IRSG response to European Commission consultation on the EU Corporate Governance Framework

Published 22 Jul 2011

The IRSG recognises that effective corporate governance regimes are essential to well functioning capital markets which can fund growth and investment competitively. They provide confidence to investors and help ensure companies are run in the interests of their shareholders. This paper sets out the IRSG's response to the European Commission’s Green Paper on the EU Corporate Governance Framework.

In particular, the IRSG responses sets out the following two principles for corporate governance:

• We strongly support a corporate governance framework for the EU which is underpinned by national codes and comply or explain regimes which are underpinned by statute. We believe that such regimes are capable of securing higher levels of compliance than detailed and proscriptive legislation. It is however crucial that comply or explain regimes are genuinely effective and agree that there would be value in further work to identify, for example, how the quality of explanations might be improved.
• We agree with the Commission about the role of boards and the scope for corporate governance regimes to provide checks and balances on boards’ operations including the enhancement of skill sets and diversity and the breakdown of group think. We do not however believe that this can most effectively be achieved by the imposition at EU level of, for example, mandatory quotas. These would be entirely arbitrary and would be unable to take account of the specificity of individual circumstances. We strongly recommend to the Commission the approach adopted in the UK through the Corporate Governance Code and the Davies Report on women in boards.