GLOBAL - The Organisation for Economic Cooperation and Development has warned shareholders need to be more proactive as owners if corporate governance is to improve globally.
Mats Isaksson, head of corporate affairs at the OECD, claimed in an official interview that many shareholders and other parties "took their eye off the ball" when "times were good and it came to corporate governance instead of working to prevent failures in risk management at firms affected by the crisis.
More specifically, he argued one of the four key things needed to improve corporate governance is for "shareholders to be more proactive in their role as owners", alongside developments within organisations on corporate risk management, pay and bonuses and the performance of board directors.
"The most obvious lesson [from the financial crisis is that corporate governance matters," said Isaksson. "Company executives, policy makers, regulators and shareholders need to pay more attention to corporate governance. A firm's rising price is not necessarily a sign of good governance. History tells us that it could actually be the opposite."
One of the concerns exposed by the OECD in a recent report on corporate governance was many companies do not have sufficient non-executive directors who are involved in the oversight of a company's risk management - a factor which until now has also not been considered a key element of financial businesses.
Within his comments about corporate governance, Isaksson suggested pay structures should be reformed to look not just a high-profile chief executives and senior staff but to demonstrate the corporate culture is aimed at the long-term sustainability of a firm and limit the prospect of short-termism in incentives and bonus payments.
His view is similar to that proposed this week by Legal & General Investment Management, one of the largest institutional shareholders in the UK pensions arena, as Mark Burgess, head of equities at LGIM, has cast doubt on shareholders' ability to properly hold boards of directors to account.
"Recent events have demonstrated that all shareholders need to themselves take the issue of corporate governance seriously," said Burgess. "Company boards need to listen, perhaps more than they did in the past, to the wishes of their shareholders."
LGIM has rolled out a series of proposals which it believes will improve corporate governance and transparency. However the most significant of those is perhaps a call to create an investment forum where key shareholders can gather "to voice their views and address any potential issues facing a company".
At the same time, Burgess said greater consistency in international regulation and corporate governance standards within regulated industries would be a significant improvement.
The passive asset manager also said remuneration arrangements throughout an organisation should be linked to risk management - as suggested by the OECD.