Stilpon Nestor

came too late to reverse the ill-feeling created between DB and its investors. It is worth noting that Rolf Breuer’s absence from the dialogue was not an exception to the German practice, nor was it contrary to the German code of corporate governance (Cromme Code), which does not have provisions equivalent to those of the UK Combined Code. In Germany it is the Chief Executive (the ‘spokesman of the Vorstandt’) not the Chairman of the Supervisory Board who talks to investors. This seems an aberration, given the fact that it is the supervisory board alone that is directly accountable to shareholders, according to German corporate law.

A key task of the non-executive Chairman should be to build and maintain strong relationships with the company’s key investors. Part of his role is to present to the board investor concerns independently of management. In the case of Deutsche B¨orse, it was the Chief Executive who reported to the Supervisory Board on these matters. Yet, the Chief Executive was the person most committed to pursuing the LSE’s takeover. Continental European boards are at the very beginning of a steep learning curve in their communications policy towards investors. While there is no regulatory solution to this problem, many continental European boards will need to review and redefine their role, duties and limits in communicating with investors, especially as the latter step up their engagement activities, whether friendly or hostile.

As regards communications among shareholders, it is becoming apparent from recent shareholder engagement actions (such as the DB/LSE bid) that there is a risk of consultations between investors regarding the corporate governance of a specific company being viewed as a concert party practice by securities regulators. If found to be in concert, investors might be asked to place a bid for the company. Such a prospect would obviously deter them from engaging in any such dialogue, even in the face of the most flagrant managerial incompetence or expropriation of shareholder wealth. Clarity and predictability on this issue are essential if investors are to meet their stewardship obligations. As long as the objective is not to take control of the company, communications among shareholders should be allowed, and not just on the issue of director elections. Dialogue between shareholders enhances the capacity of markets to arrive at efficient solutions that are good for companies. It also helps to avoid public confrontation between companies and major shareholders. In the context of the 2006 consultation on ECAP, the ICGN proposed that the Commission take action to clarify and, if needed, limit concert party action rules in Member States, in a way that promotes shareowner empowerment and legal certainty.28

Trends in the US

While the EU regulatory environment is entering a stabilisation phase, the US is still reeling from the realisation of the inadequacies in its corporate

28 See ICGN submission on the Consultation on the EU Action Plan at www.icgn.org.

192