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The European Commission’s Policy on Corporate Governance

The European Commission’s Policy on Corporate Governance. Corinna Ullrich, DG MARKT, EU Commission Summit for the future, Amsterdam, 4 May 2006. Corporate governance in the EU. Main responsibility for corporate governance questions with DG Internal Market

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The European Commission’s Policy on Corporate Governance

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  1. The European Commission’s Policy on Corporate Governance Corinna Ullrich, DG MARKT, EU Commission Summit for the future, Amsterdam, 4 May 2006

  2. Corporate governance in the EU • Main responsibility for corporate governance questions with DG Internal Market • Focus on relationship between the organs of the company and between the company and its shareholders/(potential) investors • Other aspects dealt with by other Commission services (in particular DG Employment)

  3. Key corporate relationships Appoints/removes Controls Approves Board ACCOUNTABLE CEO Reports Submits ACCOUNTABLE Appoint board Approve accounts Manages company in shareholders interests Shareholders

  4. Development since 1998 • 1998 Commission communication: ‘Financial Services: building a framework for action’: • No single CG model but emerging consensus on common principles: • equitable treatment of shareholders • transparency and accountability of the corporate process • 1999 Financial Services Action Plan • EU involvement in this area confined to reviewing existing national CG so as to identify legal or administrative barriers which could frustrate the development of a single EU financial market. • 2002 Weil, Gotshal, Manges comparative study of CG codes (35 national, OECD, ICGN, 2 EU) • Strong similarities amongst CG codes  convergence factor • No obstacle to investment  No need for an EU CG code  Need to lower barriers to shareholder participation and information (i.e., facilitate cross-border voting and enable shareholders to evaluate the governance of corporations)

  5. Winter Report (11/2002) • High level group of 7 company law experts chaired by Jaap Winter, set up by Commission in 2001 to issue recommendations on the modernisation of the EU company law framework • Corporate scandals  Mandate extended in 2002 to cover additional CG issues • Winter Report conclusions with regard to CG • Disclosure mechanisms are central to any sound CG • Shareholders have a watchdog role to play • Independent non-executive directors are an important safeguard and should monitor areas where conflicts of interest can arise • Remuneration of management is a key area of conflicts of interests, where independent directors should therefore play a leading role • No need for EU CG code, but EU should co-ordinate efforts of MS

  6. Commission Action Plan (05/2003) • Action plan on modernising company law and enhancing corporate governance • Policy objectives: • Protection of shareholders and third parties/ fostering of investors’ confidence • Foster competitiveness of EU businesses • Key CG lines of action • Enhance disclosure • Modernise the board of directors • Co-ordinate Member States’ CG efforts • Strengthen shareholders’ rights, notably in a cross-border context • CG measures targeted to listed companies

  7. Short term measures of the Action plan (2003-2006) • Enhance disclosure • Directive amending the 4th and 7th company law directives (corporate governance statement, related party transactions and off-balance sheet agreements) – agreement 12/2005, official adoption and publication imminent • Modernise the board of directors • Recommendation on the remuneration of directors – Adopted 12/2004 • Recommendation on the role on independent non-executive directors – Adopted 02/2005 • Directive amending the 4th and 7th company law directives (responsibility of board members) • Co-ordinate Member States’ CG efforts • Creation of the European Corporate Governance Forum – 10/2004 • Strengthen shareholders’ rights, notably in a cross-border context • Proposal for a directive on shareholders’ rights - 01/2006

  8. Consultation on mid- and long term measures of the Action plan • Starting point: • Situation in the „outside“ world has changed since 2003 • Also general policy approach changed: Lisbon agenda (focus on boosting competitiveness of companies) • Public consultation launched in December 2005 (deadline end of March) • „Better Regulation“ • over 260 written replies • Public hearing on 3 May

  9. Consultation on mid- and long term measures of the Actionplan First impression: Whereas stronger support for certain actions in Company Law on many Corporate Governance issues views more or less evenly split • on one hand „regulatory fatigue“/requests for a phase of digestion • on the other hand need for certain additional action is recognised, e.g. • shareholders‘ rights, • disclosure of voting policies of institutional investors, • porportionality of ownership and control

  10. Consultation on mid- and long term measures of the Action plan • Summary report on written contributions and hearing • To be published in the coming weeks (and in any case before the summer) • Then decision on what follow-up should be (automn 2006)

  11. Questions?

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