On 5 April 2011, the European Commission published its anticipated green paper on corporate governance. It explores three areas at the heart of governance:
Directors and Board Composition: The paper queries whether the EU should seek to further divide the role of the chairman and the CEO and how boards can encourage more diversity on its boards. There is a question about limiting the number of directorships NEDs can hold and if companies should be required to ensure a better gender balance on boards. In addition, the paper queries whether companies should be encouraged to seek board evaluations every three years, whether remuneration disclosures should be enhanced, and how the board reports on and takes responsibility for a company's risk management.
Shareholder Engagement: The paper focuses on strengthening shareholder engagement through encouraging shareholders to take a long-term view. The Commission asks for opinions on any legal rules that may contribute to short-termism, and whether they should take measures to address the incentive structures of asset managers and monitor how they engage with companies. The green paper also looks at whether there is a need for a measure to help issuers identify their shareholders.
- Improving the 'comply or explain' framework: The green paper queries ways in which it can improve the monitoring and enforcement of the national comply or explain regimes. While the paper does explore giving national regulators more authority to check the quality of governance disclosures, especially those that do not 'comply', it does not recommend moving away from the 'comply or explain' approach, as some had feared.
Underlying these areas is the Commission's query about whether it should adopt a proportionate approach to corporate governance, taking account the size and type of company, when developing any new corporate governance requirements for EU listed companies.
The Quoted Companies Alliance's Corporate Governance Committee will be meeting with Claire Bury, Head of Unit F2 – Company Law, Corporate Governance and Financial Crime – DG Internal Market at the European Commission, in May to discuss this paper and will be responding to it. If you have any views on this paper, please let us by emailing Kate Jalbert.