Brussels, 30/07/2007 (Agence Europe) - Last week the European Commission published two reports on the application of two recommendations dating from 2004 for companies quoted on the stock exchange in the European Union, namely a recommendation on transparency concerning directors' pay and a recommendation on the independence of independent managers (see EUROPE 8799). Both reports note improvements in transparency along with shortcomings in specific areas. The Commission and the European Enterprise Governance Forum will continue to monitor developments in this domain.
Directors' pay. The first, non-binding, recommendation sets out recommended standards for quoted companies' directors pay policy, shareholders voting on the policy, the publication of individual pay details for directors and prior approval by shareholders of pay packages and share allocations. The first report notes that directors' pay is often seen as revealing the capacity of shareholders and boards (of managers or surveillance boards) to assess how the company is managed, explains the first report. Overall, the standards of transparency for information concerning pay policy, and the pay of individual directors, seems to be quite high in the Commission's opinion, but considerable progress still needs to be made. The Commission is disappointed that shareholders' voting on company pay policies does not seem to be properly implemented in most member states as only a third of the 21 member states covered in the report have actually introduced a recommendation to this effect.
'Remuneration is an area of potential conflict of interest with shareholders, and therefore they could expect a greater say in this matter. Only a few member states have recommended this,' commented EU Internal Market Commissioner Charlie McCreevy in a press release.
Independence of non-executive independent directors. The second recommendation aims to improve shareholder control of quoted company management bodies by suggesting that the role of company director and company surveillance board chairman or woman should be clearly separated. The presence of non-executive directors on management boards should be boosted, or special bodies should be created to manage conflicts of interest. The Commission notes that here too, most member states generally respect the recommendations but there are still some failings. Member states have mostly introduced the recommendations into their national enterprise governance codes, which companies have to abide by or otherwise explain why they have not abided by them. The Commission stresses the importance of the quality of information voluntarily supplied by companies in their own governance statements, and shareholders' ability to play a proactive role in defending their interests. (mb)