16 April 2013

FEE comments on corporate governance framework in the EU

FEE welcomes the EC's Action Plan and commends the EC’s efforts to create a modern and efficient company law and corporate governance framework in the EU.

FEE also refers to its response to:

1. The European Commission Green Paper on the EU Corporate Governance Framework;
2. The European Commission Public Consultation on Gender Imbalance in Corporate Board in the EU;
3. The European Commission Green Paper on Corporate Governance in Financial Institutions and Remuneration Policies;
4. The proposal for a Council Regulation on the Statute for a European Private Company;
5. The European Commission Consultation on the Future of European Company Law.

Corporate governance and also company law issues are of utmost importance as they are key factors in ensuring companies, capital markets and the economy as a whole function properly.

FEE agrees that a key part of corporate governance is effective risk management, and every board should commit to achieving this in a way which is aligned with the company’s risk profile and in line with the requirements of EU legislation.

While retaining the responsibility for the determination of the risk management arrangements, this monitoring process by the board can and should to some extent be based on the work done by its committees, especially the audit committee and the risk committee, if such committees have been established.

With regard to reporting, a significant amount of information on risk-related issues for companies is already available in the public domain, based on requirements in the Fourth Company Law Directive, and in IFRS, in particular in IAS 1 Presentation of Financial Statements and in IFRS 7 on Disclosures: Financial Instruments. Consideration should be given to the different needs of users of additional information on risk. If there is scope for additional reporting on risk for companies, given the needs of investors in particular, proportionality of its possible content, level of detail, length, etc. of the information should be addressed. Suitable criteria for this additional risk information would be a prerequisite for consistent, relevant and useful information. These considerations would be most relevant for industries with high risk business models, such as financial institutions and less, considering the information on risk already made available, for other companies.

FEE strongly supports the “comply or explain” principle as FEE believes that this principle remains appropriate and remains one of the cornerstones for the implementation of good corporate governance.

However, some improvements as to how the principle is applied in practice could be introduced, especially with regard to the quality and content of the explanations. This could be done by setting clearer criteria in a reporting framework that is proportionate to the size and complexity of the entity.

Press release

Comment letter

© FEE