Corporate Eye

EU continues corporate governance reform

EU slow corporate governance reformLike a slow, inevitable, irresistible piece of origami, the EU’s plans on corporate governance reform in line with general CSR principles continue to unfold.  This latest instalment looks at corporate governance and follows on from a public consultation and green paper in 2011.

Sixteen areas have been identified and put into an action plan.  Some will require regulatory changes, all will be enacted during 2013 unless further investigation is required and all, with the exception of the SPE proposal, will apply to all listed companies across the EU.

Generally they fall into three broad categories: transparency, shareholder power and cross border ownership.


A large slew of the areas are about increasing transparency at board level.  Areas targeted include the board’s diversity, corporate shareholdings, institutional investors’ voting records and remuneration.  Also mentioned is increased transparency in the structure of group companies.

All issues to do with transparency are ripe for easy disclosure on a company’s website and in more involved areas, such as remuneration and voting records, clever applications can help increase transparency.

Shareholder power

The obligation of increased transparency laid upon institutional shareholders is balanced by increasing their power over corporate activities.  This includes granting the right to approve the remuneration policy and greater control over related party transactions (where a director or specific investor enters into an additional business agreement with the corporate body).

There is also the continuation of an analysis into obstacles preventing widespread employee ownership and it’s obvious this is something the EU wants to progress in the long term. It’s worth noting a company which registers as an SE (see below) is required to give employees a greater say in corporate affairs.

Cross border ownership

There is a class of company called a European Company (SE).  A business registered as an SE can operate across the EU under a single set of rules, rather than having to balance national rules depending upon the location of its subsidiaries’ operations.  Examples of SEs include Allianz and BASF and there is a similar form of European Cooperative Society (SCE).

A publicity campaign is going to be launched to bring the benefits of SE and possibly SCE registration to a wider audience and work will continue on creating a similar form for SMEs (SPE).

In addition, rules on moving a registered office across national borders and cross border mergers and divisions will also be investigated and possibly revised.


For the sake of completeness, the sixteen areas are:

Board diversity and risk management

Policies must be put in place and disclosed to shareholders.  This fits in with a previous proposal that, in effect, a company’s non-executive directors should never have a greater than 60/40 balance in favour of either gender.  An amendment to the Accounting Directive will be made in 2013.

Shareholding transparency

Shareholdings in listed companies must be declared more transparently.  Securities legislation will be introduced in 2013.

Corporate governance reporting

The quality of governance reporting to be improved with increased transparency introduced in the form of a “comply or explain” expectation, especially where companies depart from the governance code.  Hopefully this can be introduced without regulation in 2013.

Investor voting transparency

Institutional investors will have to disclose their voting policies and their voting records.  A new Shareholders’ Rights Directive in 2013 is being considered.

Remuneration policies

Improved transparency around remuneration policies and practice, including granting shareholders the right to vote on the remuneration policy.  A new Shareholders’ Rights Directive in 2013 is being considered.

Related party transactions

Shareholders are to be given greater power over related party transactions, possibly in a new Shareholders’ Rights Directive in 2013.

Proxy advisors

Proxy advisors are consultancies brought in to advice shareholders, especially upon voting tactics.  The framework governing potential conflicts of interest and transparency regarding their appointment will be improved.  A new Shareholders’ Rights Directive in 2013 is being considered.

Investor co-operation

Guidance will be issued in 2013 to ensure investors who co-operate on corporate governance issues do not fall foul of regulations forbidding them from “acting in concert” (i.e. rigging the market).

European Companies and Cooperative Societies

A publicity campaign will be launched in 2013 to encourage businesses to register as a European Company (SE), which makes it easier for a business to operate on a Europe-wide basis.  The campaign may also include European Cooperative Societies (SCE).

European SMEs

Proposals for European wide SMEs (SPE) will be progressed.

Employee share ownership

Analysis will be undertaken into obstacles preventing widespread employee share ownership.

Company transferral

Investigation will take place in 2013 into rules to allow a company to transfer its registered office from one member state to another.

Mergers and divisions

A study will take place during 2013 into rules governing cross border mergers and divisions, possibly followed up by changes to the Cross Border Mergers Directive.

Companies Law Directive

A proposal will be made in 2013 to unify eight previous directives into a single Companies Law Directive.

Recognition of group interest

An initiative on recognition of the interest of a group of companies and transparency of the group structure will be announced in 2014.

Picture Credit: Triceratops / Emre Ayaroglu / CC BY

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A former CTO, Chris has a broad and varied background. He’s been involved with blue chips, consultancies & SMEs across a wide variety of sectors and has worked in Europe, the Middle East and Australia. In 2007 he decided to combine his knowledge of business and IT with his passion for all things sustainable and has been busy writing ever since. However, his greatest ambition remains to brew the perfect cup of coffee.