Brussels, 02/06/2010 (Agence Europe) - Although corporate governance was not directly responsible for the economic crisis, the European Commission believes that the lack of control contributed to excessive risk-taking by banks and other financial instructions and has therefore opened a period of reflection (until 1 September 2010) on corporate governance and pay policy in financial institutions. Unveiling the European Commission's Green Paper on Wednesday 2 June 2010, EU Internal Market Commissioner Michel Barnier said the financial crisis had shown that a lot of directors were unfit for purpose, as diplomats put it. The Green Paper looks are four areas - the role and powers of management boards; risk management; the role of external auditors; and the role of shareholders. The Commission will present a policy document after the summer break and this may lead to new legislation being unveiled early in 2011. A second Green Paper will be adopted early next year to examine corporate governance in companies listed on the stock exchange and private companies (not on the stock exchange).
To give boards of managers a greater role in financial institutions, the Commission is consulting stakeholders on the option of restricting the number of companies any one individual on a management board can work in to, for example, three, and the option of ensuring a diversity of advice. The idea of separating the jobs of Chair and Chief Executive Officer is also being mooted for financial bodies. When it comes to risk management, the Commission believes that the authority of the person responsible for risk management on a board has to be boosted and be put on a par with the financial director. A risk committee could be set up on management boards to make public statements about the financial institution's risk policy.
Pay and bonuses. The Commission will be looking at implementation of its two 2009 recommendations requiring publicly quoted company directors' pay to be linked to the company's performance (see EUROPE 9892). The Commission is examining whether to publish EU legislation in other areas, restricting stock options and golden parachutes, for example. (M.B. trans fl)