The European Commission, the executive arm of the European Union, has unveiled its wide-ranging Green Paper on corporate governance in financial institutions.
One of the key questions – among a raft of topics – is whether institutional investors’ voting practices and polcies should be made compulsory.
The Commission’s consultation also asks whether institutions should be obliged to adhere to a code of best practice such as the International Corporate Governance Network code.
Another question is whether shareholders should be identified in order to “encourage dialogue” with companies and reduce ‘empty voting’.
The Commission has also floated the idea of strengthening shareholder cooperation via “discussion platforms” and is looking into the disclosure of remuneration policy for intermediaries (such as asset managers).
It is also looking at limiting the number of boards on which a director may sit and banning the combining of the chairman and chief executive roles.
The Commission is worried that the financial crisis has shown there are new categories of shareholders – leading to the “abstraction, or even disappearance” of the concept of ownership normally associated with holding shares.It seeks to address several factors standing in the way of shareholder engagement. These include the costs of active engagement, the lack of effective shareholder rights, obstacles to cross-border voting rights and the uncertainty over legal concepts such as ‘acting in concert’. It slammed the often “too complicated and unreadable” information given to shareholders.
The 19-page Green Paper follows on from a commitment the Commission made in March 2009.
Noting that governance problems are not confined to the financial sector, the Commission said it plans to launch a broader review covering listed companies in general next year.
Internal Markets Commissioner Michel Barnier said: “On corporate governance, I am convinced that true crisis prevention starts from within companies. If we are to prevent future crises, financial institutions themselves need to change.”
The deadline for responses to the consultation is September 1, with any future legislative or non-legislative proposals will be adopted during 2011.
Meanwhile, the Commission’s Internal Markets Directorate action plan reveals that it will consider “an initiative on corporate social responsibility (CSR) and consider whether reporting requirements on CSR would be appropriate”.