Oecd legal Instruments

I. 
Ensuring the basis for an effective corporate governance framework 
The corporate governance framework should promote transparent and fair markets, and the efficient 
allocation of resources. It should be consistent with the rule of law and support effective supervision 
and enforcement. 
Effective corporate governance requires a sound legal, regulatory and institutional framework that market 
participants can rely on when establishing their private contractual relations. By promoting transparent and 
fair markets, this framework also plays an important role in fostering the trust in markets that is necessary to 
underpin the achievement of broader economic objectives. The corporate governance framework typically 
comprises elements of legislation, regulation, listing rules, self-regulatory arrangements, contractual 
undertakings, voluntary commitments and business practices that are the result of a country’s specific 
circumstances, history and tradition. The desirable mix between these elements will therefore vary from 
country to country. 
The legislative and regulatory elements of the corporate governance framework can usefully be 
complemented by soft law elements such as corporate governance codes which are often based on a 
“comply or explain” principle in order to allow for flexibility and to address specificities of individual 
companies. What works well in one company, for one investor or a particular stakeholder may not necessarily 
be applicable to corporations, investors and stakeholders that operate in another context and under different 
circumstances. Thus, any particular element of a specific corporate governance framework may not be 
effective in addressing a particular governance issue in all situations. Rather, the methods for encouraging 
or requiring good corporate governance practices should aim to achieve desired outcomes by adapting 
approaches to fit particular circumstances. For example, the desired outcome of ensuring effective 
implementation of certain corporate governance practices may be achieved more efficiently in markets where 
institutional investors play a strong role in improving such practices in line with soft law code 
recommendations, while in markets where investors adopt a more passive role, the regulator may choose to 
require and enforce the implementation of certain corporate governance standards. As new experiences 
accrue and business circumstances change, the various provisions of the corporate governance framework 
should be reviewed and, when necessary, adjusted. 
Jurisdictions seeking to implement the Principles should monitor their corporate governance framework with 
the objective of maintaining and strengthening its contribution to market integrity, access to capital markets, 
economic performance, and transparent and well-functioning markets. As part of this, it is important to 
consider the interactions and complementarity between different elements of the corporate governance 
framework and its overall ability to promote ethical, responsible and transparent corporate governance 
practices. Such analysis is an important tool in the process of developing an effective corporate governance 
framework. To this end, effective and timely consultation with the public is an essential element. In some 
jurisdictions, this may need to be complemented by initiatives to inform companies and their stakeholders 
about the benefits of implementing sound corporate governance practices. 
OECD/LEGAL/0413
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Moreover, in developing a corporate governance framework, national legislators and regulators should 
consider the need for, and the results of, effective international dialogue and co-operation. If these conditions 
are met, the corporate governance framework is more likely to avoid over-regulation, support the exercise 
of entrepreneurship, and limit the risks of damaging conflicts of interest in both the private sector and in 
public institutions.