Corporate Governance Issues: United States and the European Union

By Shu-Acquaye, Florence | Houston Journal of International Law, Spring 2007 | Go to article overview

Corporate Governance Issues: United States and the European Union


Shu-Acquaye, Florence, Houston Journal of International Law


  I. INTRODUCTION

 II. SOME GOVERNANCE ISSUES IN THE UNITED STATES: AN
     OVERVIEW OF THE CORPORATE BOARD OF DIRECTORS

III. THE SARBANES-OXLEY ACT AND ITS IMPLICATIONS
     ABROAD
     A. Corporate Auditing
     B. Provisions relating to CEO and CFO; Criminal Sanctions
     C. Audit Committee Independence
     D. Code of Ethics

 IV. CORPORATE TAKEOVERS, CONSTITUENCY STATUTES
     AND SHAREHOLDERS RIGHTS

  V. CONCLUSION

I. INTRODUCTION

While the exact definition of corporate governance should be specifically tailored to the requirements of each jurisdiction in which it is maintained, one concept utilized by both the United States and Europe is consistent: Corporate governance relates to some form of company "control." (1)

The European Union has very recently increased its list of member states from fifteen to twentyseven with the recent accession of Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Malta, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia; and, with a total population in excess of 450 million, it is certainly a force in corporate governance to reckon with. (2) It is in the interest of other powerful industrialized nations, such as the United States, to monitor trends set by the European Union and for the country's corporate practitioners and academicians to monitor the trends in corporate governance and their implication for the United States. Not surprisingly, the European Union has been doing just that with respect to corporate governance trends in the United States. For example, the European Commission (the Commission) in May 2003, responding to recent corporate governance crises depicted by Enron and its progeny and the enactment of the Sarbanes-Oxley Act of 2002 in the United States (SOX or the Act), "presented a proposed 'Action Plan for Moderni[z]ing Company law and Enhancing Corporate Governance in the EU'."(3) This plan refers to some of the same corporate governance challenges faced in the United States, relating to such things as management responsibilities, composition, and operation of the board and its committees, shareholders' rights and how they can be exercised, derivative suits, takeovers and mergers, public auditing and public confidence in the audit profession, a reference to a code on corporate governance designated for use at national level, and so forth. (4) The European Union and the United States have identified basically the same broad problems and goals in corporate governance (the importance of good corporate governance for the investors and the economy); (5) however, unlike the Sarbanes-Oxley Act, which imposes mandatory provisions for U.S. companies (through a one-size-fits-all approach), the corporate governance initiatives proposed in the E.U. Action Plan are not intended to be mandatory. (6) The European Commission stated "it d[id] not believe that a European Corporate Governance Code would offer significant added value but would simply add an additional layer between international principles and national codes." (7) The Commission, in conceding that "a self-regulatory market approach based on non-binding recommendations" would be futile as sound corporate governance, especially "[i]n view of the growing integration of European capital markets," adopted in the Action Plan a "common approach covering only certain essential rules[.]" (8) This is typical of the European approach to corporate governance: self-regulation through corporate governance codes, with public companies then required to disclose whether or not they are in compliance with such codes. (9)

Consequently, a comparison of some of the corporate issues in these two systems in light of recent laws and regulations may not only be beneficial in understanding how each system functions, but may also be helpful in drawing lessons from the potential strengths and weaknesses of each system, thereby fortifying global corporate governance principles. …

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