Reform of Corporate Governance in the EU

On 21 May 2003, the European Commission presented its long-awaited Communications on Enhancing Corporate Governance and the Reinforcing Statutory Audit in the EU. The Communications follow in the wake of the EC-sponsored studies on corporate governance in Europe, the problems with “America Inc.”, the adoption of the US Sarbanes-Oxley Act in July 2002, and the Winters II report. They contain a long series of legislative proposals and reforms (20 in total), and almost as many proposals for recommendations and further studies in these areas.
This Policy Brief criticises the European Commission’s proposal to mandate compliance with a local corporate governance code and to set minimum criteria for these codes. It argues that the European Commission missed an opportunity to set a European corporate governance code in the mid-1990s, and that much of the proposals are reactive to events and new legislation in the US. Europe should have highlighted the strength of its diversity, and emphasised that the basic elements of corporate governance are better controlled in the EU than they are in the US, rather than embarking on a complex harmonisation exercise.