Lannoo, Karel and Khachaturyan, Arman. (2003) Reform of Corporate Governance in the EU. CEPS Policy Brief No. 38, October 2003. [Policy Paper]
[From the Introduction]. This paper analyses the European corporate governance debate and examines both the report entitled A Modern Regulatory Framework for Company Law in Europe prepared by the High Level Group of Company Law Experts (2002a) (hereinafter referred as HLG Report II) and the European Commission’s Communications on the subject. It is structured as follows. Section 2 frames the debate on corporate governance in the context of the broader discussion in corporate finance circles on market vs. bank finance and the subsequent regulatory response. The paper builds upon the fact that the European system is largely bank-dominated, which is characterised by a structure of concentrated ownership and differentiated voting rights. Although such a system might be inefficient from a corporate finance perspective, its regulation is less cumbersome and less costly. Section 3 briefly addresses the corporate governance discussions in the EU member states. In particular, it points out that a variety of initiatives and studies in the area of corporate governance have all reached the same conclusion that there is no need for an EU corporate governance code, advocating instead a soft-law and best-practices approach. Section 4 discusses the recommendations put forward in the HLG Report II in the area of corporate governance. It argues that the High Level Group and subsequently the Commission failed to demonstrate that the proposed measures will rebuild investor confidence or foster business competitiveness and efficiency. Moreover, the proposed recommendations are in line with measures aimed at mitigating agency problems with dispersed non-controlling shareholders and managers. These measures are in fundamental disequilibrium with control and ownership structures in the EU and would therefore at best a negligible impact on EU companies and possibly at the worst, a damaging effect. A final section puts forward conclusions.
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