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Background

In recent years the issue of corporate governance has become a highly politicized policy area with great relevance for employees and society as a whole. At stake is the issue of who runs our companies and what strategies and goals these companies pursue. Since the 1990s corporate governance reform in Europe has been dominated by the ‘shareholder value’ model of the firm, which prioritizes the interests of shareholders. However, in the wake of the financial crisis, increasing dissatisfaction with this model is leading to the search for an alternative which gives stakeholders a stronger ‘voice’ in company affairs and focuses on long-term sustainability.

Although company law is frequently mentioned in conjunction with company law, corporate governance is the broader concept, since it involves not only other legal areas (labour law and financial regulation in addition to company law), but also includes "soft law" in the form of recommendations and codes. However, since corporate governance focuses on decision-making, control and monitoring (particularly on the company board), some areas of company law are not central to corporate governance.

 

The initial efforts of the European Commission in this area were focused on a harmonization project in company law aimed at creating common features for companies across countries while avoiding regulatory competition. Some of the proposals made by the Commission were quite controversial, since they were seen as threatening established features of national systems, and were blocked by some member states. One example was the draft 5th Company Law Directive on public companies, which included provisions on shareholder rights and codetermination. However, consensus was reached on issues such as transparency and procedures for establishing companies. In all, nine directives were approved between 1968 and 1989.

 

Following a decade of relative quiet, a new impetus came in 2001 with the passing of legislation on the European Company (Societas Europaea). At the same period a number of financial scandals (Enron, Worldcom, etc.) indicated a need for further intervention in the regulation and supervision of companies. The Commission reacted to these scandals with the appointment in 2001 of an expert group (the ‘Winter group’) which was asked to draw up modernisation measures in the field of company law and corporate governance. The bulk of the Winter group’s proposals, which were made public in a final report in November 2002, were adopted in the Commission’s 2003 ‘Action Plan on the modernisation of company law and the improvement of corporate governance’. The Action Plan recommended 24 measures, and most of the measures classified as short-term had been implemented by 2005.

 

When Internal Market Commissioner McCreevy took office in 2005 the Commission decided to fundamentally review the whole Action Plan with respect to its continuing relevance and suitability. At the same time, new criteria for decision-making processes in the Commission were agreed, which among other things required that all new proposals must be evaluated with regard to their economic efficiency. The Commission also adopted an initiative to simplify existing European regulations, including the different company law directives. Against this background in 2005/2006 a public consultation was held on further priorities in company law. A summary report on future priorities in the field of company law was presented in the summer of 2006. According to this, the main field of action was to be new enabling legislation, such as a 14th company law directive (on the cross-border transfer of the registered office of limited companies) or anchoring the one-share/one-vote principle in European law. But Commissioner McCreevy switched the agenda with a speech presented before the European Parliament’s Legal Committee in October 2007, in which he announced that work on the 14th company law directive and the one-share/one-vote principle would cease, and set out as a new top priority the European Private Company (SPE). In June 2008, the Commission launched a first proposal, which contained a number of serious shortcomings, especially in the area of worker participation. On 10 March 2009, the European Parliament adopted a report on the European Private Company (SPE) to complement the Commission’s proposal. Attempts have been made under the Swedish, Belgian and Hungarian EU Council Presidencies to move this proposal ahead.

 

However, the financial and economic crisis which started in 2007/8 is forcing a rethinking of the European Union's approach to corporate governance. The dominant paradigm for listed companies, the ‘shareholder value’ model of corporate governance, has been blamed for contributing to the financial crisis, for example through the orientation of executive remuneration to short-term stock market performance. Subsequent to the appointment of a new European Commission in 2010, public consultations have been held on the issues of corporate governance in financial institutions, country-by-country reporting, nonfinancial reporting and corporate governance in general. A new Action Plan on Company Law and Corporate Governance was announced by the Commission in December 2012. More and more voices are calling for a new approach to corporate governance, which would involve stronger influence for workers and a reorientation of companies to long-term sustainability. The current period is a window of opportunity for developing and implementing such new approaches.

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