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European Commission Public Consultation on the EU Corporate Governance Framework

The European Commission has launched a public consultation on possible ways forward to improve the corporate governance framework in Europe. It is important that this consultation be used as an opportunity to express the need for stronger worker “voice” in corporate affairs in the interests of the long-term sustainability of companies.

 

This consultation, for which the deadline for responses is 22 July 2011, follows a series of actions by the European Commission aimed at re-examining and restructuring the framework within which European companies operate.note1 In 2009 the Commission issued recommendations on remuneration in both financial and non-financial companies. In 2010 the Commission held consultations on corporate governance and remuneration in financial companies, on country-by-country reporting by multinational companies and on non-financial reporting by companies. This new consultation is designed to poll public opinion on the general corporate governance framework in a number of areas, including:

 

  • The organization and role of boards of directors, including diversity and recruitment issues
  • The rights and responsibilities of shareholders
  • The monitoring and implementation of corporate governance codes
  • The scope of applicability of corporate governance regulations (i.e. listed versus unlisted companies, and listed versus unlisted companies?)

 

One weakness of the Green Paper is the lack of discussion of the role of board level employee representation (BLER). This is all the more surprising given that BLER plays an important role in corporate governance in a majority of EU countries. Extensive research has shown that BLER can play a positive role in contributing to the long-term sustainability of companies. This consultation could be used to emphasize the positive role of BLER and its strengthening in companies with a European legal form and in countries which have a tradition of BLER. For example, management could be required to get approval from the board for a catalogue of types of actions. Boards could also be required to reserve decisions on important matters like remuneration for the whole board, instead of being delegated to committees, so that worker representatives have an opportunity to express their opinions and vote on these issues.

 

 

The consultation could also be taken as an opportunity to stress the need for diversity on company boards, for stronger responsibilities and disclosure by shareholders, for binding corporate governance rules (as opposed to voluntary or “comply or explain” rules), and for the need to apply rules to non-listed companies as well.

 

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