Annexes to COM(2011)164 - GREEN PAPER The EU corporate governance framework - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2011)164 - GREEN PAPER The EU corporate governance framework. |
|---|---|
| document | COM(2011)164  |
| date | April 5, 2011 |
General questions
26. Should EU corporate governance measures take into account the size of listed companies? How? Should a differentiated and proportionate regime for small and medium-sized listed companies be established? If so, are there any appropriate definitions or thresholds? If so, please suggest ways of adapting them for SMEs where appropriate when answering the questions below.
27. Should any corporate governance measures be taken at EU level for unlisted companies? Should the EU focus on promoting development and application of voluntary codes for non-listed companies?
Boards of directors
28. Should the EU seek to ensure that the functions and duties of the chairperson of the board of directors and the chief executive officer are clearly divided?
29. Should recruitment policies be more specific about the profile of directors, including the chairman, to ensure that they have the right skills and that the board is suitably diverse? If so, how could that be best achieved and at what level of governance, i.e. at national, EU or international level?
30. Should listed companies be required to disclose whether they have a diversity policy and, if so, describe its objectives and main content and regularly report on progress?
31. Should listed companies be required to ensure a better gender balance on boards? If so, how?
32. Do you believe there should be a measure at EU level limiting the number of mandates a non-executive director may hold? If so, how should it be formulated?
33. Should listed companies be encouraged to conduct an external evaluation regularly (e.g. every three years)? If so, how could this be done?
34. Should disclosure of remuneration policy, the annual remuneration report (a report on how the remuneration policy was implemented in the past year) and individual remuneration of executive and non-executive directors be mandatory?
35. Should it be mandatory to put the remuneration policy and the remuneration report to a vote by shareholders?
36. Do you agree that the board should approve and take responsibility for the company’s ‘risk appetite’ and report it meaningfully to shareholders? Should these disclosure arrangements also include relevant key societal risks?
37. Do you agree that the board should ensure that the company’s risk management arrangements are effective and commensurate with the company’s risk profile?
Shareholders
38. Please point to any existing EU legal rules which, in your view, may contribute to inappropriate short-termism among investors and suggest how these rules could be changed to prevent such behaviour.
39. Are there measures to be taken, and if so, which ones, as regards the incentive structures for and performance evaluation of asset managers managing long-term institutional investors’ portfolios?
40. Should EU law promote more effective monitoring of asset managers by institutional investors with regard to strategies, costs, trading and the extent to which asset managers engage with the investee companies? If so, how?
41. Should EU rules require a certain independence of the asset managers’ governing body, for example from its parent company, or are other (legislative) measures needed to enhance disclosure and management of conflicts of interest?
42. What would be the best way for the EU to facilitate shareholder cooperation?
43. Should EU law require proxy advisors to be more transparent, e.g. about their analytical methods, conflicts of interest and their policy for managing them and/or whether they apply a code of conduct? If so, how can this best be achieved?
44. Do you believe that other (legislative) measures are necessary, e.g. restrictions on the ability of proxy advisors to provide consulting services to investee companies?
45. Do you see a need for a technical and/or legal European mechanism to help issuers identify their shareholders in order to facilitate dialogue on corporate governance issues? If so, do you believe this would also benefit cooperation between investors? Please provide details (e.g. objective(s) pursued, preferred instrument, frequency, level of detail and cost allocation).
46. Do you think that minority shareholders need additional rights to represent their interests effectively in companies with controlling or dominant shareholders?
47. Do you think that minority shareholders need more protection against related party transactions? If so, what measures could be taken?
48. Are there measures to be taken, and is so, which ones, to promote at EU level employee share ownership?
Monitoring and implementation of Corporate Governance Codes
49. Do you agree that companies departing from the recommendations of corporate governance codes should be required to provide detailed explanations for such departures and describe the alternative solutions adopted?
50. Do you agree that monitoring bodies should be authorised to check the informative quality of the explanations in the corporate governance statements and require companies to complete the explanations where necessary? If yes, what exactly should be their role?
Annex 2: List of EU measures in the field of corporate governance
- Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006 amending Council Directives 78/660/EEC on the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings (OJ L 224, 16.8.2006, p. 1–7).
- Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38–57).
- Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies (OJ L 184, 14.7.2007, p. 17–24).
- Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (OJ L 142, 30.4.2004, p. 12–23).
- Commission Recommendation 2005/162/EC of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board (OJ L 52, 25.2.2005, p. 51–63).
- Commission Recommendation 2004/913/EC of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies (OJ L 385, 29.12.2004, p. 55–59).
- Commission Recommendation 2009/385/EC of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies (OJ L 120, 15.5.2009, p. 28–31).
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[1] Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions Towards a Single Market Act – for a highly competitive social market economy - COM(2010) 608 final/2, p. 27.
[2] See the Conclusions of the European Council of 17 June 2010, accessible athttp://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/115346.pdf.
[3] The consultation on ‘disclosure of non-financial information by companies’ closed in January 2011; see http://ec.europa.eu/internal_market/consultations/2010/non-financial_reporting_en.htm.
[4] See also, e.g., OECD, Corporate Governance and the Financial Crisis - Conclusions and emerging good practices to enhance implementation of the Principles, February 2010.
[5] Report of the Committee on the Financial Aspects of Corporate Governance (The Cadbury Report), 1992, p. 15, accessible at http://www.ecgi.org/codes/documents/cadbury.pdf.
[6] OECD Principles of Corporate Governance, 2004, p. 11, accessible athttp://www.oecd.org/dataoecd/32/18/31557724.pdf.
[7] For a list of EU measures in the field of corporate governance, see Annex 2.
[8] This approach means that a company choosing to depart from a corporate governance code has to explain which parts of the corporate governance code it has departed from and the reasons for doing so.
[9] COM(2010) 284, see also Feedback Statement — Summary of responses to the Commission Green Paper on Corporate Governance in Financial Institutions, accessible athttp://ec.europa.eu/internal_market/consultations/docs/2010/governance/feedback_statement_en.pdf.
[10] See the abovementioned Green Paper, Sections 3.5 and 5.5.
[11] Study on Monitoring and Enforcement Practices in Corporate Governance in the Member States, accessible on http://ec.europa.eu/internal_market/company/docs/ecgforum/studies/comply-or-explain-090923_en.pdf.
[12] But there are exceptions, for instance, Article 41(1), second subparagraph of the Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (OJ L 157, 9.6.2006, p. 87) allows Member States to permit SMEs that are listed companies not to set up a separate audit committee.
[13] See, for example, Code de gouvernement d’entreprise pour les valeurs moyennes et petites , December 2009, Middlenext, accessible at http://www.middlenext.com/.
[14] See for example the UK Corporate Governance Code , accessible athttp://www.frc.org.uk/corporate/ukcgcode.cfm.
[15] The logic of burden reduction for small and medium companies is also present in the ongoing review of the accounting directives (Council Directives 78/660/EEC and 83/349/EEC), although it will mainly target non-listed companies and in the Green on the Audit policy published in 2010 - COM(2010) 561 -, available athttp://ec.europa.eu/internal_market/consultations/docs/2010/audit/green_paper_audit_en.pdf.
[16] Corporate Governance Guidance and Principles for Unlisted Companies in Europe , European Confederation of Directors’ Associations (EcoDa), accessible athttp://www.ecoda.org/docs/ECODA_WEB.pdf.
[17] See for instance in Belgium the Buysse Code — Corporate governance recommendations for non-listed enterprises (http://www.codebuysse.be/downloads/CodeBuysse_EN.pdf); in Finland the Central Chambers of Commerce initiative Improving corporate governance of unlisted companies (http://www.keskuskauppakamari.fi/content/download/19529/421972); in the UK, Corporate Governance Guidance and Principles for Unlisted Companies in the UK, Institute of Directors (http://www.iod.com/MainWebsite/Resources/Document/corp_gov_guidance_and_principles_for_unlisted_companies_in_the_uk_final_1011.pdf) .
[18] This Green Paper has no bearing on the roles assigned to different company bodies and board-level employee participation under national law.
[19] It is worth noting that some Member States provide for regimes of employee participation in the boards
[20] ‘Enhancing stakeholder diversity in the Board room’, ‘The Erfurt meetings’ series, No 1, March 2008, European Citizens’ Seminars e.V. (Erfurt, Germany) publishers.
[21] Heidrick & Struggles, Corporate Governance Report 2009 — Boards in turbulent times, using a selection of 371 top companies in 13 countries based on the reference stock exchange.
[22] See Heidrick & Struggles.
[23] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, "Strategy for equality between women and men 2010-2015", COM(2010) 491 final.
[24] See details in the Commission Staff Working Paper "The Gender Balance in Business Leadership", SEC(2011) 246 final.
[25] European Commission, Database on women and men in decision-makinghttp://ec.europa.eu/social/main.jsp?catId=764&langId=en.
[26] Women matter , McKinsey & Company 2007, 2010.
[27] See the above mentioned Commission Staff Working Paper.
[28] Women matter, McKinsey & Company 2008.
[29] Adams and Ferreira ‘Women in the boardroom and their impact on governance and performance’, in Journal of Financial Economics 94 (2009).
[30] Woolley, Chabris, Pentland, Hashmi and Malone, ‘Evidence for a Collective Intelligence Factor in the Performance of Human Groups’, Sciencexpress, 30 September 2010.
[31] Women matter , McKinsey & Company 2007; Female Leadership and Firm Profitability , Finnish Business and Policy Forum — EVA 2007; The Bottom Line: Connecting Corporate Performance and Gender Diversity , Catalyst 2004.
[32] See Adams and Ferreira.
[33] ‘Controlled undertaking’, as defined in Article 2(1)(f) of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC. See also the parent-subsidiary relationship as explained in Article 1 of Directive 83/349/EEC on consolidated accounts.
[34] Commission Recommendation 2005/162/EC of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board.
[35] OECD, Corporate governance and the financial crisis: Conclusions and emerging good practices to enhance implementation of the Principles , 24 February 2010, p. 20.
[36] See Higgs, D. Review of the role and effectiveness of non-executive directors , January 2003.
[37] Commission Recommendations 2004/913/EC, 2005/162/EC and 2009/385/EC.
[38] Commission reports SEC(2007) 1022 and (2010) 285.
[39] Statement by the European Corporate Governance Forum of 23 March 2009.
[40] See question 7.1. Respondents to the consultation generally expressed the view that incentives for directors must be properly structured in order to encourage long term and sustainable performance of companies. However, the majority was opposed to legislative measures as regards the structure of remuneration in listed companies. Nevertheless, certain respondents mentioned that they would welcome more transparency of remuneration policies of directors of listed companies and a shareholder vote.
[41] E.g. resilience of the company's investments to climate change, financial or other implications from regulation on greenhouse gas emissions.
[42] EU ‘critical infrastructure protection’ webpage:http://europa.eu/legislation_summaries/justice_freedom_security/fight_against_terrorism/jl0013_en.htm
[43] From Commission interviews.
[44] For instance, engagement by typical short-term-oriented institutional investors, such as ‘activist’ hedge funds, may be beneficial, because it can act as a catalyst for a change in governance and raise awareness among other shareholders.
[45] See the UK Stewardship Code.
[46] Investors with long-term obligations towards their beneficiaries, such as pension funds, life insurance companies, state pension reserve funds and sovereign wealth funds.
[47] For the purposes of this Green Paper, ‘institutional investor’ is understood in a broad sense, i.e. as any institution which professionally invests (also) on behalf of clients and beneficiaries.
[48] Paul Woolley, ‘Why are financial markets so inefficient and exploitative — and a suggested remedy’, in The Future of Finance: The LSE Report , 2010.
[49] Respondents in favour were mostly investors, asset managers, the (financial services) industry and business professionals.
[50] See also paragraph 7.3.4 of the Public consultation on the Review of the Markets in Financial Instruments Directive (Mifid): http://ec.europa.eu/internal_market/consultations/docs/2010/mifid/consultation_paper_en.pdf
[51] On 31 January 2010, the ICGN Shareholder Responsibilities Committee has published a call for evidence with regard to model contract terms for agreements between asset owners and their fund managers: http://www.icgn.org/policy_committees/shareholder-responsibilities-committee/-/page/307/.
[52] For more detailed information, see the Commission staff working document ‘The review of the operation of Directive 2004/109/EC: emerging issues’ accompanying document to the Report from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions Operation of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market - SEC(2009) 611, pp. 88-94.
[53] This question was also raised in the Green Paper Corporate governance in financial institutions and remuneration policies - COM(2010) 284 - which was, however, limited to financial institutions.
[54] The Commission already looked at the risk of abuse connected to ‘empty voting’ in its consultation on the Transparency Directive. That consultation suggested that the problem was one of ‘record date capture’.
[55] For more details, see Market analysis of shareholder transparency regimes in Europe, ECB T2S Taskforce on Shareholder Transparency, 9 December 2010:http://www.ecb.int/paym/t2s/progress/pdf/subtrans/mtg7/2010-t2s-tst-questionnaire-response-analysis.pdf?d6cc9adf38f63d24897c94e379213b81
[56] Directive 2004/109/EC.
[57] In the revision of the Transparency Directive foreseen for 2011, the Commission is also envisaging introducing a disclosure requirement for the long economic positions having similar economic effect to holding of shares.
[58] See Article 43(1)(7b) of the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies and Article 34(7b) of the Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54(3)(g) of the Treaty on consolidated accounts.
[59] See the Statement on minority shareholders’ rights by the European Corporate Governance Forum.
[60] Communication on the framework for promoting employee financial participation - COM(2002) 364 -, The PEPPER IV Report: Benchmarking of Employee Participation in Profits and Enterprise Results in the Member and Candidate Countries of the European Union, 2008.
[61] Study on Monitoring and Enforcement Practices in Corporate Governance in the Member States, available at http://ec.europa.eu/internal_market/company/ecgforum/studies_en.htm.
[62] See http://www.corporategovernanceboard.se/the-code/current-code, point 10.2.
[63] The role of auditors is not discussed here, as a consultation on the role of statutory audit has been launched through a separate green paper available athttp://ec.europa.eu/internal_market/consultations/docs/2010/audit/green_paper_audit_en.pdf.
[64] As, for example, is done in Spain — see the Study on Monitoring and Enforcement Practices in Corporate Governance in the Member States, p. 63.