement with countries and strengthening corporate governance and responsible business conduct. The point was made; the OECD is in a position to make a difference through promoting stronger regulation, stronger innovation, stronger sustainable development, managing migration, and boosting employment and social inclusion.

However, some of the most significant views emerged from the session on ‘restoring Confidence in financial systems’. Adrian Blundell-Wignall, Deputy Director of the OECD Financial and Enterprise Affairs, did not hold back. He identified policy makers, including the OECD, as having “caused this crisis”, and poor corporate governance, a lack of transparency and regulation in the global liquidity markets as key factors.

The OECD economist articulated what is needed to restore confidence in financial systems. This included: guaranteeing deposits, and removing toxic assets from balance sheets. However, it appears that large scale fixing of the tax system is urgently required, notably getting rid of the Basell ΙΙ Arbitrage system, a banking practice that takes advantage of regulatory differences between two or more markets. A new banking model is required based on “harmonised regulation to avoid arbitrage”.

Further, significant changes to corporate governance are needed to address global corporate culture deficiencies. Separation of CEO and chairman of board responsibilities, a review of the ‘fit and proper person’ test of directors, a review of the role of ‘non-operating parent’ and the appointment of risk officers. Improved transparency is critical, giving access to information, and accompanying remedies and mechanisms to hold directors responsible for poor practice.

Ulrich Schröder, Chairman of the Managing Board, KfW, Germany, had similar views, but suggested solutions can be found outside of the regulatory schemer. He indicated the banking crisis is far from solved and the market is “still flooded with short term money” – few banks can raise money beyond a 3-5 year period. Toxic assets need to be removed from balance sheets, and prudent credit rules applied. Long term incentive and harmonised regulatory models are needed. Corporate governance principles require urgent attention, and greater, and inclusive, transparency of all banks and their loans / assets must be non-negotiable. In his opinion, if full transparency and disclosure is achieved then other regulatory reforms may not be required.

The session on ‘more effective corporate governance’, at which OECD Watch was a special discussant, did not deliver the necessary innovation or commitment on the part of either the OECD or BIAC presenters to suggest significant change to corporate governance principles is likely any time soon. Grant Kirkpatrick, Senior Economist, Corporate Governance, OECD, suggested the OECD “may have a duty to look at the Corporate Governance Principles again…with the assistance of a committee of wise men”, and in the context of a world standard in corporate governance principles. No concrete suggestions on greater synergy between the OECD Guidelines for Multinational Enterprises and the OECD Corporate Governance Principles (in light of a likely review) were offered.

The BIAC representative, Anne Molyneux emphasised the need to “hasten slowly and understand the issues that have driven the crisis”. The key drivers are surely well understood by now. Her key concern was developments in Australia and the Netherlands towards capping executive salaries, which, she suggested would do nothing but restrict corporate capacity to attract talent, rather than focus on real value creation.

Questions from the floor suggested dissatisfaction with the ‘business as usual’, ‘lets take it slowly’ approach which appeared at odds with earlier sessions indicating the need for major reform in response to the crisis.

The contribution from OECD Watch, highlighted familiar concerns. Key points raised included:

  1. The need to ensure policy and practice response to corporate governance and corporate responsibility are not considered separately

  2. The issue goes beyond restoring confidence in financial markets and must address the wider sustainable development agenda and impact on all stakeholders  - not just shareholders

  3. Regulatory mechanisms pertinent to directors duties, remuneration and incentive schemes and risk management, must include an assessment of, and provision for, the social and environmental impact of planed and actual business – such as outlined in the OECD Guidelines for Multinational Enterprises

  4. Transparency and disclosure of all business and management practices is critical in restoring confidence and demonstrating good corporate governance. This includes subsidiaries, supply chains, production networks, project financing and investment – and particularly when operating in developing economies and conflict zones.

  5. OECD Watch experience with southern partners clearly demonstrates that voluntary initiatives, self-governance, and so-called soft laws, are an inadequate regulatory framework to ensure robust corporate governance and responsible business practice. Regulatory gaps, governance gaps, and implementation gaps have become the norm; and

  6. There is a need for more binding and enforceable regulation, and harmonised governance principles at a global level. This must be supported with mechanisms for remedy and redress.

 

Serena Lillywhite is a member of the OECD Watch Coordinating Committee. She was invited to the Forum as a ‘special discussant’ in the session ‘more effective corporate governance’. OECD Watch wishes to acknowledge the OECD for both the invitation and waiving the registration fee.

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