PACIFIC BASIN ECONOMIC COUNCIL
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Additional Info: Policy Statements Speeches Photos Speakers & Noted Participants Featured Biographies Registration Media Information Conference Statement Regional Vitality in the 21st Century April 6-10, 2001 — Tokyo, Japan Mr. Seiichi Kondo Deputy Secretary General OECD It is an honour and a pleasure to have the opportunity to participate in this PBEC session on the topic of "Meeting Today's Management Challenges: Transparency, Environmentalism and Corporate Responsibility". I believe that recent global developments (the end of the Cold War, the proliferation of the market economy, the unprecedented growth and size of private capital, a power shift from states to markets, and the rise in power of civil society) signal a new era in the world as we know it - one that poses major challenges for us all. The central management challenge faced by corporations today, I believe, is to adapt to this new global environment. In this new era, there is no single, dominant force, but rather, four main actors - states, international organisations, markets, and civil society. Each actor needs to play its role in order to ensure the smooth and fair functioning of democracy and the market economy. Here, the key concept for all of the actors is governance. Each actor should establish its own governance, and help others to do their own, through close scrutiny and co-operation. It is in each actor's interest to co-operate, because all are dependent on each other; if one fails, we all fail. This means that corporations can no longer afford to look solely at the bottom line, because other key players in global markets - including NGOs, national governments and international organisations - all have an influence on the economic and social climate in which corporations do business. In this global, interdependent environment, good corporate governance and corporate responsibility have become essential components of corporations' overall business strategy. It is for this reason that I am pleased to talk to you today about the challenges that we all face here in this Pacific region in adopting good corporate governance and responsible corporate conduct. In this regard, I will also talk to you about how the OECD may be able to help. So, allow me to first turn to the challenges all of us face in improving corporate governance and corporate conduct. The current U.S. economic slowdown has raised understandable concerns in Asia about the impact this could have on its own economy. The severity and duration of the US slowdown remains to be seen, but the arguments for reform in Asia remain strong regardless of what happens next: money finds its way to investments that bring the highest return, irrespective of the world economic situation. In a market economy, transparency and accountability help to ensure this smooth flow of capital. Good corporate governance and responsible corporate conduct go hand-in-hand with strengthened transparency and accountability. And in a less favourable economic climate, one could say that good corporate governance and responsible corporate conduct become more important than ever, not only to attract foreign investment, but also to ensure that it stays. Asian governments and businesses have understood this, and have made some progress, since the Asian crisis of 1997. Numerous initiatives and reforms have been undertaken to review current approaches to corporate governance and corporate responsibility. These have been aimed, for example, at enhancing transparency and accountability to attract foreign investment and protect investor interests; strengthening companies' performance and profitability through restructuring; and building confidence in the markets. On the private sector side, initiatives for corporate responsibility may be one of the most important trends in international business of the past twenty years. They often involve the issuance of codes of corporate conduct setting forth commitments in such areas as labour relations, environmental management, human rights, consumer protection, disclosure and fighting corruption. These codes are backed up by management systems that help firms respect their commitments in their day-to-day operations. Management, reporting and auditing standards are evolving rapidly and new supporting institutions (for example, professional societies, consulting and auditing services) have emerged. The OECD has just completed a major study of this development, using databases covering over two-thousand organisations based in thirty countries. The OECD study shows that private initiatives are a global phenomenon, involving enterprises on at least four continents, and most major multinationals. The main message of this study is a positive one - private initiatives for corporate responsibility have produced basic building blocks that could eventually contribute to a convergence of good economic, social and environmental standards across the countries of the world. If the private sector has been so active, you may wonder why governments and international organisations such as the OECD have involved themselves in promoting such reforms? Businesses certainly have their own incentives to practice good corporate governance; for example, to help them to mobilise capital, to allocate this capital efficiently, and to monitor the use of it in individual companies. Therefore, it is sometimes argued that self-regulation, along with market forces, should be sufficient to establish good corporate governance. But this is not enough to ensure adequate information and certain protections that provide for the market to function with fairness, as well as efficiency. For example, national governments have a role in establishing legal and regulatory frameworks, which are crucial to protect against abuses of anti-competitive practices. While laws and regulations can be changed relatively easily, changing the mind-set of companies and regulators takes a sustained effort of dialogue and interaction among all concerned actors. Many companies still need to shift their view of corporate governance as a nuisance; they need to perceive corporate governance as a tool for increasing their value. Regulators too need to change; they need to see themselves as facilitators of transparency in the investment process; not as gatekeepers to businesses, with an ever-expanding set of laws and regulations. The OECD has played a pioneering role in promoting needed dialogue on an international level, and in developing the first inter-governmental initiative on corporate governance. The work was carried out by a special Task Force comprised of all OECD countries (including our Pacific region members - Japan, Korea, Australia, New Zealand, Canada, the US and Mexico), as well as representatives from multilateral organisations, labour, business and civil society. Following a process of wide consultations, which also included major Asian partners such as Indonesia, Thailand, Malaysia, Singapore and the Philippines, the OECD completed and adopted its Principles of Corporate Governance in May 1999. I understand that copies have been made available at this conference, so I will just briefly mention that these principles cover five main areas: The rights of shareholders and their protection; The equitable treatment of all categories of shareholders, including minority owners and foreign shareholders; The role of employees and other stakeholders; Timely disclosure and transparency of financial and non-financial information; and The responsibilities of the board of directors. The OECD approach - relying upon "soft law" or recommendations, along with dialogue and "peer pressure" to promote implementation, is particularly suited to this type of issue, to maintain flexibility while aspiring to as high a standard as possible. We have since followed these up with Regional Roundtable meetings in Asia, Russia, Eurasia and Latin America to consider the Principles and ways to improve corporate governance on a regional basis. In fact, I have just come from the third Asian Corporate Governance roundtable held in Singapore last week, and jointly sponsored by the OECD, World Bank, Asian Development Bank and others. I can assure you that decision-makers, investors and businesses alike are taking these Principles as a serious point of reference, as they work to develop a broadly agreed upon action plan for further reform in the region. Another important international set of standards are the OECD Guidelines for Multinational Enterprises, updated by Ministers just last year. The Guidelines serve to reinforce and complement the private initiatives to improve corporate conduct that I mentioned earlier. The Guidelines are recommendations addressed by governments to multinational enterprises operating in or from 33 adhering countries (the OECD members plus Argentina, Brazil and Chile). They provide voluntary principles and standards for responsible business conduct, in a variety of areas including labour relations, environmental management, human rights, anti-corruption and consumer protection. For example, the Guidelines provide that enterprises should take due account of the need to protect the environment, public health and safety, and generally to conduct their activities in a manner contributing to a wider goal of sustainable development. In particular, enterprises are expected to have in place a system of environmental management, including relevant information collection, performance evaluation and public reporting. They should assess and address in decision-making the foreseeable environmental impact associated with enterprises' processes, goods and services over their full life cycle. Although addressed primarily to multinational enterprises, the Guidelines set a standard of good corporate behaviour for all companies. While observance by firms is voluntary, adhering governments are committed to promoting the Guidelines among multinational enterprises operating in or from their territory. They must set up national contact points which deal with any issues arising under the Guidelines, including alleged violations. To conclude, I would reiterate that encouraging progress has been made to strengthen corporate governance and corporate conduct, but I would also stress the need for continuing reforms. I hope that you will welcome the OECD Corporate Governance Principles and Guidelines for Multinational Enterprises as tools that may complement your own efforts, by providing internationally agreed frameworks for action. These principles and guidelines are part of a much broader OECD arsenal of declarations and recommendations aimed at developing good global governance, to ensure that the benefits in this new era of globalisation is maximised. Globalisation has enormous potential to improve living standards around the world. But we must remain vigilant - and co-operative - to effectively combat its abuses, such as bribery, money laundering, tax evasion, international criminal activity and anti-competitive practices. I've spoken to you about a couple of OECD instruments for doing so. I look forward to your feedback regarding any further steps we may be able to take together to ensure that globalisation brings prosperity and fairness to us all.