G20/OECD recognise workforce dialogue and consultation as part of effective corporate governance

The G20/OECD Principles of Corporate Governance for the first time recognise the role of the workforce – and not just senior management – in effective corporate governance and include stronger expectations for consultation of workers on major decisions of the company.

The revised Principles were launched by the G20 and OECD on 11 September 2023, and are the leading global standard for corporate regulation, agreed by 49 OECD and G20 countries.

The updated Principles set out the role of workers to “ensure accountability”. Specifically

• Workers and their representatives should be consulted on any material decision, especially decisions about sustainability measures, in the interests of “long-term success and performance.”
• The requirement of companies to meet all legal obligations towards their workforce is part of corporate “resilience to temporary downturns”.
• collective bargaining coverage and mechanisms for workforce representation may be included as disclosures for an investor’s assessment of a company’s value and relevant to its workforce and other stakeholders.

“Voluntary corporate standards have not delivered” said Veronica Nilsson, General Secretary of TUAC “With the revised G20/OECD Principles of Corporate Governance Governments have what they need to set out clear expectations for better corporate governance for sustainable and resilient supply chains.

“Workers and their trade unions are now recognised by the G20 and OECD as central stakeholders in effective corporate governance.’’

The revised Principles were adopted at the June OECD Ministerial level and agreed by the G20 at the New Delhi Summit on 8 September, and trade unions led by TUAC took an active role in consultations with the OECD Co rporate Governance Committee, business and institutional investors.

TUAC called for a new chapter on the workforce role in corporate governance and due diligence on environmental and social issues which were combined in a new chapter on Sustainability and Resilience.

Collective bargaining coverage and other industrial relations indicators have long been considered by trade unions as ‘material considerations’ for investors, and the principles now recognise human rights, workers’ rights and industrial relations as material considerations for disclosure to investors.

Trade union proposals to separate the role of the chair from the CEO and to limit executive compensation were not taken aboard, and worker representation on boards of directors remain optional for companies. Trade unions see these issues as essential components of good corporate governance.

Cross-references to updates to the MNE Guidelines for Multinational Enterprises on Responsible Business Conduct mean National Contact Points will be expected to ensure that the standards for disclosure, dialogue and consultation are upheld and that complaints about non-compliance are investigated.

The launch of the G20/OECD Principles of Corporate Governance were accompanied by the publication of the OECD Corporate Governance Factbook which reviews global trends on equity markets, concentration of corporate ownership, corporate governance, the rights of shareholders and the functioning of boards of directors.

The OECD Corporate Governance Factbook 2023 reports public sector investment in listed companies is 11% globally, with China (30%), Asia (13% excl. China and Japan), Latin America (10%) and Europe (8%) with the highest level of public sector investments, while the US and Japan had the least public sector investments (3% each).

More effort from governments and institutional investors will be needed to address social issues. The Factbook confirms that governments and investors continue to rely on voluntary corporate standards to regulate sustainability.

For the G20/OECD Principles of Corporate Governance and OECD Corporate Governance Factbook 2023 see

https://www.oecd.org/corporate/leaders-endorse-revised-g20-oecd-principles-of-corporate-governance-to-promote-corporate-sustainability-market-confidence-and-financial-stability.htm  and/or https://www.oecd.org/corporate/principles-corporate-governance/