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Published byEgbert Barber Modified over 9 years ago
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27th May 2005 Enforcing Corporate Governance Codes Eddy WYMEERSCH Prof. Univ. Ghent – ECGI Fellow Chairman of the Banking, Finance and Insurance Commission
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2 27th May 2005 Enforcing Corporate Governance Codes Whether and How Corporate Governance Codes are enforced – or have to be - is a real issue It is sufficient today? Who is doing the monitoring? What can be monitored: difference between formal requirements and substance?
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3 27th May 2005 Enforcing Corporate Governance Codes Who is doing the monitoring? What are the instruments for monitoring Disclosure “name and shame” Fines? Delisting? Company Law Sanctions?
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4 27th May 2005 Three cases Voluntary code: self regulation: most European Jurisdictions Voluntary Codes with legal backing: Germany, Netherlands; comparison U.K. Legally Mandated Rules: SOX, others? In most states: mix of the three Increasing transfer from Self Regulation to State Regulation Inappropriate for internal functioning of the board
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5 27th May 2005 Case 1 Voluntary Code No explicit legal basis - Not legally binding Primary responsibility of the Board Origin of the Code: St X’s, Business groups, Academics, Experts Market Pressure Effect on prices: controversial Monitoring by AGM, Proxy services, Specialized Ratings, Media, Public Opinion, Is it effective? In case of “scandal”: effective Not if governance is unsatisfactory, but formally largely compliant
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6 27th May 2005 Case 1 Voluntary Code (2) How improve? Private monitoring board: see Dutch Frijns Commission Public monitoring: Securities Supervisor? Difficult: public law to enforce private rules Conflict with existing powers What is to be monitored? Substance or Formal requirement How to monitor: disclosure? Fines? More?
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7 27th May 2005 Case 1 Voluntary Code (3) Legal remedies Liability for untrue statement: ex post instrument Adoption by General Meeting: could strengthen
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8 27th May 2005 Case 2 Voluntary Code with legal backing D + N Adhesion is legal obligation Liability Supervision Role of auditor Listing Conditions: UK Enforced by FSA on a risk based approach Fines; Delisting
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9 27th May 2005 Case 2 Voluntary Code with legal backing D + N (2) Is it efficient? In case of refusal to apply: yes? In case of weak implementation: no On substance: no
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10 27th May 2005 Case 3 Legally Mandated Code SOX - diverse provisions in all EU states Heavy, Costly but: back stop if self regulation does not work See German case on remuneration
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11 27th May 2005 Conclusion Dividing line between three cases is unclear + changing over time Enforcement: Preference for market led enforcement Facilitate: enforcement by shareholders Approval by Agm may strengthen Strengthen the role of the company’s internal monitoring (BoD; Agm)
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