OECD Principle on Ethical Corporate Governance: I.

The rights of shareholders The corporate governance framework should protect shareholders rights: A. Basic shareholder rights include the right to: 1) Secure methods of ownership registration; 2) Convey or transfer shares; 3) Obtain relevant information on the corporation on a timely and regular basis; 4) Participate and vote in general shareholder meetings; 5) Elect members of the board; 6) Share in the profits of the corporation. B. Shareholders have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as: 1) Amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2) The authorization of additional shares; and 3) Extraordinary transactions that in effect result in the sale of the company. C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings: 1. Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting.

2. Opportunity should be provided for shareholders to ask questions of the board and to place items on the agenda at general meetings, subject to reasonable limitations. 3. Shareholders should be able to vote in person or in absentia, and equal effect should be given to votes whether cast in person or in absentia. D. Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed. E. Markets for corporate control should be allowed to function in an efficient and transparent manner. 1. The rules and procedures governing the acquisition of corporate control in the capital markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class. 2. Anti-take-over devices should not be used to shield management from accountability. F. Shareholders, including institutional investors, should consider the costs and benefits of exercising their voting rights. II. The equitable treatment of shareholders The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. A. All shareholders of the same class should be treated equally. 1. Within any class, all shareholders should have the same voting rights. All investors should be able to obtain information about the voting rights attached to all classes of shares before they purchase. Any changes in voting rights should be subject to shareholder vote.

2. Votes should be cast by custodians or nominees in a manner agreed upon with the beneficial owner of the shares. 3. Processes and procedures for general shareholder meetings should allow for equitable treatment of all shareholders. Company procedures should not make it unduly difficult or expensive to cast votes. B. Insider trading and abusive self-dealing should be prohibited. C. Members of the board and managers should be required to disclose any material interests in transactions or matters affecting the corporation. III. The role of stakeholders in corporate governance The corporate governance framework should recognise the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. A. The corporate governance framework should assure that the rights of stakeholders that are protected by law are respected. B. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights. C. The corporate governance framework should permit performance-enhancing mechanisms for stakeholder participation. D. Where stakeholders participate in the corporate governance process, they should have access to relevant information. IV. Disclosure and transparency The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company. A. Disclosure should include, but not be limited to, material information on:

1. The financial and operating results of the company. 2. Company objectives. 3. Major share ownership and voting rights. 4. Members of the board and key executives, and their remuneration. 5. Material foreseeable risk factors. 6. Material issues regarding employees and other stakeholders. 7. Governance structures and policies. B. Information should be prepared, audited, and disclosed in accordance with high quality standards of accounting, financial and non-financial disclosure, and audit. C. An annual audit should be conducted by an independent auditor in order to provide an external and objective assurance on the way in which financial statements have been prepared and presented. D. Channels for disseminating information should provide for fair, timely and cost efficient access to relevant information by users. V. The responsibilities of the board The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the boards accountability to the company and the shareholders. A. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. B. Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly. C. The board should ensure compliance with applicable law and take into account the interests of stakeholders.

D. The board should fulfil certain key functions, including: 1) Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. 2) Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning. 3) Reviewing key executive and board remuneration, and ensuring a formal and transparent board nomination process. 4) Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions. 5) Ensuring the integrity of the corporations accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for monitoring risk, financial control, and compliance with the law. 6) Monitoring the effectiveness of the governance practices under which it operates and making changes as needed. 7) Overseeing the process of disclosure and communications. E. The board should be able to exercise objective judgement on corporate affairs independent, in particular, from management. 1. Boards should consider assigning a sufficient number of non-executive board members capable of exercising independent judgement to tasks where there is a potential for conflict of interest. Examples of such key responsibilities are financial reporting, nomination and executive and board remuneration. 2. Board members should devote sufficient time to their responsibilities.

Global Principles of Corporate Governance: 1) Accountability: Directors should be accountable to shareowners and management should be accountable to directors. To ensure this accountability, directors must be accessible to shareowners inquiry concerning their key decisions affecting the companys strategic direction. 2) Transparency: Timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company. If a company is transparent enough and reports material facts in real time, stakeholders will have more confidence in the management. Consequently, they will be more willing to invest in the company, thereby reducing the cost of capital. Transparency also helps those in charge to avoid fraud and put measures in place against it. All these factors put together enable the firms productive capacity and productivity to improve. 3) Equanimity/ Equitable treatment: The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. Insider trading and abusive self-dealing should be prohibited. Members of the board and managers should be required to disclose any material interests in transactions or matters affecting the corporation. 3) Voting Methods: Within any class, all shareholders should have the same voting rights. All investors should be able to obtain information about the voting rights attached to all classes of shares before they purchase. Cumulative Voting: It is a voting method to select the members of the board of directors. Each shareholder can cast a vote in proportion to the number of shares he owns.

Proxy Voting: Under this mechanism, the shareholder can exercise his right in voting without physically attending the assembly. A ballot cast by one person on behalf of another. Sometimes shareholders cannot or do not want to attend the annual and special meetings at which the voting occurs, corporations provide shareholders with the option to cast a proxy vote. Shareholders receive a proxy ballot in the mail along with an informational booklet called a proxy statement describing the issues to be voted on. Shareholders return a form by mail agreeing to have their vote cast by proxy. Code of best practices: Each capital market in which shares are issued and traded should adopt code of best practices to promote transparency of information, prevention of harmful labour practices, investor protection and corporate social responsibility. Where such a code is adopted companies should disclose to their shareholders whether they are in compliance. Long Term Vision: Corporate directors and management should have a long term strategic vision that, at its core, emphasizes sustained shareholder value. In turn, despite differing investment strategies and tactics, shareholder should encourage corporate management to resist the short term behavior by supporting and rewarding long term superior returns

CG issues in Family Owned Business: The family businesses can generate value for all shareholders, based on several factors, known as the family business edge. This is what attracts many investors to invest in familyowned/controlled companies: Long-term view in decision-making Ability and willingness to adopt unconventional strategies, enabling family businesses to respond rapidly to changing market circumstances and giving them the flexibility to take advantage of opportunities and address emerging risks Desire to build a business for future generations, translating to a focus on sustainability and reducing the risk that controlling shareholders will run down company assets and destroy value

Commitment of family management to their company, providing continuity in the way the business is run

Why Corporate Governance is Crucial for Family Firms Increasing growth and globalization has brought many challenges for family businesses. The way you deal with them can mean the difference between success and failure. Many of these challenges can be tackled by adopting sound corporate governance systems.

1) Managing Growth As family firms expand, the relationship between owners, managers and employees becomes more complex. A good corporate governance system puts in place the right policies to manage this complexity. It creates a solid organizational structure that clarifies roles, reporting lines and delegation of responsibility. Corporate governance also draws the line between ownership and management and separates policy direction from the day-to-day running of the company.

2) Succession Planning Leadership succession is a challenge for all companies, but particularly for family businesses. To ensure that leadership transition does not disrupt your companys growth, you need to have clear policies for the selection of the right family member. Successful family businesses are the result of years of hard work and dedication. To pass on this success, corporate governance needs to be made part of the family firms culture.

3) Preserving Family Harmony Family members may have conflicts among themselves on the running of the company. A solid governance system helps resolve such conflicts allowing family members to focus on other key issues 4) Recruitment and Promotion

Recruitment and human capital management are major factors in a family firms long-term success. A governance system that provides clear guidelines for employing family or non-family members and impartial performance based promotion is essential to the sustainability of your business. 5) Ensuring Fairness Open decision-making and procedures that ensure fairness in evaluating and rewarding both family and non-family employees are essential tools in avoiding tensions and raising the reputation of your company. GOOD GOVERNANCE PRACTICES: For the FOBs, good governance makes all the difference. Family firms with effective governance practices are more likely to carry out strategic and succession planning A. Board of Directors The board shall have a reasonable number of members and shall include a balance of executive and non-executive directors (including an independent non-executive director) to facilitate effective and objective board management. The number of directors should be fixed according to the companys size, age, nature of business operations, and future plans, ensuring effective and efficient governance. The board should comprise a minimum of five directors. The company should set a certain percentage of board members to be designated as non-executive. Numbers will vary with the size of the board, but at least one director should be non-executive. Non-executive directors should be identified by the family council and elected by the shareholders.

B. Family Governance Ownership and exercise of rights of all shareholders, including minority shareholders, should be respected and protected by forming a functional family council. Observing shareholder rights is

necessary for a company to function and grow. A family council can act to preserve these rights in companies where: shares are held by several family members; shares are held within several branches of the family; or, within a single branch of the family, multiple generations are involved in various roles in the company. The family council shall serve as a platform for communication and consultation in connection with the family business, and to give guidance to directors representing the family about the familys interest in the policies adopted or to be adopted by the company. In particular, this council shall play a major role in resolving conflicts and issues concerning succession. Minority shareholders may seek assistance through family councils to resolve this issue. During the selection of a chief executive, the council should make its recommendations to the board of directors, which shall give due consideration to these recommendations. C. Employees & Other Stakeholders The board of directors should appreciate the role of the employees, especially key management, in the success of the company and should ensure that employees are treated with fairness and equity and without discrimination. The company should recognize the role and rights of its stakeholders, both through established laws or mutual agreement, and should encourage active cooperation to achieve operational and financial sustainability. D. Ethics, Disclosure, and Transparency The organization should be governed in an ethical and transparent manner under effective accountability mechanisms. Transparency is in the heart of corporate governance. The largest failures in business history such as Enron and Parmalat, was mainly because of the poor disclosure of the financial statements of such corporations. Therefore, when one looks at any code of corporate governance at any country, it is evident that transparency and disclosure of information is the biggest block in all codes. Sir Cadbury stresses that fairness and transparency in financial and non-financial perks and reward systems, particularly within the family, is an essential tool in avoiding tensions over perceived injustices.