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Brussels, 23 June 2005

Corporate governance: European Forum makes progress on common approach to responsible company management

The European Corporate Governance Forum, which examines best practices in Member States in the field of corporate governance, held its second meeting in Brussels on 20 June 2005. The aim of the meeting was to discuss a number of current issues in the field, in particular shareholders’ rights and internal control.

Internal Market and Services Commissioner Charlie McCreevy said: “Sound corporate governance is vital for Europe’s capital markets and for the economy as a whole. So, I welcome the progress made in this second meeting and look forward to the Forum’s further work, which will help build consensus on some key issues in the area. I am delighted with the contribution the Forum is making and value greatly the high-level experience it brings to the table.”

The Forum drew the following conclusions:

Shareholders’ rights: the important role of the shareholder in the context of good corporate governance has to be emphasised. An appropriate balance has to be found between managerial entrepreneurship and shareholder control. This implies that a broad analysis be carried out on possible key powers of shareholders (such as their role in the nomination and dismissal of directors), the specific effects of large blocks of shareholders in one company and on the limits of the one share one vote concept. In this context, the Forum welcomed, furthermore, the consultation paper on the enhancement of shareholders’ rights that was recently published by the Commission (IP/05/561). It considered the facilitation of the cross-border exercise of shareholders’ voting rights as a crucial condition for rendering control by shareholders effective.

Bertrand Collomb, the Forum’s Spokesman said: “In the field of corporate governance a principle-based approach in general is the right way to give Member States and companies the flexibility they need. However, in order to enable the cross-border exercise of shareholder voting rights in a consistent and practical way a directive is needed and it should be as precise as necessary to make it happen.”

Internal control and risk management: in this area which aims at ensuring that companies manage their risks efficiently and safeguard shareholders’ investments the increase in disclosure requirements and the requirement to establish audit committees that will be introduced by the forthcoming modifications of the 4th, the 7th and the 8th Company Law Directives are viewed by most as important steps towards improving corporate governance. However, before any further legislative measures in this field are taken, there should be a careful examination of what lessons can be learnt from experience and how to strike the balance between the benefits of additional requirements and the costs and burdens that would result from these for companies.

At the next meeting of the Forum, which is planned for November 2005, the ‘comply-or-explain’ principle, which obliges companies to justify deviations from corporate governance codes they apply, will be discussed and the exchange of views on shareholders’ rights and internal control will be continued.

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