European Corporate Governance Forum Moves Forward On Key Issues

by Ulrika Lomas, for LawAndTax-News.com, Brussels

27 June 2005

The European Corporate Governance Forum, which examines best practices in Member States in the field of corporate governance, held its second meeting in Brussels last week to discuss a number of current issues in the field, in particular shareholders’ rights and internal control.

At the meeting, the Forum concluded with regard to shareholders rights that the important role of the shareholder in the context of good corporate governance must be emphasised.

"An appropriate balance has to be found between managerial entrepreneurship and shareholder control. This implies that a broad analysis be carried out on possible key powers of shareholders (such as their role in the nomination and dismissal of directors), the specific effects of large blocks of shareholders in one company and on the limits of the one share one vote concept," the Forum announced in a statement, which continued:

"In this context, the Forum welcomed, furthermore, the consultation paper on the enhancement of shareholders’ rights that was recently published by the Commission (IP/05/561). It considered the facilitation of the cross-border exercise of shareholders’ voting rights as a crucial condition for rendering control by shareholders effective."

With regard to internal control and risk management, meanwhile, the Forum stated that:

"In this area which aims at ensuring that companies manage their risks efficiently and safeguard shareholders’ investments the increase in disclosure requirements and the requirement to establish audit committees that will be introduced by the forthcoming modifications of the 4th, the 7th and the 8th Company Law Directives are viewed by most as important steps towards improving corporate governance."

"However, before any further legislative measures in this field are taken, there should be a careful examination of what lessons can be learnt from experience and how to strike the balance between the benefits of additional requirements and the costs and burdens that would result from these for companies. At the next meeting of the Forum, which is planned for November 2005, the ‘comply-or-explain’ principle, which obliges companies to justify deviations from corporate governance codes they apply, will be discussed and the exchange of views on shareholders’ rights and internal control will be continued."

Internal Market and Services Commissioner Charlie McCreevy observed that:

“Sound corporate governance is vital for Europe’s capital markets and for the economy as a whole. So, I welcome the progress made in this second meeting and look forward to the Forum’s further work, which will help build consensus on some key issues in the area. I am delighted with the contribution the Forum is making and value greatly the high-level experience it brings to the table.”

Recommended