On November 10th, The International Corporate Governance Network (ICGN), an organization dedicated to corporate governance, with members from over 40 countries in charge of managing approximately US$ 15 trillion in assets, put out an official declaration with their view on the current world financial crisis. According to the ICGN, governance practices were part of the problem and should, likewise, be an integral part of the solution, aiming to avoid excessive market rigidity or future crises. Two initiatives are considered fundamental: giving greater power to shareholders as owners of the companies and demanding that they fulfill their responsibilities as such.

Regarding the former, the organization argues that it should be easier for shareholders to elect and depose board members, with a view to increasing accounting reports by boards of directors. They should also be responsible for approving executives’ compensation, through what is known as “say on pay”. Regulators are charged with requiring greater transparency about business models and about how the inherent risks of such models are being managed. The second initiative is assigned to shareholders, especially institutional investors, who should acknowledge their responsibility in generating long-term value for their beneficiaries. According to the ICGN, pension funds should require their managers to make efforts toward better governance practices in companies in which they invest. Furthermore, they should explicitly take governance aspects into account in their investment decisions.

As next steps, ICGN defined a five theme agenda: 1) expand shareholder rights; 2) strengthen boards of directors; 3) guarantee the recent advances in accounting standards, including the concept of fair value; 4) refine executive compensation; and 5) increase competition in the credit rating agencies market.