1. Corporate governance in Europe: recent evolutions Isabelle Corbisier – University of Luxembourg and HEC-Ulg April 22nd, 2015

2. From harmonization to marketization
European company law: evolution from harmonization to marketization

3. From harmonization to marketization
Ordoliberalism (between social liberalism and neoliberalism) as one the economic foundations of the Treaty of Rome: contrary to neoliberalism, premised on the promotion of deregulation, ordoliberalism promotes the role of (state) regulation as there are no such things as “pure” competition or markets functioning on a premise of “perfect” equality

4. From harmonization to marketization
As a result European company law was, in its vision prevailing in the sixties-seventies, one of the most extensively harmonized fields of European law. The idea was to prevent a “Delaware in Europe” (a “race to the top” rather than a “race to the bottom”): adoption of directives in various fields mostly for public limited liability companies (formation, capital requirements, mergers and divisions, accounting directives etc.). A “stakeholder approach” was adopted with attention devoted to the involvement of employees

5. From harmonization to marketization
Three decades later (Bolkenstein declaration, 2003) the focus of European company law had shifted to neoliberalism and “shareholder democracy” (takeovers directive from 2004 and shareholders rights directive from 2007). During the same period the Court of the European Union had undergone a similar evolution : from the “Daily Mail” case (1988) – not favourable to a company’s mobility - to the “Vale” case (2012), rather favourable to such mobility. Directives and regulations have become increasingly optional. Self-regulation and co-regulation are promoted in line with a crisis of legitimacy affecting the European authorities. A “shareholder approach” was adopted and attention given to the involvement of employees was pushed to the margin. The Commission’s Company Law Action Plan (2003) is seen as exemplifying such approach

6. From harmonization to marketization
Explanation : influence of neoliberalism enhanced by the UK’s EU membership in the early seventies, relayed by “Reganomics” and “Thatcherism” in the late seventies
But problems with self or co-regulation: representativity, power asymmetries of participants, determination of the interest(s) promoted, poor perception of the differences between the actors involved, reduction of the role of government to being a mere actor among others… Also “soft law” works better in some jurisdictions (UK) than in others (France and other “civil code” jurisdictions)

7. Financial and corporate governance crisis
The financial crisis = a crisis of the “invisible hand” of the market coupled with a crisis of the “visible hand” of (corporate) management

8. Financial and corporate governance crisis
Financial crisis: a credit crisis, subprime lending, securitization. Crisis spread to the whole planet as a result of the globalization of financial markets. Deregulation of corporate governance (casino capitalism). Credit crunch and, later, crisis of the European debt. Efficient market hypothesis cannot be sustained. Perception that the US-British market-oriented approach led to the financial crisis

9. Financial and corporate governance crisis
Corporate governance crisis: induced by shareholder primacy leading to short-term profit maximization, a system of remuneration promoting management focused on financial maximization rather than a management striving for the best interest of the company. Deregulation, speculation, short-termism
In Europe the De Larosière Report (of 25 February 2009) declared corporate governance as “one of the most important failures of the present crisis” (

10. Financial and corporate governance crisis
A response to the crisis: finding ways in order to encourage shareholders in expressing their “voice” within companies with a view on their long term interest rather than opting for an “exit” strategy fueled by short-term financial concerns

11. Subsequent European efforts in the field of corporate governance
Subsequent European efforts in the field of corporate governance, culminating in the Commission’s new Company Law Action Plan (2012) and what follows :

12. Recommendation on remuneration of directors (2009)
1) New Commission Recommendation on the remuneration of directors of listed companies (30 April 2009) (
- remuneration should promote long-term viability
- transparency on the structure of remunerations
- role of remuneration committee should be fostered
- shareholders should approve remuneration policies

13. Report of the reflection group (2011)
2) Report of the Reflection Group On the Future of EU Company Law (5 April 2011) (
Financial short-termism in management is identified as the main problem. Long-term shareholders should be encouraged and institutional investors should be driven in that direction. Management stability (staggered boards) should be encouraged. The role of independent directors should be further analyzed. Neutrality towards employee involvement

14. Report of the reflection group (2011)
This group’s work was also the inspiration of a proposed directive on single-member private limited companies (“SUP”) from April 2014 ( a recognition of the role of SMEs to the prosperity of the European economy (SMEs = 99% of Europe’s enterprises and 2/3 of the jobs). Objectives: fostering cross-border activities of SMEs (and accidentally also of bigger companies) by facilitating the constitution of subsidiaries abroad that will : enjoy the possibility to separate real seat and statutory seat, have a capital limited to one euro (counterbalanced by a solvency test and obligations imposed on managers re the distribution of dividends)

15. Green Paper on the « EU corporate governance framework » (2011)
3) Commission Green Paper on “The EU corporate governance framework” (5 April 2011) and feedback received The Commission focuses on three main issues:

16. Green Paper on the « EU corporate governance framework » (2011)
- structure and functioning of the board of directors: should the role of the chairman and of the CEO be clearly separated?; shouldn’t a greater professional and gender diversity be promoted within the board?; shouldn’t be better information be provided on remuneration policies and shouldn’t there be a shareholder vote on remuneration policy?; should the remuneration report be made compulsory?; should the board be more closely involved with risk policy?

17. Green Paper on the « EU corporate governance framework » (2011)
- shareholders’ role in making management accountable: identification of legal provisions that might foster short-termism; asset managers and their control by institutional investors; means to promote a better cooperation between shareholders; transparency of proxy advisors policies; should there be a mechanism for the identification of shareholders?; should minority shareholders’ protection be reinforced; should employees’ involvement be promoted?

18. Green Paper on the « EU corporate governance framework » (2011)
- effectiveness of the “comply or explain” principle in corporate governance codes: should companies be forced to provide more detailed information when they depart from CGC provision and should financial market authorities be enabled to control this information and eventually request more?

19. Green Paper on the « EU corporate governance framework » (2011)
The responses of the interested parties to the Commission Green Paper (November 2011:
Rather mixed:
- seen with favor: information on board diversity; transparency on remuneration policies, board involvement in risk management, greater information at implementation of the “comply or explain” principle
- seen with disfavor: measures bearing on the structure of the board; further minority shareholder protection; “say on pay” given to the shareholders; powers allocated to financial market authorities at implementation of the “comply or explain” principle

20. Green Paper on the « EU corporate governance framework » (2011)
The European Parliament (March 2012, expressed discontent as to the Commission’s alleged lack of regard for the other stakeholders involved in the enterprise and as to the Commission’s alleged excessive focus on competitiveness to the detriment of a long-term perspective

21. Communication on CSR (2011)
4) Commission Communication on “A renewed EU strategy for Corporate Social Responsibility” (25 October 2011) (
Context:
CSR is largely perceived as an antidote to the “age of greed”. Nowadays one trend in that field consists into developing standards (ISO and ISO 26000, for instance)

22. Communication on CSR (2011)
CSR consists in a management conduct reducing negative and enhancing positive externalities in pursuance of transnational standards of ethical conduct. As a result CSR is not to be reduced with mere compliance to existing legal rules Main problems: embeddedness of CSR vs Universalism of market (shareholder) approach. Greenwashing

23. Communication on CSR (2011)
A new definition of CSR : ““the responsibility of enterprises for their impacts on society”. Respect for applicable legislation, and for collective agreements between social partners, is a prerequisite for meeting that responsibility. To fully meet their corporate social responsibility, enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders, with the aim of:
– maximising the creation of shared value for their owners/shareholders and for their other stakeholders and society at large;
– identifying, preventing and mitigating their possible adverse impacts.
The complexity of that process will depend on factors such as the size of the enterprise and the nature of its operations”

24. Communication on CSR (2011)
A new approach rather than merely self-regulatory? Not really as the Commission continues to insist on the voluntary aspect of a CSR-driven approach. Competitiveness remains the Commission’s primary concern
Link to follow up on that topic: (a public consultation was launched on that topic)

25. Consultation on the future of European Company Law (2012)
5) Commission Consultation on the future of European company law (February 2012) ( Feedback received in July 2012 (problem of representativity): - divided between the promoters of competitiveness and companies’ mobility and the proponents of a long-term stakeholder-approach - should be ameliorated: rules on transparency, branches and cross-border mergers. To be further harmonized: rules on transfer of the seat, bankruptcy, conflict of laws rules and protection of employees. Would also be deemed useful: a statute for mutualities, a system of shareholders’ identification and rules relating to the liability of directors

26. Consultation on the future of European Company Law (2012)
- participants are in favour of the distinction listed-non listed to replace the distinction public-private as the dividing regulatory line in European company law - relating to the SPE proposal (a European private limited liability company): most respondents are in favour of the continuing exploration of such statute with, however, some reluctance from the employees’ representatives. Finally the Commission abandoned the SPE proposed regulation in 2013 and adopted the proposed SUP directive (see above) in 2014

27. Consultation on the future of European Company Law (2012)
- respondents are in favour of the adoption of rules relating to the transfer of the seat and a majority of them approve the possibility of the decoupling of the real seat and of the statutory seat (but some members remain against that idea, like Germany, for instance) - some ameliorations should be brought to the rules governing cross-border mergers and rules on cross- border divisions should be adopted

28. Consultation on the future of European Company Law (2012)
- some transparency should be promoted within groups of a company and an “interest of the group” should be recognized. To be noted : the Commission’s “SUP” proposal would be some recognition of the kind as the sole shareholder will be given the possibility to give binding instruction to the SUP’s management - a majority of the respondents is not in favour of a new revision of the rules relating to the protection or maintaining of the capital It was on the basis of this feedback that the Commission will prepare its new Company Law Action Plan (see below)

29. New Company Law Action Plan (2012)
6) The Commission new Company Law Action Plan (12 December 2012): “Action Plan: European company law and corporate governance - a modern legal framework for more engaged shareholders and sustainable companies” ( lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0740:FIN:EN:PDF)

30. New Company Law Action Plan (2012)
Three main orientations: enhancing transparency, engaging shareholders and supporting companies’ growth and their competitiveness. These orientations reveal that the Commission is still mainly concerned with the needs of the market (transparency, competitiveness) and shareholder-oriented (engaging shareholders)

31. New Company Law Action Plan (2012)
As to transparency:

32. New Company Law Action Plan (2012)
- the Commission will propose a modification to the accounting directive, introducing new transparency rules as to board diversity and risk management. This was achieved with Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups ( applicable to listed companies and, for some of its provisions, “public-interest entities” (listed companies, financial institutions, insurance companies…)

33. New Company Law Action Plan (2012)
- the Commission will come up with an initiative (possibly a recommendation) enhancing transparency when implementing the “comply or explain” principle. This was achieved with Commission Recommendation of 9 April 2014 on the quality of corporate governance reporting ( ‘comply or explain’ ) (

34. New Company Law Action Plan (2012)
- the Commission will come up with an initiative relating to the identification of shareholders. This is to be achieved through the proposed modification of the shareholders rights directive from 2007 (Proposal amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement of April chapter Ia

35. New Company Law Action Plan (2012)
- providing information as to the voting policies of institutional investors, asset managers and proxy advisors in order to encourage their implication in the enterprise. See chapter Ib of the proposed amended shareholders rights directive

36. New Company Law Action Plan (2012)
As to shareholders engaging:

37. New Company Law Action Plan (2012)
- the Commission will enhance transparency concerning remuneration policies and individual remuneration and will grant a shareholder’s vote on remuneration policy and remuneration report. See art. 9a and 9b of the proposed amended shareholders rights directive - the Commission will reinforce shareholders’ control on transactions between related parties. See art. 9c of the proposed amended shareholders rights directive - the Commission will regulate proxy advisors and provide for conflicts of interests rules. See Chapter Ib of the proposed amended shareholders rights directive

38. New Company Law Action Plan (2012)
as the rules relating to “acting in concert” discourage cooperation between shareholders, the Commission will strive towards more legal certainty in that field. In 2013 the European Securities and Markets Authority (ESMA) has published a statement on practices governed by the Takeover Bid Directive (TBD), focused on shareholder cooperation issues relating to acting in concert and the appointment of board members ( shareholder-cooperation-takeover-situations)

39. New Company Law Action Plan (2012)
as to the employees: the Commission will encourage their participation in the company’s capital. See the Study on the Promotion of Employee ownership and Participation (Oct. 2014, dg-markt_en.pdf)

40. New Company Law Action Plan (2012)
As to supporting companies’ growth and their competitiveness:

41. New Company Law Action Plan (2012)
- the Commission is still hesitant about a regulation relating to the transfer of the seat and deems more study to be necessary on that topic. In 2013 the Commission launched a consultation on that topic ( transfer/index_en.htm). For instance the proposed “SUP” directive does not contain rules on the topic

42. New Company Law Action Plan (2012)
- the Commission will focus on the amelioration of the rules relating to cross-border mergers and consider the adoption of rules relating to cross-border divisions. Recently the Commission launched a public consultation on cross-border mergers and divisions (closed in January 2015): divisions/index_en.htm

43. New Company Law Action Plan (2012)
- the Commission will promote the existing European entities (SE, SCE) but is not considering changes to their statute - the Commission will take an initiative relating to the amelioration of information within groups of companies and the recognition of an “interest of the group”

44. New Company Law Action Plan (2012)
The conclusion of the Commission is the following: “The initiatives in the area of corporate governance do not aim at altering the current approach, but ensure, by encouraging proper interaction between companies, their shareholders and other stakeholders, that this approach becomes more efficient”.

45. Conclusion: the “enterprise” as a prisoner in an “iron cage”
Conclusion: the “enterprise” as a prisoner in an “iron cage”? Necessity of a new “shock”?