Welcome speech

André Roelants

Minister Frieden, ladies and gentlemen, it’s a great pleasure to welcome you to the second edition of the European Corporate Governance Conference. The Luxemburg Presidency of the Council of the European Union together with the Edmond Israel Foundation and the support of Price Waterhouse Coopers and the Luxemburg Stock Exchange is holding this conference here in Luxemburg to discuss the evolution of corporate governance practices and its implications. Like for the first edition and in accordance with our mission of promoting ideas to advance European thinking in the world, we will browse through a variety of themes addressing challenges of corporate governance in Europe. Four panels composed of prestigious representatives of the academic, political as well as the business world, are going to examine respectively the latest developments on course for different types of economic organisations, the statute of the European company in respect of corporate governance practices, the issue of golden shares, and the improvement of the rights of shareholders of companies across the Member States.

At this stage let me just mention a personal note, which is when we prepared this conference I was miles away to think that this corporate governance issue and the shareholder strike issue will apply to our group. So you have seen in the last development in the last months that despite the fact that we were convinced that we had an excellent corporate governance and that we made by the way a sort of self-assessment with the assistance of a specialised consultant, we have been caught with the only point, which was not on our list of what can go wrong. Now, we had a long list of all issues that we were looking at to mitigate these issues, so in the middle of this preparation it was a real case and a real experience to go through this situation.

During the day, we will have also four speakers, among others the European Union Commissioner for international market and services, Mr Charlie McCreevy , and they will talk about the European corporate governance action plan, the importance of stock exchange rules and practices in the adoption of norms of corporate governance, the objectives of the European Corporate Governance Forum, and they will share with us the conclusion at the end of this day. At the end of the day we will also officially inaugurate the Institute Luxemburg Administrator and I think that you are all invited to join us for this event.

But first of all, I should like to thank the Minister Luc Frieden, Minister of Justice, Minister of Treasury and Budget, and Minister of Defence of Luxemburg. He is going to deliver the opening speech, despite a very busy agenda during the last days of the Luxemburg presidency. Mr Frieden has studied law at the University at Luxemburg and at the university in Paris, in the Pont de yon Sorbonne, Paris A, and received in ’86 a Master of Business Law. In ’87 he became Master of Comparative Law and Legal Philosophy of the Cambridge University in the UK, and in ’88 a Master of Laws of the Arfar [?] Law School in the United States. During his stay in the United States he also followed different courses at John Federal Kennedy School of Government. From ’89 to ’98 he has been attorney at law in Luxemburg, that’s basically in ’89 we met for the first time in this context, but already during that period he started his political career being elected as a deputy, and at the age of 34, Luc Frieden became Minister of Justice, of Budget and of the Relations with the Parliament. He has also been in charge to coordinate the government work in relation to the introduction of the European common currency. After the last elections in June 2004, Luc Frieden became Minister of Justice, Minister of Treasury and Budget, and received as well the function of Minister of Defence. He is also the dean in the Jai Group for which the group at European level of Minister of Justice due to his already impressive career that he has developed over all these years. Mister Minister, we thank you for your support and commitment to this conference. Thank you.

Opening speech Minister Luc Frieden (revised section)

After welcoming the participants to the conference to Luxembourg both in French and in English, Minister Frieden made the following remarks:

The issue of corporate governance has been discussed in the United States already many years ago when I had the pleasure of studying there, as you referred to that a few minutes ago, so I’m sometimes surprised that this has become a topic in Europe only during the past few years, whereas in America, maybe in a little bit different form, it has been the topic of discussion for almost I would say 20 years. I think that a conference like this one is extremely important because it is about a topic that changes all the time and that needs to be adapted to a changing corporate world, and I think we have to ask ourselves, what are we looking for when we discuss corporate governance, why are we doing it, and how should we do it.

What are we looking for? I think what we are looking for is transparency and accountability. In fact, we are trying to introduce in the corporate world what we have for many years, for many decades, I would even say for many centuries, in the political world, what Americans refer to as checks and balances. This idea was not introduced in the same way in the corporate world, or maybe it was introduced but it was not applied with the same vigour than in the political world, and therefore I think it’s very good that we are now trying to find the right checks and balances between the various actors, be they managers, be they Board members, or be they shareholders. For once the corporate world can learn from the political world and I think that the concept that we have developed in the political world can be to some extent copied in the corporate world if we try to define clearly the powers of the various bodies that should be in charge of the corporations.

Again, like in the corporate world, these are concepts that must change over time and in these days when we discuss about the future of Europe, the concepts of accountability, of transparency with regard to the European institutions is also at the forefront of our political agenda, and thereby you see that the discussions that are being held now in the corporate world also come back in the political European world. We are looking for transparency and accountability because they are important in the capital markets of today. Why are we doing so? I think to achieve major objectives, and that is trust and responsibility. I think these are the two key words that we need to establish in the corporate world. We have to establish them not only because of some major financial scandals that occurred over the past few years in several countries, but because the corporate world has opened to many investors, not only to highly sophisticated professional investors, but to the citizens at large, and therefore it’s necessary that they keep the trust in the corporate world, and this trust can only be achieved if we have what I mentioned before, transparency and accountability, if we manage to bring into the corporate world more responsibility for those who exercise the powers in the corporate world and therefore the rules on corporate governance are so important.

If we want to achieve trust and responsibility, we have to ask ourselves how do we best achieve that objective. I think that it is not the role for governments to put forward the rules on corporate governance. I am very much in favour of self-regulation, and therefore I think that it’s very important that a conference like this takes place where people exchange views, that the industry itself, and maybe the various sectors of the industry try to define their own codes of corporate governance. It is only where this fails or where we have to ensure fair competition in the market that governments and parliaments should intervene, on the one hand to set up minimum rules, on the other hand to make sure that all the countries, especially in a globalised world, apply some kind of similar rules on corporate governance, and that’s why in some of the EU directives that we are currently discussing and that we have discussed during the Luxemburg Presidency of the Council of the European Union, we have included in such directives a certain number of rules on corporate governance.

I refer for instance to the fourth and seventh directives, which have made substantial progress during our presidency where we have found agreements on how there is a collective liability for the Board members and the managers when they publish the annual accounts, that corporations must include a declaration on corporate governance in their annual reports and so on and so forth, but I do think that we should not over-regulate. We have made big progress on some of these issues during our presidency, we have prepared the way for the British Presidency to conclude these discussions. Some of this needs to be finalised with discussions with the European Parliament, but I think we must be very careful that we do not over-regulate on these issues. That may come as a surprise to you from somebody who has been in government for many years, but I think that the corporate world is a world that knows that it depends on the trust of the investors, and therefore it is aware that it has to find itself the rules so that this trust can be achieved, and these rules can and must also be developed in Europe. I think that Europe has an important role to play, not only to copy what we see developing on the US side, but Europe can also establish a model code of corporate governance. It has to do so not via legislation, but by the industry, and I think there are examples which are very interesting which we can compare. It must not be a uniform code, but it should be a code where there are some minimal rules which are the result of exchange of good practices.

I do see for instance that the Luxemburg Stock Exchange is about to approve its first code of corporate governance. The Chairman of the Luxemburg Stock Exchange will probably talk about that later on today. I think this is a way that is a very positive way to embark on, and I hope that this conference will be a fruitful conference where at the end of the day we will see what we can do more in this very important area to make a better corporate world, a corporate world in which the citizens of our countries have trust. This is the first priority, and therefore you will have the support of the Luxemburg government, even after the presidency for this work, and we will closely work with our British friends. They have already announced that they will organise the third annual conference on corporate governance during their presidency. As I said, this is a topic that doesn’t end on one specific day, it’s a continuous dialogue that governments must have with the corporations and therefore I’m glad that you could assemble here today so many people from different countries to discuss this issue. So, I wish you on behalf of the Luxemburg government good luck for your conference and I look forward to seeing the results of this gathering. Thank you.

André Roelants

May I kindly invite Professor Becht and his panellists to join the panel? Not everyone knows Professor Becht. Professor Becht is professor of economics and finance at the University Libre de Bruxelles. He is a very, very important practitioner of our field of study being the Executive Director of the European Corporate Governance Institute in Brussels that so many of us are a member of and try to contribute to. Professor Beckt has studied in many countries, in the UK and Spain, and he’s certainly the best man to steer this first group of the day, where for once we are not going to compare total apples with other apples, we are not going to compare exactly listed companies in different countries, we are going to broaden our thinking and see together listed companies with cooperative firms, with investment firms, and with private equity, and see as an example to many of us how indeed market forces and wisdom can come to good regimes. Professor Beckt.

Latest development on codes for different types of economic organization (unrevised section)

Professor Becht

Meine Damen und Herren, guten morgen, signora e signores, buenos dias, now that I have paid homage to my mother and my wife, I shall continue in English. Good morning ladies and gentlemen. It’s a pleasure to be here, and I must tell you that sitting in the front here is rather intimidating. However, I hope that we will also lighten up during the course of the day. Now, let me take you, first of all introduce the panel to you, and then give you a short roadmap of what we’re going to do in this first panel session. Okay, so I’ll introduce the speakers in the order by which they’ll be speaking. We first of all have to my right Maurice Lippens, an extremely well known business personality, certainly in the Benelux countries, but also the Business Week ranked number six person. He is the Chairman of Fortis and he is also the Chairman of the Belgium Corporate Governance Commission. Now, the second speaker is going to be Dr Leuschner to my left. He is the CEO of the German Cooperative and Raiffeisen Confederation and former Partner of Price Waterhouse Coopers. The third speaker is going to be George Noel. He is the Director of Research and Public Affairs of the European Private Equity and Venture Capital Association in Brussels. The fourth speaker is going to be Jaap Winter to my right. He is a Partner with De Bauw Blackstone Westbroek a law firm in the Netherlands, and he is also the Chairman of the high level company, Law Experts Group, under former Commissioner Bolkeschtein, and he also, I note, keeps a foot in the academic world, which is very much appreciated.

Now, the plan is that we will have four presentations of – I insist – 10 minutes to 12 minutes each, and we are going to hear from Maurice Lippens about corporate governance, corporate governance code, the Belgium code. We are then as Patrick Zurstrassen has indicted moved to another corporate organisation. This is the idea to highlight one of the ideas that corporate governance is not just about corporations but also applies to other corporate entities, and Dr Leuschner is going to tell us about cooperative governance. We then move on to the intersection between investors and corporations, and that’s in the case of private equity, and that’s what George Noel will talk about. Now, George will also highlight that investors themselves have governance, so those active in governance also need governance, and he’s going to tell us about how the venture capital industries handle this. And then we move to Jaap, who is going to tell us about his latest proposals for Fund governance from the Netherlands. We have then spanned the chain from corporate governance, cooperative governance, equity firms in governance, and governance of private equity firms to the governance of mutual Funds, and then you will get to ask questions. And with this is stop and invite Maurice Lippens to take the floor.

Maurice Lippens

Ladies and gentlemen, I am a chairman. I have seen that I am the only chairman on the panels of today. Chairmen as you know are these creatures who are seen roaming around in boardrooms, and they have a tendency to waffle a lot about corporate governance. So, with great delight I am going to be doing this today. I am very proud to sit on this panel and allowed to do this for free. More precisely, I am very grateful to the organisers of the conference to give me the opportunity to introduce to you our Belgium experience in codes on corporate governance. Belgium is not the most important country of Europe, except for the Belgians of course, even in the world, but in Belgium we have one of the last codes which has been produced, and it’s maybe interesting to see in such a complex little country like Belgium how we achieve to get a code.

As you may know, in 2004 I had the honour, maybe dubious honour, to become the Chairman of the Commission that was to develop corporate governance code for Belgium, and for Belgium listed companies. So, for me this is an opportunity to share with you the experience we went through to establish this code, but before doing that, I think I have to step back a little bit and look at the development of corporate governance in Belgium and this over the last decade. Now, in 1996 the Belgium business world and academic circles were hugely impressed by the Cadbury Code, so ’96 they took the initiative to launch the Belgium Directors Institute with the mission to develop good corporate governance practices in Belgium, not totally impossible but quite a mission. One year later this Institute made the first national enquiry on corporate governance practices in listed and non-listed companies, and this study revealed a huge diversity of governance structures, practices in Belgium, the typical shareholding structure of a Belgium listed company, and it’s governance challenges were incredibly different from those of the average UK company which were used as the reference base for corporate governance recommendations. The large bulk of family businesses were in – to say the least – dire need of more adapted governance mechanisms.

So what did we do in 1988? We developed no less than three separate corporate governance recommendations for listed companies. Small country, lots of governance going on there. We had the Federation of Employers, we had the Bank Commission and we had the Stock Exchange each coming out with their special brand of corporate governance, and even the Federation of Employers started talking about a corporate governance code for non-listed companies, so total disarray, confusion, chaos, from which the light and spark comes out with a commission much later in 2004 to have one corporate governance code. The European Action Plan of May 2003 as you all know stated that it was the responsibility of each individual EU Member State to designate a code of reference with which listed companies are asked to comply, or in relation to which they are asked to explain so-called deviations. Now, with this in mind, the three suspects of the three different corporate governance codes of ’98 worked at last together. So we have here next the Employers Federation and the Banking Financial Insurance Commission, i.e. the regulator, took a joint initiative to form one Corporate Governance Commission with representatives from the business community, the financial market authorities, as well as corporate governance experts, amongst which of course, Professor Marco Becht.

The task we took on was to draw up the so-called code of best practices, which had to supersede and replace the three codes of ’98, and they requested me to chair and I said it was a request to chair that commission, it was comply and do not explain or complain. So, I did what I could with difficult people like the guy behind me here. Now, since many European companies had already developed up to date regulations on corporate governance codes, we were faced with good news and bad news. The bad news was we were one of the last ones in Europe to establish a code. The good news was that the Commission could build on the work done internationally, so we didn’t have to reinvent the wheel every day, and in this respect the Commission and its working group could benefit first from the valuable database of codes on corporate governance available at the European Corporate Governance Institute, then we had the three Belgium codes, we also had the Belgium law on companies from the second source of reference, and we had an enquiry at the Belgium Director’s Institute and Employer’s Federation, which was a third touchstone.

With all these instruments in hand, the Commission succeeded in our mission to deliver a proposal for a code by June 18th 2004. Then we went through a very interesting, very democratic process, which was to have a public consultation on the website for the next three months. This was very, very rewarding, very enriching, and finally we had a code published on the 9th of December 2004, which was quite an event because as you know in Belgium we speak French and Flemish, which is not double Dutch but not Dutch either, and we had to have one code also in English.

Now, as I only have ten minutes, I will not have the time to go through the whole code, and I will just give you maybe two major pillars of the philosophy which was underlying what they now call the Lippens Code. One pillar is that corporate governance should foster performance as well as conformance, and the second pillar was that we had to align our proposal on the international corporate governance recommendations while respecting the need for tailoring and flexibility adapted to the specificities in Belgium. So the first pillar, conformance as well as performance – the corporate scandals, which was one of the drivers behind the numerous international recommendations and legislations, unfortunately also on corporate governance, put the need for monitoring and control right in the limelight. Notwithstanding the importance of this monitoring world, the Belgium code has emphasised the importance of a good balance between conformance and performance. While conformance must be achieved through control systems, transparency, accountability and integrity, performance needs direction and stewardship and entrepreneurial monitoring.

The code recommends that processes and structures should be in place in order to create value, and that the more risky and challenging a business environment may become, the more developed and proactive the appropriate governance model must be. Such governance can also become a mechanism for direction and for change leadership, but at the same time the code highlights the need for sufficient monitoring and risk management. Here the emphasis is very clearly on monitoring in such a way that robust control systems are effectively in place, but also that potential conflicts of interest are managed. Such conflicts of interest will be substantially different from one corporate governance model to the other, therefore the code opts for flexibility and adaptability of the best practices to find the best fit with the challenges faced.

Second pillar is aiming at an international level of corporate governance while respecting the need for flexibility due to the Belgium situation. From the very beginning it was the ambition of the Corporate Governance Commission to develop a code that could match the highest international standards of corporate governance, but the Commission was aware of the great diversity in corporate governance practices and challenges in Belgium, so it was vital that the code became not only the reference base for all companies involved, but they should also be able to develop their corporate governance structures and processes bearing in mind the specific challenges posed by several key elements such as size, state of development, shareholder structure, complexity of the risks associated with the activities, and their management practices. Smaller listed companies, and particularly those new to listing, may judge that some of the provisions were disproportionate or less relevant in their case and will have to evolve. Also holding companies, investment companies, may need a typically different Board structure and representation structure, which may affect the relevance of particular provisions.

Now, strict laws and regulations can never offer a sufficient level of flexibility for a rather heterogeneous set of listed companies, just like Minister Frieden was saying, as little laws and regulations as possible as each company is faced with specific challenges, risks and change drivers. So the code opted very clearly for the compliance plain approach as this offers, in our view, also the optimum combination of high standards and sufficient flexibility, and this would have been suggested, as everybody knows, by the European Commission and is used in numerous other Member States.

Now, I think time must be running out and I assume that you have all been reading with great attention on your website the finest points of deliverance code, so I will not go through the details of our code. But in any case, as I have stated before, we really are a summary of the best codes we could find and sub parts of codes which were written before our code. You will have noticed while the Belgium code, while totally superb of course, is not essentially very different from other codes, but I would like to illustrate just one point of illustration, and of course there may be questions afterwards, of how we deal with some Belgium specificities. The Belgium code recommends that in audit committees – this is just an example – where UK and Dutch companies recommend that all members be independent in an audit committee, we had to bear in mind that more than 80% of the Belgium listed companies are governed by either controlling or reference share hold of families or controlling companies. Thus, we recommended that at least – as we said – at least the majority of audit committee members should be independent so that the very strong presence of shareholders in the Belgium framework had to be present also in the audit committees, only one way, and there have been several in the same vein of how we took into account Belgium specificities.

Now we go to monitoring the compliance of the Belgium companies with the standards laid down in the code, and this is only possible if the right mix of outside and inside monitoring is respected. This code cannot rely on external monitoring and market regulation only. Indeed, most Belgium listed companies are controlled by – as I said – one major shareholder, while the remaining, quote unquote, outside shareholders are seldom international or national so-called activists, hence this code opts for a combination of internal monitoring by the Board of directors and major shareholders, and outside monitoring by the other shareholders and external supervisors, as the Bank Commission in Belgium.

In order to facilitate external monitoring, the companies are asked to give – just like in many other quotes – adequate disclosure of their corporate governance and two directors, the corporate governance charter published on the company’s website, which describes the main aspects of its corporate governance policy and procedures, and the corporate governance chapter in the annual report, which describes all relevant corporate governance events that took place during the year under review, and give an update of the relevant changes that took place in the corporate governance charter.

Now, numerous efforts have been developed to promote the code. Beside its website information and presentations to the media, the Commission took the initiative to organise many public information sessions to present respectively the draft code and then the final code. The code has been distributed to a large audience of companies, business organisations, lawyers, accountants and the political world. The Commission has also been invited to take part in several hearings in Parliament, and there ladies and gentlemen, disaster nearly struck. We have discovered that most politicians are politicians, know very little about business, had the most incredible questions about what we were doing, had no understanding and no will to understand. Obviously corporate governance does not bring in many votes except on the subject of remuneration as we had a beautiful scandal in Belgium on some very greedy CEOs and Chairmen. The politicians were looking for vengeance and wanted to write laws without knowing what they were writing laws about. We have a major problem there, but of course we will try and deal with it.

We also had economic, political, private seminars. We’ve been doing the whole job of trying to explain to the Belgium community what we were doing. One major element has gone through, and I think that is the success that wherever one speaks about the Lippens code, there’s nobody who says is this a good code? It is more how will we make it work, and we have the feeling that I’d say 90% of the listed companies are hugely in favour and are working on the way to make it work. We are aware there are other challenges in front of us, amongst others to further the implementation of the code and monitor the implementation of the code and to organise follow up. I won’t get into that now. I’ve managed this in nearly ten minutes, I haven’t had any prodding from Marco Beckt, thank you ladies and gentlemen for bearing with me. Thank you.

Maurice Lippens

Mr Roelants, Professor Becht, ladies and gentlemen, thank you first of all for the invitation to speak to the second European Corporate Governance Conference. I am glad to have the opportunity to explain in ten minutes – I hope so – the main governance structures of the cooperatives in Germany. The German Cooperative and Raiffeisen Confederation is a national apex organisation of the German cooperatives, a market with more than 16 million members, nearly 12,000 cooperatives, which are divided up into 4 divisions, cooperative banks, agricultural cooperative, consumer cooperatives and commercial group cooperatives. I divided up my statement into three main topics. First of all, why we need a special co-op for governments of cooperatives, what are the main elements of the corporate governance code for cooperatives, and a short statement of the perspectives of cooperatives.

Let me start with the need. The legal and the cooperative form of a registered cooperative has its own character. The cooperatives are well known in the so-called middle market, and the cooperatives’ main aim is to help small and medium sized enterprises and people to bundle the interest and to strengthen the power in the competition against multi national companies. There are three major differences between a cooperative and a stock company.

Cooperative shareholders, they are called members, are not external stakeholders of the company. The owners of a cooperative, the members, are members and customers in one person of the enterprise, so you can see that the first thing that there is maybe no conflict. The second, the Board of Directors and the Supervisory Board of a cooperative must consider the member’s interests in services rendered by the cooperative. So, the cooperative cannot only concentrate on greater corporate value, and then we have a special audit carried out by a responsible cooperative audit organisation.

Cooperatives have a long tradition of corporate governance. The main instruments are the Cooperative Act and the model bylaws. Therefore, we think that a governance code for a cooperative is an additional instrument to summarise and explain to the public the main elements of governance in cooperatives. Our members are directly involved in the cooperative governance process, that’s the reason why we don’t need a code in the form of comply and explain. Let me now explain to you the main elements of the code.

In the preamble of the cooperative governance code for cooperatives, we explain the purpose of the codes and define the type of cooperatives it applies to, for example primary cooperatives with the focus on capital markets, including credit cooperatives. In addition, the preamble clarifies once more that the code defines the rights of cooperative members in connection with the cooperative mandate of providing benefits to its members. The term members alone describes the fundamental difference between a registered corp. and a stock company, while stockholders are in the main time, at least in large public corporations are external third parties, cooperatives members are part of the enterprise. This in principal, each member has one vote. This is to ensure that the most homogenous cooperative structure possible consisting of many members with equal rights. On the part of cooperatives consisting of rule and small-scale businesses, there is an urgent need to introduce multiple voting rights because the member structure is not homogenous any longer.

However, multiple voting rights are to be introduced only for those cooperatives whose membership consists of a minimum of 75% business people and who hold the membership in their business function. This measure of flexibility will accommodate the most diverse member interests under the legal firm of a registered cooperative. In a cooperative, the general meeting itself approves the annual financial statement and subsequently decides on how to use annual net profits. This is quite different from a stock company where stockholders only decide on how profits are to be used. In Germany, we have a two Board system, the Board of Directors responsible for the business and the Supervisory Board reviewing the Board of Directors and the business model. The Board of Directors and Supervisory Board are closely cooperative for the benefit of the enterprise. In addition, they pay attention to member’s interests, and are accountable to their members.

Participatory rights of the Supervisory Board may be provided by the bylaws. Two differences compare to stock companies are noteworthy. First, this decision can only be taken by the general meeting and not by the Supervisor Board itself because it is a prerogative of the general meeting to amend the bylaws. The second difference is the Supervisory Board may not only be granted rights of final consequence, but more extensive participatory rights. This greatly reinforces the role of the Supervisory Board, which may become more involved in the decision making process without limiting managerial autonomy of the Board of Directors. A major project such as the purchase of scale of real property, acquisition or disposal, and the inclusion of profit participation, capital requires a decision by the Supervisory Board according to the model bylaws, otherwise the application concerned is dismissed. The hostile takeover of cooperatives is not possible due to the voting rules.

Then we have special laws regarding loans to Board members and their dependents. This requires the approval of the Supervisor Board according to the corporate governance code. In case of cooperatives, further requirements are the approval of the remaining members of the Board of Directors, and a further requirement are maximum credit saving for lending to a debtor person, the German Corporate Act. With regard to the performance, cooperatives are faced with the problem that the relevant performance criteria for the cooperative Board of Directors is the provision of adequate services to its members. Each member needs to assess individually whether this has been achieved or not. Accordingly, assessment criteria need to be designed individually, depending on the cooperative concerned. As benefits to members are not only defined in terms of profit made, each cooperative must establish its own method of measuring the business success of its Board of Directors in line with the specific business purpose.

The disclosure of salaries and bonuses is also a topic, but the interests of the cooperative are completely different from those of a listed company. The relevant arguments against disclosure are first of all the owner structure. There is no external third party. It is a self-help organisation and then – and you can see this in the whole discussion of the new commercial code in Germany, [speaks German], sorry if I don’t say this in English – only for stock listed companies there have to be a lot of legal hurdles to be overcome. The remuneration of Supervisory Board of a stock company may receive both fixed and performance related remuneration according to the corporate governance code. In contrast of this, the German Cooperative Act explicitly prohibits that Supervisory Board members are re-nominated by business reside. It’s appropriate for cooperatives that legislator determinants, remuneration as it would be difficult to calculate remuneration based on economic results and the Supervisory Board might no longer be able to exercise its function of monitoring and reviewing the Board of Directors with an open mind.

Auditing committees are exclusively responsible for issues related to accounting and risk management and the setting of additional focal points in an audit. The age limit for members of Board of Directors is 65 years according to regulations and the model bylaws. This is the current statutory retirement age in Germany. The cooperative code provides that no former members of the Board of Directors be represented on the Supervisory Board. By contrast, the general cooperative governance code provides that no more than two former members of the Board of Directors may be members on the Supervisory Board.

Regarding auditing and accounting, the Cooperative Auditing Association is responsible for the audit. The Cooperative Auditing Association is a non-profit organisation which is specialised in auditing cooperatives and their subsidiaries. The cooperative audit is performed on the basis of a statutory auditing mandate, but more than this, the audit includes also a management audit. The Cooperative Act in Germany includes provisions for conflicts of interest in the impartiality of the Auditing Association is challenged. It is the duty of the Cooperative Auditing Association to determine whether it may carry out the necessary audit or not.

Let me summarise my thoughts. I think the company of a registered cooperative is a very flexible legal form, which is well known in the so-called middle market in Germany. It is based on the principle of democracy and subsidiary. The governance structure is approved and has a long tradition. The structure is written down in the Cooperative Act and model bylaws. That’s the reason why the cooperative code is based on the principle of voluntary compliance. At the nearest, we have a lot of new formation and topics which are very important for the future of our society. At the moment there are a lot of foundations of cooperatives in Germany the sector of healthcare, medical healthcare organisations, medical doctors are founding cooperatives to strengthen our healthcare system.

At the end, let me say a few words to the development at the European level. The European Commission has published a draft directed and two recommendations as part of the action plan for the modernisation and enhancement of cooperative governance. These plans are founded on listed companies and therefore not relevant for all cooperatives at the beginning, but I am quite sure that they will have an impact on our governance structure as well. So, thank you for your attention, and I am happy to discuss with you my speech. Thank you.

Professor Becht

Now, if I may in the intermission just quote from this Commission consultation document, which starts by pointing out that there are 300,000 cooperatives in the EU and they employ 4.8 million people. So this is a non-significant sector for the economy, and with this we turn to George and the venture capital industry.

Georges Noel

Good morning. Thank you for inviting EDCA to present the corporate governance principles. In a few words, EDCA, I will pinpoint some of the slides I prepared this morning. Because I have to respect the ten minutes, I will rush through this presentation. EDCA was founded in ’83 and is representing the private equity and venture capital industry in Europe. We are grouping about 950 members out of 50 countries and 950 members of about 1,600 general partners, so investment companies dealing with private equity of venture capital investments in Europe. We are representing indirectly 40,000 of investor companies employing 6½ million employees and about 156 billion capital invested equity at book value. So if you compare it with the 7,000 quoted companies in Europe, it’s a much broader sample, which is covered by our corporate governance.

What I think is really important to understand, we were I Washington two weeks ago at the US Department of Commerce on invitation of the EC in the transatlantic dialogue, and the US Department of Commerce took the European professional standards as a world class example best practice. You heard it from Minister Luc Frieden. In this case, I think Europe is really ahead of the curve, and what we managed at EDCA was to build up a professional standards system which prevents us from some of the corporate scandals we have seen in larger corporations, and which help us to maintain our good reputation in the market and also as a self-regulated industry.

We are building our professional standards on the code of conduct. The international private equity and venture capital valuation guidelines, and I would just mention that those guidelines are now worse in that we have 23 national associations of Europe and also of Australia, of Hong Kong, of Singapore, the International Institution of Limited Partners Association who took our valuation guidelines as a best practice and the LPs in the world of the private equity industry are looking to the application of those valuation guidelines throughout the industry. We have reporting guidelines which are linked to the valuation guidelines, and we have two types of corporate governance principles done. The first one is dealing with the relationship between the investor and the Fund management, so the LP and the GP, and the second one is between the GP and the portfolio company. As you have understood from what Maurice Lippens told us, they are looking in the code Lippens as an example from the company and we are looking more at the relationship between investor and Fund management and underlying investor company.

Here you can see it in a graph. LP is standing for a limited partner, so an investor of pension funds or another family office investor into the industry, and GP is standing for general partners or the management of the Fund, and in between you have the corporate governance principles which we named governing principles, the evaluation guidelines and reporting guidelines. The GP is operating under a code of conduct and between the GP and the company we have the brand new corporate governance principles, which were presented last week in London at our annual symposium. This was done by a small working from practitioners with some lawyers and we were looking to several topics, which are important for us in the relationship between the GP and the partnership [?] company and we built this system around the law and regulations, the integrity, the partnership, we had to build between the Funds and the partnership company. The long term view, we are investing at least between three and seven years, sometimes longer in the company, so we are not stock picking but we are really long term partners in the company.

We have to deal with the respect of shareholder ship, and this is something much more particular in our industry because we have different situations. We can have an investment in a non-state company, with a minority stake with many other shareholders, management, other private equity or venture capital funds, in different categories of shares giving different rights to each class of shares, or we can be in expansion capital, which allows us a stake of up to 49%, and we can be the owner of the company managed by out or by in or public to private transactions. So we have to deal in our corporate governance principles with the shareholder issue, which is far below what usually the legislation in most of the jurisdictions are required.

So in the relationship with the shareholder, and I won’t go into any detail, you can download it from our website, and the presentation with all the slides will be provided on the website of the organiser, but I just wanted to stress this point. The principles of contact of a shareholder is really important for our industry. You have all seen the discussion about capitalism in the UK or the low cost discussion in Germany, so we, as an industry, are seen as a transparent industry, but we are trying to provide all the fully fledged results on activity, on performance. We are trying to build professional standards, which are the worst standards, and we are providing training for our young executives in the industry. So, we are trying to build a system which is enhancing our business model, and our business model is about value creation. We are investing in a company which has a high potential, we are trying to provide strategic contribution to the growth of such a company, and we are just remunerated by the capital gain when exiting this company.

So, if we can implement a good corporate governance into the company, it is finally good for our investors who are providing the capital in order to deploy our activities, it’s good for the Fund because we have a current interest, and it’s good for the management of the portfolio company because they will have also an exit with nice capital gain. So let me just conclude, so what we try to do is to maintain the good reputation of our industry, we try to enforce indirectly the professional standards through the LP community, and if you are speaking with pension funds from all over the world, they are looking when deciding on investment into a Fund, what kind of professional standards this Fund is following and usually you will find that is the fully fledged EVCA professional standards, which is the standard. Unfortunately we have not yet succeeded in convincing our American sister organisation, which is the NVCA, to do the same, but we are hoping that in the future with all the other continents around us in Europe, we will come to a common world standard.

So, let me just conclude, corporate governance is to us nothing abstract, it is just a tool to achieve a value creation in our portfolio companies, which is the basic business model of our industry. Thank you very much.

Professor Becht

Thank you George. I think one of the things that I’ve taken away is that this is one of the cases where America seems to be following the European lead, and this is certainly a topic that I’d like to come to in the discussion. Jaap, the floor is yours.

Jaap Winter

Thank you Marco. Ladies and gentlemen, it is my pleasure to speak just very briefly because if anyone needs a cup of coffee after a four-hour drive from Amsterdam, I need one. I will briefly talk about collective investment schemes, investment funds, a huge industry in which many investors put up their funds rather than investing themselves and making investment decisions themselves. The industry, the management companies of those investment schemes have been hugely successful in removing collective investment schemes from the general corporate governance discussion. If you look at the recommendations of the European Commission, if you look at draft directives, which are tailored for listed companies, collective investment schemes are not in there. We are explicitly excluded from the governance rules under those recommendations and directives. This doesn’t mean that there is no governance issue in the collective investment scheme world.

Now, while you are being confused by this slide, I have tried to explain what the governance issue is. The heart of the corporate governance question always is the principle agent discussion, how do we make sure that an agent actually acts in the interests of the principals who put up the money and run the risks of their investments? Now, if ever there is one case where this principal agent problem is paramount, it is a collective investment scheme. The investors in these schemes have chosen an agent to make all decisions for them, and none of them is really interested in actually finding out what he or she is doing unless or at least in so far as the performance of the scheme at the end is okay, is in line with what was suggested. Investors in collective investment schemes usually suffer severely from rational apathy. If you look at the general meeting of shareholders of a collective investment scheme and understand the general meeting of any listed company, is a Valhalla [?] of shareholder commitment.

There are no shareholders coming to a shareholders meeting, and if they come, they have nothing really to say or aren’t really interested. There are huge opportunities there for the agent, the management companies, for collective investment schemes to exploit those funds that have been given to them by investors for their own private benefits. There are many opportunities to do so, and obviously because the opportunities arise, they will be used occasionally and sometimes even more than occasionally. There are structural problems if the management company offers various collective investment schemes to investors, but various specific investment goals and purposes. Then they have to distribute the costs and benefits of their operations over these various Funds, and the way that they do this is absolutely not clear to investors, and they may have their own personal interest in making sure that the costs are being borne by those Funds which they no longer market, and the benefits will accrue to those Funds that they market actively, for example.

Management companies who offer these products who are part of financial groups who provide all sorts of financial services are usually a target or a bucket where shares are being dumped by the financial institution who underwrites an initial private offering and can’t sell the shares in the market. They basically and conveniently put the shares in the investment Funds and hope that they can sell off at a better price at some stage in the future and it is not clear and usually it is not the case that that actually is in the interests of the investors who then, as their assets, suddenly find shares in an unsuccessful IPO.

The traditional angle of regulating this is to go through disclosure. Basically imposed full disclosure of the costs and the benefits of collective investment schemes by management companies. They must disclose to investors when they start, when they make the offer to investors in a prospectus, and they must disclose the real performance of the Fund, and sometimes even the relationship between what they promised and what they delivered, not always, funnily enough. In addition to that, we have public oversight everywhere basically to check whether this disclosure has been made correctly. Nothing much really of substance of the organisation of the Fund, sometimes a little bit on the administrative organisation internal control, but the key focus is always on disclosure.

The governance of these Funds and the management companies running them have hardly been touched in many European Member States. I chaired a group in the Netherlands who, on behalf of the security regulations in Holland, was asked to look at the question how do we deal with the governance of these collective investment schemes and their Fund. The key point we made is that in light of the conflicts of interest and the light of the opportunities for investors for management companies running these schemes to use it primarily for their own benefits, we need an independent trustee to overview the decision taking process within the schemes of the management company.

Now, coming back to the confusion that you are troubled with and this slide, there are several corporate models. The collective investment scheme as I say is in the middle, and this model, the collective investment scheme is a corporate organisation itself, it’s a company with a Board of directors. In the Dutch structure, we usually work with two tier Boards, Board of management, Board of supervisory directors. We have the regulator, the public regulator overseeing disclosure mainly. We have auditors looking at the financial statements of the collective investment scheme, and we sometimes have a depository which physically holds the assets of that collective investment scheme, at least to make sure that they are separated from the scheme itself and from any investment company. The key recommendation we give for this specific model is that there should be a supervisory Board working in the corporate structure of this collective investment scheme which is sufficiently independent which we defined as having a majority of outside supervisory directors, not related to the company itself, not related to the financial group of which the company may be part actually, so, sufficiently independent.

This is a more complicated scheme, but actually more common, certainly in the Netherlands, probably in many more Member States. Under the usage directive, usage three, the license to operate collective investment scheme is no longer held by the scheme itself, but is held by the management company. The management company can offer a number of collective investment schemes to investors for different investment objectives. The management company is regulated by the regulator, you have again the auditor, you have the depository, and the collective investment scheme offers share participations, either in a contractual model or in a corporate model to the ultimate investors, and this model we said the trustee, independent trustee that we need in this scheme should be the Supervisory Board of the management company. The good thing of having a Supervisory Board at that place is that it can deal efficiently with the distribution conflicts that may arise when the management company must distribute costs and benefits over the various schemes that it is offering to its ultimate investors, and again the Supervisory Board must be sufficiently independent, majority, independent of the management company and of the financial group in which the management company operates.

Now, is this the only model? Certainly not for Europe I would argue. In many other Member States, the focus traditionally has been on other players in this scheme, particularly on either auditors or on depositories. We’ve looked at that from the Dutch angle whether depository and auditor could fulfil this function in the Dutch environment, and the understanding that we had is that they never could. Depositories, because usually where you see depositories, they are part of the same financial group as the management company, they are fully not independent. They’re not going to stand up as independent trustees and say you should not use the assets of the company in this particular way. This may be different in other jurisdictions. I understand in the UK that depositories are usually separated from the management company, have their own resources to actually check what the management company is doing, and they could fulfil that function.

We also looked at the auditor. Everybody looks at the auditor nowadays, don’t we? The auditors play an important role. They check the financial statements, and to some extent the internal control systems on which these statements are based, which is good, that’s what they should do. However, the trustee function that you require, requires the trustee to take decisions in situations of conflict, and how is the external auditor ever going to take a decision on whether or not for example to allow the shares of an initial private offering to be put in some investment schemes? Is the external auditor ever going to take that decisions, is he ever going to agree to the procedure on the basis of which that type of decision is made? That’s not the work of an auditor.

So I very much hesitate about the role of the auditors in this particular scheme. They should be there looking at the financial statements. I don’t think they can perform the real independent trustee role that is needed. What’s going to happen now? Well, in the Netherlands we have a debate now whether we should indeed have this Supervisory Board, and the Finance Ministry has said we want to have a cost benefit analysis of instituting that requirement. Now, the costs are clear. There are about 120 management companies that we will see in Holland, everybody would probably need two or three independent outside non-executive directors and you would actually have to pay for the job they are doing, and you can figure out what the costs of that will be. The benefits are difficult to express in hard currency. I think the benefit is that the whole process and decision taking process within this scheme could be much better, could be much more tailored to actually furthering the interests of the investors and avoiding conflict of interest and deciding where these conflicts nonetheless take place.

In Europe there is a green paper of the Commission coming out in July. I understand they will touch upon these issues, but I don’t know what the outcome of that will be. The IOSCO is actually comparing on this particular principle of independent oversight of a trustee what is happening in the Member States joined up in IOSCO, and what is this doing, and I think that’s a very interesting project is to make a list of things an independent trustee in a collective investment scheme should do. What authorities it should have, what powers should it have in order to fulfil that trustee role appropriately, and I guess we will have to decide between depository or some form of Board structure within the management company or in the collective investment scheme itself. I don’t think that the auditor can fulfil that role.

Now Marco, just because I will not be here this afternoon, I allow this half minute that I still have to make two remarks on this afternoon, very short, golden shares are not always that bad, and we should get the plumbing of shareholders rights right and urgently right. Thank you very much.

Professor Becht

Thank you very much Jaap. Okay, we still do have a few minutes for discussion. Maybe I could kick this off my self by asking the panel something that’s on everybody’s mind, which is this question of enforcement. Having read through the documents, I think we see in the four entities that we’ve discussed quite different models of enforcement. In corporate governance codes we have a mixture of self-regulation and public enforcement, in cooperatives that sounds to be the same, in the venture capital industry it’s really almost pure self-regulation, and in the Fund industry it’s actually very heavily regulated with very little self-regulation. Now, how do you see this going, and in particular bringing in the US component, how is the US pressure on us with the US being much more in favour of mandatory rules, like in the Fund industry, how is that going to affect your perspective sectors? Maybe we can start with George who is the least regulated.

Georges Noel

As I told you, I think the final customers, who are our investors, is key to enforce finally good practices in the Fund management. I would like to make a comment on the corporate governance within the Southern Oxley discussion. You know that we have in the United States a very hardcore regulation which is called the Southern Oxley, and the Southern Oxley is finally producing a very high hurdle on cost wise and complexity wise on venture backed companies, and we have a tremendous chance here in Europe because we are much more principle oriented than rule oriented, provided that we can build up a new stock exchange somewhere for high potential companies because we have a window open. Because of Southern Oxley you need now 250 million market cap in order to justify the costs related pre-IPO, post IPO, current costs to this. So I think we are much more reasonable in Europe and we have as a private equity industry an enormous window open in order to try to enforce by kind of market forces the corporate governance because it enhances the exit ability of a portfolio company through public issue and Southern Oxley finally is helping us to retain the best companies here in Europe because our problem is right now that the only real exit route for high potential companies is now stock, and this is really of value for us.

Carl Friederich Leuschner

I think one has to bear in mind that in the United States there is an enormous amount of regulations and laws and I’d say more laws than you can find in Europe. This is a cultural thing and this does not prevent the United States from being one of the most innovative countries in the world, so they can live with that. We in Europe I think are very different on that subject, I would say maybe with a little exception from the UK, with all respect to my Dutch neighbour, to the Dutch who do like to regulate a lot. I do think most other countries in Europe are very much ready for the more code comply or explain type of self-regulation. What I am afraid of, and we are seeing this a lot while making up our code and also in context with many other parties, is that we have a very strong Anglo Saxon influence, and mainly the US influence, the box tickers who are looking at companies, and I know Mr Caprasse will talk about that maybe this afternoon, and I hope he will prevent the box ticking idea of really going one step too far. You have so many companies which are judged by box tickers, and this is a very dangerous phenomenon because these box tickers do have a tendency of applying US concepts to very different environments in Europe.

I think the code is something which on the continent is getting to be better known and accepted, but we do have and we’re going through this in Belgium and we’ve seen it in the Netherlands and we’ve seen it in Germany, they also have people who in parliament do feel that they have to regulate and write laws on everything. This takes a lot of flexibility away from companies because we are, as everybody knows, in a very uncertain environment and a very complex environment. If we don’t have maximum flexibility and therefore regulations, and we have a lot of laws, and I was so happy to hear the minister of justice, Mr Frieden, talking about regulations, that we should avoid as many laws as possible. However, when you see in Germany, the Comma [?] Code came out, it wasn’t respected by many companies, so what happens, they’re going to make a law. Unfortunately I have to say, it serves them right. If they don’t want to abide by self-regulation laws or self-regulation codes, then they want to have laws, then they will have laws, but that is the business community which has a role and a responsibility to do that.

Professor Becht

I think with this we will turn to the floor and we can take some questions. Does anybody have any questions? There must be lots of questions. Paul.

I wonder if I could ask Jaap Winter a question about his supervisory proposal. Not so much about the question of who does it, whether it’s a separate body or the auditors or a depository, but whoever it is, what the strengths of the incentives would be for the supervisory body to do a good job, because as I understand it, we’re operating in an environment in which the investors themselves we assume are going to continue to be entirely passive, so the question is really what are the incentives for the new supervisory body to exercise a robust supervision over the management companies rather than simply go along by and large with the existing situation? No doubt they’d pick egregious cases, but what’s the chances of them producing a change in the attitudes of the management companies? Thank you.

Jaap Winter

I think for all the supervisory, or for that purpose, non-executive directors, probably the key incentive is their own reputation. At least I believe in that being, or it should be at least a stronger incentive than remuneration for the job they do, which some believe that actually remuneration gives good monitoring in non-executive roles. I hesitate their. I think their reputation at stake is a relevant thing. If your question is but they will never feel it because the investors will never stand up unless it has really gone wrong, then that has been replaced in the Fund industry by the regulator. The focus of the regulator is basically disclosure, but usually through disclosure, mismanagement comes and surfaces at some stage, and then the regulator will also tell the Supervisory Board members you haven’t done your job well, which gives the opportunity for investors if they so like to throw out the Supervisory Board, or even sue them in jurisdictions where this is possible.

So I think where we would rely on shareholders generally in corporate governance to take action where they see that the Board doesn’t do what it should do, indirectly through the regulator a similar situation may be created.


I’d like to ask Maurice Lippens a question about box tickers actually because the allegation is made that this is a sort of Anglo Saxon habit and one which I suppose has succumbed to an addiction of investors, but if you look at what’s happened in Britain with our new code, so far, and we’ve done the statistics on this, and it’s only 45% of the FTSE 100 companies are complying in full. That’s on their own self-assessment and only 30% of the All Share, yet there hasn’t been a single resolution which has gone down on governance. That actually means that the investors are not box ticking and they are accepting the explanation. So, I’m wondering where this box-ticking problem comes from and I think sitting from where I sit, one of the problems is that it actually comes from the companies. The companies are looking for 100% support, sort of kind of almost like dare one say it, the sort of old Russian communist regime, and if they don’t get it, they feel terribly upset. Now, isn’t this really a problem more of companies? I mean where is it coming from, because the evidence is that the investors are not box ticking, so why is this accusation sort of being flung around?

Maurice Lippens

This comes from a little bit of experience of general assemblies where you have many pension funds or other investors who will take up a stand based on box ticking on ISS or others. I mean I’m not aiming at anybody in particular. We’ve had the extreme case of having a general assembly where the law had asked all the companies to change their statutes of incorporation, and here we have a box-ticking outfit which came up and said vote against it. So I said listen, you are voting against the law, where is your explanation. There’s no explanation. That worries us, and is it the US influence on investors, or is it the companies looking for it? I’m not quite sure. I am just concerned by the fact that I am seeing in France and in the Netherlands and in Belgium more and more influence of the pension funds and larger institutions who will be relying on box tickers just on the governance issues or on votes for one or the other element.

What I miss in all this, whatever the cause is of this, and I do believe there’s a certain level of comfort also from the fact that if you have for example the Teacher’s Pension Fund of Oklahoma, which owns 5,000 shares in the company, they won’t be doing the exercise so they need to have a box ticker or somebody to help them just decide what they’re going to say at the general assembly. What I am concerned about is we don’t have any dialogue. We have these lawyers or bankers come into the general assembly and say we’re voting against this, and when we say do you have an explanation, no. That’s a bit short. Couldn’t you come back next year and give an explanation, and then they come back and say well, we went through the box ticking exercise and we followed the whatever in our box ticking, and so the pension funds don’t necessarily have the time, the large institutions don’t have necessarily the time, except if they are very large shareholders. Then you can have a dialogue, and that’s a different story then.


Can I just come back on the dialogue question? We do have dialogue in Britain, but when I talk to people elsewhere in Europe, it seems it is quite difficult, sometimes because they are worried about the legal problems, the sort of insider trading and so on. I mean we have managed to cope with that in Britain so that it’s done with integrity, but isn’t therefore the issue in Europe to promote more dialogue and engagement and look for ways of doing that?

Maurice Lippens

Yes, you are absolutely right. I think that’s very much the point and we are not used to it. With all due respect for the UK, I think you are far ahead in many areas on that subject. You started with Cadbury and you’ve been one step further on the continent for a long time. We are learning.

Professor Becht

The bar is now in the red, almost, so I’m sure that we will continue this discussion this afternoon when we talk about the voting. Now let me just summarise or take away before we depart for coffee, just take away some of the points that I think were raised here. As usual in an ambitious panel like this, which covers the governance of four different sectors, we’ve raised I think more questions than provided answers. I certainly found the comparison between corporate governance and cooperative governance extremely interesting. I think one of the main things it reminded me of is that there is a lesson for the potential or question for the one share one vote debate. In cooperatives we heard we have one member one vote, this is considered to be very democratic. I think one question this raises is when should people choose a cooperative form versus a corporate form, and within corporate governance should deviations from one share one vote for example in the direction of…?

As usual in an ambitious panel like this which covers the governance of four different sectors, we’ve raised I think more questions than provided answers. I certainly found the comparison between corporate governance and cooperative governance extremely interesting. I think one of the main things it reminded me of is that there is a lesson for the potential, or question for the one share one vote debate. In cooperatives we heard we have one member one vote. This is considered to be very democratic. I think one question this raises is when should people choose a cooperative form versus a corporate form, and within corporate governance should deviations from one share one vote for example in the direction of one member one vote be allowed or banished.

Now, another theme that I think ran through all of this is the issue of independent directors. This was touched upon. I think clearly we are faced with America that gone really in a very extreme way to adopt the independent director solution we have for listed companies, 50% plus independent directors on the Board, people are pushing for an independent chairman in the Fund industry, as Jaap said, which has so far escaped the discussion. America has adopted a 75% independent director rule for the investment company, plus an independent chairman. Now, I can see that if this is the solution that is proposed in Europe, integrated Fund structures would find this as hard as the famines in Belgium to swallow. I think that is a real discussion that we should have, also with respect to compatibility with the US.

Now, on self-regulation, I found George’s intervention extremely interesting. I would really like to understand better how the venture capital industry manages to actually enforce the self-regulation in a credible way, and there are many other questions like this, so I think from this panel certainly we can take up Minister Frieden’s offer to organise separate sessions on cooperative governance versus corporate governance and being in Luxemburg, we can also certainly organise a separate session on the future of the regulation of this very important industry, of which Luxemburg has such an important marketshare, namely the mutual fund industry. But you know, we have to thank the Dutch I think if they go ahead with this Winter experiment because if it’s successful we can adopt it for the rest of Europe, and if it fails, well, too bad for the Dutch. Thank you.

The statute of the societas europaea in respect of corportate governance pratices (unrevised section)

Professor Prüm

Ladies and gentlemen, I am honoured to have this panel dealing with the statute of the European company in respect of corporate governance standards. I would like first of all to present the various members of our panel, starting with Mrs Maria Snobohm. She is senior legal council with the Nordea Group and is in charge within the Nordea Group of company law and corporate governance matters, including Nordea’s project to transform into an SE. To my right, Professor Theodore Baums is professor under Johan Wolfgang Gutter University in Frankfurt [talks German] on corporate law and corporate governance. Further to my right, Professor Paul Davies is Professor of Commercial Law at the London School of Economics. He was also a member to the British Company Law Review Steering Committee between ’98 and 2001. This Committee has worked on an important report that has been published in 2001 and will lead probably very shortly to a major reform of company law within the United Kingdom, and finally to my left, Monsieur Michel Wurth. I have to excuse Professor Paul Lacannu from the Sorbonne in Paris who could unfortunately not join us today as he suffered this weekend from a serious health problem. He asked me to apologise and all of us of course regret very much that he is not amongst us today.

Our panel is supposed to deal with the following question. Is the statute of the European company including the rules on co-determination likely to cope with modern corporate governance standards? This question obviously focuses on internal corporate governance matters and does not embrace thus the other dimensions which form a complete corporate governance system such as the controlling function performed by financial markets or transparency and disclosure concerns. Furthermore, the scope of our discussions will mainly take into account the normative rules that govern the SE statute in order to evaluate these rules in respect of the rationale of corporate governance standards as a stamp from various codes and regulations.

While preparing the panel together, we decided to propose you an open discussion around the most significant characteristics of the European company, starting with the expected advantages of its statute and some preliminary remarks on the complex set of rules on which the statute is founded. Before discussing successively three topics, the separation of ownership and control and internal structure of the SE, the impact of an employee participation scheme, and finally the influence that the competition between national laws in respect of SEs may have on corporate governance requirements. We decided also together, this was the object of a real consensus, that each member of our panel will contribute to each of these topics as the discussions go on rather than to propose four separate statements from the members of the panel.

Of course the floor is invited to participate too. I propose that we take questions and remarks after each topic, not waiting until the end of our timeslot, which we will try to respect in the best way, but I see this is a terrible instrument showing that time goes by really fast. In order to give this panel a true European flavour, contributions from the panellists will be made differently in English, French and German, and I propose to start right away with the first question we should deal with, what are the expected advantages of setting up an SE? Looking at recital seven of the EU of the SE regulation, this recital states that the provisions of the regulation will permit the creation and management of companies with a European dimension free from the obstacles arising from the disparity and the limited territorial application of national company law. With a certain enthusiasm, the EU Commission said it believes that the European Company Statute – I’m quoting – will mean in practice that companies established in more than one Member State will be able to merge and operate throughout the EU on the basis of a single set of rules and unified management and reporting systems. They will therefore as the Commission be able to avoid the need to set up a financially costly and administrative time consuming complex network of subsidiaries governed by the different national laws.

Moreover, one believes that the new Statute of the European Company may have value and image impact as it indicates that this company is a real European undertaking. This European dimension may possibly remove some psychological barriers that have prevented so far various mergers within Europe, but more importantly could have a positive impact on the perception of investors broadening thus the capacity of the SE to get financing throughout Europe. Among other advantages, the Statute of the SE also offers a solution for the transfer of the seat within the EU, a solution for tailor made co-determination schemes fostering groups period amongst employees, and the opportunity to create companies reaching a critical mass sufficient to avoid certain hostile takeovers. However, this optimistic view is not shared by everyone. Indeed, the attractiveness of the SE Statute might be reduced even quite considerably because it does in reality not provide for a uniform European corporate form. In all matters that are not regulated by the regulation, the SE will be governed by the company law provisions of the Member States in which the SE is registered. Consequently there will be not one single SE law but 28 laws, which may diverge quite significantly from each other.

Amongst other weaknesses are the constraints for putting up an SE, the little space left to statutory freedom, the high complexity of co-determination rules, the complexity also of the combination of EU rules and national rules, both difficulties leading certainly to uncertainty and costs, and of course for practitioners quite important, the lack of a tax regime applicable to the ongoing business. Certain companies have so far already established as SEs. There are at least two I know of, Power Holding Straback [?] and Brenner Bausistonel [?], maybe there are some more. Those are the two I know of that have established as such as SEs, but major groups have declared their intention or interest at least in this statute. That’s the case of Nordea, it was the case also of the Asalor [?] Group, it’s the case also of other companies like Elcotech [?] Network Corporation or the ABN subsidiary, Alfred Burk.

So the first question I would like to ask the members of the panel is what are the reasons that may convince a company or group of companies to reincorporate as an SE or on the contrary, to avoid this statute. What is the business case behind the existing projects. Maybe Mrs Snoböhm would want to give us the first insight on that topic.

Maria Snoböhm

Yes, I’ll do that. Yes, Nordea has announced the intention of our Board of Directors to transform the mother company of the Group, Nordea Bank, into an SE company, and I think we are about to do exactly, or it is one of the intentions behind the statute towards namely to reduce complexity through using the tool of cross border mergers, which is now legally possibly. Nordea today consists of banks in the four Nordic countries. We have a Swedish bank as the mother company, and then we have subsidiaries in Norway, Denmark and Finland. This legal structure being the result of the mergers of four national banking groups, has proven to be complex from an operational point of view, and do not support the Group business activities in the optimal manner. The planned SE structure is expected to lead to improved operational efficiency, reduced operational risk, and enhanced capital efficiency.

Through the SE we will be able to restructure our business and thereby avoid having a complex network of subsidiaries governed by different national laws, supervised by different regulatory systems, and financial supervisory authorities, and thereby we will be able to significantly reduce our administrative costs, including VAT on inter-company transactions. And from an internal corporate governance point of view, we will also be able to make the general decision making structure easier and the inter-group agreements can be minimised. We can also concentrate and streamline our internal instruction directives and other policies.

This SE structure will be achieved by means of simultaneous mergers of the Nordic subsidiaries into the Swedish mother bank, and we have not said anything recently about the timeframe, and that is because we still have not made the final decision on whether to go ahead with this SE structure or not, and that is due to the fact that we have one big outstanding issue. This is not an advantage but a disadvantage. Today Nordea participates through our four banks in four national deposit guarantee systems, but once we transform ourselves into an SE, our present subsidiaries in Norway, Denmark and Finland, will be transformed into branches, and according to the 1994 Deposit Guarantee Directive, the branch of a bank will be covered by the deposit guarantee scheme of that Member State, the home country, which will in our case be Sweden.

But not only will the coverage from the Danish, Norwegian and Finnish operations be transferred to the Swedish system which will require us to contribute more to the Swedish system since in this respect is a larger bank, but it will also mean that the fees that we have already paid into the other systems will remain there to a great cost for ourselves and to the benefit of the remaining banks participating in those systems. This is of course an unforeseen and unintended effect of the 1994 Deposit Guarantee Directive which of course could not foresee the SE statute, but we are striving to get a solution on this by having a grant for the clause to the 1994 Directive, providing that under certain precise and specific conditions legal entities might for the time being stay in the local scheme following that transformation into branches of an SE.

Professor Prüm

Thank you very much for these indications. In fact, I believe that the banking sector may be certainly one of those that could take advantage of the SE structure as far as I know on the European level one, certainly regret sometimes that the banking sector could not bring about as many mergers as could have been desired, so the specific problem you are addressing concerning the deposit guarantee schemes should certainly be looked at very carefully in order to allow the banking sector to take advantage of the SE structure.

Maria Snoböhm

Absolutely, and thereby it is not only a Nordea problem.

Professor Prüm

Of course, yes, it’s a problem as such of the Banking Deposit Schemes Directive.

Michel Wurth

Maybe to explain and to start a little bit, I am from a company so I will be very practical also in my intervention and I will try to testimony what we want it to do, and for those who are not so familiar with steel, remember first that steel was the first effort in Europe to unify with the European Coal and Steel community in ’52 and we are a steel group still today which was created three years ago through a three-way European merger with three leaders, A of Spain who was a Spanish leader in steel, Usinor of France who was the French leader of the steel industry, and Arbed which was the Luxemburg company and which was the leader in Benelux in Belgium Luxemburg and with also strong holdings in Germany.

So, we created a three-way [unclear] and in the prospectus we did three years ago we declared our intention to look at the visibility of transforming this company into a European company. So, where are we today? What we can say today is in terms of structure that we have a dual structure with a non-executive Board of Directors and a Management Board who gets a delegation. In the first one we have six different nationalities and also in the non-executive Board of Directors we have established on a voluntary basis three Board members which are representing the personnel of the group, and there is one French, one Spanish and one Luxemburg union representative who is in the non-executive Board of Directors. In the Management Board we have four different nationalities, and from a production point of view we are producing many, many millions tons of steel, but that’s not so important, but we are producing them in six different European countries. We are present in all of them, included in the 25 countries of the European Union. We do more than 70% of total sales in Europe, so we are a true European company and I think one of the very few really true European companies, and from our ownership, it’s the same. We are listed in four different stock exchanges, and Paris, which is our main listing place, and in Brussels, in the stock exchange of Luxemburg and in the Spanish stock in Madrid and the stock exchange around the Spanish companies.

So, everything would have conducted us to say we wanted to be the first European company, and we are not, or not yet, I don’t know, we are not yet because Luxemburg law unfortunately has not yet given us the opportunity to do so, and it’s a pity that Mr Frieden is no longer here. Nevertheless, we have not yet decided to go in that direction because if we are looking there we see that there are some advantages maybe and I will try to summarise them as I see them, and also a lot of disadvantages. What are the advantages? I see three mainly, the first one is the flexibility of corporate organisations so you can choose between the modest and the dual structure. You have the choice of headquarters, you have some of the advantages, you have already mentioned about some flexibility, but I do not believe that from reducing administrative costs it will be so easy because there is no fiscal harmonisation, you need to have a fiscal balance sheet and fiscal accounts which you have to establish on each year, so I do not believe that from that point of view there is so many advantages. You have the advantage of moving the headquarters around, but I believe that the disadvantages are much more theoretical because moving the headquarters is some exceptional decision you would like to do in your corporate day, and what I could simply say is that Luxemburg is an excellent place for corporate headquarters because it’s the flexibility of ensured ways with the administration, it’s easy to do, and what we see also from the expatriates we have today, it’s quite easy to be there and it’s a European capital. And then there is a third advantage of establishing a European company which is from a Luxemburg point of view we would make the European company through a merger. It would help us effectively to maybe squeeze out where a squeeze out is not possible, which is the case in the Luxemburg law and also in the Spanish law. So, from that point of view it’s an advantage.

Disadvantages on the other hand, there are lots of them, in particular in terms of fiscal. We have no fiscal advantage and we even have fiscal disadvantages because in some of the old companies we have some carry forward losses which would disappear if we would do the European company in the merger form, and then there are no real incentives. I’ll give you one example. You know that the steel industry is submitted to the CO2 emission right schemes within Europe and the drama, so this has been a global initiative and the European Union has made the Directive making the legal framework, but unfortunately we do not have European rights of emission of CO2, but we have national ones, and what we have today for instance, if the European company would have given us the possibility to bring all these emission rights within one European company would be very helpful because today we are in the impossible situation that if we want to transfer CO2 rights from Valunia to Flandria, this is more difficult than transferring production from Belgium to Brazil, and this is let’s say from a practical point of view absolutely in contradiction with the idea of the European Union.

So, as a conclusion, at this stage we have not taken the final conclusion, but I would say it’s fair to say that we want from a practical point of view to be a true European company in terms of corporation organisation, in terms of corporate governance, in terms of worker’s representation, but I am not sure and we are not sure that the European company will really help us to make a big step further into that direction from a legal point of view.

Professor Prüm

Professor Davies, you have been involved quite strongly in the process of thinking what should be the good way in the United Kingdom to receive the SE. May you give us some indications on that please?

Professor Davies

Thank you Mr Chairman. Could I perhaps try and respond to that question and to the other question that you raised? You said at the beginning, and I think you are absolutely right about this that the main advantage which the new SE form is supposed to provide is to facilitate cross border mergers. Now, it seems to me that the central question in trying to evaluate the SE is how good a job it does of facilitating cross border mergers, and if I may, could I make four very brief points in relation to that question?

First point, as you’ve already pointed out, the adopted form of the SE does a less good job than the form originally proposed by the Commission many years ago, simply because so much is now left to be regulated by the law of the Member State in which the SE is registered, the notion of the SE form providing at community level a comprehensive code of corporate law rules has simply evaporated over the years, and this does I think substantially reduce the, I think what you referred to as the potential psychological advantages of forming an SE, namely that national susceptibilities in a cross border merger can be dealt with by adopting a form of company which is not subject to national regulation. That option is simply not available because the SE will be, as you say, substantially different according to which State it’s registered in.

The second point to be made I think, and this is a point I’m sure we’ll come onto in a minute, is the difficulty caused by the need to deal with the issue of participation at Board level, and the question of the principle adopted in the final version of the regulation to extend to the SE the highest level of participation existing in any of the merging companies. Now, it seems to me that this point and the previous point may – if you like – create a certain set of incentives as to which companies and which jurisdictions find it most attractive to set up an SE. The fact that the SE will be governed in large part by the national law of the State in which its registered may lead to an incentive for SEs by merger to be formed only by companies which already come from rather similar national jurisdictions, and I think it’s interesting that the Nordea case is precisely that, a group of Nordic companies whose laws already are subject to a high level of approximation being prepared to come together in the form of a Swedish SE. Equally the second point, does the extension of the highest level of participation to the SE mean that the incentive is only for companies which already have similar participation systems to come together by way of merger to form an SE. Again, the Nordea case seems to me to fit that model. So, could I put forward those two hypotheses for discussion?

The third point I’d like to make is it seems to me there are two sorts of types of synergy that could result from forming a merger, which takes the form of an SE. There are so to speak legal or bureaucratic synergies and there are economic synergies. You get legal or bureaucratic synergies if subsidiaries in an existing group come together in the form of an SE, but of course you get relatively little in the way of economic synergies because those independent subsidiaries are already part of an overall group which has a separate economic existence. Both the Nordea and the Arcelor proposals are proposals to use the SE within a group to gain – as I understand it – mainly bureaucratic or administrative synergies. But I would have thought the more important synergies are likely to be the legal synergies, which of course are obtained when you have a merger between two or more economically independent entities, and neither the Nordea nor the Arcelor example are of that type.

What is interesting there I think is whether the SE will prove a more attractive way of getting those economic synergies as compared with the way in which these things have always been done in the past, i.e. through a takeover, as now facilitated by the 13th Directive. So, that’s another question I’d like to put up for discussion. And the fourth point very briefly I’d like to raise is irrespective of what the advantages of the SE are at the moment for cross border mergers, how will those incentives appear once we have the 10th Directive adopted, upon which very considerable advances have been made during the Luxemburg presidency, and which I gather is likely to be adopted later in the year. That is an alternative mechanism for creating cross border mergers. It’s true that the resulting company under the 10th Directive will be a national company rather than an SE, but given the extent to which the SE is governed by national law, that might not be perceived as a major disadvantage. Moreover, since the resulting company under the 10th Directive will be a national company, there will be, it seems to me, a greater degree of legal certainty about the rules which will apply to it.

One of the problems I think with the SE, at least at the moment, is that it’s unclear precisely where the boundary between the regulation and national law is to be drawn. How can we always tell precisely whether a matter has been regulated entirely in the community regulation so that there’s no role for national law, or whether the matter has been regulated partially in the regulation so that there is scope for the national law to add supplementary rules, and I think that’s actually quite a difficult question.

One might also say that the 10th Directive will have the advantage that it will permit cross border mergers of private companies, which of course is not permitted under the SE regulation, which as far as mergers is concerned applies only to public companies, and also I think the proposed method for dealing with employee participation under the 10th Directive is somewhat more attractive in the sense that the management of the proposed resulting company can simply opt for what is laid down in the standard rules without going through a process of negotiation with a special negotiating body. So I think there are a number of questions one might ask as to the attractiveness of the SE form as a way of creating a cross border merger.

Professor Prüm

Maybe very shortly on UK legislation just to have one example or two of how the SE statute was received within the UK.

Professor Davies

Well, there are two areas I suppose, the one tier, the two tier Board, and the mandatory participation rules. On one tier, two tier, the basic choice after all is made in the regulation, is it not? My reading of the regulations, I think some people take a different view, is that the SE has a choice which it exercises as to whether it has a one tier or a two tier Board so that the role for national law is simply to make sure that both systems are available. Unlike the Germans, the British government took the view perhaps a little disingenuously that it didn’t need to do much on this front because although you may think that the UK is a country which requires the one tier Board, if you actually read the British legislation, it says actually nothing about the structure and composition of the Board of Directors. The British Company’s Act simply says that a public company has to have two directors, and that’s it. So unlike the 40 sections in the Aczing [?] Gazette dealing with the Supervisory Board and Management Board, there is nothing in the British legislation which says anything about structure and composition, and therefore the government took the view, which is not quite in my view supportable but there’s some truth in it, that it’s perfectly possible for a British company at the moment, a British PLC, to have a two tier Board if it wants it, in practice they don’t, and therefore there was no need to introduce elaborate provisions into the national law to deal with the SE. If a national company can have a two tier Board, so could the SE by reference to national law, and that is broadly the position that we have come out with on the one tier, two tier Board choice.

Professor Prüm

Thank you. Madam Snoböhm maybe you could give us some indications about the choice between the one tier and two tier system?

Maria Snoböhm

Yes. I think the questions are closely linked. I mean the choice of one or two-tier system and the participation on the Board of the employee representatives, and I agree with Professor Davies when he says that it is easier if you have the common culture regarding participation on the Board, which we do have in the Nordic countries, and within Nordea. I mean we already now have employee representatives on the Board of the mother company. We have three ordinary members and one deputy member from the employees, and this out of the 14 members we have on the Board. The employee representatives have the same rights and obligations as the other members on the Board.

So, to us in Nordea, we have not actually even seen the choice. I mean we will continue with our tier one system, which we think works fine, and our preliminary conclusion is that we already today fulfilled the requirements of the Directive regarding work reinvolvement, although we do appreciate that this has to be negotiated and agreed in due course when the Nordea merger process is initiated.

Professor Prüm

Danke. You offer me the perfect transition to address myself to Paul Davies, because in fact we have been talking so far about the importance of the one tier model under the UK system and the importance of the presence of non-administrative executive directors. May you give us some insight on what one really awaits under UK law from this presence of non-executive directors, and if you allow me, maybe also address the problem of the importance of conflict of interest rules to tackle corporate governance problems within the one Board system of the UK?

Professor Davies

Thank you Mr Chairman. Let me try and make two points quickly. One is that I don’t think the debate about one tier versus two tier is actually very important, at least in the absence of employee representatives, given the way in which under the one tier system, certainly in the UK and I think in most other countries. Now, there is a strong insistence upon a substantial presence of non-executive directors, so you have the division between supervision and management within a single Board in a one tier Board system in separate Boards and a two tier Board system, but functionally the same activities are going on. It seems to me the question simply is do you get better supervision of management if you have the supervisors and the managers on the same Board or on different Boards? I don’t know the answer, which seems to me quite a good reason for giving companies the right to choose, as the SE regulation does, and is increasingly the case in national legal systems. The advantages I suppose of having supervision and management on the single tier Board is that you have better flows of information between the two, better chance for the supervisors to know what the managers are up to, at least provided there is a sufficient number of executive directors on the one tier Board. We are used to reading corporate governance codes which insist upon a certain number of independent non-executive directors on a one tier Board. It’s equally important in my view to make sure there’s a substantial proportion of executive directors on a one tier Board, and that we shouldn’t move to the common US system where the Board consists overwhelmingly of non-executive directors with just perhaps the chief executive officer, because what you’ve got then I think is a Supervisory Board and no Management Board at all.

The argument against the one tier Board in terms of the effectiveness of the supervision of management I guess is that if you put the supervisors on the same Board as the managers, they may become overly committed to the managers strategy, and therefore become less good supervisors and that there is an advantage in keeping a certain distance between the supervisors and the managers, which is what you formalise in a two tier Board strategy. Could I just say one point about employee participation in the SE? I think it’s a point not often made but I think could be quite important. The rule for choosing the system of mandatory participation in the SE if one is required, is of course very different from the general rule which operates when a matter is not regulated completely in the SE statute, because we’ve said the normal rule is the SE is governed by the law of the Member State in which it is registered.

As far as participation on the Board is concerned however, the SE will be governed by the national law of one of, or some variety of the national law of one of the companies participating in the creation of the SE, which may well not be the law of the Member State in which the SE is registered, so that if a British and a German company merge to form an SE – probably a pretty unlikely event – but if it happens and there has to be mandatory participation, if the SE is registered in the UK, the participation system will be based upon German law. What I think one has to be aware of is that there is little reason to suppose that the German system of participation will operate when transposed to a British context in the same way that it operates in Germany. Now, we well know that the importance of co-determination at Board level, it’s importance in practice depends very strongly upon the links between the Board level employee representatives, the works council representatives at lower levels in the German companies, and the relationship with German collective bargaining. It’s the three elements, Board level participation, works councils and collective bargaining, which together create the system of employee influence in Germany.

What in my hypothetical would be happening would be the transfer of just one of those elements of the German system, the participation at Board level element, to a British context in which the works council’s arrangements and the collective bargaining arrangements will be very different. There’s no reason to suppose that German Board level participation, as I say, will operate in the same way in that context as it does in its domestic context. So I think we will have some fascinating examples to test the hypotheses which have been developed by various academics about the way in which legal transplants work.

Professor Prüm

Thank you. Ladies and gentlemen, it’s my privilege to introduce now the Commissioner, Mr Charlie McGreevy, Commission for Internal Market and Services. Mr McGreevy is truly European in the sense that he is now European Union Commissioner, part of the European Commission, but he keeps also at the same time a strong interest in the development of his own country, Ireland, and you will see that when you know a little bit more about Mr McGreevy, that it’s easy to make this link. Mr Charlie McGreevy has studied in the University College in Dublin and the Institute of Chartered Accountants. He was formerly a chartered accountant and is still a member of the Institute of Chartered Accountants. He was elected for the first time in the Irish Parliament in 1977, and he had a different position at a government level and he was Minister of Social Welfare in ’92, ’93 of Tourism and Trade ’93, ’94, and most importantly, Minister of Finance from ’97 to 2004, and he has a reputation in Ireland. I had the privilege to attend a meeting where he was introduced by one of my colleagues, Michael Berkley, saying that really it was really the most impressive Minister of Finance that has contributed to the development of Ireland.

So, at the same time, he said also that Mr McGreevy is real and typically a pragmatic man, which will be quite interesting in his presentation. And finally, to demonstrate this pragmatic reputation, he has agreed to answer some questions at the end of the presentation. I hope he will do it in the same way when we had this opportunity in Dublin where it was said that he’s speaking in front of his mouth. Mr McGreevy will talk about the setting of priorities of the European Corporate Governance action plan. Mr Commissioner, the floor is yours.

The European corporate governance action plan : setting priorities (unrevised section)

Charlie McCreevy

Thank you very much Mr Chairman. I would first like to thank the Luxemburg Presidency for staging this conference. In so doing, it is contributing to the creation of a European Commission following up on the conference organised by the Dutch Presidency in October 2004. Events such as these enable European academics and practitioners to share their thoughts and experiences. This process advances our work on corporate governance. It contributes to convergence of corporate governance practices in Europe, which is to my mind the best way to make progress in this area. Future presidencies will, shall we say, have to comply or explain why they don’t follow the practice of having a corporate governance conference.

Now, when the Commission adopted the action plan and company law on corporate governance in May 2003, it did so in the midst of the fallout from a number of major financial scandals. These scandals have prompted the new debate on corporate governance. Confidence had to be restored in the markets. Investors large and small were demanding more transparency as well as better information on companies, and more say in their operation. The Commission sought in the action plan to provide a balanced response rather than a knee-jerk reaction. We are now reaching the end of the first phase of the action plan. For this reason Chairman, this conference could not have bee held at a better time. In a period of two years, the Commission has addressed all actions which were identified in the first phase of the action plan. Our action has been based on two key objectives – one, bringing more transparency in the way companies operate, and secondly, empowering shareholders.

In implementing these objectives, we have endeavoured to strike a clear balance between empowering shareholders and yet leaving enough flexibility for management to run companies and to get on with the day-to-day business. We have also only legislated where absolutely necessary. For example, in the areas of remuneration of directors and non-executive directors, the Commission issued recommendations. These recommendations seek to promote convergence towards best practice in Member States in those areas. They are not the tin end of the words. The Commission will not follow up with legislation. We have already seen some encouraging moves in Member States, for example on transparency of remuneration. The recommendations seem to have served our purposes. I see no need to go further at this particular stage.

There has been much excitement in the press recently on the question of audit committees and whether the 8th Company Law Directive on statutory audit, which is in the process of adoption, should contain a requirement for larger public companies to have an Audit Committee. The proposal has been on the table since October 2004. The opponents of the Audit Committee seem to have woken up somewhat late in the day. There is in fact nothing revolutionary about the proposal. Most companies in Europe who take corporate governance seriously already have Audit Committees. But I am a pragmatic man. If the Directive confirms the now well-established principle of an Audit Committee as a tried and tested way of ring fencing the audit function, then I am prepared to live with some flexibility. But we should be clear about what we are doing and avoid introducing new concepts which may do little more than fudge the issue.

In general, in the field of corporate governance, the comply or explain principle has functioned effectively and kept legislation to a minimum, but shareholders must be given the means to hold management to account and to ensure this principle is effectively enforced. They must for example be able to express their views in general meetings, which essentially means that they must be able to vote. This is the main purpose of the work on shareholder’s rights that we’re currently doing in the Commission, and which is the last of the actions identified to be addressed in the first phase or short term of the plan.

National laws are often still allowed to practice on the basis that companies have mainly local shareholders who come together to discuss the central issues concerning the company, and who take decisions together in a meeting. However, this picture no longer reflects today’s reality.

In the European Union, foreign shareholders in listed companies account for between 30% to 35% in the bigger Member States, and up to 70% and even 80% in some smaller ones. Some Member States noting the steady decline in participation rate meetings have made attempts to address this phenomenon. However, the exercise of cost border shareholder’s rights still runs into many obstacles. We launched the first public consultation on this question in September 2004. Most of the respondents took the view that step at EU level would be needed, but it should be limited to fixing some basic principles. I fully agree with this approach. It is not our aim to force a one size fits all approach on Member States. We have now launched the second consultation of what those basic principles might be. I will ask those of you who have not yet done so to respond and to give us your comments. The deadline for responses is the 15th of July.

The economic impact of any action must also be fully analysed. My services are working on a comprehensive impact assessment extending the economic impact of the currently existing obstacles across border voting as well as the impact, which any action we might make is likely to have. We are also doing work in the complimentary area of clearing and settlement. I intend at the beginning of this autumn how to go about dealing with the issue.

We have now launched the second consultation of what those basic principles might be. I will ask those of you who have not yet done so to respond and to give us your comments. The deadline for responses is the 15th of July.

The economic impact of any action must also be fully analysed. My services are working on a comprehensive impact assessment extending the economic impact of the currently existing obstacles across border voting as well as the impact, which any action we might make is likely to have. We are also doing work in the complimentary area of clearing and settlement. I intend at the beginning of this autumn how to go about dealing with the issues identified in the second phase on medium term of the action plan. That is the period 2006 / 2008. Approaching this task I will have at the forefront of my mind the better regulation principles, which the Berosa [?] commission has espoused. We will fully consult before taking action and carry out rigorous impact assessments. The commission consulted on the overall content of the action plan in 2003, but time has moved on and if anyone here has further comments at this stage, I would be glad to receive them.

I would also like to say a few words on a related topic being addressed this afternoon. As already mentioned, shareholders should be able to play an effective role as the owners of the companies in which they invest. This may however be made more difficult in companies of which Member States retain a stake. Governments often retain control of privatised companies by granting themselves special rights, also known as golden shares, that go beyond the rights associated with normal shareholding. Through such rights, they often restrict partner ownership. Limited voting rights are influenced by management decisions in the companies concerned. Such restrictions are often than not to preserve the general interest, but the truth is that we have agreed in the community a far-reaching regulatory framework exactly in order to ensure the proper protection of the general interest.

Although there are certain exceptions, special rights cannot be justified under the treaty articles of the free movement of capital as they hinder the proper functioning of the internal market. The Commission has taken particular care over the last 10 years to clarify this situation in each Member State and to persuade Member States to eliminate such special rights where unjustified. In some cases, we had to bring cases before the European Court of Justice. Overall, progress in this endeavour has been good. Over the last decade, Member States have either voluntarily or as a result of Court rulings abandoned unjustified special rights in privatised companies, thereby better aligning these firms with best practice corporate governance standards. The report on the current state of play has been prepared in the situation in all 35 Member States. It will be published shortly, but the outline of our research will already be presented to you this afternoon.

To conclude, we are entering a new phase in EU corporate governance. Setting priorities for the future requires in-depth reflection on the potential implications of the new political context as regards our action in the field of corporate governance. More than ever, our action plan must be focussed and based on a solid assessment of actual needs of market players and investors. The potential impact of the action plan must also prepare for entire assessment. We will seek to support corporate development and to foster growth in the environment of trust and confidence in corporations and in markets. Businesses and investors alike need appropriate and efficient regulation, not over-regulation, but better regulation. Thank you very much. Now, Mr Chairman says I will take a few questions, if there are some.

Peter Butler

Commissioner, my name is Peter Buttler of Governance for Owners. You quite rightly said that one of the objectives of the EU plan was the empowerment of shareholders. Could I perhaps suggest that we should examine the audit issue in terms of empowerment of shareholders, because it seems to me that one of the unintended consequences of the establishment of Audit Committees is increasingly shareholders have lost their power over the audit and the audit tends to report to a sub committee, and that is why, although I am a representative of investors, I am very pleased that you are considering not introducing the Statutory Audit committee, and the alternatives I would like to suggest for the Directive are twofold. One, we should at least give the opportunity for shareholders to decide that the Audit Committee should be a Committee of shareholders and not necessarily a sub committee of the Board, and secondly that the scope of the audit should be signed off by a shareholder resolution, which means that if the shareholders wish to increase the scope over the statutory minimum, over what the sub committee, the Board requires, then that could become normal practice. I’d be interested in your views on that.

Charlie McCreevy

Well, I am very anxious to get the 8th Company Law Directive out of the way as soon as possible and to have it included in the first reading. Mr Doorn who is the Rapporteur has had his consultations, and last week they had a vote in the relevant committees, and I will be clarifying with Mr Doorn as to what is meant by some of the amendments put forward because I am a little unclear. The principle of an Audit Committee is retained, but then it goes on to say some similar body, so I’ll try to clarify with Mr Doorn what is meant there, and as I said in my address, I am quite pragmatic about these things even though I do humbly suggest that this issue seems to have arisen very late in the day in the last three weeks or so. So, even though it started off last October and has gone through the various Council and Minister’s forums and it didn’t seem to raise any particular difficulties at that stage.

I noted what the questioner said about what are you suggesting now. I am somewhat compromised because we have to work with the Parliament as to what they have put forward in terms of their amendments, so when clarifying these matters with Mr Doorn and see what compromises can be arranged, I will certainly take onboard what the questioner has said. But I have to say, even though I didn’t initiate the 8th Company Law Directive, I don’t think as I said in my address that the idea of another Committee for a public listed company is revolutionary, and I find great difficulty in going along to think this is undue. I think most limited public companies worth their salt would have an Audit Committee. I imagine it would be a basic requirement for any company which has been quoted on the stock exchange while going to the public for invested shareholding or loans. That would be my reaction to this, but I will liase with Mr Doorn on this matter.

I take onboard the questioner’s viewpoint that the audit reports should always be to the shareholders. I am used to this practice in my Member State, and when I learned the accountancy rules of company law, it’s the auditor report to the members, to the company via shareholders not to any group. I know it goes through the other processes, that is implicitly what an audit report is.

Peter Montagnon

Peter Montagnon from the Association of British Insurers. Commissioner, can I first of all welcome your remarks about flexibility on Audit Committees? I think that that’s great news. It’s not for those who have opposed them by the way, something that we don’t agree with the idea of Audit Committees, the problem is actually moving the whole best practice into statute and the statutory obligations which go round that, and I think we would be very pleased to hear you say that you would be flexible on this, and we hope that that will then enable us to move forward quickly with the Directive as a whole and that suitable arrangements can be made. But I wanted to ask you a question about annual meetings and the rights of shareholders and the way they work.

One of the problems that Europe might face in this is actually paradoxically that as we move to more distance voting and more electronic communications, that the annual meeting becomes a sort of virtual occasion which takes place somewhere out there in the ether. Do you think that that would be a good idea or do we need to somehow balance the facilitation of distance voting with something which actually keeps this alive as a real occasion where real people actually get together and discuss the affairs of companies?

Charlie McCreevy

Well, regarding the Audit Committees, I think there are a number of issues there where we discuss it with the Parliament who put an awful lot of work into this, and indeed the Directive has initiated, as we have it here, the Audit Committee has to have one person who has a competence in accounting and auditing and must be independent. Now, I didn’t write this Directive myself, but it looked like to me this Directive was fit for somebody like me when I retire, and I might get a post on some of these Audit Committees. But I had nothing absolutely with it at all, and I see maybe that there could be some clarification on those particular matters that slaps a little bit of elitism that certain people with certain competencies should be on an Audit Committee.

May I say that in the United States on Sarbanes Oxley, it goes much, much, much further than this regarding Audit Committees, regarding the independence of Audit Committees, far, far further than this. So this is not a very revolutionary step I would have thought, but I have taken what Mr Montanian has said. Regarding annual meetings, as I said in my address, we are in the second phase of consultation here and I am interested in the various points put forward. The vision that I come from is that annual meetings are quite lively affairs and limited companies have many, many shareholders, and also it’s extended to the purpose of who are the stakeholders in it as well, the employees, also to make sure that they get their voice heard as well if something is wrong in a particular company. It’s very inconvenient I’m sure for the four or five hours that the Chairman and the Board of Directors sits there taking abuse, but politicians take abuse all the time and it doesn’t do us any harm, and I think it’s a price worth paying for having public liability. I do accept of course that there has to be some order and good practice etcetera, but in general, I think in the way I will approach this when we have finished the second consultation is an open way of doing things and I don’t think that’s necessarily a bad thing. But we’re in the consultation process and I am interested in tackling some of the difficulties which we are talking about, technology has changed and maybe things can be improved there. But in general, I think that the shareholder, the big shareholder or the smaller shareholder should have his or her day in the sun and have his Board to account. I can’t see very well with all these lights, so maybe there is someone. Okay, thank you very, very much.

Patrick Zurstrassen

Ladies and gentlemen, our next speaker we are going to listen to is Mr David Devlin. Mr Devlin will talk about the perspective of the European Corporate Governance Forum. He is President of the European Federation of Accountants, which is the representative organisation for the accountancy profession in Europe. The European Federation of Accountants is present in all 25 Member States of the European Union and three member countries of EFTA. The European Federation of Accountants represents more than 500,000 accountants in Europe. He is a member of the Supervisory Board of the European Financial Reporting Advisory Group established to advise the European Commission on the introduction of international financial reporting standards in the EU. He is a member of the European Commission’s European Corporate Governance Forum, he is active in matters of professional ethics for the accountancy profession. He is a member of the Urgent Issues Taskforce of the Accounting Standards Board in the United Kingdom, and last but not least he is a partner in Price Waterhouse Coopers in Dublin. Mr Devlin, the floor is yours.

The European corporate governance forum (unrevised section)

David Devlin

Well, thank you very much of that introduction. The floor is mine, but with my escort behind, I wonder for how long do I have the floor. So, you will be relieved to know that I left lunch slightly early in an attempt to strike out some of the unnecessary background remarks which I had prepared, and I say that because I know myself that conferences tend to slip a little bit and it could be helpful to save or at least keep to time on my part. Secondly I’ll just say that one of the things, I have some prepared remarks given that it is a report to this important conference on corporate governance from the work of the European Corporate Governance Forum, and these remarks, or a version of them, will be available outside, if you should wish to take a copy. The conference organisers have very kindly put them there for you to take.

I would lastly say this, that although I have some prepared remarks which are normally a fatal way of addressing an after lunch audience, I would say this, that the more I have studied this subject and the more I have looked at it from a more general perspective than just as an auditor or an accountant, the more I have considered that shareholder rights and the other aspects that we are addressing in the Forum are indeed fundamental to how we in Europe run companies, and in particular, whether there is good room for market side solutions, or whether we must begin to look to the rather American style of detailed regulation, which has its place, but could easily become interfering and lead to lack of flexibility and markets, hardly something we want in Europe.

Okay, well look, I’m going to mention very briefly the background to this Forum. I would like just to mention briefly the expert report, which Jaap Winter and others prepared for the Dutch government’s Forum held in The Hague last year, and I’m then going to discuss mainly the priority subjects we have been looking at. Now, my fellow countryman, Commissioner McGreevy, referred before lunch to the Commission’s action plan on corporate governance and company law, and if you remember, the Commission consulted on that plan and about six months after the plan was published, they published a very helpful document summarising the responses received, and in the field of corporate governance, I just want to mention really a couple of points.

The first is, and it’s of overwhelming importance at the moment, is that in the field of corporate governance a very large majority of the respondents to the Commission’s consultation on the plan agreed with the Commission’s own assessment that there is no need, no need, for an EU corporate governance code. Personally I am quite pleased obviously that there was general support for the Commission’s proposal to establish a European Corporate Governance Forum. Now, the intention was that the Forum should encourage the coordination and convergence of national codes through regular high level meetings, but interestingly many respondents sought clarification about the terms of reference because they observed a considerable degree of convergence in the existing EU codes, that’s to say the codes in individual Member States, due mainly in those cases to market pressure, and therefore concluded that the Forum should not be a substitute for market forces in fostering further convergence and coordination of national codes, but rather aim to disseminate best practices.

Now, just a word about the role of the Forum. I mean it is clearly established that our role is to give strategic advice to the European Commission about its future policy on corporate governance. It isn’t a substitute for consultation on normal processes, it’s just a strategic advisor. The Forum will need to look therefore at the existing corporate governance codes in the Member States while best practice will of course be a key area for attention, and the international perspective, especially in a globalising [sic] world, notably with sort of US experience and OECD perspectives, is also very important, and we also in the Forum, we’ve agreed that we want to focus on listed companies. They have a rather more Pan European importance we suspect and we also need, I think, to be careful to remember that there is always a certain knock on effect for what you agree with listed companies. It can tend to drift into best practice by way of benchmarking for non-listed undertakings. So that all suggests we should behave with discretion.

We have as regards our composition 15 members appointed in their individual capacities by the Commission. It is chaired by Dr Alexander Schaub, whom you’ll all know, the Director General of the Internal Market, and the Speaker appointed by the Forum is Bertrand Cologne, from France, who has asked me to speak today as unfortunately he has a previously existing commitment and has asked me to give you his regrets. Now, this may just be a convenient moment to mention the advisory group of non-governmental experts on corporate governance and company law which has recently been appointed by the Commission, and to explain the distinction to you between, as it were, them and us.

The intention of the Commission, as I understand it, is that whereas the Forum is concerned with corporate governance issues only, though of course they may have implications for company law and that we are also to be concerned at the strategic level of advice, the second advisory group is intended to provide very specific technical advice to the Commission on drafting measures, and it of course again will be supplementing rather than replacing normal consultation processes. Now, as to our method of operation, we plan to have just a few meetings a year. We’ve had two so far, on the 20th of January, and the Monday of last week, 20th of June, so to the extent that you get anything out of this little presentation by me, it is literally hot off the presses. The Forum aims to operate very transparently. We have rules of procedure of course, as is normal for European Commission Committees, and you can find details too of our agenda and of our minutes on the website, which is in my paper outside.

Now, before turning just to the priority items, I want to refer to the expert report that was presented to the Dutch government’s conference in The Hague and which was finalised afterwards to incorporate some reflections from that conference, and that’s important because it is, if you like, the final stages of preparation before the Forum came into effect, and as well as a survey of developments in a number of countries, there were a number of common themes, one or two of which I will refer to. First of all, as regards the use of codes or legislation to regulate corporate governance, legislation is obviously appropriate to ensure that essential legal infrastructure is available and operates efficiently, and to give you an example, voting rights are such an example, and it’s been referred to already, and legislation is also worthwhile in order to set common agreed minimum standards.

Codes based on the good comply or explain principle are considered, in this report, to be more appropriate where different solutions exist to achieve certain convergence goals, and where companies require flexibility, as Maurice Lippens was explaining, to adapt to their own particular circumstances, and an example could be the structure and functioning of company Boards. Helpfully the report also made some suggestions for the operation of the European Corporate Governance Forum, and it made suggestions, for example that we should look at cross border listings and investments, and also comply or explain mechanisms as well as related enforcement. You may remember, those of you who attended the conference, that at the end, David Wright of the Commission who had Chaired the conference, summarised the findings as to points of convergence and divergence, and I just want to refer to some of the points of convergence by way of final background to the work of the Forum.

First of all, that corporate governance is not a passing fad but a very crucial new subject for all companies and for economic reform, restoration of investor confidence in capital markets, and long term growth on investment. I know that also to be the view of Alex Schaub who sometimes refers to corporate governance having been in a dark corner until the scandals, and we need to make sure through conferences like this he says, that it stays in the full daylight and gets continuing attention. A further point of convergence at the Dutch government’s conference was unanimous agreement that a principle’s based approach is the right one for the EU compared to the detailed box ticking rules based approach, which again we heard complaint about before, earlier today. There is also clarity that there is a growing movement of convergence in practice in all Member States aiming at improving the level of corporate governance standards and widespread support for encouraging shareholder participation and company meetings and to facilitate transport or voting.

So that’s the whole background to what we sat down to do on the 20th of January. So, as you might expect, we have made more progress with some of our priorities than with others, and the three priorities I just mentioned to you are as follows. The role of shareholders focussing primarily on shareholder rights, and this work will of course take into account the second consultation of the Commission on shareholder rights, which Charlie McGreevy referred to. Secondly, questions related to the principle of comply or explain, and this relates to enforcement of corporate governance norms, mainly through market forces and shareholder rights, and thirdly ways of improving the functioning of companies focussing on issues to do with internal control and the independence of directors.

So, at last week’s meeting if we think about Monday of last week and I tell you about my day’s work, so to speak, we focussed on shareholder rights and internal controls, and we’ll continue on these in the autumn when we plan to address in some detail comply or explain issues. Okay, shareholder rights. So, we had a very vigorous discussion about this, I’ve said to you that I think it’s the real key to avoiding the necessity of detailed regulation, and when you come to examine these, they have a certain fundamental importance and they raise what one might call rather philosophical questions as well as sort of detailed practical issues of so-called plumbing, which you may remember Jaap Winter referred to in passing. So on the broader questions first, what’s the aim of corporate governance you might really say, and I’ve just taken three in this paper. One could be that shareholder sovereignty could be the guiding principle and the objective of corporate governance matters, and such an approach would focus on measures which would increase the role of shareholders and might help for example to resolve issues surrounding one share one vote.

Another somewhat slight different approach, it might be a little bit nuanced [sic], but it might be to view shareholders simply as the beneficial owners of the company, and therefore you would tend to see corporate governance measures as being to promote as a supreme priority the creation of shareholder value. Now that might obviously affect one’s view of the balance of rights as between shareholders and management, and then you could take a rather broader view as a third possibility that companies exist to be built into successful enterprises perhaps with that wider sort of objective from society’s point of view, something wider than just shareholder value, and it might lend weight to the interests such an approach of stakeholders other than just shareholders, or it might lead you to, for example, favour longer term share holders in some way, for example.

Whichever view you take of those sorts of questions, and there could be other views of course, there are clearly risks if shareholder rights are not correctly judged. Inadequate rights clearly allow management to become entrenched, which will bring its own risks for all parties. You could even get outright failure if you allow incompetent management to survive too long. On the other hand, one can take the view that excessive intervention by shareholders in management can lead to priority being given to short term performance perhaps at the expense of longer term corporate development. So, where did the Forum get to? Well, we’ve recognised really coming from that that there needs to be a very clear distinction in our proposals or our advice between governance on the one hand and management on the other, and that means that managers must be allowed to conduct their activity with great autonomy while remaining fully accountable to shareholders. In other words, we have to find an appropriate balance between the two crucial objectives of managerial entrepreneurship and shareholder control.

Now, in order to address this issue, we then sat down to consider why shareholder voting should be of concern and which are the issues on which shareholders should vote, and when. So on why shareholder voting matters, our discussion did mention some important factors. If, for example, one takes as the objective of corporate governance the promotion of strong successful companies creating value for shareholders, then shareholder rights clearly matter, but this is because the validity of votes on important matters under company law is in substance open to challenge, if only a very small proportion of shareholders exercise their votes, and such a situation may also leave companies vulnerable to a relatively small proportion of shareholders influencing the outcome on crucial issues if other shareholders are apathetic. And perhaps the core idea is that an appropriate level of scrutiny by shareholders on key issues will make management perform better, and furthermore it should mean that reliance on market side pressure will remain a viable approach to corporate governance, and this is obviously vital as the alternative is a much more detailed and tougher regulatory intervention and enforcement.

So this is the crucial issue ultimately, how do you make the market work rather than rely only on legal solutions, and indeed, this is a sort of theme underlying the work of the Forum. If we were successful in building market side solutions or helping to do so, it should lead to stronger and better integrated financial markets. Obviously if shareholders aren’t powerful enough, there is no market mechanism, other than the share price, and that’s not a question just of corporate performance but it also relates to investor protection, especially from abuse in scandals, and the appropriate protection of investor rights and interests obviously improves confidence in markets and reduces the cost to capital.

Now, as to the issues in which shareholders should be entitled to vote, examples, just to give them to you quickly, include election and crucially dismissal of directors, executive compensation, major corporate transactions and major changes in the bylaws, and we have started discussion on these sorts of issues in the Forum. We have also tried to examine how we might approach some of these issues. One perspective is to consider whether shareholder rights are sufficient in practice to achieve some of the objectives mentioned about and to view some of the anomalies and limitations present in parts of Europe on shareholder rights by reference to whether or not they are excessive and indeed might be considered as abusive.

So, promotion of best practices to bring about improvements and to foster convergence should be an element in addressing these issues in line with some of the background, which I explained at the beginning. Then, a further question, who should vote? Now, this may seem obvious to those of us who didn’t think about this before, but the particular issue of course is whether it should be the ultimate investor as discussed in the first commission consultation on shareholder rights. It concerns the entitlement to control the voting right attention to shares, particularly in cross-border investments where shareholders invest in shares through change of intermediaries. It’s obviously not appropriate today at this moment with the technicalities, but it’s clear that intermediaries will have an important role in any solution to this issue. It is also highly desirable that companies themselves should not be faced with any uncertainty as to the validity of votes they receive perhaps from shareholders who are not on a share register are recorded on a depository. In other words, if they haven’t demonstrated that they really are entitled to the vote.

So, while it’s clear that the principle of encouraging shareholder voting for all the reasons explained favours doing something, the question is which is the convincing and cost effective answer. There are also many technical issues associated with the effective exercise of shareholder voting rights, particularly in cross-border investments, and these concern some of the obvious issues, such as notice of meetings, the agenda and the information before general meetings, the right of shareholders to ask questions, the role of intermediaries, stock lending and depository receipt holders, and respect of solutions in such practical detailed matters, we do quite urgently seem to need pragmatic solutions which will work, and necessarily this seems to involve a lot of technical detail.

Now, as these are a vital foundation to the exercise of shareholder rights in a consistent and practical way, the view of the Forum is that a directive is needed and needed urgently, that it should be as precise as necessary to realise the objectives I have mentioned. This of course I should say is in contrast to the general principle, that of the field of corporate governance principle based approach is in general the right way to give Member States and companies the flexibility they need with a preference for codes and comply or explain, but in this case we need to go a little bit beyond the level of just principles to sufficient legislative detail to make the system work. Obviously we have some further analysis to do and we look forward to looking at the results of the Commission’s consultation shareholder rights.

Okay, the last item then I need to mention is internal control and risk management, and you are aware that over the last few years these scandals have given rise to many questions about the inability apparently of systems of risk management internal control to avoid misrepresentation in the financial statements of some listed companies, and therefore when you look at improving the functioning of companies, risk management and internal control are important issues and they are addressed in most of the codes in Europe, such as OECD, or the UK combined code. Just to mention Sarbanes Oxley, because I think we should do that, it contains two sections relating to risk management and internal control for SEC registrants. Just to concentrate on the second section 404, I could have mentioned section 302, but to save time I shan’t, section 404 requires management to state publicly their responsibility for establishing and maintaining adequate controls over financial reporting together with an assessment of their effectiveness. The external auditor must provide an audit opinion that’s apart from the opinion on the financial statements, on management assessment of the company’s internal control, and also their own opinion on the company’s internal control over financial reporting.

I should not that the SEC held a roundtable in April to consider experience to date with 404, which I attended, and while I have some personal and I think interesting impressions of that day, it’s not for mentioning now but it’s clear that some refinement of the arrangements would seem desirable, even if they have benefits. Now, as regards the EU, it’s already been mentioned that amendments to the 4th and 7th Directives and to the 8th Directive will have certain requirements relating to risk management and internal control, and the amendment proposed for the 4th and 7th will introduce a requirement for listed EU companies to provide a corporate governance statement in their annual report or in a separate statement, which will contain amongst other items a description of the main features of the company’s internal control and risk management systems in relation to the financial reporting process. The proposed amendment to the 8th Directive on statutory audit requires the Audit Committee of public interest entities including listed companies, or if you look at the European Parliament version, it might be the whole Board, to monitor the effectiveness of the company’s internal control, internal audit where applicable, and risk management systems.

Now, the 8th Directive proposal does not seem to be limited to issues related to financial reporting only because the preamble makes it look more general, and it also seems to me to clarify that the responsibility for the internal control system lies with the Board of Directors collectively and not only with the Audit Committee, and obviously many Member States have introduced new rules and legislation listing rules on corporate governance codes in this area. I just want very briefly to mention a major paper which my own organisation, FEE, produced in March. It’s on the website and it can tell you really what the state of play is. It has a survey of practice in about 30 countries, including the US, and the question we are raising is whether conclusions about the effectiveness of control should be published, and whether auditor involvement is desirable. We tend to think not at the moment because there are many other preliminary issues on which there is non-consensus and which are of rather more immediate importance. We do take the line that the EU requirements are appropriately pretty high level. That’s in line with the general EU practice of corporate governance, and we just want to make sure that we survey the best practice and disseminate it or made our contribution to doing that. We would welcome comments by the end of July.

Our overall conclusion is that this area does merit a robust debate, that’s what FEE thinks, and we don’t want too much in the way of detailed requirements before that debate takes place. To be explicit about aspects of Sarbanes Oxley, FEE is currently unconvinced about the potential merit of any EU measure to require publication of conclusions on the effectiveness of internal control. From the point of view of the Forum however, there is a similar desire to examine carefully the lessons which may be learned from experience elsewhere before any further legislative measures at EU level are contemplated in this field. The Forum also agrees that it would be necessary to strike a balance between identifiable benefits of any additional requirements and the costs and burdens that would result. So given the impending legislation at EU level, we think risk management and internal control will remain highly important and topical issues. If I had the time I would have liked to refer to the very recently published review in the UK of the Turnbull Guidance, and all I will say there is very simply that the evidence shows that the UK practice of the past several years has met its original aims and improved the standard of risk management and internal control of UK listed companies, their support of the UK for a broader view of risk management and controls than in the US, which is just financial reporting, support for the principles based approach, and very little support for public statements on the published effectiveness on the statements about internal control of the US sort.

So in conclusion, I hope I’ve given you a flavour of the background to the Forum, it’s composition and working methods, and of the sort of discussion we have had on some of our priority subjects. As I mentioned previously, we will continue our discussion on these issues, and in particular the topic of comply or explain in our next meeting in the autumn, and this will involve addressing enforcement of corporate governance norms mainly through market forces and shareholder rights. The advantages and constraints of the comply or explain approach, the relationship between law and regulation especially concerning disclosure and transparency, and whether the Forum will continue to have a general preference for market led enforcement as being most effective. Thanks very much for your attention.

Golden shares: a restriction to EU cross-border investment (revised section)

Gerassimos Thomas

We will move directly to the next session. Just before moving on, I want to introduce our fellow panellists. There is Professor Colin Mayer, who is professor of finance at the Said Business School in Oxford. He is an Inaugural Fellow and Board member of the European Corporate Governance Institute in Brussels, has done extensive research in publications in corporate finance, corporate governance regulations and taxation issues. To my left is Mrs Anita Ryng who is the Director in the Polish Treasury on European Integration and Foreign Relations Issues. She has been Director of the Ministry of Privatisation and she is a member of the Supervisory Board of a number of companies with State participations in the insurance sector, real estate management and promotion of foreign investment. To my right on the other end is Professor Stefan Grundmann. He is Professor at the University in Berlin for German, European and International Private and Business Law. He heads the Institute of Banking and Capital Market Law in the same university, and he is in the process of setting up a European law school in Humboldt University together with King’s College in London and the University of Paris. He has done extensive research and publications in corporate governance, corporate finance issues. And then to the left is Dr Luis Correia da Silva. He is head of Oxera Finance and Oxera Consulting. He has done extensive research in this field and Oxera is currently conducting a study for the European Commission on the micro economic costs of special rights in privatised companies. Oxera has also done a lot of work for the Finance and Services Authority in London, the London Stock Exchange, the World Bank and other organisations.

Contrary to other panellists I intend to make a short presentation myself to introduce the subject, if I may. As Commissioner McCreevy mentioned in his speech today, the Commission has carried out a survey to examine the situation with regard to special rights in the enlarged Union. It is a survey based on a questionnaire to all Member States in 2004, and we intend to publish this survey in a report before the summer break, so over the next three weeks. Given the lack of time, I will not go into too much detail, but I would raise a couple of issues as introduction and then give you the gist of our research. First of all I want to point out that I am new in this job. I have taken over this job about eight months ago, and what struck me when I got in charge of the capital issues is that often the debate is about the infringement procedures that the Commission is bringing against Member States for keeping special rights in privatised companies. I would like to show with this report that this is only half of the story. I think that tremendous effort and tremendous progress has been made over the last ten years together with the Member States in eliminating special rights, and as you will see from my presentation, in the ten years following the Maastricht Treaty, which made the free movement of capital secure freedom, I think we have made much more progress in liberalising capital movements in Europe than in many other areas, even if some problems remain.

Gerassimos Thomas

Let me move then very quickly to tell you a few things about why we think that special rights are a restriction to free movement of capital to show to you how we have approached the issue over the last ten years, and then what is the state of the play in the Union at the moment. Usually special rights are created by legislation in Member States at the time of change of ownership from the public to the private sector . They very often put caps on investments and voting rights of other shareholders rather than the government, or they have an impact on management decisions. They veto rights on mergers, governments with special rights can veto changes in the statutes, in disposal of assets, and all sorts of other management decisions. Very often the special rights are created either through a golden share, so there is special rights included in the Articles of Associations of the particular company, and these Articles of Associations are enacted through State measures, or they are enacted through specific legislation related to the privatisation of the particular company or related to the privatisation of the whole economic sector or the privatisation process as such.

In our view special rights have direct impact to cross-border integration. I mean they effect direct investment, they effect portfolio investment as well. They limit the ability of new owners in the case of direct investment for example to exercise their control rights, and they make it much more difficult for companies to restructure across borders. With regard to portfolio investment as well, they introduce investor uncertainty about the rights of the different classes of shareholders, and I will explain later on why they potentially reduce shareholder value as we will see for some of the evidence produced by some of the speakers.

I want to say that Member States have good reasons and I think it’s very important to understand for us in the Commission and for everybody to understand the good reasons and what is at the origin of the special rights. The main reason is to safeguard services of the public interest considerations and it is true that the Treaty envisages exceptions to the freedom of capital movement in order to safeguard the public interest. At the beginning of the privatisation process when it started in the ‘80s in some Member States, in the ‘90s in otherssuch considerations were very much at the core of the governments’ concerns. However, what we have found is that the European Court of Justice through a number of cases has obliged us to look in a very restrictive way on these exceptions, and we have to make sure that any considerations, any objectives of the government, have to be introduced through measures that are non-discriminatory, through measures that are suitable for obtaining the objective which they are about to pursue, and they are proportional to the action that is needed.

So we have a very specific guidance by the Court of Justice on how from the legal point of view we are able to deal with these concerns of the government, these legitimate concerns of the government in the case of special rights. I think we also have a very important development in the community which has been taking place parallel to let’s say the case law and the Commission action in the area of special rights. This is the development of regulation. Over the last 10 years, we have seen that at community level, at the national level, regulations for a number of sectors, sectors of general economic interest, has been developed, which covers all the utility sectors practically, and also regulatory practice has improved greatly in Member States. So, we have in a certain way an alternative instrument for governments to safeguard the public interest rather than safeguarding public interest through ownership rights, which is what the special services usually do, and it would be very interesting to hear Professor Mayer, who will expand on this subject.

In the interest of time and in order to give the opportunity to the speakers to express their views, I want to say a few words on how the Commission has approached this issue of special rights over the last 10 years. We first, before taking any action against Member States, issued an interpretative Communication in 1997. So we first wanted to make public our views on what the Treaty freedom means in practice, what it means for business, what it means for direct investment, what it means for portfolio investment. Then we carried out a survey among our own Member States to see what cases of special rights we have and we carried out dialogue and screening of the new Member States in candidate let’s say countries at that stage in 1999 in order to see what kind of special rights they had already in privatised companies or they were planning to introduce.

Then we engaged in a dialogue with Member States. A number of them voluntarily abandoned their special rights, it was the case of Ireland for example, which is one very clear cut case, but other Member States also went either for a straight elimination of special rights or, what is very important in my view, and what is very difficult to see through the numbers is they improved very much their legislation. So you have many cases where special rights still exist; the Commission might still be pursuing these cases to court, but I think if you look at the type of criteria that are used and the kind of restrictions that the rights that the government had through these special rights are much more limited than they were in the original form. We have over the last 10 years Member States who might have changed their special rights legislation already two or three times, and if you look just at the final numbers, you might see that there is still a Court case out there, but I think the quality improvement for potential investors is tremendous, and this doesn’t always show up. I hope it shows up a bit more in our report to be published.

Of course we had a number of landmark rulings by the Court of Justice in 2002, 2003, and even in June this year. These rulings have in a certain way clarified very much the picture in our view in favour of the Commission- but this is not the most important thing. It has I think clarified what is the Court’s interpretation of what one can and cannot do with special rights and what is and what is not legally compatible with the Treaty, and this has led a number of Member States to comply with the judgements, but again it will be evident through the report, new Member States have made a lot of progress before accession just by let’s say complying with the principles set up by the Commission.

I will be brief to give you now a small overview of where we are today. I think you will see that despite the progress made over the last 10 years, we still have a number of companies, privatised companies where the State has special rights. I think as you can see from this pie chart I have put up, it’s slightly more than 50% of the cases concerned, companies who provide services with general economic interest, in a certain way this was not a big surprise to us. I mean we still have a lot of discussion with the Member States on how things can be covered by regulation and how things can be covered through special rights, through ownership rights, through other kind of restrictions. What was a little bit more surprising was to see that there is still quite a large number of companies, mainly but not only in the new Member States, in what we could call competitive industries. So not former utilities or let’s say general economic interest companies, but other companies, and of course we have a small sector of companies who are in sectors who are very clearly exempted by the Treaty which covers defence, nuclear industries etcetera.

Unfortunately I cannot give you the full results of our survey yet, but again, this is an attempt to give you an idea of what kind of issues are involved. Let’s say energy, telecom, water are probably the sectors that dominate the cases where we have special rights in services of general interest. I think the graph probably shows a big importance in the water sector. We have to see also how each sector is organised in each Member State and many Member States will have a lot of regional water companies, and therefore in each one of them there is a special right where in other sectors there could be a nationwide company with such special rights. So I would look at the numbers at this stage with a grain of salt, but I think the graph gives you an idea of where the problems are.

And then on competitive industries, we have a number of companies following a very ambitious privatisation programme. We have a number of companies in various goods and services where you would normally not expect to find such government involvement, and then of course as you can see from the graph, we still have the presence of special rights in textiles, construction, pharmaceutical, medical products. So, I think they go back to the tradition in specific Member States, cultural attachments, history of companies, etcetera, but certainly this is an area where one has to look very carefully to the justification. Just to say one more word, I think that everybody has noticed over the last 10 years that privatised companies represent an important part of national economies, and whether they are utilities or elsewhere, the economic importance of this case is tremendous. Very often the companies that have special rights are leaders in their sector. They are probably one of the most important companies quoted in the national stock exchange. They represent an important part of GDP, so I think the economics of these cases are very important, and I think also from the point of view of free movement of capital, I think that appropriate corporate governance in these companies has implications for the whole sector or the whole financial market of the countries concerned.

So, I think Professor Correia da Silva is going to tell us a few more things about the micro economic implications, but they are quite important. So, I will move ahead, I hope I have saved some time, and so I will move ahead to the rest of the panellists as a way of introduction in order to get their views and try, from the Commission’s point of view to understand from the panel and from the questions, which we will hopefully have the time to answer how you view the situation after such developments. Thank you.

Professor Colin Mayer I would first of all like to thank the organisers for having invited me to give this talk. Commenting on the fact that the British government was exchanging the Crown Jewels for golden shares, one astute observer pointed to Margaret Thatcher and said this was the first time that a reigning British monarch has swapped her crown for a bit of paper. He perhaps could have gone on to say that she had at last realised that she could control the commanding heights of the British economy with just one vote. Now, golden shares are one example of a general class of differential voting rights of which dual class shares and voting right restrictions are an example. They are associated with disproportionate control being exerted by particular groups of shareholders, for example the founding families in companies, and they can create significant private benefits at the expense of other shareholders, and those private benefits can be quite substantial as this slide here shows. It shows the extent of private benefits as being measured in a number of European countries and they vary from roundabout 40% in Italy and Austria down to just 1% in the UK and the US.

Economic theory is quite clear in suggesting that in the absence of these private benefits the appropriate form of voting in a company is one share one vote. Private benefits may however justify a deviation from that principle of one share one vote, and golden shares in this regard should be regarded as a mechanism by which essentially disproportionate control is conferred on the State. They can then in principle be justified on the basis of the deviation of social from market benefits, if there are social benefits associated with activities, national benefits that exceed those of the private interest. Since for the most part private market investors have a problem of control except for in the presence of takeovers, what essentially the golden share boils down to is an impediment on the takeover process or the market for corporate control, and the question that this raises is, is that impediment warranted?

Well, one thing we know is that there are very large gains associated with the takeover process that the shareholders and takeovers earn substantial returns frequently in excess of 15% bid premier, and in hostile bids, even more than that. So there appear to be substantial gains, and the question is whether or not those are real gains or come at the expense of other parties, for example other investors. What the elimination of a golden share does is to enhance the opportunity of private investors to earn these large gains. So, in thinking about the abolition of golden shares and their impact on the takeover process, the question is whether or not these large gains are a clear indication of the benefit associated with acquisitions.

Well, for the most part the answer is yes. These are indications of overall gains, but provided that there isn’t the type of divergence between social and private market interests that I mentioned earlier on. So bid premier in takeovers can be viewed as some evidence in support of the benefits of eliminating the golden shares, but on their own they are not sufficient evidence. The critical question is do takeovers create serious social market conflicts? If so, why do they do so, how large are these potential conflicts between national and private interests, and perhaps most significantly of all are there better remedies that can be used than the golden share?

Well, ownership, be it through the State or through private ownership, confers control rights on the owners, and those control rights are particularly significant in relation to the investment decisions that companies make. If it’s possible to specify what those investments are by contract, then there isn’t a great deal of issue that surrounds ownership, and in particular in considering national as against private objectives, the question is whether or not there are ways in which those national objectives can be specified by contract rather than by ownership, and the way in which that is traditionally done in the areas in which there is private ownership of these organisations is through regulation, and the critical issue then is to what extent can regulation substitute for the objectives of golden shares.

There are a variety of different forms that State ownership and control can take. It can take outright ownership of companies, it can take the form of partial share stakes in companies that have been privatised, it can take the form of a golden share in privatised firms, or it can take the form of regulation. Whether or not one prefers State or partial State ownership to golden shares, depends on one’s views about the way in which State ownership interferes with the operation of the private sector and private markets. Large holdings of shares threaten the interests of other minority investors, and in particular there is a risk where the State is a large shareholder of a divergence of interest between what the State is pursuing and that of private investors, and what that does is essentially to discourage private investment and raises the cost of capital. In comparison with outright State ownership or partial State ownership of companies, the golden share may be regarded as being a lesser of an evil insofar as it can only be implemented in relation to specific activities, so that by restricting the rights of the State to intervene, the golden share in that regard may be regarded as being preferable to that of outright State ownership. Nevertheless, it impedes the beneficial restructurings that may be associated with takeovers, and it certainly tends to undermine the financial market integration process.

The market integration process is largely associated with the free flow of capital between Member States, but it also is relevant in the context of the free flow of control of companies. One should, in thinking about market integration, as far as possible seek to achieve integration, not only of capital movements, but of corporate control. In that regard, the elimination of a golden share is rather analogous to that of the takeover directive, and in particular the breakthrough provisions of the takeover directive by which acquiring companies will be able to overcome takeover impediments through voting them down. But there’s an important distinction between the elimination of the golden shares and the breakthrough provisions associated with the takeover directive. The differential voting rights associated with the breakthrough provision may well be consistent with the notion of investors having the right of freedom of contracting, whereas golden shares are clearly contrary to the notion of private investors having the right of freedom of contract.

So, in thinking about the elimination of golden shares, one has to consider what are the alternative forms in which the State might try to achieve its objectives. The way in which this national objective can most readily be achieved is through stipulating what the corporations should be doing through regulation. So the issue that arises is can the divergences between private and national objectives be corrected through regulatory processes, can the social obligations for example be specified in the licenses and the contracts that utilities are required to fulfil? Can those companies be required to put up bonds and governance, which are used to provide appropriate incentives and protection for the national interest, and let me just illustrate that in relation to two examples. The first is the case of the golden share in the British Airports Authority, BAA, which governed the holdings of the company, and in particular holdings in excess of 15%, and it also related to the rights of owners to impose closure of airports.

The second example is Spanish legislation regarding major corporate decisions, for example winding up, mergers and changes in control of such companies as Andesa in energy, Repsol, in oil and Telefonica and telecommunications, and the ECJ ruled in relation to the British government’s application concerning BAA that this was contrary to the free movement of capital and it also struck down the Spanish government’s request in relation to two companies, one in the tobacco, Tobacco, and in banking, Argenteria.

Now, the issue that these cases raise concerns the ability of these companies to deliver services to customers in a form that is consistent with the objectives of the State as the protector of the customer’s interests concerning the quality, efficiency and price of delivery of those services. Now those are things that we typically associate with the regulatory process, that is to say these issues associated with quality efficiency and price are typically specified in a utilities license and are subject to regulatory contract. For the most part therefore these objectives can be obtained through regulation. A more legitimate concern arises in relation to where companies are thinking of implementing new services or whether a major strategic development, for example in the case of BAA, if a rival airport had taken it over would it have had the same interest in developing London as a centre of airport activity, or would it have preferred its domestic base?

In general where there is limited innovation, for example in water and electricity, it is relatively easy to specify these national objectives by regulatory contract. It may be less so to do in areas where there is more substantial innovation, for example in relation to telecoms. But it’s not just in relation to the protection of customer interests that regulation may be required once eliminates golden shares, but it may also be in relation to investors, and in particular minority investors. The efficient operation of a takeover market requires regulation to protect investors as well as customers, and in particular where there is the introduction of markets for corporate control, takeover legislation to protect minorities will be required in addition to regulation to protect customers.

So, to conclude, the overall implication that emerges from the economic literature is that the golden share debate should be considered in the context of ownership and control of companies more generally, and what this points to quite clearly is the substantial benefits associated with having a free market in corporate control in Europe as well as in capital movements. The golden share should therefore only be accepted or justified if there is clear evidence of a public interest case, but not only evidence of a public interest case, but absence of alternative remedies for those public interest considerations, and in particular that regulation will not be sufficient to meet those public interest concerns. The implication that emerges is that golden shares should basically only be permitted in a very limited number of cases and sectors, but this prohibition on State control or attempt to eliminate State control does not necessarily have implications for the use of differential voting rights elsewhere, and in particular the use of differential voting rights by private companies.

So, I think that even Margaret Thatcher came to appreciate in the end that a reigning British monarch should not control the commanding heights of the economy with just one vote. Thank you.

Gerassimos Thomas

Thank you. I would like now to ask Mrs Anita Ryng to give us the perspective of a government that has done a lot of privatisations and in some cases retained special rights.

Anita Ryng

Thank you for giving me the opportunity to present the point of view of a government, and especially of a new Member State. I represent the Ministry of the Treasury, an institution in Poland responsible for State owned enterprises, State owned assets and of privatisation. My adventure with the golden share began exactly 10 years ago. One of my first tasks at the Ministry was to read a very thick file with a sign of Her Majesty’s Treasury on it about the golden share instrument used in the British privatisation, and to make a note how it could be implemented or adapted to Polish conditions. The purpose of my talk today is to present the Polish approach to such institutions. I will not use the term golden share, but rather special rights, because what I have heard from Professor Myer I think is slightly different to what we are, from the Polish approach.

First I will begin with some explanation and rationale for having introduced this instrument in the past year in Poland. In order to understand the Polish approach and the policy of all the governments in the past, you have to learn about the code of privatisation in Poland in the last 15 years, and this is what is on the slide now. In 1990 we had more than 8,500 State owned enterprises. Today it’s 1,800 Treasury corporations and State enterprises, with a very different participation of the State starting from 0.001% of shares up to 100. The rest has been privatised in the meantime, and only in 2% of those cases we used some instrument related to golden share. To illustrate the progress in the economy, please take a look at the sectors which have been privatised now in Poland. These are mainly consumer goods in some part of the services, including telecommunication. Advanced privatisation processes have begun in the remaining part of the services and part of heavy industries, and the last group, the third pillar, consists of the sectors in which the privatisation has only recently been initiated, and the continuation of the privatisation strictly depends on the implementation of restructuring and liberalisation processes. These sectors’ infrastructure are sensitive with immense social problems with large investment needs, and if the Polish government intends to implement some restriction in the free movement of capital, these are exactly the companies from those sectors from the last column.

What was the justification in the past from the government’s point of view to introduce such an instrument? I don’t want to judge whether this was an appropriate approach or not, I just want to report the reason behind it. First of all as I have already said, it was the large scale of privatisation in Poland. The government intended to control the activity of some of the companies also after privatisation to prohibit liquidation, to prohibit mismanagement, to prohibit such cases where only the market has been taken over, and then the company itself which went bankrupt. In such cases the Minister of the Treasury wanted to have an instrument to get information, to prevent, to react. At that time it seemed to be more effective than the code procedures. In the ‘90s the Polish courts were full of new cases, the procedure lasting very long, so the judicial system of control was quite inefficient.

The second reason was connected with the Polish approach of privatisation. According to every privatisation agreement there are social and investment obligations of the investor, and the State would like to have the possibility to monitor those obligations, how the investor is implementing those obligations which are in the contract, and the government also would like to react in certain cases. Last but not least, a very important argument was the public perception of the privatisation in Poland. A golden share was very often an argument in many political discussions with opponents of the privatisation who said look, also after privatisation it is still possible for the government to react, to take actions in critical situations, and the government was convinced that it could help to gain public support for privatisation.

Here you see some examples of social and investment obligations in four selected companies from different sectors. These are not necessarily the companies where we have these special rights. Every transaction in Poland, as I said, this is different. It’s a case-bycase approach. Individual conditions are negotiated with particular investors according to the sector to the condition of the company, sometimes up to the power of the trade unions in the given company. And then the picture of public opinion changes towards privatisation in Poland. From this chart you may understand the environment around privatisation in Poland. So, from the beginning, from the start of the transformation, the privatisation especially with participation of foreign investors prompted emotional reactions of the general public. In the mid ‘90s we had several transactions when we sold companies into foreign hands, and as a result of a rapidly worsening financial situation of investors, those companies went bankrupt or had at least some problems. We are talking here about a car company in Poland owned by Deo, Korean investor, or about Polish Airlines sold in 1998 to Swissair. Such cases evoked very negative sentiments and found their expressions in more negative evaluation of the entire privatisation process. In the last years the general public is willing to accept almost exclusively the privatisation decisions for enterprises in very difficult financial situations, companies which require large investment are threatened by bankruptcy.

Now, what exactly are the forums used in the past to ensure the influence of the State? I said this is not exactly the golden share, there are two basic instruments, first of all the nomination right to nominate one or two out of usually five Supervisory Board members. Those one or two members have no individual right of control or decision, and the second instrument is the right to object to certain management decisions, mostly of the General Assembly. Both those privileges result from articles of associations of a particular company. How often have such instruments been used in the past? Before accession we can count less than 170 cases, before accession 90 of those cases have been cancelled. We reported in May 2005 as a response to a questionnaire of the European Commission 73 cases, and today we have a very strict strategy and timetable to remove all those instruments. Twenty-four have been removed as of March this year, 17 are time limited, and we wait till they will expire. In the remaining cases we are going to sell those shares, those stakes and with this special instrument we will organise to change the articles of association. Only in a few cases are we going to modify this special right into a new instrument according to a new law on special rights of the Treasury in companies important for public order and public security, which is going to be signed probably next week by the president.

We faced some problems in removing the special rights from those companies I mentioned. First of all it is not clear what is the restriction to free movement of capital, despite all those rulings issued by the European Court of Justice. There are different views of lawyers, at least in Poland, there are different views of Member States as we know of European Commission, of the European Court of Justice, there are long discussions which we follow very closely, there are doubts in the government whether we are not going too far, whether we sometimes do not want to discriminate the State. That’s at least what our lawyers sometimes say, and I would like to give an example, in the Polish Commercial Code we have an article about personal rights. The statutes may grant personal rights to an individual shareholder. In particular they may include the right to appoint or dismiss a member of the Management Board, the Supervisory Board, or the right to receive specified performances from the company.

So the question is whether the State has the right to appoint a supervisory member or whether it should be treated as a prohibited restriction to the free movement of capital. The second problem is the large number of minority stakes owned by the State, as I showed you in the second slide. Not all of them are golden shares but some of them are. We asked the investors in those companies twice last year, in 2004, to buy the remaining stakes from the Treasury. We only got 50% replies and only 34% investors expressed their interest to buy the remaining stakes, and we are willing to start negotiations.

The third problem is that the Ministry of the Treasury cannot change on its own the articles of associations of the company, it can only happen in the General Assembly and we need the cooperation, being a minority stakeholder, we need the cooperation of other shareholders. In companies where we have less than 10% we cannot even propose this as a point of agenda on the General Meeting of Shareholders. So also in these cases we need the cooperation of other shareholders, and very often there is no interest, no response to our proposal.

So, this brings us sometimes to the conclusion that obviously investors for different reasons may not be interested in removing those special rights from the articles of associations. It doesn’t look like an obstacle to them in their activity. Maybe it’s not a problem for them. Finally, I would like to turn from the past to the current policy of the government. As I said, there is a new law on special rights in companies of special importance for public order and public security. A very limited number of companies will be regulated by this law, precisely defined areas of economy, this will be fuel, extraction, manufacturing, started and transmission, energy generation, railway infrastructure and the operator broadcasting public radio and television signals. The law will allow the Minister to object to certain decisions of the management, disposal of core assets, dissolution of the company, transfer of the seat abroad, change with the object of the company’s enterprise or transfer or lease of the company’s enterprise.

So, no instrument to interfere with the ownership, only objection to some management decision, and what is more important, very limited according to ECJ rulings, exposed intervention of the Minister, very limited period of time, only 14 days for the Minister to react, and judicial review of this veto decision for the company. What is the justification, or what is the reason why you have introduced this instrument, this law? It’s simply the only probably possible way to find a public and political consensus around privatisation of those companies. This law simply will make the privatisation of those companies possible. This brings me to the end of my presentation; I’d like to thank you for your attention.

Gerassimos Thomas

Thank you Mrs Ryng, we have only 16 minutes left according to the clock here in front of me, so I would like to ask Professor Grundmann to give us now the wider perspective, which is some input on the work that has been done at the OECB, the code of content of corporate governance for governments in State owned enterprises in general linked to special rights in privatised companies.

Professor Grundmann

So, ten minutes left for two speakers, five minutes for me. I want to speak about the principles of corporate governance drafted by the OECD, and more specifically about the guidelines, the one dating from 2004 and the other from 2005. There is a background to this, which are the general corporate governance principles drafted by the OECD back in the ‘90s. The general impression I got from these guidelines, they are much more concerned with how you exercise ownership rights which exist than whether there should be ownership rights or golden shares. Golden shares play a certain role within the guidelines, but it is somehow taken for granted that States can have a majority share still after privatisation or a minority share, which is nevertheless very influential. So, the question is not really asked, the question asked by Professor Myer, of the different types of structure possible, actually very much like still in the European Union where so far the ownership right under 295 of the Treaty is not really questioned, or it is not clear yet whether it can be questioned. Perhaps the Volkswagen decision will be clearer on this.

So, it is taken for granted that States can still have a majority and even golden shares are not so much discussed in the guidelines. The guidelines concentrate on a particular kind of activity, and that is whenever you have competitors. So, it’s not in the markets where you have only State owned enterprises, although somehow in some parts of the guidelines it is said yes, it might apply as well to a future perspective, so in markets where you might have competitors, and then certainly the guidelines would apply virtually to all State owned companies. This is the general framework. The guidelines are divided up into seven chapters, and I cannot discuss all of these chapters, I can just tell you the chapters. The first one I will concentrate on a little bit is what should be the realm of State intervention and what should be the realm of private law. The second chapter is about how the State, who is a private law owner of the company, majority or minority, how should he exercise his ownership rights. I will concentrate on that as well a little bit, and then chapter three and four is how the State should, as an owner, should behave towards minority shareholders and towards stakeholders. But that I won’t discuss a lot, and certainly not the last two chapters, which are about transparency, and then responsibility of the Board members.

The guidelines start with somehow naming the core ideas and core problems, and basically they say well, the core problems in State owned enterprises are two. The one is that the market pressure is different, or virtually non-existent because there are no measures where typically bankruptcy is not really possible for different legal reasons, and takeovers are very difficult. The guidelines then speak about this problem very little, except for the takeovers they speak about it, but bankruptcy is not really treated, or the possibility of bankruptcy. The second core problem is that responsibility is not clearly attributed, but you might have a mix of responsibilities. There are no clear competencies, and that is the core issue the guidelines are really speaking about.

Now, let me come to the first chapter and then the second chapter. The first chapter is about the realm of State regulation, all the tools there, and the realm of private law, and let me tell you first the underlying idea with the basic rationale of the whole guidelines is that as far as possible private law forms should be used, and somehow an intervention should be as clearly as visible and clearly isolated as possible, and you should have as little as possible. This can be illustrated in this first chapter, by the materials of the first chapter, and the idea first is that there should be clear split of regulatory power from ownership power, that there should be different bodies. That would be the first best solution, and if a State wanted to adopt the second best solution, which would be that the State owned enterprise has also some regulatory power, then at least this regulatory power should be very clearly disclosed and compensated separately. The guidelines put it very much as a burden of the State owned enterprise to have to have this additional task. On the other hand you would say there certainly might be a conflict of interest problem as well if a State owned enterprise can have the regulatory powers in the market. Anyhow, this would be the second best solution.

Now, if we take this, again the idea is to subject the State enterprise as far as possible to the general private law regime and leave the regulatory power with another body of the State anyhow. If you compare this to the European development and basically two strands of this development, you would say it’s very well comparable because the European development, somehow the two strengths would be on the one hand the law of State aids, and on the other hand the golden shares judgements of the ECJ, and there you would certainly say if you have a potential gain for the State owned enterprise from having regulatory power, you might say you are potentially in a problem of State aids already. On the other hand, if you additional burdens for a State owned enterprise, as the European Court of Justice subjected rules to the freedom of capital movement already whenever a share became less attractive because of a certain regime, you would say you have already a problem with this case law of the ECJ.

The idea then is either split up competences completely, or identify any deviation from the private law regime as much as possible, and that is very much in line with the basic rationale of the golden shares judgement of the ECJ. If we turn to chapter two, the State as an owner, and a bit already to chapter three and four, somehow these three chapters are interrelated because they all deal with the behaviour of the State as an owner, and then tow its minority shareholders and other stakeholders. I cannot go very much into the details, but again, the core idea of the guidelines is first of all the State as an owner should not have additional rights, and there the golden shares issue comes into play, but on the other hand, so no additional functions, no additional influence different from that, which would be conferred by the voting rights in the shares.

On the other hand, and that is even the focus of the principles, it is stressed very much that the State should take its ownership rights seriously. That means that it should influence as much as the ownership rights allow it to do, so to speak to use in these State owned enterprises the State ownership somehow as a device, which very often otherwise institutional investors would play, to be the most informed shareholder typically and the one which doesn’t suffer from this problem of irrational apathy. Now, typically you would argue that institutional investors are very good monitors anyhow because they basically have the same interests as private investors, small investors have, and you have a less important conflict of interest between minority shareholders and institutional investors than in if there is a split between an entrepreneurial investor which has group interests and private investors.

So, if you see the State owner as somehow similar to the institutional investor, then you would see at least one difference which is very much stressed, and that is perhaps the last point I should discuss and very much stressed in the guidelines, and that is basically – let me term it like this – that is basically that the State shareholder can somehow be a better shareholder than what we normally find in the market, and that is a shareholder which might have rather long term strategic interests, which may tie more into account stakeholder interests, which may insist on more transparency also for other shareholders. I think that is a very optimistic view on the one hand. On the other hand, it is a very interesting view saying that potentially the State owned enterprises you could have somehow a different governance structure coming from the most influential shareholder, which would be the State, and it would basically be the rationale not expressed in the guidelines, but nevertheless, it would basically be that it can be very attractive to invest in such a company. If States endorsed this policy, that it could be more interesting for instance for a workforce, but also for the raising of capital, and the idea could be that in markets where normally institutional investors would not typically have this long term strategy so much and entrepreneurial investors would perhaps have a different interest from those of private investors, State ownership could be a third type of structure of interests of different groups of shareholders, and they could add somehow to the picture of different influential shareholders.

Now, the guidelines have much more than this, but apparently I already exceeded a bit of my time, thank you very much for the attention.

Gerassimos Thomas

Thank you very much, we are already consuming the coffee break time. Luis Correia da Silva will tell us a bit about the micro economic costs of special rights, and then we will summarise as soon as we can.

Professor Correia da Silva

Good afternoon ladies and gentlemen. It is a great honour to be here today and I would like to thank the organisers of the conference for inviting me to be here. The purpose of my presentation is to give you a little bit of a flavour of the research we are doing for the European Commission on the potential economic impact of golden shares and other special rights, and from now on I will call them just golden shares. Now, most of the existing analysis of golden shares consists of a legal assessment of landmark cases as a result of the infringement proceedings. Our study is about the economic impact and trying to gather as much evidence on that economic impact as possible. What are the specific questions we are looking at? The first one is really about what is the economic impact on direct investment in the market for corporate control. In other words, to what extent golden shares can create a barrier to the market for corporate control or the market for acquisition of companies, to what extent it creates a barrier to strategic portfolio decisions, and direct investment in firms, to the extent that there may be evidence of an economic impact on market for corporate control and direct investment. There may be implications therefore for the level of integration of the European financial markets as well as the level playing field between firms in the European Union.

The second question, and very much more the focus of our empirical study will be to what extent we find evidence that golden shares affect the performance of individual companies, for example reducing the takeover threat as an incentive mechanism, is it a case that that will lead necessarily to lower performance of funds with golden shares? Now, to address these questions, we’ve devised a research agenda consisting of a number of steps. The first one is very much a systematic classification of different types of golden shares currently observed, focussing in particular on companies affected by recent infringement proceedings. That’s the first part of the analysis and I’ll come back to that in a moment. The second one is very much a comprehensive review of the existing research. Now, as I said at the beginning, there isn’t very much research specifically on the issue of golden shares, but there is a wide body of literature that is very relevant to the particular question we are trying to address here. We will provide an independent analysis of that existing research and draw conclusions on the potential impact of golden shares.

The third step of our analysis is very much at the empirical stage, clearly the crucial part of our research, and we will use case studies, we will use event studies as a way of gathering information to inform the debate. The final stage of course is to draw the evidence together and draw policy implications on the basis of that evidence. Now, in terms of the first stage of the research, as I said, we have devised a typology of different golden shares with a view to linking it to the economic analysis. The purpose of this typology is twofold. The first one is to try and capture to the best of our knowledge all existing types of golden shares available. The second one is very much to inform us in terms of our empirical tests, to formulate hypotheses that we can then go on, find evidence, and draw conclusions in relation to those hypotheses. All I’m showing here is very much a high level classification that we have undertaken. Much more detail will be developed in our report for the European Commission, which will be finished round about the autumn of this year.

The first type of classification we made was to distinguish between direct investment restrictions and indirect investment restrictions. By direct investment restrictions I mean restrictions on ownership of shares, indirect investment restrictions I mean restrictions on control and managerial influence by the private sector. We also classify golden shares in terms of whether they are discriminatory or non-discriminatory. Discriminatory in the sense that they will restrict foreign investors owning substantial block holdings. Nondiscriminatory of course if it does not make that distinction between domestic and foreign investors.

So for example, caps restricting substantial work holdings by foreign investors are restrictions that we classify as direct and discriminatory. Now, in terms of hypothesis, we would like to think and we would like to expect that to the extent that we find there is an economic impact f the golden shares, then we would find that direct investment restrictions will be more important, will have a more important economic impact than indirect investment restrictions. So this is just to give you a flavour essentially of the way we are reasoning about this, formulate hypotheses and then gather everything to inform those hypotheses.

Now, I don’t want to go too much into the relevant evidence from the existing literature, partly because Colin Myer has already covered quite a lot of ground, but what I would like to do is to give you a little bit of an indication about certain literatures that Colin has not necessarily referred to, which are also useful. One of them is for example the privatisation literature which sets out the performance improvements that arise as a result of the transfer of ownership to the private sector. Now, the evidence I am quoting here is only selective. There is much more evidence out there about this literature, and some of them are not as conclusive as the ones I’ve put on the slide here. But one body of evidence suggests that privatisation has led to higher profitability such as the Megginson et al study, which is a similar paper in this matter. It shows the higher profitability in terms of higher average return on sales, but also in terms of greater run productivity. The study has mentioned greater productivity, greater levels of investment and more efficiency.

Now, how does it relate to golden shares? Well, to the extent that golden shares prevent the transfer of complete control to the private sector, we would then expect golden shares to have a negative economic impact. That is a sort of a prediction and there is a study that was conducted, one of the very few studies that was conducted in relation to golden shares specifically, which very much lends support to the prediction I mentioned before. Boardman and Laurin for example who kept the share price performance of a large number of international companies post privatisation, and they find that the presence of golden shares has had a negative impact on the share price performance. The conclusion from the authors is that the evidence they have provided supports the hypothesis that failure to transfer complete control to the private sector combined with uncertainty surrounding the exercise of the golden shares, has a detrimental effect on long run share price performance.

Now, there is also quite a lot of literature on corporate control, which Colin has mentioned. I would just like to say that again, the papers I mention here, they are selective, there are other papers out there which are just as influential, sometimes not as conclusive as the ones that I’ve mentioned here, but very much the findings are in line with the privatisation literature in the sense that one would expect on the basis of the evidence that golden shares would have some economic impact and some negative economic impact on performance of firms. Now, a final relevant research strand is the literature on market segmentation, and this literature, what it does is it looks at restrictions on foreign share holdings and to what extent those restrictions affect the market valuation of companies. A particular study on Nestlé’s share price performance after the abolition of shares that put restrictions on foreign investors is particularly revealing. After the abolition of such shares, the share price performance of Nestlé improved. There are also other relevant literatures on other restrictions such as capital controls and discriminatory taxation would very much point us in the same direction. So, I would say that at this stage, our preliminary assessment is that to the extent that the literature we analyse is relevant, there may be an important impact of golden shares on performance of companies. Of course there is indeed the purpose of our research is to find the evidence that corroborates those predictions.

Just to give you a little bit of a flavour of what we are currently undertaking as studies, we are looking at of course at the issue of the golden shares having a negative impact on the performance of individual companies, we are looking at performance from a financial standpoint, profitability, share prices, but also from operating performance point of view, impact on productivity, efficiency and investment. We do not know at this stage how many case studies we will have in the end in the study, but we will start from the sample of privatised European Union companies affected by recent infringement proceedings. We will undertake a historical performance assessment, as well as a performance assessment after the removal of golden shares, if that has taken place. We will also aim to compare the performance of these companies with a sample of comparative companies that did not have golden shares, and essentially try to establish to what extent there is under performance over time, and compared with companies without golden shares.

We are also conducting event studies, for example we are currently analysing what was the impact of the redemption of golden shares in the UK electricity and water companies. To recap, those companies had golden share restricted shareholdings to 15% or less, and they were abolished in 1995 round about five years after privatisation. The results so far, and this is preliminary, shows that there was a surge in takeover activity following the redemption. Just to give you an example, 11 out of the regional electricity companies in the UK merged or were acquired within 2 years after the redemption of the golden shares. We also find that there is significant share price reaction around the event dates lending very much support to the predictions I mentioned earlier on.

So, to summarise, our preliminary assessment as I said is that there may well be some good evidence in terms of the negative impact of golden shares on the performance of companies, and therefore that sets the background for the debate this afternoon. I believe on the basis of that evidence, the three questions we should ask and should debate are to the extent that there are costs associated with golden shares, to what extent can they be justified by public interest objectives. Some of the public interest objectives that Anita was talking about earlier on are very interesting. There are public interest objectives such as the provision of universal service obligation, security of supply, also very relevant public interest objectives.

So, that is the first question, to what extent those costs can be justified by those public interest objectives. Even if that is the case, i.e. if those public interest objectives can justify the costs of golden shares, could these objectives be achieved by alternative control mechanisms? Very much coming back to the discussion that Colin set out in his presentation about to what extent the regulatory framework for public utilities can also achieve the same public interest objectives as the golden shares were aiming to do. Last but not least of course is the question would government be less willing to privatise if they did not have the option to retain direct control rights, coming back to the presentation from Anita. So this is very much sort of to give you a flavour of what we are looking at in terms of issues, and I thank you for your time and look forward to your comments and observations this afternoon. Thank you.

Gerassimos Thomas

Thank you Lewis, you managed to finish one minute earlier and make the conclusions at the same time, so we saved some time. Nevertheless, I don’t know if we do have time for questions immediately. I’ll turn to the organisers. Mr Zurstrassen do we have time for questions? Not really, okay.

Improving the rights of shareholders of companies across the member states (unrevised section)

Pierre Delsaux

I would propose that we start. Ladies and gentlemen, actually, today’s conference is a very good illustration of the topics we are going to discuss. We had a lot of foreign participants this morning, but they were faced with constraints of obstructions [?], which do not exist for domestic participants, and some of them were forced to leave this meeting. It’s exactly the same thing for general meetings. Now, in European companies, you have a lot of foreign investors, but they face a lot of obstructions if they want to participate in general meetings, if they want to exercise their rights. That’s why we have decided to launch two consultations on these questions, on these important questions. In the documents which have been submitted and which are for consultations, we have identified a series of potential problems, the first one being share blocking, the second one being the late access to information, the third problem being incomplete information, the fourth problem insufficient time to cast votes, and finally, administrative constraints, which is the question linked to the question of proxies and things like that.

We consider that being able to cast a vote, to attend a general meeting, or at least to have the right to attend a general meeting, is an important feature. I mean we talked a lot about comply and explain. That’s all very well, but if you don’t have any mechanism to enforce the principles, it will remain a dead letter. That’s why giving appropriate rights to shareholders, to all shareholders including non-domestic shareholders, is a key element of corporate governance. I will stop here because I have much more interesting people who are able to talk about these topics more than a bureaucrat could do, so I will present the speakers of this panel, and I will start on my left.

Actually, I’ve learnt something very interesting this morning when we were preparing the panel. I’ve learnt a new Finnish proverb, and the Finnish proverb says ladies first, especially when you have to walk on thin ice. That’s a very good one. So as you can realise, my neighbour is a Finnish woman, I’m sure she is used to walking on ice, thin or not, and she is also a senior legal counsel for Nokia, Mrs Mariana Uotinen-Tarkoma. Further on my left, we have Mr Hellebuyck I don’t know to which extent he is used to ice skating, I have not checked with him, but anyway, he is an expert in investments, he works for AGSA, and he knows a lot about the practical difficulties for exercising votes in different companies. On my right, Christian Strenger, I don’t know, he’s German, so maybe he has some experience with ice, I don’t know, but we’ll check also. He’s also quite an expert in the question of corporate governance and difficulties met by investors. Further on my right, actually, when we discussed this panel, we had someone who told me that he was interested in plumbing, but I must disappoint you, he’s not a famous plumber. Actually, he’s only a Senior Executive Vice President for JP Morgan, and he is also Board member of Yorkley with this question of plumbing and the practicalities to the exercising of voting rights, Mr Neil Henderson. And finally on my right, we have someone who was implicitly mentioned this morning as a box ticker, but actually he doesn’t like this approach and he will explain why he doesn’t like this approach, and he is Jean-Nicolas Caprasse, and he is now working not only Deminor as such, because Deminor has been purchased by ISS, and he will explain also the view of ISS and marginally of Deminor rating. So we will start with ladies first, as I said, so I give the floor to Marianna Uotinen-Tarkoma. Thank you very much. And as always, you need to be very short, but efficient.

Mariana Uotinen-Tarkoma

Mr Chairman, Madame et monsieur, ladies and gentlemen. I have been asked to bring issues and considerations forward on this subject of shareholder’s rights, and indeed, it’s a privilege. I have a few slides on this matter, and on the first slide if have laid out some numeric information about Nokia’s shareholder structure, which explains why shareholder’s rights are important to us within the area of the subject of corporate governance, and including that shareholder cross border voting. We are listed in four stock exchanges on both NYSC and three stock exchanges in Europe, and have a very wide shareholder structure and shareholder base, both geographically as well as in terms of number of shareholders, and we have no one controlling shareholder. The shareholding is very widely spread.

On the next slide I have pointed out three critical points from the issuers point of view when we discuss and debate promoting cross border voting. The first of them, I’d like to say in spite of what we’ve heard today that voting for listed companies should not be seen as a necessity, although we understand that voting should preferably not be overly cumbersome or costly. Not all shareholders wish to participate in AGMs by voting and shareholders in listed companies do have the opportunity of disposing of their holding, should they desire that. There are many stakeholders in companies who have no such opportunity, and also it should be remembered that voting is only one form of exercising shareholder’s rights. There are other types of similar situations like in rights issues or if a shareholder wishes to initiate legal action, and therefore voting should be compared in that with respect when technical mechanisms are prepared.

Secondly, the issuer must be able to trust the outcome of the gathering of votes by custodians and other intermediaries in that share, and this requires clarity from the issuers point of view as to who possesses the voting right in real terms, legally and factually, and also requires accountability in exercising those rights through all parts of the chain. And thirdly, when promoting of cross border voting is debated and discussed and developed, issuers should not be compelled to offer free voting cross border through the whole chain of intermediaries. Issuers cannot control any parts of the banking the custodian industry natural issuer is responsible for reconciling voting and maintaining the shares in its shareholder register in the country of its domicile. And finally on the last slide that I have, I raise three practical points that stem from these critical aspects I just mentioned and stem from our experience also as we are used to handling large volumes of voting instructions participating in our AGMS each year.

First of all, the practice of record date for the AGM has proved to work well. It allows removal of share blocking, which prevents institutional participation, but it should be remembered that record dates should not be set too close to the meeting in order to manage large volumes of votes accurately. Secondly, dissemination and gathering of instructions between banking intermediaries and national CSDs is a very important part. Issuers should not be a problem. Internet is there and listed companies usually have established ways of distributing materials, and they should have, but then how the banking industry and custodian chain distributes and disseminates this information in a standard form is inaccessible for investors. That’s a problem and I have noted this and we have observed this, and there should be work done by the banking industry. For example the more enhanced use of swift in this communication should be developed, and thirdly, a practical point and also a legal one, identification of the voting shareholder should be possible if required by local law, forming a natural part of verification in this chain. This goes together hand in hand with the issuer’s interest of accountability on whose coming and exercising influence on the meeting, and in times of modern technology and developed systems, it should be possible to achieve and create a balanced control interest.

On top of the voting issues, which I have concentrated on, on these slides, we’d like to say that on top of this, appropriate disclosure, thorough and relevant disclosure, and that also applies to appropriate timing with the view of an AGM, is still much more important. As I said in the beginning, all shareholders do not wish to participate, but all shareholders have a right to know what’s going on and what will be presented for the meeting. Thank you.

Pierre Delsaux

Thank you very much Marianna, you were very good at skating on thin ice. Thank you very much, and you also posed some questions for our American plumber on this question of the role of banking intermediaries and things like that. So now I move to Jean Pierre Hellebuyck with good reason to respect the timing because he has to catch a plane, so I’m sure he will comply with this timing.

Jean-Pierre Hellebuyck

I’m not really an ice skater and I’m not a plumber, but I have been in the investment management area for many years now and I think it’s as dangerous as being an ice skater or even a plumber. When I discussed with you on how would be the best way for me to make my point, we agreed that the best way was just to tell you what Axe Investment Managers has been doing so far this year in the voting season, the voting campaign, where we have been obliged to go against and which kind of problems we have encountered. When I say we, this is Axe Investment Managers in continental Europe, the Fund managers in continental Europe voting for the Pan continental European equities. We have also teams in London. They are managing the UK equity part for the UK accounts, but of course they are voting exactly along the same lines as we do, but they are not in the statistics. We have to vote for 700 general meeting tax investment managers in a year, and so far this year, at the end of May, we have already voted for 459 companies, again, all across Europe. We have been able to go for all the resolutions which we have presented at 284 general meetings, and we had to go for at least one resolution at 175 general meetings.

So, what were the areas where we had to show that and to vote against? The most important one was because it is 56, and it has to do with shareholder’s rights, was the approval which was required by the Board to the shareholders to be able to raise equity issues without preferred pre-emptive rights, and so we are not systematically against that, but we go against it when it is more than 30% of the capital, and this year we had a lot of requirements for approval without any precise subject, and we thought that it was not appropriate to give this kind of let’s say blank cheque to the Board. The second area where we have been obliged to go against was at the election of directors. Very often there was not enough independent directors. We are not that demanding, we just want to have at least one third of the vote being independent. We are not for and we are against too many independent directors. We believe that when we have too many independent directors it’s a majority and it destroys a little bit the attachment to the company. We differ a little bit from the mindset of that, but this is the experience we had in 2001 and 2002 where the times were very difficult. When you have too many independent directors, you lose this attachment to the company, independent directors are much less ready to take risks, and we saw a lot of equity issues at the worst time of the price of the share, just because people were afraid of the development of the economy of the market.

So, we want independent directors, but we believe there should not be too many. But even with that, which was not that demanding, we were obliged to go against it because there were not enough independent directors. The third aspect was on stock options. Of course we are for stock options, but we are against stock options with discount to the market, and we had a lot of requirements for approval on stock options with discounts, and which were also going to be above 10% of the outstanding shares. The rule we have is that as long as let’s say compensation related to equities, free shares, stock options does not represent an amount above 10% we go for it, but otherwise there is no discount, but this year we have to go against it. Something which was much less than last year is [unclear]. It’s true that when you have [unclear] already in place, you don’t need to have it again the next year, but this year it was not that big, just 17 meetings.

Jean-Pierre Hellebuyck

Of course we are for stock options, but we are against stock options with discount to the market, and we had a lot of requirements for approval on stock options with discounts, and which were also going to be above 10% of the outstanding shares. The rule we have is that as long as let’s say compensation related to equities, free shares, stock options does not represent an amount above 10% we go for it, but otherwise there is no discount, but this year we have to go against it. Something which was much less than last year is [unclear]. It’s true that when you have [unclear] already in place, you don’t need to have it again the next year, but this year it was not that big, just 17 meetings.

So just to conclude, what are the areas where we could have improvements or where there are some difficulties? The first thing is we really need time to go through the resolutions. We are using a voting proxy platform for tax investment managers. We don’t do box ticking, we want to have a look at the resolutions, and when we go against it, we want to call the company and to explain why we are against it, but sometimes it’s too short. We need to give our votes to the bank, to the proxy voters as well, at least two weeks before the general meeting, and very often we just have one day to go through and to decide. So you see, if we reduce the timeframe, then we’ll not be able to vote, we might be obliged, but we don’t go to box ticking, and we’ll certainly not be able to call the company and to explain why have been against it. This year we have had this problem where we have been unable to vote because we didn’t have enough information, only on eight occasions, but again, to take [unclear], it was released in [unclear] because sometimes it was just one day.

The second thing you talked about already is share blocking. It’s something very difficult for investors, and especially Fund managers who are managing mature funds. We are in favour of a record date. Maybe it is evident you would prefer to have this three days before the record date. Another thing which we would like to keep and to improve is the right to add items to the agenda and the table of resolutions, and we believe that the level of shares you need to represent in order to be able to do that should be less than 5%, and for major companies, let’s say around 0.5%. We did that several times with some of our investors, and sometimes very successfully we were able to propose resolutions which we believed were in favour of the shareholder’s rights. Another point I would also like to stress is electronic voting. I think this is certainly the answer to cross border voting. It can certainly help the speed and also the accuracy of the vote. It means that you will have certainly easier procedures for electronic signatures.

Something that is related to that that we are missing, we don’t receive confirmation of our votes, and that’s something we would like to have because we also have to report to our customers. We are never sure that we have been able to vote, and we’d also like to have as soon as possible regional general meetings. We don’t have that always and certainly very seldom we have them very quickly, and again, it has to do with electronic voting because everything could be done in a very quick space of time. In terms of proxy voting, we believe something which is important is we have some proxy voting organisations, ones who want to vote on their own account. If they are trying to ask for mandates, they should be very clear in which way they want to vote. And to finish with, we are certainly very much in favour of one vote one share, something which is not well established all over Europe. There are some countries where we don’t have that, so we are not that optimistic to be able to get that very quickly, but in the meantime, something which could be very helpful is to know what was the proportion of shares let’s say with double voting rights or with special voting rights, and in which direction they have been voting, so against some form of transparency in this kind of specific vote, but again, we should remind you that we are certainly very much in favour of one vote one share. That’s what I wanted to say Mr Chairman, thank you.

Pierre Delsaux

Thank you very much Jean-Pierre for giving us these concrete problems you are facing as an investor, and I will turn to Christian who might also share his experience.

Christian Strenger

Okay, thank you very much for letting me participate in this discussion Mr Chairman, ladies and gentleman. Perhaps some more general remarks, although they are representing the view of a professional institutional investor. As a long-term practitioner in the capital markets, I am very happy that the EU Commission has taken this initiative through the consultation one and the one coming up, the second one. Particularly on the European continent, investors have not always enjoyed much attention by the companies that they indeed own, and sometimes not even by the authorities. Calls for the improvements of the exercise of the rights of shareholders have been frequent over the years, but results were rather modest, particularly in the field of trans-continental exercise of voting, and sometimes even dividend rights, progress is so modest for such a long time that one is tempted to ask for more radical change like turning the issue upside down. What would this mean in our near fully electronic age? This would make it obligatory for companies and intermediaries who participate in the markets for risk capital to give their owners unrestricted rights to their ownership at all times expediently, unless these participants can prove that they are not able to do so due to insurmountable legal obstacles.

One-sided interpretations, translation problems, other conversion issues and cost items should no longer be acceptable excuses for not providing these rights, or not in a timely fashion to the shareholders. This would need however a concerted effort by all regulators and supervisory authorities around the globe, but I think this idea, just to turn it around, upside down, has merit for bringing the radical change that seems to be necessary, given the modest achievements of the past decades. Closer to European real life of these days however, it is our European duty to move forward this initiative launched by the EU Commission led by P. Delsaux. The call for a second consultation ending on July 15th is a welcome sign of the importance given to this task. The first consultation round brought useful pointers to the direction the Commission should adopt. There’s only one issue where I do not quite share the interim conclusion or opinion that one could see by the Commission. This concerns the question of an urgent need to confer a legal entitlement on the ultimate investor or account holder to direct how votes are cast. We must achieve the breakthrough on sufficient voting by making it a firm rule that the ultimate investor must be able to vote or give his voting power himself, or herself, to an appointed representative of his own choice.

Why is this so important? A short reflection on the actual situation in Germany gives full evidence. Voting has declined to 25% or a maximum of 35% or 40% in most large DAX companies, a situation that openly invites misuse of the annual meeting by holders of low percentages of shares. After a lot of pushing, the German legislative has just now managed to change the law regarding shareholders having to block their shares for five days before and including the annual meeting. So, from 2006 onwards, the record date approach will be used, greatly enhancing the likelihood of international institutions to vote their shares. This is super important as they own between 30% and 60% of most large German companies, but do not vote today because they have to hold special meetings to overcome the existing hurdle, or they have lent their shares without keeping the voting rights.

The latter is giving increasing concern to German companies because short-term operators could borrow sufficient shares to exercise considerable powers in annual meetings, as possibly happened in the much-touted case of Deutsche Börse Group. Perhaps we should therefore introduce at least a best practice rule for institutions to lend their shares only without voting rights. My final remark is that with any urgently needed improvements in the exercise of shareholder’s rights, the obligation of professional investors increases to really vote their shares and fully exercise their other rights, so the demand for improved rights must be accompanied by responsible behaviour of the beneficiaries. This means considered and well-reasoned exercise of votes, not only for the domestic shares in the seat country of the asset manager, as we have it for example in Germany in the German investment law. In this context, I have previously asked the EU Commission to move forward the issue of asset managers from the medium term timetable set by the Commission in its financial services action plan. Asset managers have only to gain from dealing with their issues in an expedited manner. Thank you.

Pierre Delsaux

Thank you very much Christian for these comments. In any case, short term is already behind us, we are already into medium term, but we will take a note of your important request.

Pierre Delsaux

Now, we will turn to the plumbing question, which is also obviously very fundamental because we know that’s one of the major problems faced by investors.

Neil Henderson

Good afternoon. Thank you for the opportunity to be here today. I work for JP Morgan in the global custody arena, and as such am an intermediary in the process and I was mentioning over lunch I feel very much like a plumber enabling the flow of water through the system. So what I wanted to go through today was to give you some background, talk a little bit about how we’re organised so you can get an appreciation of some of the more practical issues, talk about some of the needs we have to accomplish our mission, some of the special issues that came up in the prior speakers, and just a summary at the end.

In terms of background, we just heard from Marianna at Nokia that only 10% of the assets shares of Nokia are actually held by Finnish shareholders, in the case of Germany, sometimes up to 60% are held by overseas investors. So this is a very big issue that the foreign investor also wants to be heard and participate in the voting process, and the role of the custodians is very key to this. In our case, we are custodian for over $10 trillion in assets and if you added the top three global custodians is pushing about $30 trillion. So, the flow of information through these intermediaries, making sure all the information gets to the ultimate investor, is very key, and understanding how the plumbing works therefore is quite important. In terms of how we’re organised, first of all we use a series of agent banks around the world. In the case of Europe we only do our own custody in the UK, and so if you go around the European landscape we have a series of agents throughout Europe. So we need to communicate with these, and that’s a process all in itself. The second thing that you need to understand is that we organise our holdings at the agent bank in omnibus [?] accounts, and these are organised by the tax status of our underlying clients, for example US pension plans, and it’s entirely possible therefore that within one of these omnibus accounts we could have investors who vote one way and another investor will vote differently. So, the whole process has to be able to accommodate split voting rights where there is an intermediary involved.

Furthermore, we and many other intermediaries have actually outsourced the proxy voting process to specialists, and in the case of global voting, we use ISS, in the case of the US we use ADP, and so we hook up our series of local custodians plus our own sub custody capability directly with these providers, and they in turn communicate out to the investors. So, obviously the customers want to vote in this situation. When it comes to the US, the specific provision under the Department of Labour ERISA [?] Act that voting shares is an economic value and therefore value has to be exercised either through the vote or through an equivalent value, and that might be for example through securities lending, which I’ll come onto. Given there are so many people in the chain here, one of the requirements we have is sufficient time to get the information from the companies through our local agents on to the providers we use, and in my experience having a calendar month or 20 business days is sufficient to achieve that process.

Let me talk about some of the special issues, including securities lending. First of all, securities lending, after a security is loaned by our bank or anybody else for that matter, it’s not necessarily going to the next person in the chain. It can pass through several different hands and interact and maybe re-loan numerous times before it ends up with the final party who has got the shares for the vote. How we facilitate this is our clients make a decision, do they wish to exercise the vote themselves. In that case, what we do is if their securities are on loan, we withdraw them from lending and make sure they’re in our possession over record dates so that the vote can be cast. Alternatively if they feel that there is a high economic value to having the securities on loan, by being on loan the vote goes with the loan securities. So we have a very elaborate process in place where roundabout when all the proxy votes come up, we’re communicating back to clients, do they want to vote their securities, if they happen to be on loan, do they wish to withdraw those securities from the lending process.

Another special issue for us is the whole issue of share blocking. This has been mentioned in this case in the context of Germany, but that’s not the only market. This is obviously an impediment because it limits the access to the shares and inhibits trading liquidity. We certainly support all the sentiments that have been expressed here so far, which is that the blocking should be abandoned in favour of a record date process. As far as the communication works, many of our clients communicate through the intermediaries that I mentioned, but there are also industry initiatives going on to facilitate more standardised messaging of proxies and other corporate action events, in particular through Swift. And so Swift has a process right now whereby they are expanding some of the message types to facilitate proxy loading, and they’re also going to allow in very shortly the intermediaries, the ISSs, the ADPS of this world that will have access to the network for the limited purpose of conveying the proxy information and receiving in votes. I think that will be a big step forward again to standardising some of the messaging that is required.

I think part of this messaging we want is not just casting the vote, but we heard from several speakers earlier, we need also to communicate the results of the meeting because that tends to be a black hole here, how did the votes actually cast, what were the results, so that’s very, very key. So, in summary, our investors certainly wish to vote. There are a number of mechanical things, which are not insurmountable here. I think just from a plumber’s perspective, we need to bear them in mind, along the lines, which I just outlined. Thank you.

Pierre Delsaux

Thank you very much for this presentation which is very fundamental as you said, because I mean plumbing is fundamental, not only for houses but also in this particular sector. Now I will give the floor to Jean Nicolas Caprasse.

Jean-Nicolas Caprasse

Thank you very much Mr Chairman, I guess the lucky number of being the last one on the last panel, so I don’t think I should be very long at this stage. I would like to present you the view of another type of market practitioners, which are these companies who enable both the institution and investors on the one hand in helping formulate votes at general meetings in terms of research on how they are going to vote for each resolution put at general meetings of listed companies, and we also have the plumbers, in other words the global custodians and local custodians of this world in making sure that the votes are actually properly cast along the chain of intermediaries that have been mentioned. Relating to the comments that were made by Mr Lippens this morning against box ticking, I should mentioned that at this stage our company, ISS, is making huge efforts and investments in enabling our clients to avoid the box ticking approach and to foster an appropriate dialogue between the issuers on the one hand and the investor community on the other hand.

I really would like to make only two points at this stage. One goes about the what, if we are talking about shareholder rights and the right to vote, what kind of rights are we talking about, and the next is about the how, once you have the right to vote, how are you going to exercise it, and this relates to the second consultation of the European Commission. First on the what. When investors purchase a share in a company, they really ask themselves two questions – they purchase a share, they have a right to vote, usually, non-voting shares exist too, but then the first question is to say what kind of rights do I have. In other words, what are the resolutions that need my approval as a shareholder, and the second is if I am a shareholder of the company, do I enjoy the same rights as all the other fellow shareholders?

So this relates to the principle of the one share one vote, and I’d like to refer to a study that was commissioned by the Association of British Insurers a couple of months ago, and that covers the 300 largest European listed companies to the extent to which they respect the one share one vote principle, and as you can see from the graph, 65% of them do respect the one share one vote principle, which also means that another 35% don’t. the principle of shareholder democracy is applied to a large extent by companies in Belgium, in Germany and in the UK. Down at the bottom you see that companies in the Netherlands and Sweden and France have a lot of exceptions, and then the companies in the remaining countries lie in between.

We touched upon the golden shares and the extent to which it may be a violation or exception to the one share one vote principle. As you can see from the next slide, they only represent 4% of all the types of exceptions encountered. The most prevalent type of exception being the multiple voting rights present in 44% of the cases, followed by voting right ceilings, ownership ceilings, and there are a number of other types of exceptions, non-voting shares without preference, priority shares, and the Dutch story, depository receipts. So European companies really feature a striking variety of exceptions to the one share one vote principle.

Let me now turn to the how. Once you have voting rights and you can then try to say that if you have the same voting rights as the others, how are you going to exercise them, and this was mentioned by some of the previous speakers already, is that the market really needs a reliable end to end audit trail for the casting of votes. As you know, the beneficial owners often own securities through pension plan schemes, investment managers, mutual funds and others, and they themselves rely on the plumbing, in other words the chain of intermediaries made of custodian banks, sub custodian banks, registrars, tabulators and others, to make sure that the ballots reach the corporate issuer in which they have invested, and not only that, to refer to what Mr Hellebuyck was saying, in order to get a foot on the trail, you also need a confirmation back from the corporate issuer through probably the chain of intermediaries, it could also happen directly, to the beneficial owners so that they can then relate as collective schemes to the own beneficial owners that they have actually cast votes and then they can prove evidence of this.

Now, the second European Commission Consultation really contributes to fostering an appropriate regime for these shareholder rights in enabling shareholders to cast an informed vote with sufficient time prior to the meeting. So as far as the regime for shareholders is concerned, I think the consultation rightly addresses issues relating to information available prior to the meeting and after the meeting. It also addresses issue of voting formalities, also issues surrounding voting by correspondence and proxy voting. Maybe there would be a need to consider to foresee a full audit trail in order to ensure the full audit trail back and forth of the balance, and if we take a high level approach with regard to the rights and duties of shareholders, when we talk about the rights again, there is a need probably to see to what extent these shareholder rights are equal amongst shareholders, in other words to what extent the principle of one share one vote is respected, and I refer here again to the presentation of Mr Hellebuyck who expressed a need or his own willingness to see companies adopt this principle. And last but not least, there would be also grants to consider the need to foster the fiduciary duty to vote. In other words that the intermediaries in collective schemes be somehow required or induced to cast votes in the best long term interests of their own beneficial owners, and that failing to do so might engage their responsibility. Thank you very much.

Pierre Delsaux

Thank you very much. I would like to thank the participants of this panel because they have expressed very interesting views, but also in a very concise manner because now we are almost ahead of the schedule, and so I believe we have time maybe for one or two questions, unless you are so exhausted that you only want one thing, to go out of this room. We just have to wait a little bit before going out.

Can I ask a question about the possible duty on institutional investors to vote? It seems to me that a duty to vote in itself is meaningless, or probably worse than meaningless because what you want is not the institutional investor votes, but that it gives consideration to the question before it votes, and it seems to me that’s quite a difficult duty to enforce. It’s not very difficult to formulate it, but it’s quite a difficult duty to enforce, and you would also need to consider, would you not, whether you are saying that it is always in the interests of the beneficiaries that there should be a vote. I mean it might actually be in the interests of the value of the Fund that in some cases there is no vote. It just may not be worthwhile economically spending resources voting on an issue. Maybe of unknown importance to the beneficiaries of the Fund, so that would be another reason for saying we shouldn’t in a sort of simple minded way introduce a duty to vote.

Christian Strenger

Interesting points but I think in the practical life, asset managers have some ways to deal with this. We have just introduced a governance code for German asset managers and there we strongly recommend that asset managers give an annual report of their governance activities outlining the special cases that they have dealt with, so to give the investors an idea about their general guidelines but also about how they exercise their duty of care in particularly relevant cases. So, I think that is good for the investors, it’s good for the regulator to see that this important function is really fulfilled because there is economic value not only in voting but really using the shareholder’s rights. So I think that would be certainly a possibility.

Now, institutional investors pride themselves with not having plenty of lemons around their portfolios, so in 90% of the cases – this is our practical experience, I don’t know how Jean Pierre has it – but you might be tempted according to schedules that you get from ISS or similar people to really look at this and say okay, is my line for? There may be the odd case and that is the one where the investors or the end investor or the clients are interested in how you deal with them, so I think there is ways to do it but we haven't got the bag full of problem cases, which is obviously to be considered. Very rarely in my search for finding reasons that this is not economic I have come across a valid one because with these services of ISS and similar, you can get at these things in a rational and economic fashion. We at DWS do not however take this as our only guidance for voting, but we look at this and say we agree or we don’t agree, but okay. So, the economic aspect or the cost aspect, I am doubtful that this holds true in more than just a mere few percent of the cases. Thank you.

Mariana Uotinen-Tarkoma

Just briefly on Professor Davies’ comment, I think we would think along the lines that you mentioned, this is a very fragile balance and I think we feel that voting should always be at the discretion of the shareholder, and our investor relations colleagues have mentioned that they constantly received very consistent response from many institution shareholders in Europe saying that it’s not their policy to join an AGM and vote if things go right. They say you should be worried if we turn up. So, in a sense this is a fragile balance. I think the issuer’s point of view is that a company that has decided to go public should not maintain unreasonable obstacles for voting, and should make it reasonably easy, but again, it should not be imposed. That’s a really interesting comment from you.

Jean-Pierre Hellebuyck

Two remarks – you know that in France we are obliged to justify why we have not been voting at general meetings. This had a very positive and negative impact. On the positive side it has been to organise the power of the investment management industry, and you have to remember that in France the shareholder has a lot of rights. It can dismiss the Board and it is easy for shareholders to propose resolutions at a general meeting, and this year we have seen some form of a small revolution in France. In some general meetings the investors have been able to get what they wanted, which was almost impossible in the past. That’s on the positive. On the negative, it’s true that it is very costly, and I think it makes small to mid sized investment management firms almost unable to cope with this load, which is not very good in terms of a big proportion of the industry not being able to go along that. It is costly. We have decided not to vote for holdings below two million Euros, and also there are also some styles of fund management, which simply cannot vote. I am thinking of any kind of [unclear] management, either passive or active, where they cannot vote because of the immobilisation of shares.

Pierre Delsaux

Thank you very much. I believe we still have time for one more question if there is someone willing to ask a question. I don’t see any hands, so I suppose you are completely impatient to leave this room. So I would like to thank again the participants to this panel. Don’t forget that the second consultation document will end mid July. We are awaiting your replies and in parallel we are also conducting an impact assessment on these important questions. On the basis of the impact assessments and the result to the second consultation, then the Commission will decide what to do next, whether we propose any initiative and which kind of initiative and what should be the content of this possible initiative.

Concluding remarks: Prospect and challenges

I was also asked to replace Mr Schaub to draw the conclusions so I will try to be very short and sharp. First of all, I would like to thank the organisers of this conference because it was very well organised. We did not quite comply with the timetable, but at least we can explain why. It’s simply because we had so many interesting topics and so many interesting speakers. So, the fact that you decided to organise such a conference is in itself an indication of the importance of corporate governance, and I would like maybe to draw some conclusions following three questions – why is corporate governance important, how can we increase corporate governance in Europe, and maybe the last question is what’s next?

Why is it important? I believe this was expressed by your Minister of Justice, Mr Frieden. He says that transparency and accountability are key for petitions, for EU institutions, but also for business. Corporate governance is about checks and balances, but more importantly, corporate governance is about promoting confidence in markets, promoting investment, and promoting economic growth and at the end of the day, promote jobs. That’s why it’s so important that what we do in the field of corporate governance is completely appropriate. How can we increase corporate governance in Europe? I have heard several messages today and actually this is not the first time I’ve heard these messages but it’s important to repeat them. The first message may be we should not apply one size fits all. We should keep diversity, but at the same time we should give also enough flexibility for businesses or investors to decide what they want to do, which suits them best.

The second message we have heard today, self-regulation is important. Having listened to the first panel this morning, I have the feeling that self-regulation is certainly not an endangered species. Actually, it’s alive and well. If I can quote a slogan of May ’68,we have a lot of imagination, a lot of course being developed, a lot of interesting ideas, which are being expressed in different fields and different corners. The third message is the comply or explain principles. Actually, as it was explained in last year’s conference, it should rather be apply or explain because if you explain you comply. I’m not sure if you follow me at the end of this day, but anyway. In any case, let’s quote it as comply or explain. Comply or explain is fundamental because again, that’s the way which is given to companies, to businesses to do, to apply certain practices, or at least to explain to investors why they don’t do it, and at the end of the day the market will decide on the basis of this information.

That moves me to the last point, maybe the question of shareholder’s rights. We have learnt this afternoon that the role of Member States in certain companies is certainly not something very positive, and to the extent possible, we should get rid of golden shares in companies because that’s not good for shareholder’s, it’s not good for attracting investment in these companies. Obviously certain good reasons might justify these types of golden shares, but the aim should be the elimination of these golden shares. And finally the question of shareholder’s rights is fundamental because if you want the comply or explain principles to work, you need enforcement. With enforcement you don’t have so many possibilities or you have a judge, and liability mechanism, which probably is not very liked by the business community. You might have regulatory intervention, but very difficult to do and probably not very appropriate also, or last but not least, all the shareholders should be there to be sure that the comply or explain principles are effectively applied and enforced. That’s why it’s so important to be sure that shareholders have appropriate rights and can exercise them on the cross border basis, and probably from this point of view it’s important.

This does not mean obviously that no legislation is foreseen. I mean in certain cases we need to have legislation, and we have had a very good example of the European company, which was explained by one of the panel, where we have now a tax, which has been adopted at committee level. But even when we have legislations, we should conduct also evaluation of the results of this legislation, and if I take the example of the European company, I would say the jury is out. We have now to see whether the market will buy this model or not, and if it does not buy it, we have to try to understand the reasons why the business community is not purchasing this type of model.

That brings me to my last point, which is what’s next? I mean clearly we have the company law action plan. The company law action plan to some extent is a bible, but even in the Bible you have the Old Testament and the New Testament, and if you heard Commissioner McGreevy and he told you that we should now set the priorities for the future, in doing so we have certain key principles who will comply or apply, whatever word you prefer. We need to comply or apply better regulations. We need to consult with all interested parties. We need to do solo impact assessments, and finally we should legislate only when it’s the last resort, and that’s not because something is being mentioned in the company law action plans that in itself it needs to be implemented at Commission level. We need to use this test I just described to you to monitor what is being proposed, what is being contained in the company law action plan.

At the end of this conference, which is also close to the end of the Luxemburg Presidency, I have a strange feeling because we have heard so many outstanding performances by so many different players. I don’t know, I mean I have these comparisons of a closing ceremony, of the Olympic Games, but basically you give the flame for one country to another country, which in itself might already be very good news for the British government because if you don’t get the real Olympic Games, at least you will get the Olympic Conference on corporate governance, so good luck for the next year and for the next conference. Thank you very much.

Pierre Delsaux

Can you remain seated for just a second please? So this is the official closure of this second European Corporate Governance Conference. I want to stress that all the presentations have been recorded. They will be reviewed to be readable and they will be published on the website later, so you will receive all the information that you have seen or heard or listened to today. So that’s the first very concrete thing. The second thing, in closing this conference I should like really to thank all the panellists, the moderators and the speakers, specifically the last panel of speakers because they did an outstanding job by basically closing almost in time so that we can enjoy the cocktail reception from the Luxemburg Direct Institute that will take place over there.

Close of the conference

André Roelants

I want also to really thank the people and the Ministry of Justice for their support, Mr Daniel Rupert there, those who made it possible to hold this conference today. I want to mention Patrick Zurstrassen who has been working actively with all the team in our organisation and our partners, Price Waterhouse Coopers and the Luxemburg Stock Exchange, and last but not least, a special thanks to the ladies that have been working the whole day, but I want to put one name forward, which is Marie Chantal Weber who has organised this whole conference almost on her own in the last week. So, thank you very much Marie Chantal.

I have a last duty, which is to invite you to the cocktail reception now so that we can proceed with the official inauguration and the first reception of the Institute Luxemburg Des Administrateurs, which is chaired by Patrick Zurstrassen. So don’t forget the next conference in October in London, and don’t forget also the dialogue Transatlantique that will take place in the future. Thank you very much, thank you to all the participants, have a safe trip back, and we appreciate your company today and hope that we have been able to address some of the issues or some of the questions that you had. Thank you very much.