Brexit represents a waypoint in the trajectory of corporate governance and stewardship in both continental Europe and the UK, and it carries risks for investors, first and foremost the potential erosion of the rights and protections of minority shareholders.
The current corporate governance framework in the EU carries a strong UK influence, with the focus on regulation through transparency and disclosure, rather than prescriptive requirements. Due to UK influence, governance standards in Europe are largely framed through national codes (and not an EU federal governance code), with a soft-law “comply or explain” mechanism. This influence is reflected in the growing role of institutional investors throughout Europe, particularly through the development of stewardship codes in many markets to encourage responsible investment practices. The latest round of EU corporate governance legislation, the revised Shareholder Rights Directive, is important. This too suggests British “fingerprints” through the directive’s emphasis on investor governance and stewardship, voting on remuneration and facilitation of voting rights. The influence of the UK corporate governance model in Europe may continue to remain strong in a post-Brexit environment.
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