Corporate governance reform without 'bulldozing national traditions'

Announcing the new Forum yesterday, Internal Market Commissioner Frits Bolkestein explained that the work "is not a precursor for a European corporate governance code, but it is a drive to raise standards across the board." He added that the Forum "will help us achieve this without bulldozing national traditions or forcing anything down anyone's throat."

The Forum comprises 15 senior experts from various professional backgrounds (issuers, investors, academics, regulators, auditors, etc.,) with experience in corporate governance. They will examine best practices in Member States and deliver an annual report to the Commission.

Mr Bolkestein said: "Broad convergence not only strengthens shareholders' rights and the protection of third parties such as creditors and employees, it makes it easier for investors to compare investment opportunities. That leads to a more efficient allocation of capital, which matters to everyone because it is the basis for creating growth and jobs."

The Action Plan on 'Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to move forward' (see IP/03/716 and MEMO/03/112), adopted in May 2003, outlined the integrated approach that the Commission intends to follow in the area of company law and corporate governance. The creation of the European Corporate Governance Forum is one of the measures designated by the Action Plan for the short-term.

In the last few weeks, also as part of the implementation of an Action Plan on modernising company law and enhancing corporate governance, the Commission has published Recommendations on increasing the transparency of directors' remuneration and on the role of independent directors as well as a strategy to prevent financial and corporate malpractice.

It will shortly also be bringing forward proposals to amend the Accounting Directives to establish the collective responsibility of board members, increase disclosure of certain transactions and of off-balance sheet arrangements and require listed companies to include a "corporate governance statement" in their annual report.

In the UK, Industry Minister Jacqui Smith gave a cautious welcome to the announcement, but stressed that the EU's focus should be on encouraging the development of national regimes within a flexible common framework; that action at EU level should tackle failures in the market created by cross-border problems and promote the objectives of the EU agenda for economic reform; and that legislation should only be brought forward where it promotes those objectives.

Jacqui Smith said:

"I believe the Commission has made an excellent start, using alternatives to legislation such as Recommendations to create a balanced approach. But because we all have different company law frameworks, the non-regulatory principle is even more important at EU level than it is at national level. The UK will support legislation where it is the only way to meet our objectives, but our natural inclination is to use other methods if they can deliver.

"When we do have to make legislation, it must comply with the EU's better regulation principles. There must be sound evidence that legislation will not impose excessive burdens, while helping business flourish."