Corporate Governance Regulation - Paper - The EU Corporate Governance Framework - April 5, 2011

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European Commission Timeline, EU Corporate Governance Framework
Submission Date Comment Deadline Final Recommendations
April 5, 2011 July 22, 2011 Fall 2011

The purpose of the paper is to assess the effectiveness of the current corporate governance framework for European companies, by addressing three subjects that the commission deems "at the heart of good corporate governance:

  • The board of directors - high performing, effective boards are needed to challenge executive management. This means that boards need non-executive members with diverse views, skills and appropriate professional experience. Such members must also be willing to invest sufficient time in the work of the board. The role of chairman of the board is particularly important, as are the board’s responsibilities for risk management.
  • Shareholders - the corporate governance framework is built on the assumption that shareholders engage with companies and hold the management to account for its performance. However, there is evidence that the majority of shareholders are passive and are often only focused on short-term profits. It therefore seems useful to consider whether more shareholders can be encouraged to take an interest in sustainable returns and longer-term performance, and how to encourage them to be more active on corporate governance issues. Moreover, in different shareholding structures there are other issues, such as minority protection.
  • How to apply the ‘comply or explain’ approach - which underpins the EU corporate governance framework. A recent study showed that the informative quality of explanations published by companies departing from the corporate governance code's recommendation is - in the majority of the cases - not satisfactory and that in many Member States there is insufficient monitoring of the application of the codes. It is therefore appropriate to consider how to improve this situation."<ref>Corporate governance framework for European companies: what needs to be improved?. Europa. Retrieved on April 5, 2011.</ref>

The paper seeks guidance from the public and, specifically, guidance on 25 questions in three categories:

  • General questions on governance issues such as diversity, remuneration, and risk management policies;
  • Shareholder-specific questions addressing conflicts of interest and minority shareholder protection; and
  • Monitoring and implementation of corporate governance codes.

Of particular interest is the composition of advisory boards, and whether the addition of diversity and gender quotas "could stop inward-looking 'group think'."<ref>EU proposes giving investors say on manager pay. Reuters. Retrieved on April 5, 2011.</ref> The deadline for public comment was July 22, 2011. To view contributions, click HERE.

Feedback Statement on the Green Paper, November 15, 2011[edit]

On November 15, 2011, the EU published a summary of the feedback it received from public comments on the green paper. In all, the EU received 409 answers to the 24 questions posed in the green paper. The 18-page feedback summary includes charts, graph and tables detailing the demographics of commenters, as well as a detailed summary of each of question.

Related Documents: Green Paper, FAQ Sheet, Feedback Statement from November 15, 2011[edit]

Link to affiliated FAQ sheet


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