Friday, July 28, 2006
Governance Weekly | July 28, 2006
EC Governance Priorities Get “Split” Response
The European Commission’s report on corporate governance priorities found “split views on corporate governance,” suggesting that support for new European-wide directives has diminished.
Internal Market Commissioner Charlie McCreevy attributed the results to “regulatory fatigue,” but there was some consensus that the principle of “one share/one vote” needs to be addressed. The commission has ordered a fact-finding study on the proportionality between ownership and control in EU-listed companies, to be done by the European Corporate Governance Institute, the law firm of Shearman & Sterling, and ISS Europe.
Institutional investors represented only 12 percent of the 266 respondents who participated in the consultative process, while industry responses accounted for 25 percent of the total. In addition to the written comments, some 300 participants attended a May forum in Brussels on the Action Plan on Company Law and Corporate Governance.
According to the July 7 report, a slight majority of respondents supported proposals to improve shareholder rights, the nomination and dismissal of directors, and shareholder communication rules.
A majority of respondents opposed the adoption of a European wrongful trading rule, concluding that issue does not raise substantial cross-border problems. They also opposed legislation on directors’ disqualification, on the grounds that substantial differences exist in the national rules across Europe.
Disclosure of institutional investors’ voting policies also received only tepid support, with opponents noting that such a rule would impose excessive burdens on investors and is best left to contractual arrangements. However, a significant number of respondents insisted on the need to impose transparency and disclosure standards on institutional investors.
The consultations showed strong support for the adoption of a 14th company law directive, but some respondents raised doubts about the practical value of the directive since other obstacles, such as taxation and employee participation issues, would remain. There was also limited support for board structure changes and strong opposition to new rules on squeeze-out and sell-out rights. Finally, 28 percent of respondents called for a feasibility study on a pan-European statute to regulate foundations.
Meanwhile, the European Corporate Governance Forum (ECGF), a group of 15 experts that advise the EC, has endorsed the commission’s proposed directive to improve shareholder voting rights. The group did not endorse another proposal that would require intermediaries to disclose to companies at least once a year the identity of the clients on whose behalf they hold shares.
“In cross-border situations, in which a chain of securities intermediaries exists between the company and the shareholder, all securities intermediaries in the chain will need to contribute to the exercise of voting rights by a shareholder, by passing on voting instructions or voting on the instructions of their clients, or by facilitating the granting of a proxy to vote to their clients,” the ECGF said in a July 24 press release.
In another statement, the experts’ group said the EU should not require stricter rules for risk management and internal controls, along the lines of Section 404 of the Sarbanes-Oxley Act. “The Forum, while confirming that companies’ boards are responsible for monitoring the effectiveness of internal control systems, considers that there is no need to introduce a legal obligation for boards to certify the effectiveness of internal controls at EU level,” the ECGF said. --Thaddeus C. Kopinski
The European Commission’s report on corporate governance priorities found “split views on corporate governance,” suggesting that support for new European-wide directives has diminished.
Internal Market Commissioner Charlie McCreevy attributed the results to “regulatory fatigue,” but there was some consensus that the principle of “one share/one vote” needs to be addressed. The commission has ordered a fact-finding study on the proportionality between ownership and control in EU-listed companies, to be done by the European Corporate Governance Institute, the law firm of Shearman & Sterling, and ISS Europe.
Institutional investors represented only 12 percent of the 266 respondents who participated in the consultative process, while industry responses accounted for 25 percent of the total. In addition to the written comments, some 300 participants attended a May forum in Brussels on the Action Plan on Company Law and Corporate Governance.
According to the July 7 report, a slight majority of respondents supported proposals to improve shareholder rights, the nomination and dismissal of directors, and shareholder communication rules.
A majority of respondents opposed the adoption of a European wrongful trading rule, concluding that issue does not raise substantial cross-border problems. They also opposed legislation on directors’ disqualification, on the grounds that substantial differences exist in the national rules across Europe.
Disclosure of institutional investors’ voting policies also received only tepid support, with opponents noting that such a rule would impose excessive burdens on investors and is best left to contractual arrangements. However, a significant number of respondents insisted on the need to impose transparency and disclosure standards on institutional investors.
The consultations showed strong support for the adoption of a 14th company law directive, but some respondents raised doubts about the practical value of the directive since other obstacles, such as taxation and employee participation issues, would remain. There was also limited support for board structure changes and strong opposition to new rules on squeeze-out and sell-out rights. Finally, 28 percent of respondents called for a feasibility study on a pan-European statute to regulate foundations.
Meanwhile, the European Corporate Governance Forum (ECGF), a group of 15 experts that advise the EC, has endorsed the commission’s proposed directive to improve shareholder voting rights. The group did not endorse another proposal that would require intermediaries to disclose to companies at least once a year the identity of the clients on whose behalf they hold shares.
“In cross-border situations, in which a chain of securities intermediaries exists between the company and the shareholder, all securities intermediaries in the chain will need to contribute to the exercise of voting rights by a shareholder, by passing on voting instructions or voting on the instructions of their clients, or by facilitating the granting of a proxy to vote to their clients,” the ECGF said in a July 24 press release.
In another statement, the experts’ group said the EU should not require stricter rules for risk management and internal controls, along the lines of Section 404 of the Sarbanes-Oxley Act. “The Forum, while confirming that companies’ boards are responsible for monitoring the effectiveness of internal control systems, considers that there is no need to introduce a legal obligation for boards to certify the effectiveness of internal controls at EU level,” the ECGF said. --Thaddeus C. Kopinski
