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Brussels, 19 July 2007

Corporate governance: Commission reports on application of EU recommendations on directors' pay and independence

The European Commission has published two reports on Member States' application of EU recommendations on company directors' pay and independence. Both reports conclude that the application of corporate governance standards has improved, but some weaknesses remain. The report on directors' remuneration shows that transparency standards are widely followed, but in some Member States it is still not recommended that shareholders vote on this issue. The report on the role of independent non-executive directors finds that there is a real progress in improving governance standards in this field, but some of the recommended standards have not been followed in all Member States. For example, in some Member States a former Chief Executive Officer (CEO) of a company can still become its chairman without any cooling off period. This undermines the independence of non-executive supervision. Also, some Member States do not recommend a sufficient number of independent board members in remuneration and audit committees.

Internal Market and Services Commissioner Charlie McCreevy said: "Directors’ remuneration matters greatly to a company. The level of managers' pay may have a significant impact on whether the company can recruit and retain directors having the qualities required to run the company efficiently. However, remuneration is also an area of potential conflict of interest with shareholders, and therefore they could expect a greater say in this matter. Only a few Member States have recommended this. I invite the others to call for a greater involvement of shareholders in setting remuneration criteria. Where independent directors are concerned, I am pleased to see a clear move towards stronger corporate governance requirements and improved transparency. But there is still room for improvement as regards appointing former CEOs to the position of the non-executive chairman and further reinforcing independent control over executive pay and the company's accounts. Good governance is essential for our companies and our economy. I encourage those countries lagging behind to speed up."

Report on directors' remuneration

Remuneration is one of the main areas of potential conflicts of interest for executive directors. Excessive remuneration has also emerged as a prominent feature in many corporate fraud scandals. The Commission's 2004 Recommendation on directors' remuneration (IP/04/1183) provides for high standards of disclosure on this issue and recommends greater involvement of shareholders in the decisions relating to remuneration.

The Commission has now issued a report on how Member States apply the recommended standards, which finds widespread disclosure of remuneration, but some reluctance to involve shareholders fully in the decision over remuneration policy.

Report on independent non-executive directors

The Commission's 2004 Recommendation on the role of non-executive or supervisory directors and on supervisory board committees (IP/04/1182) aims at improving shareholders' control over executive management by reinforcing the presence of independent directors on boards and board committees. The Commission has now published a report on how Member States apply the recommended standards, which finds that a majority of Member states comply to a large extent with the recommendations, but some weaknesses remain.

The reports are available at:

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