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Strategic Business Leader · Governance scope and approaches

Governance Codes and the OECD Principles for ACCA SBL

Updated 11 October 2026 · Fact-checked

The OECD Principles are international, non-binding guidance that help countries build sound corporate governance frameworks. Codes of best practice, such as the UK Corporate Governance Code, set out expected board practice, usually on a comply or explain basis. To answer exam questions, identify the principle, apply it to the scenario's facts, then recommend.

Understand Governance Codes and the OECD Principles

Corporate governance is the system by which an organisation is directed and controlled. Governance guidance exists because owners and managers are separate people, and owners need confidence that the board acts in their interests and those of other stakeholders.

The OECD Principles of Corporate Governance are issued by the Organisation for Economic Co-operation and Development, with the G20 backing. They are not law. They are a benchmark that governments, regulators and stock exchanges use when they write or review their own rules. Because they are high level, they suit many legal systems.

The OECD Principles cover six areas: a sound basis for an effective corporate governance framework; the rights and equitable treatment of shareholders and key ownership functions; institutional investors, stock markets and other intermediaries; the role of stakeholders in corporate governance; disclosure and transparency; and the responsibilities of the board. Learn these as six headings and attach a short idea to each.

Codes of best practice are more detailed and aimed at companies, usually listed ones. Examples are the UK Corporate Governance Code and the King Reports in South Africa. Typical themes are board leadership and purpose, division of responsibilities (for example, separating chair and chief executive), board composition and independent non-executive directors, audit, risk and internal control, and remuneration linked to long-term success. Codes are often applied on a comply or explain basis: a company follows the provision or explains honestly why it does not.

In SBL you rarely recite a code. You use it as a yardstick. You spot where the case company falls short, say which principle is breached, explain the risk to stakeholders, and recommend a practical fix.

Key rules to remember

OECD Principles (six areas)
Framework | Shareholder rights and equitable treatment | Institutional investors and intermediaries | Stakeholders | Disclosure and transparency | Board responsibilities
Use these as headings to organise an answer. They are guidance, not law.
Comply or explain
Comply with the provision, OR explain the departure
Explanations should be specific and reasoned. Shareholders judge them. It is not a licence to ignore the code.
Rules-based vs principles-based
Rules: mandatory, compliance enforced | Principles: flexible, judgement and explanation
Codes of best practice are usually principles-based. Legal requirements elsewhere may be rules-based.
Typical code features
Separate chair and CEO | Independent NEDs | Board committees (audit, remuneration, nomination) | Risk and control review | Performance-linked pay
These recur across most codes. Check the case for each one.

How to solve Governance Codes and the OECD Principles questions

Use this method for any governance code or OECD question in the case study.

  1. 1Read the requirement and note the verb (identify, assess, advise, recommend) and who you are advising.
  2. 2Scan the scenario for governance facts: board makeup, roles of chair and CEO, committees, pay, disclosure, shareholder treatment.
  3. 3Match each fact to a principle or code feature, such as OECD board responsibilities or independent NEDs.
  4. 4State whether the fact is good practice or a weakness, and explain why in terms of risk to shareholders or stakeholders.
  5. 5Link to the consequence for this company, such as weaker oversight, loss of investor trust or fraud risk.
  6. 6Recommend a specific, realistic action and note any cost or limit, for example small company size.
  7. 7Close with a short conclusion that answers the requirement, in the format asked (report, memo, briefing).

Quickest way: Weakness, principle, risk, fix

When to use it: When time is short and the requirement asks you to assess or advise on governance arrangements.

  1. List the governance weaknesses you see in the scenario in a few words each.
  2. Tag each with the matching OECD area or code feature.
  3. Write one sentence each: weakness, principle breached, risk, fix.
  4. Prioritise the two or three most serious points and write those first.

Common mistakes in Governance Codes and the OECD Principles

  • Reciting the six OECD principles without applying them to the case.

    Students learn lists and assume knowledge earns the marks.

    Fix: Use each principle only when a case fact supports it. Quote the fact, then link it to the principle.

  • Treating the OECD Principles or a code as binding law.

    The wording sounds like regulation.

    Fix: Say they are guidance. Binding force comes from national law or listing rules that adopt them.

  • Describing comply or explain as optional compliance.

    Students focus on the word explain.

    Fix: State that departures need a clear, reasoned explanation, and shareholders and the market judge it.

  • Recommending that every company copies a listed-company code in full.

    Students ignore the company's size and context.

    Fix: Tailor advice. A small or family-owned business may adopt the spirit of the code in a proportionate way.

  • Ignoring stakeholders beyond shareholders.

    Agency theory focus makes shareholders feel like the only group.

    Fix: Cover the OECD stakeholder principle: respect legal rights, and encourage cooperation with employees, creditors and others.

  • Giving weaknesses with no recommendation.

    Running out of time and stopping at analysis.

    Fix: Always finish with a practical action and the professional skills of judgement and commercial awareness.

Worked examples

Example 1

Nuvo plc is listed. Its founder is both chair and chief executive. The board has six executive directors and one non-executive director, who is a friend of the founder. Advise the shareholders which governance concerns arise, with reference to codes of best practice.

Show the solution
  1. Identify the facts: combined chair and CEO; board dominated by executives; one NED who is not independent.
  2. Combined roles: codes advise separating chair and CEO so that no one person has unchecked power. Here the founder both runs the company and leads the board that should hold him to account.
  3. Board balance: codes expect a sound balance with a suitable number of independent NEDs. One NED among seven directors gives little challenge to executives.
  4. Independence: a friend of the founder is unlikely to be seen as independent, so oversight is weakened.
  5. Risk: weak monitoring increases the agency problem and risks poor decisions, excess pay or misreporting, damaging investor confidence.
  6. Recommend: appoint a separate independent chair, add independent NEDs, and set up audit, remuneration and nomination committees staffed by them.
  7. If Nuvo does not follow these, it should explain why, and shareholders should judge that explanation.

Answer: The main concerns are the combined chair/CEO role, an executive-dominated board and a non-independent NED. Each weakens oversight. Nuvo should separate the roles, appoint independent NEDs and form key committees, or explain any departure from the code clearly.

Example 2

A government in an emerging economy wants to improve investor confidence. A minister asks what the OECD Principles are and how they would help. Prepare a short briefing.

Show the solution
  1. Define: the OECD Principles are international, non-binding guidance on corporate governance, designed to help policymakers and regulators.
  2. Outline the six areas: effective framework, shareholder rights and equitable treatment, institutional investors and intermediaries, stakeholders, disclosure and transparency, board responsibilities.
  3. Apply to the aim: a clear legal framework and enforcement reassure investors that rules will be applied.
  4. Equitable treatment protects minority shareholders from abuse by controlling owners.
  5. Disclosure and transparency give investors reliable information on financial results, ownership and risks.
  6. Board responsibilities set expectations on strategy, oversight of management and accountability.
  7. Caveat: the Principles are not law, so the government must adopt them through legislation, listing rules or a code, adapted to local conditions.
  8. Recommend: use the Principles as a benchmark to review current law, then introduce a comply or explain code for listed companies.

Answer: The OECD Principles are non-binding international guidance in six areas. They help by strengthening the framework, protecting minority shareholders, improving disclosure and clarifying board duties. The government should adopt them through law or a local code, adapted to its context.

Exam tips

  • Apply, do not recite. Marks go to case-linked points, so quote the scenario fact before naming the principle.
  • Know the six OECD headings well enough to use them as an answer structure, plus the typical code features.
  • Say clearly that codes are guidance applied on comply or explain, and that effectiveness depends on enforcement and culture.
  • Always recommend. Make suggestions proportionate to the size and type of organisation.
  • Keep to the format asked, such as a briefing note, and show professional skills through judgement and balance.

Practice questions from Governance scope and approaches

Governance Codes and the OECD Principles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Governance Codes and the OECD Principles: frequently asked questions

Do I need to memorise the UK Corporate Governance Code for SBL?

You do not need exact wording or provision numbers. You should know its main themes, such as board leadership, independent NEDs, committees, risk and control, and remuneration. Use them as a benchmark in the case.

Are the OECD Principles legally binding?

No. They are international guidance that countries and regulators use to build or review their own rules. They have force only where national law or listing rules adopt them.

What does comply or explain mean?

A company either follows a code provision or explains why it has not. The explanation must be specific and reasoned. Shareholders and the market then judge whether it is acceptable.

How do codes of best practice differ from law?

Codes are usually principles-based and rely on disclosure and market pressure. Law is mandatory and enforced by penalties. Some codes become partly binding through listing rules.