The emerging European corporate governance model

Abstract

In the light of recent hefty corporate collapses around the world, the reform of corporate governance practices is topping governments' agendas across the globe. The European Union is no exception. In May 2003 the Commission issued a communication on 'Modernising Company Law and Enhancing Corporate Governance in the European Union - A Plan to Move Forward' with a view of upgrading corporate governance across Europe via the harmonisation of minimum standards of corporate governance practices. Following the controversy surrounding the Draft Fifth Directive, the 'Europeanization' of corporate governance practices will most certainly not be a painless task. Indeed, in endeavouring to harmonise corporate governance standards across the Community, Europe must take cognisance of the long-standing schism in corporate practices across Europe: the Anglo-Saxon versus Continental corporate governance model debate. Should Europe fail to do so, present efforts to establish a pan-European Corporate Governance model will certainly have the same fate as that of the Draft Fifth Directive. The question which arises therefore is what are the major characteristics of the emerging 'Europeanization' project? Is the Commission seeking to establish a hybrid model combining the 'best practices' from Anglo-Saxon and Continental corporate governance models? Or is it attempting to converge towards one of the two models? The forthcoming libertarian rule on board structure together with the recently adopted Recommendation on independent non-executive and supervisory directors indicate that the Commission is attempting to reach a compromise between the two competing corporate governance systems. Furthermore, the more modest approach taken towards employees' participatory rights indicates an awareness of the Anglo-Saxon's reluctant approach towards theconsideration of stakeholder interests while at the same time attempts to preserve some minimum standards of industrial democracy as prevalent in Continental jurisdictions. This attempt to establish a European 'hybrid' corporate governance model is further consolidated by the Commissions' emphasis on the 'external' control exercisable via a mandatory disclosure regime combined with its efforts to facilitate a direct 'internal' control through effective shareholder participation in the General Meeting. While it is still too early to state whether the emerging European Corporate Governance Model will be a truly 'hybrid' model, the Commission's proposals to set mandatory minimum corporate governance standards for all Member States will undoubtedly give rise to a lengthy political process whose outcome is difficult to predict at this stage.