Financial Times: EU seeks one language of governance: “The Anglo-Dutch oil group has faced shareholder pressure to unify its dual board structure after a debacle over downgrading its oil reserves earlier this year.” (ShellNews.net)
By Ralph Atkins and Deborah Hargreaves
Published: October 7 2004
The torturous process of restructuring the board at Royal Dutch/Shell highlights in one company many of the challenges faced by the European Commission in its efforts to promote more common corporate governance standards across the EU.
The Anglo-Dutch oil group has faced shareholder pressure to unify its dual board structure after a debacle over downgrading its oil reserves earlier this year.
But it is not easy to change traditional structures, particularly in countries with different views on what constitutes good governance.
The Commission recognises that governance standards vary widely - one reason for framing the guidelines published yesterday as a recommendation rather than making them binding.
"In a legal sense, there is quite a wide divergence in the structure of boards and how they operate - you have the continental model of the supervisory board and the UK unitary board," said Peter Montagnon, head of investment at the Association of British Insurers.
But governance traditions are deeply entrenched and what in one country could be regarded as best practice, would be frowned on in another.
Institutional Shareholder Services, a US governance adviser, has ranked 23 countries on the basis of some common standards such as board independence, compensation systems, shareholder rights and integrity of the audit process.
The UK comes out top with a preliminary score of 4.3 out of 5, while Ireland is fourth - the second highest European country. Sweden is seventh, Finland ninth and Germany 12th. Portugal is bottom with a score of 1.3.
Since many of the European Commission's guidelines are based on those in the UK's combined code on corporate governance, many more British companies are likely to comply with the EU recommendations both on executive pay and independence of board directors.
The Commission's suggestions on disclosure of executive pay have been particularly controversial in many EU countries which typically divulge little information on remuneration.
In the Commission's assessment, the countries most lagging on the transparency of individual remuneration are Belgium, Denmark, Finland, Greece, Luxembourg, Spain and Portugal.
The issue has prompted a fierce debate in Germany. So far, only nine out of Germany's Dax 30 companies comply fully with the provisions on disclosing pay in Germany's voluntary corporate governance code.
Chancellor Gerhard Schröder's centre-left government has threatened legislation next year to force greater transparency. That has already led several companies to rethink their opposition to detailing top managers' remuneration, including Allianz, the insurer.
Along with the UK, Ireland and the Netherlands already disclose the required details on pay.
Ireland and the Netherlands are also close to complying with the guidelines on the independence of board directors, with France, Spain and Italy recently adopting new codes that are pretty close to the letter of the Commission's recommendations.
There are, however, doubts in Brussels as to how far companies in these countries comply in practice.