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Corporate Governance: The Foundation for Corporate Citizenship and

Corporate Governance: The Foundation for Corporate Citizenship and

“Good corporate

“Good corporate governance is the glue that holds togetherresponsible business practices, which ensures positiveworkplace management, marketplace responsibility,environmental stewardship, community engagement, andsustained financial performance. This is even more true nowas we work worldwide to restore confidence and promoteeconomic growth.”Thierry buChshead, priVaTe seCTor deVelopMenT diVision oF sWiTzerland’ssTaTe seCreTariaT For eConoMiC aFFairs (seCo)Board responsibilitiesToday’s corporate citizenship — defined by a clear call to environmental, social and governanceresponsibility — links directly to three fundamental functions of boards and their directors’duties to the companies and shareowners they serve:> Protecting stakeholder rights and interests> Managing risk> Creating long-term business valueThe following sections explain how these aspects link through the OECD Principles and UN GlobalCompact. The examples of strategies illustrate the business benefits of proactive leadership.proTeCTinG sTaKeholder riGhTs and inTeresTsThe OECD Principles call on businesses to recognize and safeguard stakeholders’ rights,including legitimate interests and information needs. These Principles call on boards to be trulyaccountable to shareowners and to take ultimate responsibility for their firm’s adherence to ahigh standard of corporate behavior and ethics.Effective corporate governance requires due diligence in rallying the support and commitmentof the broad network of business stakeholders, including shareowners, employees, customersand communities. If stakeholders are adversely affected by a company’s actions, shareownervalue will suffer. With the growth in pension and insurance funds and other institutionalinvestors, shareowners are increasingly also company stakeholders, such as employees orcustomers. Therefore, these groups’ needs are increasingly interconnected.The UN Global Compact’s ten principles similarly call on boards to address critical dimensions ofconcern to stakeholders. Boards that recognize the value of a holistic approach to stakeholderengagement, particularly in the environmental, social and governance realms, find thatshareowners are similarly committed to such issues. This includes ongoing communication with3

stakeholders about material concerns, as well as regular disclosureabout company performance, ideally linked to periodic financialreporting. responding to stakeholder concerns can have other directbusiness benefits:> Widespread consensus is that the long-term costs of corruption arehigh for both society and business. Anti-corruption measures canstrengthen relationships with stakeholders by building a culture oftrust and collaboration.> When companies enact anti-corruption initiatives that includeempowering employees, this in turn can cultivate good reflexes onthe part of individuals to address workplace dilemmas.> Employees who work where their rights and needs are respectedtend to be more productive, delivering higher quality work thanthose who are routinely mistreated.High standards of integrity, transparency and disclosure can beinfluential in restoring public and investor trust in the private sector.They are also a starting point for ongoing, constructive dialogue withstakeholders, such as communities, who are affected by and can, inturn, help determine a business’s performance.Why is corporategovernance important?Corporate governance refersto the way that Boards overseethe running of a company byits managers, and how Boardmembers are held accountableto shareowners and thecompany. This has implicationsfor company behavior not onlyto shareowners but also toemployees, customers, thosefinancing the company, andother stakeholders, includingthe communities in which thebusiness operates.Research shows that responsiblemanagement of environmental,social and governance issuescreates a business ethos andenvironment that builds botha company’s integrity withinsociety and the trust of itsshareowners.The OECD Principles of Corporate GovernanceFirst published in 1999, the OECD Principles assist governments in improving the legal, institutional and regulatoryframework that underpins corporate governance and ultimately helps preserve financial and economic stability. ThePrinciples provide practical guidance for corporate governance best practices, including protection of shareownerrights and board responsibilities, to stock exchanges, investors, corporations, and others. Updated in 2004,following a spate of corporate scandals, the Principles now contain even stronger recognition of the importanceof stakeholders in corporate governance as well as emphasizing the need for timely, accurate, and transparentdisclosure mechanisms and communication.Learn Morewww.oecd.org/corporate4

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