The prospect of new regulation at the ownership end of corporate governance mechanisms in Europe is beginning to take shape.
The new Member of the European Commission responsible for Internal Market and Services, Michel Barnier, has recently been making increasingly clear his views on the future directon of regulation in response to criticism of the role of shareholders prior to the financial crisis.
Whilst the UK has moved first with the Walker Review and the consultation on a new Stewardship Code being conducted by the FRC, the French right-leaning UMP MEP whose ministerial portfolios have included European Affairs, Agriculture and Fisheries has also underlined the priorities from his perspective.
Speaking last month at a meeting of ECOFIN, the council of European Finance MInisters, he emphasised the need for stronger corporate governance, citing not just boards and independence, but also “the role of shareholders”. He further expanded on this at the beginning of this month at a lunch hosted by Business for New Europe, bringing the role of shareholders firmly into the meaning of the familiar “checks and balances” of corporate governance, whilst also showing support for the FSA approach to vetting non-executive board members of financial institutions to harness board competence.
The contribution to the debate brought by the Walker Review has clearly impressed Commissioner Barnier, who applauded the way the Review described the absence or inactivity of shareholders, before going on to underline that “we need shareholders to assume their responsibilities […] not only to look at making quick, short-term returns on their investment.”
Some concern on the part of asset owners, particularly pension funds, has been expressed. They don’t want an over-bearing set of regulations which they fear has the potential to stunt their returns at a time when the losses of recent years are still looming large on their balance sheets. Whilst the European Federation for Retirement Provision (EFRP) is promoting greater transparency and active ownership, Investment & Pensions Europe reports that the NAPF has sounded a more cautious note with one eye on the barriers that still persist and the threats that over-bearing regulation might represent.
Clearly, eyes are on the outcome of the Stewardship Code consultation, with its roots in the Walker Review, perhaps especially given the notion of better participation from foreign shareholders which the consultation raises and the ‘comply or explain’ approach which has been made use of with success in Europe already in other aspects of corporate governance.