Corporate governance also contributes to the competitiveness of European business¸ because well run¸ sustainable companies are best placed to contribute to the ambitious growth targets set by ‘Agenda 2020’.
Corporate governance is one means to curb harmful short-termism and excessive risk-taking¸ thus the purpose of this Green Paper is to assess the effectiveness of the current corporate governance framework for European companies¸ which will eventually lead to the establishment of the White Paper.
Corporate governance is traditionally defined as the system by which companies are directed and controlled and as a set of relationships between a company’s management¸ its board¸ its shareholders and its stakeholders. Directive 2006/46/EC promoted their application by requiring that listed companies refer in their corporate governance statement to a code and that they report on their application of that code on a ‘comply or explain’ basis.
Financial institutions may be considered to be a specific case¸ because of the particular challenges faced in ensuring effective risk management and the systemic risks they may pose to the financial system. This clearly points out that the solutions set up in the June 2010 Green Paper may not be relevant to EU companies in general. The Green Paper of 2010 based good corporate governance on three subjects:
• The board of directors – high performing¸ effective boards are needed to challenge executive management.
• Shareholders – the corporate governance framework is built on the assumption that shareholders engage with companies and hold the managements to account for its performance.
• How to apply the ‘comply or explain’ approach which underpins the EU corporate governance framework.
Read more: MBB