Summer 2015 Issue
value creating, whereas investors and enlightened corporate managements do. The roadmap for corporate governance in the European Union has been clearly defined in two action plans, published by the European Commission in 2003 and 2012, along with five other proposals and directives. They are listed here in chronological order: EU Action Plan (2003) - This plan (European Commission 2003a) was based on a report by the High Level Group of company law experts chaired by Jaap Winter (Winter Report 2002). The plan established four main pillars for corporate governance reforms: • Modernizing the board of directors – The commission’s recommendations (all adopted in 2005) concerned the following: • Executive versus non-executive directors – Boards should comprise a balance of executive and non-executive directors so that no individual or group of individuals can dominate decision making. On a unitary board, the chair and CEO roles should be separate; and the CEO should not immediately become chair of either a unitary or a supervisory board. • Independent directors – A sufficient number of independent directors should be elected to the board of companies to ensure that any material conflict of interest involving directors will be properly dealt with. A director should be considered to be independent only if he or she is free of any business, family, or other relationship – with the company, its controlling shareholder, or the management – that creates a conflict of interest such as to impair his or her judgment. • Directors’ remuneration – European listed companies should disclose their remuneration policy and remuneration details of individual directors in their annual report. • Collective responsibility – There should be collective responsibility of all board members for both financial and nonfinancial reporting. • Enhancing corporate governance disclosure – The commission required all listed companies in the EU to include in their annual report a comprehensive corporate governance statement covering the key elements of their governance structures and practices. This statement should be based on a “comply or explain” principle (that is, it should refer to the national code of corporate governance and specify which parts of the code the company complies with and explain any deviations). The commission adopted this recommendation in 2006. • Strengthening shareholders’ rights – The commission requires that shareholders should have similar rights throughout the EU. In particular, procedural rights involving asking questions, tabling resolutions, voting in absentia, and participating in general meetings were identified as important rights. The commission also identified problems relating to cross-border voting as needing to be addressed as a matter of urgency. The commission adopted these recommendations in 2007 in the Shareholder Rights Directive. CFI.co | Capital Finance International
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