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McCreevy Speaks On Corporate Governance

by Jason Gorringe, Tax-News.com, London

12 December 2007


Speaking before the All Party Parliamentary Corporate Governance Group at the UK's House of Lords earlier this month, European Commissioner for the Internal Market and Services, Charlie McCreevy discussed various ongoing corporate governance issues.

Commissioner McCreevy began by announcing that:

"My recent decision not to propose any EU measure on one-share-one-vote does not mean that I do not believe in one-share-one-vote any more. I continue to believe it is in the best interest of companies and their investors. However, I do not believe that EU action would be useful or fruitful."

He explained the reasoning behind this conclusion:

"I opened the debate on one-share-one-vote shortly after I took office. Over the past few years the pros and cons have been fiercely debated. To inform the debate, the Commission contracted external consultants to do a study. The general consensus is that the study was balanced and that it shed some useful light on the issue. This study was the first systematic enquiry into the presence of control enhancing mechanisms across EU listed companies. It showed that even the UK permits some of these control enhancing mechanisms."

"The study concluded that there is no clear economic evidence that control enhancing mechanisms have a negative effect on companies' performance or their governance."

McCreevy went on to observe that:

"There is some evidence that market pressure results in a gradual elimination of certain control enhancing mechanisms. Although a very wide-range of control-enhancing mechanisms are available in most Member States, their actual use in practice is more limited."

"The driving force behind such market pressure is institutional investors. Institutional investors perceive control enhancing mechanisms negatively. However, what is important above all is an appropriate level of transparency. This is vital for investors to take reasoned and efficient investment decisions."

He continued:

"We already have at EU level a number of transparency measures which should help in this area. For example the Directive on Takeover Bids provides a list of relevant control enhancing mechanisms which have to be disclosed to the market by listed companies annually. The Transparency Directive improves disclosure rules on significant direct or indirect voting rights holdings in listed companies."

"The modifications of the Accounting directives in 2006 establish new rules on related-party transactions. Our new Directive on Shareholders' Rights will facilitate the exercise of shareholders' voting rights, including those of minorities and will help investors to push for transparency."

"In consequence, I decided that an added layer of transparency at EU level was not the way to go. Especially, when in company law more generally we are trying to cut red-tape."

Commenting on the implementation of certain corporate governance recommendations, McCreevy revealed that:

"We are also evaluating Member States' application of the 2005 Commission Recommendations on independent directors and directors' remuneration. I believe this is another issue you want to discuss with me today and I would be very interested to hear your views."

"We recently reported on how the two Recommendations are implemented in the Member States. The good news is that we see a strong tendency towards convergence in corporate governance standards across the EU. But standards are higher in certain Member States and the Commission is aware that there is still a lot of work to be done in a number of others."

He further revealed that:

"In 2008/2009, we will also be working on the evaluation of the Transparency Directive and we would start to work on the evaluation of the Takeover Bids Directive, due for 2011."

The Internal Market Commissioner concluded his speech by announcing that:

"Our policy in this area will not change, we will tread very carefully: we will take action only if it is necessary and in the least interventionist way, where we can promote positive convergence on corporate governance amongst Member States."

TAGS: Italy

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