Brussels, 6th October 2004
Corporate governance: Commission urges Member States to ensure a strong role for independent directors
The European Commission has formally invited Member States, through a Commission Recommendation, to reinforce the presence and role of independent non-executive directors on listed companies’ boards. Protecting shareholders, employees and the public against potential conflicts of interest, by an independent check on management decisions, is particularly important to restore confidence in financial markets after recent scandals. The Commission has also adopted a Recommendation on directors’ remuneration (see IP/04/1183).
Internal Market Commissioner Frits Bolkestein said: “There are groups within listed companies which sometimes have different interests – management, major shareholders, minority shareholders. There need to be ‘referees’. So boards should have a sufficient number of independent non-executive or supervisory directors who can nip potential conflicts of interest in the bud. Independent directors have a role to play both in companies with dispersed ownership, where managers need to be made accountable to weak shareholders, and in companies with controlling shareholders, where independent directors can help protect minority shareholders.”
The non-binding Recommendation concentrates on the role of non-executive or supervisory directors in key areas where executive or managing directors may have conflicts of interest. It includes minimum standards for the qualifications, commitment and independence of non-executive or supervisory directors.
The main principles in the Recommendation are:
The Recommendation is addressed to Member States. Since differing approaches to corporate governance are deeply rooted in national traditions, particular care has been taken to provide for maximum flexibility in the ways Member States can apply the principles in the Recommendation. The Recommendation takes account of efforts already made in Member States and aims by identifying best practices to foster convergence on these issues in the EU.
The Commission will closely monitor the application of this Recommendation to identify whether additional measures may be desirable in the medium term.
The full Recommendation is at: