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European Commission to unveil governance Green Paper on June 2

Shareholder empowerment and pay key to new governance plan

The European Commission is planning to present its plan for improving corporate governance in the financial sector on June 2, with enhanced shareholder involvement at the heart of the proposals.
In a speech in Berlin today Internal Markets Commissioner Michel Barnier said: “The Green Paper will address a number of questions – How to manage risk effectively in financial institutions? How to empower shareholders? This is important – because true crisis prevention starts from within the companies.”
His spokesperson told Responsible Investor that the Commission will consider both legislative or non-legislative proposals. Barnier is known admire Sir David Walker’s Stewardship Code in the UK.
The spokesperson said the proposals will aim at “enhancing the involvement of shareholders, financial supervisors and external auditors in corporate governance matters”. They would also seek to change remuneration policies in companies in order to discourage excessive risk taking.
Other proposals include suggestions on improving thefunctioning and composition of boards and the establishment of a “risk culture” at all levels of a financial institution. The spokesperson said the financial crisis had revealed “significant weaknesses” in corporate governance in financial institutions. “Although these weaknesses were not the main causes of the financial crisis, timely and effective checks and balances in governance systems might have helped mitigate the risks associated to the crisis.”
The Commission believes shareholders “did not exercise control over risk-taking in financial institutions they owned”.
The governance reform plan is part of the Commission’s roadmap to meet commitments made at various G20 meetings to strengthen transparency, responsibility and capital requirements.
The latest proposals fit in with a raft of initiatives such as the AIFM Directive on hedge funds and private equity, the revision of the MiFID Directive on investment services and the supervision of credit rating agencies. Link to M. Barnier’s speech