Directors & board members
Directors have a crucial role in corporate governance, ensuring proper management of the company and looking after investors' interests.
Directors' duties & liability
In April 2013 the Commission published an external study on directors’ duties and liability, as reflected in national law. This could serve as a basis for future regulatory steps in this area.
Directors' role in listed companies
Recommendation 2005/162/ECdeals with the role of non-executive or supervisory directors in listed companies. It:
- lays down rules on the independence of directors
- recommends that companies set up committees on the (supervisory) board to deal with:
- audit issues.
Directive 2007/36/ECsets certain rights for shareholders in listed companies, including:
timely access to relevant information on general meetings (see time limits per country)
easier proxy voting.
2013 – Commission discussions with stakeholders on increasing shareholder engagement .
Directive 2004/25/ECsets minimum standards for takeover bids (or changes of control) involving securities of EU companies. It aims to protect minority shareholders, employees and other interested parties.
Application of the takeover directive
Employee share ownership
The work in this area aims to encourage and make it easier for employees to own shares of their companies or participate in their profits, and for companies to offer such schemes to their employees, including on a cross-border basis.
- Study on the promotion of employee ownership and participation and its executive summaries (October 2014)
- Country profiles for EU-28, Norway, Turkey and the US developed as part of this study
- Conference on employee share ownership (30 January 2014)
Remuneration for board members is a key area where managers may have a conflict of interest and account should be taken of shareholder interests.
Recommendation 2009/385/EC(FAQ ) makes recommendations including:
- remuneration should be performance-based and promote a company's long-term sustainability
- companies should publicly disclose their remuneration policies
- the remuneration committee should be involved
- shareholders should be able to influence remuneration policy
- Recommendation 2009/384/EC(FAQ ,impact assessment , executive summary ). Remuneration for board members and risk-taking staff.
- Recommendation 2004/913/EC(FAQ , report on application ). It was the first Commission act on remuneration.
Proper disclosure of companies' corporate governance arrangements offers useful information to investors and reputational benefits to business.
EU legal framework
Recommendation 2014/208/EUon corporate governance reporting, especially explanations companies should provide for breaking governance codes (‘comply or explain’)
- See also – Study – Monitoring & enforcement in corporate governance (2009)
- made key changes to 4 EU accounting directives.
- established the rule of collective responsibility of the board (Article 20)
- introduced the obligation for EU listed companies to provide a corporate governance statement in their annual report, giving information on: governance codes, shareholder meeting and its powers, shareholders' rights, administrative, management and supervisory bodies and their committees, etc.
Directive 2013/50/EU(revised Transparency Directive)
- Requires issuers of securities traded on EU regulated markets to ensure appropriate transparency through a regular flow of information to the markets – e.g. disclosure of major holdings of all financial instruments that could be used to acquire economic interest in listed companies.
Financial institutions – country-by-country reporting
Directive 2013/36/EU(Capital Requirements Directive)
Requires banks and investment firms to publicly disclose certain information for every country where they operate (type of activities, turnover, full-time employees, profit/loss before tax, tax paid, public subsidies received).
Industry feedback on country by country reporting
Following the 2008 financial crisis, the EU has comprehensively overhauled its existing legal framework in this field, including the CRD IV package.
Directive 2013/36/EU(Capital Requirements Directive) lays down rules for banks and investment firms including:
- effective risk management
- board composition
- pay structure (for executives and employees considered "material risk takers") – in the form of a "bonus cap" (maximum ratio between variable and fixed compensation).
- Green Paper – governance in financial institutions (2010)
- Consultation – governance in financial institutions
- Securities markets
- Recommendation 2009/384/EC addressed remuneration of risk-taking staff in financial institutions, but is now superseded by CRD III and CRD IV.