The European Commission has published a green paper titled Corporate governance in financial institutions and remuneration policies: see here (pdf). The paper contains a large number of questions for consultation and sets out possible ways to:- improve the functioning and composition of boards of financial institutions in order to enhance their supervision of senior management;
- establish a risk culture at all levels of a financial institution in order to ensure that long-term interests of the business are taken into account;
- enhance the involvement of shareholders, financial supervisors and external auditors in corporate governance matters;
- change remuneration policies in companies in order to discourage excessive risk taking.
Amongst the questions on which views are sought are:
- Should the number of boards on which a director may sit be limited?
- Should combining the functions of chairman of the board of directors and chief executive officer be prohibited in financial institutions?
- Should a specific duty be established for the board of directors to take into account the interests of depositors and other stakeholders during the decision-making procedure?
- Should cooperation between external auditors and supervisory authorities be deepened?
- Should supervisory authorities be given the power and duty to check the correct functioning of the board of directors and the risk management function?
- What could be the content and form, binding or non binding, of possible additional measures at EU level on remuneration for directors of listed companies?
- Should disclosure of institutional investors' voting practices and policies be compulsory? How often?
The paper makes clear (at p. 11) the Commission's view that there is a role for financial regulators to play:
The main challenge in seeking to improve existing corporate governance practices will be to ensure real change in the behaviour of the relevant actors. This cannot be achieved through new regulatory and non-regulatory requirements alone. It must also be backed up by effective financial supervision".
Interestingly, whilst the paper is concerned with financial institutions, it is noted (at p. 3):
... the Commission will soon launch a broader review on corporate governance within listed companies in general and, in particular, on the place and role of shareholders, the distribution of duties between shareholders and boards of directors with regard to supervising senior management teams, the composition of boards of directors, and corporate social responsibility".
For further information see: press release | press conference video | faqs | Commission consultation page | Commission staff working document: lessons from the financial crisis | other proposals announced: credit rating agencies : remuneration : financial services regulation |
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