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The European Commission’s Policy on Corporate

GovernanceCorinna Ullrich, DG MARKT, EU Commission

Summit for the future, Amsterdam, 4 May 2006

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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)

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Key corporate relationships

Board CEO

Shareholders

Appoints/removesControlsApproves

ReportsSubmits

Manages company in shareholders interests

Appoint boardApprove accounts

ACCOUNTABLE

ACCOUNTABLE

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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)

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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

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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

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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

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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

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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

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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)

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Questions?