29 July 2011

Eurochambres' input to Commission Consultation on Corporate Governance

While opposing the introduction of new binding EU measures related to corporate governance for unlisted companies, Eurochambres underlines the constructive role that recommendations from the EU or voluntary codes on promoting good corporate governance could play.

In the framework of the European Commission green paper and public consultation on Corporate Governance, Chambers fully recognise the importance of discussions on corporate governance at EU level and argue that all measure introduced in this field should first and foremost contribute to the long-term competitiveness of companies and avoid creating unnecessary burdens, particularly for SMEs.

This is even truer at a time when the EU and the Member States are engaging in a general regulatory overhaul following the economic and financial crisis. More specifically, Chambers are unconvinced about some of the elements on the table. The Commission Green Paper generally proposes to regulate companies more strictly, for example as regards board of directors’ overview. Taking into account that a dualistic system works in several countries (e.g. Germany), it seems that an additional external overview is not necessary and increases administrative cost. Moreover, companies, and thus their shareholders, seem better placed to decide on whom to appoint to their boards taking into account elements such as nationality, gender etc.

The Green Paper also aims at more transparency - but this seems related more to third persons rather than to shareholders of listed companies, who already get detailed information by the board of directors and can ask questions at the annual shareholder meeting. Mandatory transparency mainly directed to third persons is not necessary and increases the burden for companies.

Corporate governance measures should ideally take into account the size of companies. However, the issue is extremely complex. A lot of rules for listed companies are linked to transparency and information, which are basic elements for listing and should not be changed. At the same time, Eurochambres supports efforts to reduce administrative burdens on listed companies, particularly SMEs, as they can rely on very limited resources to comply with administrative and legal tasks.

The current securities market regulation does not acknowledge that some listed companies are very large whereas others are quite small and with very limited resources: the market value of a large listed company may actually be over a thousand times higher than that of a small listed company. However, as underlined above, while it might sound sensible to adapt rules governing listed companies to create different regimes for companies of different sizes, this might prove to be very complicated. What should be the threshold for less demanding regulation? A level playing field is crucial in capital markets due to their international nature and it would not be acceptable to have different rules for different Member States. Furthermore, when and how often should the threshold be measured? A threshold could also become an unintended barrier for growth, as companies could choose not to grow in order to avoid more onerous regulation.

However, some simple measures could be taken to ease the burden of regulation for SMEs, such as reducing the frequency of detailed demands on reports etc. Legislation on quarterly reporting could be amended so that SMEs may opt to report quarterly if they wish so, but the mandatory requirement would be reduced to reporting two or three (every six or four months) times a year. Overall, some of the requirements of the Transparency Directive reduce the attractiveness of regulated markets for SMEs, with problems often arising from gold-plating at national level. Small listed companies understand the importance of transparency and shareholder information. The key issue is how much and how often information should be given.

Eurochambres does not support binding EU measures for unlisted companies. In some countries the mandatory regulations for non-listed companies are already quite detailed. The only acceptable EU measures could be recommendations drawing Member States’ attention to the importance of promoting good corporate governance for unlisted companies and/or a voluntary code. Unlisted companies are a very heterogeneous group, and national company law regimes differ considerably. It is thus inappropriate to create a set of detailed EU level rules.

Full position paper

© Eurochambres