Corporate Eye

EU and UK on Governance Collision Course

EPP Summit March 2010The EU has rejected the idea of voluntary codes for corporate governance for Europe’s businesses and has shown support instead for compulsory measures.

In a speech on Monday, the European Commission’s Internal Markets Commissioner Michel Barnier said “I am clear we will not be able to rely only on voluntary codes”. (Speech in full (PDF))

The EU is due to deliver a discussion paper on Corporate Governance in 2011 and it is now certain that this will include an element of compulsion in sustainability reporting.

This will cause consternation among some of Europe’s member states.  The UK in particular supports wholly voluntary measures and is likely to fight against any top-down imposition of standards from Brussels.

In particular the UK’s corporate governance and reporting regulator, the Financial Reporting Council, has said it will “defend to the death” the voluntary “comply or explain” principle which underpins many of the UK’s corporate reporting requirements.

Proposals which are up for discussion include limiting the number of directorships a person can hold, making a Chief Risk Officer mandatory and moving director remuneration away from the “hit-and-run culture that has caused so much damage”.

However Commissioner Barnier’s comments are aimed at a bigger target than just the EU.  He concluded:  “None of these actions can be wholly effective if taken in Europe alone.  We live in a global world.  And in a global world, policies which have a global impact must be designed – and applied – at a global level.   That is why action at the G20 is so important.  And why Seoul next month [November] matters – because it’s the right level for the issues we face.”

The Seoul Summit agenda includes the G20 Business Summit, a roundtable of 100 CEOs meeting with government representatives who will address Trade and Investment, Green Growth and CSR and is described as “a process, rather than a one-time event”.

The summit will also focus upon how to implement changes in the global financial system to make it more robust and accountable.

As Commissioner Barnier made his comments within the context of improving financial systems and increasing corporate responsibility, it seems likely that the EU will raise the subject during the roundtables or the main summit itself.

So the scene seems set.  Sooner or later the EU will push for compulsory governance standards and will push for them to be recognised worldwide.  You have now been warned!

Picture Credit: EPP Summit March 2010 by europeanpeoplesparty under Creative Commons Attribution No Derivatives License.

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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.