In February 2024, we met with OECD experts to discuss what companies can do to promote sustainability and investor confidence, in light of the new revised OECD Principles on Corporate Governance.  It was a regional webinar convened by the International Federation of Chartered Accountants (IFAC) that attracted more than 400 live attendees from more than 15 Latin American jurisdictions.

The main objective of corporate governance, according to the principles established by the OECD, is to facilitate the creation of an environment of trust, transparency and accountability necessary to promote long-term investments, financial stability and business integrity.

If we take into account the different actors of corporate governance, both external (shareholders and other external stakeholders) and internal (directors, management and employees), we can affirm with certainty that the board of directors is placed at the central spot of corporate governance. That is because the board is the addressee of every single regulation that affects the governance of the company: it is the board that has to comply with them. This is why the distinctive role of the Institutes of Directors is so important, because they collaborate in the compliance and development of the rules of the game of the profession of directors.

And in this point we want to point out a relevant difference between the principles of the OECD and those of the different Institutes. OECD Principles pay special attention to shareholders and investors whether Institutes Principles normally regard the companies’ direction and management. OECD point of view necessarily imposes a bias with respect to directors. Our position in this important regional forum sought to establish this relevant difference, which we think is not usually exposed in all its consequences.

One of the most substantial differences that we observe with the OECD Principles is found in the point that establishes that the management of the company cannot be carried out by the shareholders for “practical reasons” and that is why they have to delegate it to a Board of Directors. At IGEP we believe that shareholders SHOULD NOT manage companies under ANY circumstances, and we think that this is not for practical reasons, but because doing so would make them subject to a liability that they do not intend to assume. This is pretty evident in the case of investor-shareholders but it is equally true in the case of control-shareholders. All of them can limit their liability legitimately BECAUSE they do not take ANY management or directive decision.

The members of a company's Board of Directors are the ones who assume this responsibility in full. And this is why they demand in exchange the capacity of acting with full independence of any interest group, INCLUDING that of the shareholders. This make them able to decide only according to the interest and purpose of the company.

In order for the company to be considered a real person independent of the persons of the shareholders, it must be conducted as a distinct body, separate from their shareholders’ interests. The focus has to be put in the lack of liability of the shareholders, something that at a historical time was very beneficial for promoting the capital markets.  In order to keep effective this principle of no liability of shareholders the counterpart is indispensable: we have to provide the board of directors with absolute independence in decision-making.

We see here a problem of cross-incentives and biases in the different agencies' approaches to governance. The Institutes of Directors look after the position of directors, who are at the heart of corporate governance. The differences between our Principles and the OECD Principles are evident in this point.

In the case of stakeholders, on the contrary, there are many more similarities, but even here the positions are not fully identical. The institutes consider that these actors represent the set of constraints that the board cannot ignore in its decisions. They are in contact with the company but do not make decisions for it.

In this last stakeholder context is that we come to the concept of environmental sustainability, which is one of the main modifications of the new revision of the OECD Principles. The Institutes of Directors seek to ensure that decision-making and risk management contribute to the sustainability and resilience of the company. Shareholder profitability is not the only objective of the board of directors, and when it comes to integrating the management of the company with large public goods, such as the environment, this implies a certain conflict with the vision of the shareholders, because it can mean a certain departure from taking profitability as the only objective. It is in this critical aspect that directors often end up even requesting regulations on their decisions in order to mitigate the conflict to which we refer.

Sustainability goals are public goods that must be internalized in the board room, but its regulation must not be a tax imposing one. The difference can be subtle, but when we listen to the voice of the European directors in ecoDa expressed recently in their Manifesto 2024 we can appreciate that some limit is being arrived to or even trespassed. Public goods are the responsibility of every agent and more especially of those with greater power to influence on them. But board members act in the sake of companies and they cannot establish by themselves the limits of what has to be or not a pubic burden. This debate needs more participation of board members than is currently having, for companies’ competitiveness not to perish.