Corporate Governance Audited: EBF's Spring 2001 Forum Sought to Answer the Question 'Is Corporate Governance Delivering Value?' Issues Covered Included the Independence and Structure of the Board, Transparency towards Stakeholders, and Different National Models of Governance. but What about the Key Role of Auditors?

Article excerpt

The times are over when we dared to say: "In God's good governance we trust." In recent years, the notion of corporate governance and the issues surrounding it have been reflected in the development of corporate law and boardroom practice. No half-decent article or conference paper can omit some mention of this concept, though the issues and conclusions vary depending on the country discussed. Germany's governance with its dual supervisory and management boards is different from the English approach which in turn can be distinguished from the American one (albeit that both have a unitary board structure).


In international discussions, cultural differences are easily discernible. The US, for example, is driven by the agency problem: the continuous fear that managers will steal from shareholders, which leads to the conviction that managers must be monitored to ensure that they do not invest badly. (It is nonetheless always surprising to see how much managers take home in America, with all its monitoring techniques: the sums would be unthinkable in Europe.) The European approach tends to view the corporation much more as a social entity: it functions under the assumption that managers are guided, at least to some extent, by corporate interests.

The corporate governance debate

The corporate governance debate, as exemplified by the lively contributions in Issue 5 of EBF (Spring 2001), is good for Europe: it offers an avenue for both boards and management to get used to responding to the increasing demands of the capital markets. For a long time, shareholders were given almost no consideration. However, those bringing the capital--people, after all, who can always put that money to different use--are not only being given recognition but also are finding themselves well received in boardrooms. In this respect, corporate governance may be viewed as offering acquaintance with the growing equity culture and as enabling the creation of a truly European capital market.

So far EU legislative efforts to harmonise corporation law have not succeeded in accomplishing much: the most relevant proposal in this area (calling for a fifth 'Council Directive on the Structure of Public Limited Companies and the Powers and Obligations of their Organs' (1)) got stuck, inter alia, on the issue of employee participation. Yet another stab at harmonisation, the statute of a Societas Europaea (SE), was revived at the Nice Summit in December 2000 (2). This will lead to further developments but whether the OECD Corporate Governance Principles concerning the role of stakeholders can be read as a recognition of employee participation still remains to be seen. Among other things, these principles provide that "the corporate governance framework should permit performance-enhancing mechanisms for stakeholder participation." (3) Examples of these 'mechanisms', elaborated in the commentary to the principles, include "employee representation on boards; employee stock ownership plans or other profit sharing mechanisms or governance processes that consider stakeholder viewpoints in certain key decisions." (4)

The recent debate about corporate governance has led to the publication of a large number of international reports and principles written by distinguished committees. In addition to the already mentioned OECD principles, some of the more renowned of these are the Cadbury report of 1992, with the accompanying Code of Best Practices; the English Greenbury and Hampel reports of 1995 and 1998; the French Rapports Vienot I and II of 1995 and 1999; the 'Statement on Corporate Governance' of the American Business Roundtable of 1997; the Millstein report of 1998; the proposed Berlin Initiative Group German Code of Corporate Governance (5); the Corporate Governance Principles of the European Association of Securities Dealers (EASD) (6); and, finally, the paper of the German Grundsatzkommission for corporate governance of spring 2000. …