Europe prepares for governance green paper

Financial Times
March 20, 2011

Next month the European Commission will publish a corporate governance framework for companies, laying out its views on the subject.

The green paper, which is expected to focus on shareholder engagement, boards of directors and the comply-and-explain approach to corporate governance, follows guidance on board effectiveness published by the UK’s Financial Reporting Council earlier this month.

It comes as the role of corporate governance is under increasing scrutiny by politicians and the public after the financial crisis, and follows an EC green paper last summer that focused on corporate governance in financial institutions.

“In the crisis, boards failed to do their job, to carry out checks of high risk strategies pursued by some financial institutions,” says Lutgart Van den Berghe, chairman of the policy committee at the European Confederation of Directors’ Associations.

Not all the blame should be laid at the door of directors. Ms Van den Berghe believes shareholders had a part to play. “They allowed boards to carry out high risk strategies without intervening, including leveraging with high debt levels,” she says. As a result, “confidence in shareholders has been severely shaken. It is clear shareholders have to do more. They are the final monitors of companies and their boards,” she adds.

It is not yet clear what will be on the EU’s list but experts expect stewardship will be one of the issues. A formalised code setting out shareholder duties would be a positive proposal, some institutions say.

Carl Rosen, executive director at the International Corporate Governance Network, hopes the EU “will promote a stewardship code across all 27 countries”.

Greece launches a corporate governance code today, the last of the EU countries to do so (Ireland shares the UK’s code).

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