Related Party Transactions and Minority …

1 Please cite this publication as:OECD (2012), Related Party Transactions and Minority Shareholder Rights, OECD work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit , and do not hesitate to contact us for more Party Transactions and Minority Shareholder RightsContentsExecutive summaryAssessement and recommendationsPart I. Overall situation and lessons from the reviewed economiesChapter 1. Managing Related Party Transactions : a review of practicesPart II. Country reviews of provisions and practices covering Related Party Transactions and protection of Minority shareholder rightsChapter 2. Belgium: Review of Related Party Transactions and Minority shareholder rightsChapter 3. France: Review of Related Party Transactions and Minority shareholder rightsChapter 4.

2 India: Review of Related Party Transactions and Minority shareholder rightsChapter 5. Israel: Review of Related Party Transactions and Minority shareholder rightsChapter 6. Italy: Review of Related Party Transactions and Minority shareholder rights ISBN 978-92-64-09825-126 2012 01 1 P-:HSTCQE=U^]WZV: Related Party Transactions and Minority Shareholder RightsRelated Party Transactions and Minority Shareholder 122-Mar-2012 4:07:11 PMRelated Party Transactions and Minority Shareholder RightsThis work is published on the responsibility of the Secretary-General of the OECD. Theopinions expressed and arguments employed herein do not necessarily reflect the officialviews of the Organisation or of the governments of its member document and any map included herein are without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundariesand to the name of any territory, city or 978-92-64-09825-1 (print)ISBN 978-92-64-16800-8 (PDF)The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities.

3 The useof such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israelisettlements in the West Bank under the terms of international credits: Cover to OECD publications may be found on line at: OECD 2012 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases andmultimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitableacknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights shouldbe submitted to Requests for permission to photocopy portions of this material for public or commercial use shall beaddressed directly to the Copyright Clearance Center (CCC) at or the Centre fran ais d exploitation du droit de copie (CFC)at cite this publication as:OECD (2012), Related Party Transactions and Minority Shareholder Rights, OECD Party Transactions AND Minority SHAREHOLDER RIGHTS OECD 20123 ForewordThis report presents the results of the third thematic peer review based on the OECD Principles ofCorporate Governance.

4 The report is focused on the corporate governance framework thatmanages Related Party Transactions with the aim to protect Minority investors. It covers over30 jurisdictions, including in-depth reviews of Belgium, France, India, Israel,* Italy and report is based in part on a questionnaire that was sent to all participating jurisdictions inMay 2011. All jurisdictions were invited to respond to a general set of questions so as to provide anoverall context within which the review would take place. The five jurisdictions that were subject tothe in-depth review were invited to respond to a more extensive set of questions and there was alsoa visit by the OECD to consult a wider range of market report first reviews the experience of the five jurisdictions in managing Related partytransactions which is set against a general review of legislation in over 30 jurisdictions.

5 The second partcomprises the in-depth review of the five jurisdictions. The report was prepared by Grant Kirkpatrick andDaniel Blume with inputs by Akira Nozaki and approved for publication under the authority of the OECDC orporate Governance Committee in December OECD corporate governance peer review process is designed to facilitate effectiveimplementation of the principles and to assist market participants and policy makers to respond toemerging corporate governance risks. The reviews are also forward looking so as to help indentify, atan early stage, key market practices and policy developments that may undermine the quality ofcorporate governance. The review process is open to OECD and non-OECD jurisdictions alike.* The statistical data for Israel were supplied by and under the responsibility of the relevant Israeliauthorities.

6 The use of such data by the OECD is without prejudice to the status of the Golan Heights,East Jerusalem and Israeli settlements in the West Bank under the terms of international E O F C O N T E N T SRELATED Party Transactions AND Minority SHAREHOLDER RIGHTS OECD 20125 Table of ContentsExecutive Summary.. 9 Assessment and Recommendations .. 11 Part IOverall Situation and Lessons from the Reviewed EconomiesChapter Related Party Transactions : A Review of Practices.. 19 Overall setting and objectives of the report .. 20 Lessons from the reviewed economies .. 21 Related Party Transactions and Minority rights around the world .. 30 Notes.. 37 Bibliography .. 37 Annex Is Known about Related Party Transactions ? Empirical Studies .. 40 Part IICountry Reviews of Provisions and Practices Covering Related Party Transactions and Protection of Minority Shareholder RightsChapter : Review of Related Party Transactions and Minority Shareholder Rights.

7 49 The ownership and control of Belgium listed companies .. 50 The approach to protection of Minority shareholders .. 51 The approach to Related Party Transactions .. 55 Assessment and conclusions .. 58 Notes.. 59 Bibliography .. 60 TABLE OF CONTENTSRELATED Party Transactions AND Minority SHAREHOLDER RIGHTS OECD 20126 Chapter : Review of Related Party Transactionsand Minority Shareholder Rights.. 61 Corporate governance landscape and framework for dealing with RPTs.. 62 Enforcement .. 65 Shareholder actions in France some recent cases .. 69 Current market perspectives on Related Party Transactions :Are RPTs a problem?.. 70 Assessment and conclusions .. 72 Notes.. 73 Bibliography .. 74 Chapter : Review of Related Party Transactionsand Minority Shareholder Rights.. 75 The ownership and control of Indian listed companies.

8 76 The approach to protection of Minority shareholders .. 81 The enforcement record .. 86 Assessment and conclusions .. 88 Notes.. 89 Bibliography .. 89 Annex Related Party Transactions of 50 Companiesas a Percentage of Net Worth, 2008-09 .. 91 Chapter : Review of Related Party Transactionsand Minority Shareholder Rights.. 93 The ownership and control of listed companies .. 94 Approval processes for Related Party Transactions .. 95 Disclosure of Related Party Transactions .. 95 Enforcement .. 99 Assessment and conclusions .. 103 Notes.. 105 Bibliography .. 105 Chapter : Review of Related Party Transactionsand Minority Shareholder Rights.. 107 The ownership and control of Italian listed companies .. 108 The approach to protection of Minority shareholders .. 111 Related Party Transactions .

9 114 Assessment and conclusions .. 117 Notes.. 118 Bibliography .. 118 TABL E O F C O N T E N T SRELATED Party Transactions AND Minority SHAREHOLDER RIGHTS OECD Incidence of reporting of RPTs (excluding remuneration) .. Main channels for oversight of non-equity RPTs (excluding remuneration):Selected jurisdictions .. Shareholder approval requirements for different types of RPTs(excluding say on pay ): Selected jurisdictions .. Empirical studies on the relation between corporate valuationand cash-flow right or control-ownership wedge .. Ownership of Indian listed companies .. Key differences between AS 18 and IAS 24 .. Related Party Transactions .. Ownership concentration of listed companies in Italy .. Group width (number of listed companies) and group depth (distance of listed companies from the top)in the ten largest private non-financial listed groups.

10 Listed companies controlled by coalitions (%) .. 109 Related Party Transactions and Minority Shareholder Rights OECD 20129 Executive SummaryAround the world, the potential to abuse Related Party Transactions (RPTs) covering bothequity and non-equity Transactions is viewed as an important policy issue even thoughthey are seldom banned. Rather, jurisdictions have sought to put in place management andapproval processes to minimise the negative potential. There is a wide variability acrossjurisdictions so that this report focuses on the experience of five jurisdictions (Belgium,India, Israel, Italy and France) with supplemental information from 31 the introduction of IFRS (and therefore IAS 24 for RPTs) around the world hasintroduced an important standard for transparency, it is not alone sufficient.