30 June 2011

EBF: Sound corporate governance for a stable economy

The EBF concurs with the Commission's objective of improving corporate governance and risk governance through a focused approach as banks are subject to a range of corporate governance rules.

The European banking industry shares the European Commission’s goal of promoting effective corporate governance for financial institutions, and therefore supports the policy intent underlying the principles articulated in the Green Paper.

Moreover, the EBF's members remain convinced that effective governance can make a meaningful difference in corporate performance and confirm that they are already rising to that challenge. In this environment, boards are currently reviewing their practices and asking themselves relevant questions about opportunities to improve.

Multiple workstreams are underway or have already been implemented in different international bodies (OECD, FSB, Basel Committee, EU Commission, and CEBS) and at national level. The comparative tables presented in this document aim at showing that national rules/codes of conduct or arrangements already cover the vast majority of the issues addressed in the Commission’s Green Paper.

Given the differences in governance models and thereby inherent complexity as well as the many rules already existing at national, European and International level, the EBF continues to believe - as an overarching principle – that rules, regulations and guidance in the field of corporate governance should remain principle-based, balanced and adequately flexible (comply or explain principles) to reflect the different national structures and business models.

In addition, the principle of proportionality should be applied to enable banks (both large and small) to adapt the concrete application according to their legal form, size, nature, activities, markets, international or national focus, and complexity. Indeed, given those differences and variations the EBF fears that a one size fits all solution would just not be efficient or successful. The EBF therefore supports the acknowledgement by the Commission that the application of the various solutions should be proportionate and may vary according to the legal form, size, nature and complexity of the financial institution concerned.

Adopting such an approach would ensure that the guidance is relevant to the widest range of banking institutions as banking institutions around the world have significant differences in size, structure and environment. It would also allow corporate governance principles to function in an optimal manner.

Furthermore, the EBF believes that the banking industry should not be treated differently from other businesses regarding issues that are horizontal and not specific to the financial sector like the gender distribution in the board or other similar issues. Such differentiation would not be justifiable in their view. In particular, a cross-sector level playing field is required with regard to the provisions concerning: gender distribution in the board, limitation on the number of boards on which a director may sit, and prohibition of combining the functions of Chairman and Chief Executive Officer (CEO).

Full paper

© EBF