ICGN Global

Governance Principles
 Published by the International Corporate Governance Network
Saffron House
6 -10 Kirby Street
London EC1N 8TS UK

© International Corporate Governance Network 2014

All rights reserved. Dissemination of the contents of this paper is encouraged. Please give full
acknowledgement of the source when reproducing extracts in other published works.

ICGN, the contributors and the editor of this publication accept no responsibility for loss
occasioned by any person acting or refraining from action as a result of any views expressed in
these pages. No one should act upon such information without appropriate professional advice
after a thorough examination of the particular situation.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN 978-1-907387-13-5

2 © International Corporate Governance Network (2014)

ICGN Global
Governance Principles

About ICGN
An investor-led organization of governance professionals, ICGN’s mission is to inspire and promote
effective standards of corporate governance to advance efficient markets and economies
world-wide. Established in 1995 and present in over 50 countries, the ICGN membership includes
global investors with assets under management in excess of US$18 trillion. For more information,
contact the ICGN Secretariat by telephone: +44 (0) 207 612 7098, email: [email protected] or
visit www.icgn.org.

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4 © International Corporate Governance Network (2014)
Preamble

The ICGN Global Governance Principles (“the Principles”) describe the responsibilities of boards
and shareholders respectively and aim to enhance dialogue between the two parties. They embody
ICGN’s mission to inspire and promote effective standards of governance to help advance efficient
markets world-wide. The Principles are the ICGN’s primary standard for well governed companies
and set the framework for a global work programme focused around influencing public policy,
informing governance dialogue and connecting peers around the world.

The combination of responsibilities of boards and shareholders in a single set of Principles

emphasises a mutual interest in protecting and generating sustainable corporate value.
Sustainability implies that the company must manage effectively the governance, social and
environmental aspects of its activities as well as financial operations. In doing so, companies
should aspire to meet the cost of capital invested and generate a return over and above such
capital. This is achievable if a focus on economic returns and strategic planning includes the
effective management of company relationships with stakeholders such as employees, suppliers,
customers, local communities and the environment as a whole.

First initiated at the founding of the ICGN in 1995, this is the fourth edition of the Principles. They
generally reflect the views of the ICGN membership, the majority being institutional investors
responsible for assets under management in excess of US$18 trillion. The recommendations
are therefore substantively developed from a shareholder perspective, while taking into account
other relevant parties including company directors, professional advisors and the standard-setting
community.

The Principles apply predominantly to publicly listed companies and set out expectations around
corporate governance issues that are most likely to influence investment decision-making. They
are also relevant to non-listed companies which aspire to adopt high standards of corporate
governance practice. The Principles are relevant to all types of board structure including one-tier
and two-tier arrangements.

We refer to both non-executive and independent non-executive directors (also known as

‘outside directors’) throughout the Principles. This recognises the different approaches to board
composition in various markets and the make-up of executive officers, non-executive directors and
independent non-executive directors. The latter refers to directors who are free from any external
relationships which may influence the directors’ judgement.

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 We refer to the term ‘shareholder’ throughout the Principles and, more specifically, to institutional
investors in Section B who act on behalf of beneficiaries or clients, such as individual savers or
pension fund members. This includes collective investment vehicles or asset owners which pool
the savings of many (e.g. insurance companies, pension funds, sovereign wealth funds and mutual
funds), or asset managers to which such collective vehicles or individuals allocate funds. We
note that in controlled companies (where there is a dominant shareholder or block such that they
ultimately have the majority power) the governance considerations are primarily concerned with
protecting the interests of minority shareholders. In this regard, many of the recommendations in
the Principles will apply but others may be less relevant.

We also acknowledge different investment strategies, for example as employed by passive or

active funds, and advocate that shareholders embrace their obligations to act fully aligned in the
interests of the company, or as institutional investors, to their beneficiaries or clients, over relevant
time-horizons. As such, the Principles set out a series of recommendations on the governance of
shareholders themselves as well as their external stewardship responsibilities related to investee
companies.

The Principles are intended to be of general application, irrespective of national legislative

frameworks or listing rules. As global recommendations, they should be read with an
understanding that local rules and cultural norms may lead to different approaches to governance
practices. National codes reflect local standards and explanation is encouraged where there is
divergence from the Principles against this framework. Members of the ICGN support the flexible
application of these Principles, and therefore the specific circumstances of individual companies,
shareholders and the markets within which they operate should be recognised.

The Global Governance Principles are supplemented by ICGN Guidelines which are issued from
time to time to elaborate on key concepts and practices. A full list of ICGN Guidelines is provided
in Annex 1. Both the Principles and the more specific Guidelines are often used by ICGN members
as a benchmark in assessing investee company governance practices, in voting guidelines and
are referenced by academia and standard-setters. The recommendations are subject to change
as appropriate in recognition of continually evolving standards and practices and are reviewed at
appropriate intervals.

6 © International Corporate Governance Network (2014)

Contents

Section A: Board

1.0 Responsibilities 8

2.0 Leadership and independence 9

3.0 Composition and appointment 11

4.0 Corporate culture 12

5.0 Risk oversight 13

6.0 Remuneration 14

7.0 Reporting and audit 16

8.0 General meetings 19

9.0 Shareholder rights 20

Section B: Institutional Investors

10.0 Responsibilities 22

11.0 Leadership and independence 23

12.0 Capacity 24

13.0 Conflicts of interest 25

14.0 Remuneration 25

15.0 Monitoring 26

16.0 Engagement 27

17.0 Voting 28

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 Section A: Board e) oversee the integrity of the company’s
accounting and reporting systems,

1.0 Responsibilities
its compliance with internationally
accepted standards, the effectiveness
of its systems of internal control, and
1.1 Duties the independence of the external audit
process;
The board should act on an informed basis
and in the best interests of the company f) oversee the implementation of effective
with good faith, care and diligence, for the risk management and proactively review
benefit of shareholders, while having regard the risk management approach and
to relevant stakeholders. policies annually or with any significant
business change;
1.2 Responsibilities
g) ensure a formal, fair and transparent
The board is accountable to shareholders process for nomination, election and
and relevant stakeholders and is responsible evaluation of directors;
for protecting and generating sustainable
value over the long term. In fulfilling their role h) appoint and, if necessary, remove the
effectively, board members should: chief executive officer (CEO) and develop
succession plans;
a) guide, review and approve corporate
strategy and financial planning, including i) align CEO and senior management
major capital expenditures, acquisitions remuneration with the longer term interests
and divestments; of the company and its shareholders; and

b) monitor the effectiveness of the j) conduct an objective board evaluation on

company’s governance practices, a regular basis, consistently seeking to
environmental practices, and social enhance board effectiveness.
practices, and adhere to applicable laws;
1.3 Dialogue
c) embody high standards of business
ethics and oversee the implementation The board should make available
of codes of conduct that engender a communication channels for periodic
corporate culture of integrity; dialogue on governance matters with
shareholders and stakeholders as
d) oversee the management of potential appropriate. Boards should clearly explain
conflicts of interest, such as those such procedures to shareholders including
which may arise around related party guidance relating to compliance with
transactions; disclosure and other relevant market rules.

8 © International Corporate Governance Network (2014)

1.4 Commitment 1.8 Advice
The board should meet regularly to
The board should receive advice on its
discharge its duties and directors should responsibilities under relevant law and
allocate adequate time to board meeting regulation, usually from the company
preparation and attendance. Board secretary or an in-house general counsel.
members should know the business, its In addition, the board should have access
operations and senior management well to independent advice as appropriate and
enough to contribute effectively to board at the company’s expense.
discussions and decisions.

1.5 Directorships 2.0 Leadership

The number, and nature, of board and independence
appointments an individual director holds
(particularly the chair and executive 2.1 Chair and CEO
directors) should be carefully considered
and reviewed on a regular basis and the The board should have independent
degree to which each individual director leadership. There should be a clear
has the capacity to undertake multiple division of responsibilities between the
directorships should be clearly disclosed. chairmanship of the board and the
executive management of the company’s
1.6 Induction business.

The board should have in place a formal 2.2 Lead independent director
process of induction for all new directors
so that they are well-informed about The chair should be independent on the
the company as soon as possible after date of appointment. If the chair is not
their appointment. Directors should independent, the company should adopt
also be enabled to regularly refresh their an appropriate structure to mitigate any
skills and knowledge to discharge their potential challenges arising from this, such
responsibilities. as the appointment of a lead independent
director. The board should explain the
1.7 Committees reasons why this leadership structure is
appropriate and keep the structure under

The board should establish committees review. A lead independent director also
to deliberate on issues such as audit, provides shareholders and directors with a
remuneration and nomination. Where valuable channel of communication should
the board chooses not to establish such they wish to discuss concerns relating to
committees, the board should disclose the chair.
the fact and the procedures it employs to
discharge its duties and responsibilities
effectively.

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2.3  Succession b) is or has within an appropriate period
been a partner, director or senior

If, exceptionally, the board decides that a employee of a provider of material
CEO should succeed to become chair, the professional or contractual services to
board should communicate appropriately the company or any of its subsidiaries;
with shareholders in advance setting out a
convincing rationale and provide detailed c) receives or has received additional
explanation in the annual report. Unless remuneration from the company apart
extraordinary circumstances exist there from a director’s fee, participates in
should be a break in service between the the company’s share option plan or a
roles, (e.g. a period of two years). performance-related pay scheme, or is
a member of the company’s pension
2.4 Effectiveness scheme;

The chair is responsible for leadership of d) has or had close family ties with any of
the board and ensuring its effectiveness. the company’s advisers, directors or
The chair should ensure a culture of senior management;
openness and constructive debate that
allows a range of views to be expressed. e) holds cross-directorships or has
This includes setting an appropriate board significant links with other directors
agenda and ensuring adequate time is through involvement in other companies
available for discussion of all agenda or bodies;
items. There should also be opportunities
for the board to hear from an appropriate f) is a significant shareholder of the
range of senior management. company, or an officer of, or otherwise
associated with, a significant shareholder
2.5 Independence of the company;

The board should identify in the annual g) is or has been a nominee director as a
report the names of the directors representative of minority shareholders
considered by the board to be or the state;
independent and who are able to exercise
independent judgement free from any h) has been a director of the company
external influence. The board should state for such a period that his or her
its reasons if it determines that a director is independence may have become
independent notwithstanding the existence compromised.
of relationships or circumstances which
may appear relevant to its determination, 2.6 Independent meetings
including if the director:
The chair should regularly hold meetings
a) is or has been employed in an executive with the non-executive directors without
capacity by the company or a subsidiary executive directors present. In addition,
and there has not been an appropriate the non-executive directors (led by the
period between ceasing such lead independent director) should meet as
employment and serving on the board; appropriate, and at least annually, without
the chair present.

10 © International Corporate Governance Network (2014)

3.0 Composition a) board member identities and rationale
for appointment;
and appointment b) core competencies, qualifications, and
3.1 Composition professional background;


The board should comprise a majority c) recent and current board and
of non-executive directors, the majority management mandates at other
of whom are independent, noting that companies, as well as significant roles
practice may legitimately vary from this on non-profit/ charitable organisations;
standard in controlled companies where a
critical mass of the board is preferred to be d) factors affecting independence,
independent. There should be a sufficient including relationship/s with controlling
mix of individuals with relevant knowledge, shareholders;
independence, competence, industry
experience and diversity of perspectives e) length of tenure;
to generate effective challenge, discussion
and objective decision-making. f) board and committee meeting
attendance; and
3.2 Diversity
g) any shareholdings in the company.
The board should disclose the company’s
policy on diversity which should include 3.5 Nominations
measurable targets for achieving
appropriate diversity within its senior
The board should ensure that shareholders
management and board (both executive are able to nominate candidates for board
and non-executive) and report on progress appointment. Such candidacies should
made in achieving such targets. be proposed to the appropriate board
committee and, subject to an appropriate
3.3 Tenure nomination threshold, be nominated
directly on the company’s proxy.

Non-executive directors should serve for
an appropriate length of time to properly 3.6 Elections
serve the board without compromising the
independence of the board. The length of 
Board members should be conscious
tenure of each director should be reviewed of their accountability to shareholders.
regularly by the nomination committee to Accountability mechanisms may require
allow for board refreshment and diversity. directors to stand for election on an annual
basis or to stand for election at least once
3.4 Appointment process every three years. Shareholders should
have a separate vote on the election
The board should disclose the process of each director, with each candidate
for director nomination and election / approved by a simple majority of shares
re-election along with information about voted.
board candidates which includes:

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3.7 Evaluation c) upholding the principle of director
independence by addressing conflicts

The nomination committee should of interest (and potential conflicts of
evaluate the process for a rigorous interest) among committee members
review of the performance of the board, and between the committee and its
the company secretary (where such a advisors during the nomination process;
position exists), the board’s committees
and individual directors prior to being d) considering and being responsible
proposed for re-election. The board should for the appointment of independent
also periodically (preferably every three consultants for recruitment or
years) engage an independent outside evaluation including their selection and
consultant to undertake the evaluation. terms of engagement and publically
The non-executive directors, led by the disclosing their identity and consulting
lead independent director, should be fees;
responsible for performance evaluation of
the chair, taking into account the views e) entering into dialogue with shareholders
of executive officers. The board should on the subject of board nominations
disclose the process for evaluation and, either directly or via the board; and
as far as reasonably possible, any material
issues of relevance arising from the f) board succession planning.
conclusions and any action taken as a
consequence.
4.0 Corporate culture
3.8 Nomination committee
4.1 Codes of conduct /ethics

The board should establish a nomination
committee comprised of non-executive The board should adopt high standards of
directors, the majority of whom are business ethics through codes of conduct/
independent. The main role and ethics (or similar instrument) and oversee
responsibilities of the nomination a culture of integrity, notwithstanding
committee should be described in the differing ethical norms and legal standards
committee’s terms of reference. This in various countries. This should permeate
includes: all aspects of the company’s operations,
ensuring that its vision, mission and
a) developing a skills matrix, by preparing objectives are ethically sound and
a description of the desired roles, demonstrative of its values. Codes
experience and capabilities required for should be effectively communicated and
each appointment, and then evaluating integrated into the company’s strategy and
the composition of the board. operations, including risk management
systems and remuneration structures.
b) leading the process for board
appointments and putting forward
recommendations to shareholders on
directors to be elected and re-elected;

12 © International Corporate Governance Network (2014)

4.2 Bribery and corruption 4.6 Behaviour and conduct
The board should ensure that 
The board should foster a corporate
management has implemented culture which ensures that employees
appropriately stringent policies and understand their responsibility for
procedures to mitigate the risk of bribery appropriate behaviour. There should be
and corruption or other malfeasance. appropriate board level and staff training
Such policies and procedures should be in all aspects relating to corporate culture
communicated to shareholders and other and ethics. Due diligence and monitoring
interested parties. programmes should be in place to enable
staff to understand relevant codes of
4.3 Whistleblowing conduct and apply them effectively
to avoid company involvement in

The board should ensure that the inappropriate behaviour.
company has in place an independent,
confidential mechanism whereby an
employee, supplier or other stakeholder 5.0 Risk oversight
can (without fear of retribution) raise
issues of particular concern with regard 5.1 Proactive oversight
to potential or suspected breaches of a
company’s code of ethics or local law.
The board should proactively oversee,
review and approve the approach to
4.4 Political lobbying risk management regularly or with any
significant business change and satisfy
The board should have a policy on political itself that the approach is functioning
engagement, covering lobbying and effectively. Strategy and risk are
donations to political causes or candidates inseparable and should permeate all
where allowed under law, and ensure that board discussions and, as such, the
the benefits and risks of the approach board should consider a range of plausible
taken are understood, monitored, outcomes that could result from its
transparent and regularly reviewed. decision-making and actions needed to
manage those outcomes.
4.5 Employee share dealing
5.2 Comprehensive approach

The board should develop clear rules
regarding any trading by directors The board should adopt a comprehensive
and employees in the company’s own approach to the oversight of risk which
securities. Individuals should not benefit includes all material aspects of risk
directly or indirectly from knowledge which including financial, strategic, operational,
is not generally available to the market. environmental, and social risks (including
political and legal ramifications of
such risks), as well as any reputational
consequences.

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5.3 Risk culture 6.0 Remuneration

The board should lead by example 6.1 Alignment
and foster an effective risk culture that
encourages openness and constructive
Remuneration should be designed to
challenge of judgements and assumptions. effectively align the interests of the CEO
The company’s culture with regard to and senior management with those
risk and the process by which issues are of the company and its shareholders.
escalated and de-escalated within the Remuneration should be reasonable
company should be evaluated at intervals and equitable and the quantum should
as appropriate to the situation. be determined within the context of the
company as a whole.
5.4 Dynamic process
6.2 Performance
The board should ensure that risk is
appropriately reflected in the company’s Performance measurement should
strategy and capital allocation. Risk should integrate risk considerations so that there
be managed accordingly in a rational, are no rewards for taking inappropriate
appropriately independent, dynamic risks at the expense of the company
and forward-looking way. This process and its shareholders. Performance
of managing risks should be continual related elements should be rigorous and
and include consideration of a range of measured over timescales, and with
plausible impacts. methodologies, which help ensure that
performance pay is directly correlated
5.5 Risk committee with sustained value creation. Companies
should include provisions in their incentive
While ultimate responsibility for a plans that enable the company to
company’s risk management approach with-hold the payment of any sum, or
rests with the full board, having a risk recover sums paid (‘clawback’), in the
committee (be it a stand-alone risk event of serious misconduct or a material
committee, a combined risk committee misstatement in the company’s financial
with nomination and governance, strategy, statements.
audit or other) can be an effective
mechanism to bring the transparency,
focus and independent judgement
needed to oversee the company’s risk
management approach.

14 © International Corporate Governance Network (2014)

6.3 Disclosure 6.6 Employee incentives

The board should disclose a clear,
The board should ensure that the
understandable and comprehensive development of remuneration structures
remuneration policy which is aligned for company employees reinforce, and do
with the company’s long-term strategic not undermine, sustained value creation.
objectives. The remuneration report should Performance-based remuneration for
also describe, on an individual basis, how staff should incorporate risk, including
awards granted to senior management measuring risk-adjusted returns, to help
and the CEO were determined and ensure that no inappropriate or unintended
deemed appropriate in the context of the risks are being incentivised. While a
company’s underlying performance in any major component of most employee
given year. This extends to non-cash items incentive remuneration is likely to be
such as director and officer insurance, cash-based, these programmes should be
fringe benefits and terms of severance designed and implemented in a manner
packages if any. consistent with the company’s long-term
performance drivers.
6.4 Share ownership
6.7 Non-executive director pay
The board should disclose the company
policy concerning ownership of shares by 
The board should ensure that pay for a
the CEO and senior management. This non-executive director and/or a non-
should include the company policy as to executive chair is structured in a way
how share ownership requirements are which ensures independence, objectivity,
to be achieved and for how long they are and alignment with shareholders’ interests.
to be retained. The use of derivatives or Performance-based pay should not be
other structures that enable the hedging of granted to non-executive directors and
an individual’s exposure to the company’s non-executive chairs.
shares should be discouraged.
6.8 Remuneration committee
6.5 Shareholder approval
The board should establish a remuneration

Shareholders should have an opportunity committee comprised of non-executive
to vote on the remuneration policies, directors, the majority of whom are
particularly where significant change to independent. The main role and
remuneration structures is proposed or responsibilities of the remuneration
where significant numbers of shareholders committee should be described in the
have opposed a remuneration resolution. committee terms of reference. This
In particular, share-based remuneration includes:
plans should be subject to shareholder
approval before being implemented. a) determining and recommending to the
board the remuneration philosophy and
policy of the company;

15
 b) designing, implementing, monitoring 7.3 Affirmation
and evaluating short-term and long-
term share-based incentives and other The board should affirm that the
benefits schemes including pension company’s annual report and accounts
arrangements, for the CEO and senior present a true and fair view of the
management; company’s position and prospects. As
appropriate, taking into account statutory
c) ensuring that conflicts of interest among and regulatory obligations in each
committee members and between the jurisdiction, the information provided in the
committee and its advisors are avoided; annual report and accounts should:

d) appointing any independent a) be relevant to investment decisions,

remuneration consultant including their enabling shareholders to evaluate risks,
selection and terms of engagement and past and present performance, and
disclosing their identity and consulting to draw inferences regarding future
fees; and performance;

e) maintaining appropriate communication b) enable shareholders, who put up the

with shareholders on the subject of risk capital, to fulfil their responsibilities
remuneration either directly or via the as owners to assess company
board. management and the strategies
adopted;
7.0 Reporting and audit c) be a faithful representation of the events
7.1 Comprehensive disclosure it purports to represent;

The board should present a balanced d) generally be neutral and report activity
and understandable assessment of the in a fair and unbiased way except where
company’s position and prospects in the there is uncertainty. Prudence should
annual report and accounts in order for prevail such that assets and income
shareholders to be able to assess the are not overstated and liabilities and
company’s performance, business model, expenses are not understated. There
strategy and long-term prospects. should be substance over form. Any
off-balance sheet items should be
7.2 Materiality appropriately disclosed;


The board should disclose relevant and e) be verifiable so that when a systematic
material information on a timely basis so as approach and methodology is used the
to allow shareholders to take into account same conclusion is reached;
information which assists in identifying
risks and sources of wealth creation. f) be presented in a way that enables
Issues material to shareholders should be comparisons to be drawn of both the
set out succinctly in the annual report, or entity’s performance over time and
equivalent disclosures, and approved by against other entities; and
the board itself.
g) recognise the ‘matching principle’ which
requires that expenses are matched
with revenues.

16 © International Corporate Governance Network (2014)

7.4 Solvency risk 7.5 Non-financial information

The board should confirm in the annual
The board should provide an integrated
report that it has carried out a robust report that puts historical performance
assessment of the state of affairs of the into context, and portrays the risks,
company and any material risks, including opportunities and prospects for
to its solvency and liquidity that would the company in the future, helping
threaten its viability. The board should shareholders understand a company’s
state whether, in its opinion, the company strategic objectives and its progress
will be able to meet its liabilities as they towards meeting them. Such disclosures
fall due and continue in operation for should:
the foreseeable future, explaining any
supporting assumptions and risks or a) be linked to the company’s business
uncertainties relevant to that and how model;
they are being managed. In particular,
disclosure on risk should include a b) be genuinely informative and include
description of: forward-looking elements where this will
enhance understanding;
a) risk in the context of the company’s
strategy; c) describe the company’s strategy, and
associated risks and opportunities, and
b) risk to returns expected by shareholders explain the board’s role in assessing
with a focus on key consequences; and overseeing strategy and the
management of risks and opportunities;
c) risk oversight approach and processes;
d) be accessible and appropriately
d) how lessons learnt have been applied to integrated with other information that
improve future outcomes; and enables shareholders to obtain a picture
of the whole company;
e) the principal risks to the company’s
business model and the achievement of e) use key performance indicators that
its strategic objectives, including risks are linked to strategy and facilitate
that could threaten its viability. comparisons;

f) use objective metrics where they apply

and evidence-based estimates where
they do not; and

g) be strengthened where possible

by independent assurance that is
carried out annually having regard to
established disclosure standards.

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7.6 Internal controls 7.9 Audit committee

The board should oversee the The board should establish an audit
establishment and maintenance of an committee comprised of non-executive
effective system of internal control which directors, the majority of whom are
should be measured against internationally independent. At least one member of the
accepted standards of internal audit and audit committee should have recent and
tested periodically for its adequacy. Where relevant financial experience. The chair of
an internal audit function has not been the board should not be the chair of the
established, full reasons for this should audit committee, other than in exceptional
be disclosed in the annual report, as circumstances which should be explained
well as an explanation of how adequate in the annual report. The main role and
assurance of the effectiveness of the responsibilities of the audit committee
system of internal controls has been should be described in the committee’s
obtained. terms of reference. This includes:

7.7 Independent external audit a) monitoring the integrity of the accounts

and any formal announcements relating
The board should publish the report to the company’s financial performance,
from the external auditor which should and reviewing significant financial
provide an independent and objective reporting judgements contained in them;
opinion whether the accounts give a
true and fair view of the financial position b) maintaining oversight of key accounting
and performance of the company. The policies and accounting judgements
engagement partner should be named in which should be in accordance with
the audit report and the company should generally accepted international
publish its policy on audit firm rotation. If accounting standards, and disclosing
the auditor resigns then the reasons for the such policies in the notes to the
resignation should be publicly disclosed by company’s accounts;
the resigning auditor.
c) agreeing the minimum scope of the
7.8 Non-audit fees audit as prescribed by applicable
law and any further assurance that
The audit committee should, as far as the company needs. Shareholders
practicable, approve any non-audit (who satisfy a reasonable threshold
services provided by the external auditor shareholding) should have the
and related fees to ensure that they do opportunity to expand the scope of the
not compromise auditor independence. forthcoming audit or discuss the results
The non-audit fees should be disclosed of the completed audit should they wish
in the annual report with explanations to;
where appropriate. Non-audit fees should
normally be less than the audit fee and, if
not, there should be a clear explanation
as to why it was necessary for the auditor
to provide these services and how the
independence and objectivity of the audit
was assured.

18 © International Corporate Governance Network (2014)

 d) assuring itself of the quality of the audit 8.2 Notice
carried out by the external auditors
and assessing the effectiveness and
The board should ensure that the
independence of the auditor each general meeting agenda is posted on the
year. This includes overseeing the company’s website at least one month
appointment, reappointment and, if prior to the meeting taking place. The
necessary, the removal of the external agenda should be properly itemised
auditor and the remuneration of the and include the date and location of the
auditor. There should be transparency meeting as well as information regarding
in advance when the audit is to be the issues to be decided at the meeting.
tendered so that shareholders can
engage with the company in relation to 8.3 Vote deadline
the process should they so wish;

The board should clearly publicise a date
e) having appropriate dialogue with the by which shareholders should cast their
external auditor without management voting instructions. The practice of share
present and overseeing the interaction blocking or requirements for lengthy share
between management and the holdings should be discontinued.
external auditor, including reviewing
the management letter provided by 8.4 Vote mechanisms
the external auditors and overseeing
management’s response; and 
The board should promote efficient and
accessible voting mechanisms that allow
f) reporting on its work and conclusions in shareholders to participate in general
the annual report. meetings either in person or remotely,
preferably by electronic means or by
8.0 General meetings post, and should not impose unnecessary
hurdles.
8.1 Shareholder identification
8.5 Vote disclosure
The board should ensure that the
company maintains a record of the 
The board should ensure that equal
registered owners of its shares or those effect is given to votes whether cast in
holding voting rights over its shares. person or in absentia and all votes should
Registered shareholders, or their agents, be properly counted and recorded via
should provide the company (where ballot. The outcome of the vote, the vote
anonymity rules do not preclude this) with instruction (reported separately for, against
the identity of beneficial owners or holders or abstain) and voting levels for each
of voting rights when requested in a timely resolution should be published promptly
manner. Shareholders should be able to after the meeting on the company website.
review this record of registered owners of If a board-endorsed resolution has been
shares or those holding voting rights over opposed by a significant proportion
shares. of votes, the company should explain
subsequently what actions were taken to
understand and respond to the concerns
that led shareholders to vote against the
board’s recommendation.

19
9.0 Shareholder rights d) shareholder rights plans (‘poison
pills’) or other structures that act
9.1 Share classes as anti-takeover mechanisms. Only
non-conflicted shareholders should be

The board should disclose sufficient entitled to vote on such plans and the
information about the material attributes vote should be binding. Plans should
of all of the company’s classes and series be time limited and put periodically to
of shares on a timely basis. Ordinary shareholders for re-approval;
or common shares should feature
one vote for each share. Divergence e) proposals to change the voting rights of
from a ‘one-share, one-vote’ standard different series and classes of shares;
which gives certain shareholders power and
disproportionate to their economic
interests should be disclosed and f) material and extraordinary transactions
explained. Dual class share structures such as mergers and acquisitions.
should be kept under review and should
be accompanied by commensurate extra 9.3 Conflicts of interest
protections for minority shareholders,
particularly in the event of a takeover bid. The board should ensure that policies
and procedures on conflicts of interest
9.2 Major decisions are established, understood and
implemented by directors, management,
The board should ensure that employees and other relevant parties. If a
shareholders have the right to vote on director has an interest in a matter under
major decisions which may change the consideration by the board, then the
nature of the company in which they have director should promptly declare such an
invested. Such rights should be clearly interest and be precluded from voting on
described in the company’s governing the subject or exerting influence.
documents and include:
9.4 Related party transactions
a) amendments to governing documents
of the company such as articles or by-
The board should disclose the process
laws; for reviewing and monitoring related
party transactions which, for significant
b) company share repurchases (buy- transactions, includes establishing a
backs); committee of independent directors.
This can be a separate committee or
c) any new share issues. The board an existing committee comprised of
should be mindful of dilution of independent directors, for example the
existing shareholders and provide full audit committee. The committee should
explanations where pre-emption rights review significant related party transactions
are not offered; to determine whether they are in the
best interests of the company and, if
so, to determine what terms are fair and
reasonable. The conclusion of committee
deliberations on significant related party
transactions should be disclosed in the
company’s annual report to shareholders.

20 © International Corporate Governance Network (2014)

9.5 Shareholder approval 9.8 Shareholder meetings

Shareholders should have the right The board should ensure that
to approve significant related party shareholders, of a specified portion of its
transactions and this should be based on outstanding shares or a specified number
the approval of a majority of disinterested of shareholders, have the right to call a
shareholders.  The board should submit meeting of shareholders for the purpose
the transaction for shareholder approval of transacting the legitimate business of
and disclose (both before concluding the the company.
transaction and in the company’s annual
report): 9.9 Thresholds
a) the identity of the ultimate beneficiaries 
Any threshold associated with
including, any controlling owner and shareholder resolutions, shareholder
any party affiliated with the controlling proposals or other such participation,
owner with any direct / indirect should balance the need to ensure the
ownership interest in the company; matter under consideration is likely to be
of importance to all shareholders and not
b) other businesses in which the only a small minority.
controlling shareholder has a significant
interest; and 9.10 Equality and redress
c) shareholder agreements (e.g. The board should ensure that
commitments to related party shareholders of the same series
payments such as licence fees, service or class are treated equally and
agreements and loans). afforded protection against abusive or
oppressive conduct by the company
9.6 Shareholder questions or its management, including market
manipulation, false or misleading
The board should allow a reasonable information, material omissions and
opportunity for the shareholders at a insider trading. Minority shareholders
general meeting to ask questions about should be protected from abusive actions
or make comments on the management by, or in the interest of, controlling
of the company, and to ask the external shareholders acting either directly or
auditor questions related to the audit. indirectly, and should have effective
means of redress. Proper remedies and
9.7 Shareholder resolutions procedural rules should be put in place
to make the protection effective and
The board should ensure that affordable. Where national legal remedies
shareholders have the right to place are not afforded the board is encouraged
items on the agenda of general meetings, to ensure that sufficient shareholder
and to propose resolutions subject to protections are provided in the company’s
reasonable limitations. Shareholders bylaws.
should be enabled to work together to
make such a proposal.

21
Section B: 10.4 Responsibilities
Institutional Investors
Asset owners should fully align the
interests of their fund managers with their

10.0 Responsibilities own obligations to beneficiaries by setting

out their expectations in fund management
10.1 Duties contracts (or similar instruments) to ensure
that the responsibilities of ownership are

Institutional investors should focus appropriately and fully delivered in their
on delivering value by promoting and interests. This should include:
safeguarding the interests of beneficiaries
or clients over an appropriate time-horizon. a) ensuring that the timescales over which
This is often expressed as a fiduciary duty, investment risk and opportunity are
requiring prudence, care and loyalty on the considered match those of the client;
part of all agents which are subject to such
obligations. b) setting out an appropriate internal risk
management approach so that material
10.2 Asset owners should actively consider risks are managed effectively;
which of their agents should be subject
to the strictures of fiduciary duty and c) effectively integrating relevant
if such requirements are not applied environmental, social and governance
what lower standards of behaviour factors into investment decision-making
are appropriate. Asset owners cannot and ongoing management;
delegate their underlying fiduciary duties.
Even when they employ agents to act on d) aligning interests effectively through
their behalf, asset owners need to ensure appropriate fees and pay structures;
through contracts or by other means
that the responsibilities of ownership are e) where engagement is delegated to the
appropriately and fully delivered in their fund manager, ensuring adherence to
interests and on their behalf by those the highest standards of stewardship
agents, who are to be held to account for recognising a spectrum of acceptable
doing so. stewardship approaches;
10.3 While different agents in the investment
f) ensuring commission processes and
chain play different roles, each should
payments reward relevant and high
focus on the needs of its beneficiaries or
quality research;
clients such that it is always seeking to
deliver value over their required time-
g) ensuring that portfolio turnover is
horizon. Benchmarks for measuring
appropriate, in line with expectations
success should be tailored to the needs
and managed effectively; and
and risk exposures of beneficiaries
or clients, with reporting designed to
h) providing appropriate transparency such
provide them with an understanding of
that clients can gain confidence about
success toward meeting those needs and
all these issues.
managing related risks, in addition (as
relevant) to providing applicable market-
relative performance numbers.

22 © International Corporate Governance Network (2014)

10.5 Reporting 11.2 Constitution

Institutional investors should adopt and All decisions should be taken in the
disclose clearly stated, understandable interests of the beneficiaries or clients. The
and consistent policies to guide their governing bodies of investment institutions
approaches to stewardship and voting. should therefore have a structure and
Asset owners should report at least constitution that reflects this and should
annually to those to whom they are be disclosed to beneficiaries and clients,
accountable on their stewardship policy together with explanations as to how such
and its execution. Fund managers and arrangements address alignment with
other agents should seek a clear set of beneficiary interests. They should have
objectives and expectations from their mechanisms in place to solicit and receive
clients and beneficiaries, in particular with ongoing feedback from beneficiaries and
regard to their investment time-horizon. respond to their concerns.

10.6 Public policy 11.3 Review

Institutional investors should engage as Institutional investors should also make
appropriate in the development of relevant use of regular independent reviews of
public policy and good practice standards their internal governance structures, and
and be willing to encourage change where respond to any recommendations arising
this is deemed helpful by beneficiaries from them, to ensure that they meet
or clients to the delivery of value over expectations of accountability.
appropriate time horizons.
11.4 Time horizons
11.0 Leadershipand
Governing bodies should clearly
independence understand the objectives of their
beneficiaries or clients, communicate
11.1 Oversight such objectives to fund managers and
other agents employed, and ensure they
Institutional investors should be led by are being met. They should oversee the
boards or other governance structures management of risk and the work of all
that act independently and without bias, their agents such that they deliver fully
advancing beneficiary or client interests in the interests of the beneficiaries or
as their primary obligation. Governing clients over appropriate time-horizons.
bodies, and where relevant, individuals In considering what time-horizons are
in a fiduciary position of responsibility for appropriate, institutional investors will
ultimate investors, such as pension fund need to consider the best interests of their
trustees and representative boards, should clients and beneficiaries, and any issues
be aware of their primary oversight role. of intergenerational fairness between them
as well as where the ultimate risk-bearing
lies. They should make clear which, if
any, public or regulatory authorities have
responsibility to monitor and enforce their
fiduciary functioning.

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11.5 Appointments 12.1 Advice
The way in which individuals are appointed 12.2 Governing bodies should have the right
to serve on the governing body should to outside advice, independent from
be disclosed to beneficiaries as well any received by the sponsoring body;
as the criteria that are applied to such they need to have the capacity critically
appointments. Such criteria should always and prudently to evaluate any advice
take account of the need for expertise and received and to take appropriate decisions
understanding of the matters for which the themselves, not simply defer to that
governing body is responsible. Governing advice. Fund managers and others in a
bodies, particularly of institutional investors similar agency position should deploy
where the beneficiaries or clients face sufficient, qualified resources properly
the underlying investment risk, should to deliver on clients’ expectations.
also include representatives of those Institutional investors should be able to
beneficiaries or clients to build confidence justify to beneficiaries or clients specific
in the collegiality of interests between actions taken on their behalf whether by
them. They should reflect the diversity of themselves or by their agents. Institutional
interests of those whom they represent. investors remain accountable for the
delivery of actions even where they have
12.0 Capacity delegated the day-to-day responsibility for
carrying them out.
12.1 Experience
12.3 Collaboration

Institutional investors should be led by
governing bodies and staff with the Where an investment institution is not
appropriate capacity and experience to of sufficient scale to have governance
oversee effectively and manage all relevant structures or internal resources to
activities in the interests of beneficiaries deliver effective oversight on behalf of
or clients. Decision-makers along all beneficiaries or clients, it should consider
parts of the investment chain should be ways to consolidate, collaborate or
appropriately resourced and meet relevant build scale such that it is capable of
standards of experience and skill in this necessary oversight. This may
matters subject to deliberation. All should require dialogue with policymakers and
have appropriate training and induction government authorities to facilitate such
processes made available to them, and developments.
should be able to allocate sufficient time
both to that training and induction and to
ongoing decision-making.

24 © International Corporate Governance Network (2014)

13.0 Conflicts of interest 14.0 Remuneration
13.1 Policies 14.1 Alignment
Institutional investors should have robust Institutional investors should reinforce
policies to clarify, minimise and help their obligations to act fully in the interests
manage conflicts of interest to help ensure of beneficiaries or clients by setting fee
that they maintain focus on advancing and remuneration structures that provide
beneficiary or client interests. In particular, appropriate alignment over relevant
policies should address how matters are time-horizons, and communicate this
handled when the interests of clients or to beneficiaries or clients. In large part
beneficiaries diverge from each other. Any this will require the structure for fees
conflict should be promptly disclosed to paid to parties in the investment chain to
those to whom the party is immediately be more associated with the long-term
accountable in the investment chain. perspectives which will generate returns
over the time-horizon that beneficiaries or
13.2 Compliance clients are seeking. Collective investment
vehicles may also seek transparency of
Institutional investors should have effective the remuneration structures for individuals
programmes for dealing with compliance within the agents that they hire, in
matters and should also consider their particular to gain assurance that these
obligations to beneficiaries or clients in provide appropriate incentives to those
terms of broader ethical considerations. individuals. In particular, they may wish
For example, they should manage to assure themselves that pay structures
appropriately and effectively the risks of for individuals do not inappropriately
bribery and corruption, money laundering incentivise risk-taking behaviours.
and other like risks. They should have
effective policies to deal with inside 14.2 Performance
information, avoid market manipulation,
and foster transparency and fairness in
Consideration should be given to including
share trade execution and reporting. a long-term performance incentive that
reflects long-term investment results
or is in the form of an interest in the
fund that extends through the period of
responsibility for the investments. Good
practice is for institutional investors to
disclose to their beneficiaries or clients
an explanation of how their remuneration
structures and performance horizons
for individual staff members advance
alignment with the interests of beneficiaries
or clients. Asset owners may wish to
ensure that remuneration frameworks do
not unduly constrain their ability to attract
and retain well-qualified personnel.

25
14.3 Culture (b) all relevant factors including the
company’s approach to environmental
Remuneration plays a crucial role and social matters;
in establishing and maintaining an
appropriate culture or ‘investment (c) assessing the effectiveness of the
behaviour’ within an organisation. As company’s governance and leadership;
such, institutional investors should
consider whether pay is adequately (d) c
 onsidering the quality of the
aligned with performance, whether there is company’s reporting;
an appropriate balance between base pay
and incentives, and whether the period (e) attending relevant meetings with senior
over which performance is measured company officers and board directors
is both short term and longer term. when appropriate; and
Having greater proportions of variable
rewards deferred for longer periods (f) where practicable, attendance at
of time and subject to performance general meetings.
adjustment mechanisms such as
claw-back structures, particularly if the 15.2 Company dialogue
deferred awards are invested alongside
beneficiaries or clients, is likely to help Institutional investors should seek to
instil the right mind-set and culture. These identify, as early as possible, any problems
measures are an appropriate context that may put significant investment value
for the delivery of value over time for at risk. If they have concerns they should
beneficiaries and clients. seek to ensure that the appropriate
members of the investee company’s board
or management are made aware of them
15.0 Monitoring as soon as possible.
15.3 Institutional investors should carefully
15.1 Monitoring approach consider explanations given for any
departure from relevant corporate
Institutional investors should regularly
governance codes and make reasoned
monitor investee companies in order to
judgements in each case. Where this
assess their individual circumstances,
could lead to a negative vote or an
performance and long-term potential,
abstention at a general meeting, the
and to consider whether there is value
investee company’s board should, at
in intervening to encourage change.
least in respect of significant holdings, be
Investors should be clear what standards
contacted to discuss the issue and, if it
they are applying, and how they monitor
remains unresolved, notified in writing of
investee companies. Monitoring should
the reasons for the decision.
include:

(a) maintaining awareness of the

company’s ongoing performance,
as well as developments within and
external to the company that might
affect its value and the risks it faces;

26 © International Corporate Governance Network (2014)

15.4 Review 16.2 Market abuse
Institutional investors should periodically Institutional investors should respect
measure and review the effectiveness market abuse rules and not seek trading
of their monitoring and ownership advantage through possession of price-
activities and communicate the results sensitive information when engaging
to their clients or beneficiaries. Asset with companies. Where appropriate and
owners should monitor the activities and feasible, investors should consider formally
effectiveness of their fund managers and becoming insiders in order to support
other agents, holding them to account for a process of longer term change, and
delivery of value over time according to the intention whether or not to become
relevant mandates. insiders should be made clear at the
outset of the engagement. Companies
should ensure that all sensitive information
16.0 Engagement and decisions resulting from engagement
are made public for the benefit of all
16.1 Proactive engagement shareholders at the appropriate time.

Institutional investors should engage 16.3 Engagement approach

intelligently and proactively as appropriate
with investee companies with the aim Institutional investors should have a clear
of preserving or enhancing value on approach to engagement which should
behalf of beneficiaries or clients. This is be communicated to companies as part
particularly constructive in advance of of an engagement policy. The spectrum
general meetings, to work together to of engagement activities may vary, for
identify agreeable positions and enhance example depending on the nature of the
understanding around company strategy, investment or the size of shareholding, and
financial performance, risk to long term this will affect the appropriateness of the
performance, governance, operations and engagement approach taken with investee
with respect to social and environmental companies. In situations where dialogue is
matters. Engagement is most effective not producing the desired result, additional
when investors have the adequate engagement steps that may be taken by
knowledge and skills to encourage and investors include:
effect necessary change.
(a) expressing concerns to corporate
representatives or non-executive
directors, either directly or in a
shareholders’ meeting;

(b) e
 xpressing their concern collectively
with other investors;

(c) making a public statement;

(d) submitting shareholder resolutions;

(e) speaking at general meetings;

27
 (f) submitting one or more nominations for 17.2 Proxy voting
election to the board as appropriate and
convening a shareholders’ meeting; Institutional investors should disclose the
extent to which they use proxy research
(g) seeking governance improvements and voting services, including the identity
and/or damages through legal of the service provider and the degree
remedies or arbitration; and to which any recommendations are
followed. Investors should clearly specify
(h) exit or threat of exit from the investment how they wish votes to be cast, noting
as a last resort. that they cannot delegate their ownership
responsibilities, and should ensure that
16.4 Collective engagement votes cast by intermediaries are carried
out in a manner consistent with their own
Institutional investors should act voting policies.
collectively as appropriate when engaging
with investee companies where this 17.3 Vote decisions
would assist in advancing beneficiary
or client interest, taking account of Institutional investors should seek to
relevant law and regulation. Institutional reach a clear decision either for or against
investors should disclose their policy on each resolution or, in specific cases,
collective engagement. Shareholders may wish to abstain. Voting decisions
should not face regulatory barriers and the rationale taken should be made
to discussions between themselves publicly available in due course and,
regarding forthcoming voting decisions where a vote is contrary to the company
or concerning other governance board’s recommended position, should be
matters. Concert party rules and/or communicated to the company in advance
takeover regulations should not prevent of the general meeting. Where an
shareholders from sharing perspectives institutional investor chooses not to vote
about companies in which they have in specific circumstances, or in particular
mutual interests and/or concerns. markets or where holdings are below a
certain scale threshold, this should be
disclosed to clients or beneficiaries in a
17.0 Voting clear policy.

17.1 Informed voting 17.4 Voting records

Institutional investors should seek to Institutional investors should regularly
vote shares held and make informed and disclose (e.g. quarterly or annually) a
independent voting decisions at investee summary of their voting activity on a
companies, applying due care, diligence website or other appropriate means
and judgement. They should have a clear and, where possible, their full voting
policy on voting made available to investee records Voting records should include an
companies and beneficiaries or clients. indication of whether the votes were cast
for or against the recommendations of the
company’s board.

28 © International Corporate Governance Network (2014)

17.5 Stock lending

Institutional investors should disclose
their approach to stock lending and
voting in a clear policy which should
clarify the types of circumstances
when shares would be recalled to vote.
The policy should be communicated to
relevant agents in the chain of the vote
execution, and, in respect of shares
out on loan, to the agent lender.

17.6 Institutional investors should recognise

that if shares are lent out, they
temporarily lose their voting rights
for the duration of the loan because
they are no longer the legal owner
of those shares (unless contractual
arrangements to the contrary are
made). In order for the votes to be
cast, lent stock must be recalled
before the record date declared by
the company. In order to preserve the
integrity of the shareholders’ meeting
it is important that the shares never be
borrowed or received as collateral for
the primary purpose of voting them.

17.7 The results of stock lending should be

transparent to the beneficial owners
of shares. The portion of the return
from a position due to lending activity
should be made known in the regular
reports. Similarly, the percentage and
number of shares of a given security
which were not voted due to stock
lending should also be reported to
beneficiaries.

29
 Annex 1: ICGN Guidelines
Statement of Principles for Institutional Investor Responsibilities (2013)

Statement and Guidance on Gender Diversity on Boards (2013)

Model Contract Terms Between Asset Owners and Managers (2012)

Statement and Guidance on Anti-corruption Practices (2012)

Executive Remuneration Guidelines (2012)

Statement and Guidance on Political Lobbying and Donations (2011)

Corporate Risk Oversight Guidelines (2010)

Non-executive Director Remuneration Guidelines and Policies (2010)

Position paper: what investors want from financial reporting (2010)

Statement and Guidance on Non-financial Business Reporting (2008)

Securities Lending Code of Best Practice (2007)

Contacts
or more information about the ICGN please visit the ICGN website at www.icgn.org or contact the
F
ICGN Secretariat:

By Email: [email protected]

By Phone: +44 (0) 207 612 7098

By Post: ICGN Secretariat, Saffron House, 6 -10 Kirby Street, London, EC1N 8TS, UK

30 © International Corporate Governance Network (2014)

Saffron House, 6 -10 Kirby Street, London, EC1N 8TS, UK
Phone: +44 (0) 207 612 7098 Fax: +44 (0) 207 612 7085 Email: [email protected] Web: www.icgn.org