Regulatory trends and corporate governance

Regulatory trends in the EU

While Member States have regulated governance in the form of company laws since the nineteenth century, Brussels’ entry into the corporate governance arena – long before it was called that – dates back to the adoption of the first company law directive in the late 1960s. However, the first attempt to tackle governance in a comprehensive way came as a response to the recommendations of the Winter Report from a high-level experts group that advised on the future of company law initiatives at EU level. The EU Commission’s ‘Action Plan on Modernising Company Law and Enhancing Corporate Governance’ (ECAP) was adopted in May 2003.7 ECAP is a crucial element of the European Council’s Lisbon Agenda which aims to make Europe the most competitive market in the world by 2010. In addition to measures included in ECAP, some legislative initiatives relevant to corporate governance have been adopted under the Financial Services Action Plan, another important component of the Lisbon Agenda.

Most commentators have judged ECAP to be a success so far, primarily due to its market-driven approach. The EU Commission chose not to prescribe Europe-wide norms aimed at a top-down harmonisation of corporate governance arrangements in markets with distinct, and often long-held, governance traditions and cultures. Correctly diagnosing the changing corporate ownership and control environment discussed in the first part of this chapter, and recognising the difficulty of making top-down changes to Member States’ legislative arrangements, the Commission did not attempt to regulate core corporate governance considerations such as the composition, structure, functioning and authority of corporate boards, or the oversight, evaluation and remuneration of executives. Not only did the Commission abstain from attempting harmonisation of core corporate governance issues, it also urged Member States to adopt flexible approaches that allow companies and their shareholders choice in selecting the type of governance that is most appropriate to their individual circumstances.

The Commission has chosen legislative action whenever it was felt that it was needed to facilitate the emergence of market solutions. EC Commissioner McCreevy summed up the Commission’s direct regulatory scope: ‘our action has been based on two key objectives: (1) bringing more transparency in the way companies operate; and (2) empowering shareholders’.8 In a further step that favours bottom-up convergence, most legislative action undertaken by the Commission in the context of ECAP constitutes minimum harmonisation

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