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Corporate governance reform - consultation - 27/04/2011

Company boardroom with table, chairs and an LCD screen displaying a pie chart. © Baris Simsek/iStock

Views sought on how to improve the way publicly traded companies are managed and on providing better protection for shareholders.

The global financial crisis exposed weaknesses in the rules and codes of conduct that govern the way EU-based companies are managed.

These laws and codes set the standards for good and responsible management of companies traded on Europe’s stock exchanges. They are meant to ensure a company’s management stays focused on the long-term interests of their shareholders.

As part of a wider reform of EU corporate law, the Commission is now examining how to strengthen the rules and make them less dependent on self-regulation. Managers and boards of directors would be held more accountable for their decisions.

The Commission has set out its ideas in a discussion paper for a public consultation on possible reforms covering better oversight by boards, shareholder participation and enforcement.

Boards of directors

The consultation asks whether companies should be required to appoint a more diverse and representative group of directors – with more women and people from a variety of professional backgrounds, skills and nationalities.

The Commission is also looking at how boards function and the amount of time members spend on overseeing shareholders' interests. Risk management and directors’ pay is also being considered.

Shareholder participation

Another of the Commission's aims is to boost shareholder input on corporate governance issues. Through the consultation, it wants to find out how management can be persuaded to pursue sustainable returns and longer-term performance, not just short-term share price gains.

Minority shareholders would also have more protection. Opinions are sought on whether companies should be able to identify their shareholders.

Monitoring and enforcement

When publicly traded companies in the EU do not comply with national corporate governance recommendations, they are required to make annual statements explaining why not. But too often companies neglect this requirement.

The discussion paper suggests such statements should be bound by stricter and more detailed rules and national monitoring bodies should have more oversight.

Next steps

The consultation ends on 22 July after which the Commission will decide whether the relevant EU laws need to be changed.

Your views on better corporate governance
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