Corporate governance plays a key role in guiding the strategic direction of an entity and defining its relationships with stakeholders and shareholders. Effective governance policies, structures and frameworks promote trust, transparency, and accountability, which in turn encourage long-term investment and contribute to economic growth. With so much focus placed on South Africa for matters such as the greylisting and other challenges, the need for adequate corporate governance is even more relevant now than ever. This is also not just the case for state entities, as many may often think, since corporate governance reaches much further than only state entities and must also be considered in the public and private sectors.

What is the OECD?
The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental organisation established in 1961 and is one of the leading international standards for corporate governance. South Africa, however, only became a partner of the OECD in 2007. The OECD Council has facilitated the development of a set of guidelines to assist policymakers in assessing and enhancing the legal, regulatory, and institutional foundations of corporate governance (collectively known as the “OECD Principles”). 

OECD Principles
One of the aims of the OECD Principles is to promote economic efficiency, sustainable growth, and financial stability for all the intergovernmental organisations that are members of the OECD. The OECD Principles outline the essential components of a strong governance framework and offer practical recommendations for national implementation. Furthermore, they serve as a guide for stock exchanges, investors, corporations, and other important stakeholders involved in enhancing good corporate governance. Considering all the efforts to eventually have South Africa’s greylisting removed, key principles can be considered from the OECD that will encourage adequate and practical corporate governance tools, such as: 

• Establishing a foundation for effective corporate governance.
• Promoting the rights of shareholders and the level of transparency that entities must provide to their shareholders and/or stakeholders.
• Ensuring that shareholders receive equal treatment. 
• Establishing the role of stakeholders and indicating the scope of duties, which aids in the separation of powers.
• Enhancing disclosure and transparency practices, and
• Setting out the responsibilities of the board of directors and indicating the standard by which the directors must ultimately conduct their duties.

For purposes of this discussion, we will be focusing on only three of the OECD Principles, which can aid in changing the greylisting status of South Africa on a corporate level: 

1. Establishing a foundation for effective corporate governance
This principle outlines the importance of creating a firm foundation for governance within the legal, regulatory, and institutional framework. The framework of an entity should thus – 

• encourage transparency and efficiency within the markets and maintain consistency with the rule of law. 
• explicitly define the roles and responsibilities of the supervisory, regulatory and enforcement bodies and other stakeholders of the entity. 

It is important for a corporate governance framework to be flexible enough to meet the needs of entities operating under different circumstances to avoid over-regulation and limit conflicts of interest in public institutions and the private sector while still ensuring a standard in the quality of reporting and stakeholder relations. Additionally, the corporate governance framework should encourage ethical, responsible, and transparent practices in its development, also considering international collaboration and dialogue. Governance structures must consistently prioritise the public interest, particularly when responsibilities are delegated among authorities. 

2. Establishing the role of stakeholders
An effective corporate governance framework should acknowledge and protect the rights of all stakeholders, including investors, employees, creditors, and suppliers. These stakeholders are crucial to a corporation’s success and competitiveness. By fostering transparent communication with investors, employees, customers, suppliers, and other stakeholders, businesses cultivate long-term trust and strengthen relationships. Stakeholders should also be provided with recourse to effective remedies should their rights be violated or the governance frameworks of the entity not be complied with.

3. Enhancing disclosure and transparency practices
A corporate governance framework should ensure timely and accurate disclosure of material information regarding an entity’s financial position, performance, ownership, and governance. These disclosures must be made in accordance with high-quality standards of accounting and financial practices and should be audited by an independent and competent auditor. Disclosures by entities and their stakeholders are crucial for enabling investors to make informed decisions and for ensuring the efficient functioning of the market. Inadequate or unclear information can hinder market operations, raise capital costs, and lead to inefficient resource allocation. Therefore, effective disclosure practices are essential for attracting capital and maintaining confidence in the capital markets.  The money laundering attempts can often be curbed by simple yet efficient disclosure policies and practices of entities. 

The OECD principles of good corporate governance offer useful guidelines aiming at sustainable, transparent and accountable practices. By adopting these principles and taking practical steps to implement them, entities can build stronger governance structures that align with global practices, subsequently avoiding issues such as corruption and money laundering allegations. However, effective governance requires more than just compliance with these principles; it requires a commitment to fostering an ethical, transparent, and equitable corporate culture. 

Feel free to reach out to our corporate advisory team, who can assist with tailored policies and guidelines for your entity.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).