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EU needs to be more joined-up on corporate governance to make the Capital Markets Union work CFA says

EU capital market union is being hampered by a  silo-ed approach to corporate governance policy, according to a report, Governance Policy in the European Union: Through an Investor’s Lens, published by the CFA Institute.

The report, the result of engagement with more than 30 investment practitioners, governance experts, and other stakeholders from across Europe, suggests that a joined-up approach to governance policy, encompassing the Capital Markets Union initiative, is now necessary to achieve meaningful reforms.

Although the EU’s corporate governance reforms have been positive the CFA Institute said there are still some unresolved issues including fixing the “plumbing” of cross-border proxy voting, protecting the rights of minority shareholders, and strengthening the accountability of boards.

The findings of the survey revealed there is much to be done to simplify mechanisms to enhance corporate accountability and realise maximum value from reforms that have already been undertaken. Investors are open to many stakeholder issues, such as promoting board diversity, and paying greater attention to environmental, social, and governance factors. But importantly, investors are concerned there is still inadequate protection against abuse by controlling shareholders, where the principle of one share one vote is essential for the exercise of good governance the CFA Insitute said.

Josina Kamerling, Head of Regulatory Outreach (EMEA), CFA Institute, commented, “Corporate governance is vital to making the EU’s Capital Market Union work – it is central to its ecosystem but has fallen off the financial services and markets agenda altogether.

“With a renewal of the investor vision for European corporate governance and with proper attention to the governance “ecosystem,” there is a considerable prize to be won in the growth, productivity, social, and environmental responsibility of European public companies. To realise these benefits, a more joined-up approach to corporate governance policy is needed; one which serves investors and which reconciles the shareholder, stakeholder, and open market perspectives of corporate governance.”

Based on the report’s findings, the CFA Institute has made a series of recommendations to establish a sustainable balance among the various goals of governance. The CFA Institute argues that investors have a critical role to play in making comply-or-explain systems of corporate governance effective in Europe. This role means that they need to press for the rights to allow them to fulfill their fiduciary duties as stewards and then to exercise these rights responsibly. At the same time companies must accept the need for accountability and embrace comply-or-explain monitoring mechanisms.

Commenting on the CFA’s findings, Manifest CEO, Sarah Wilson said: “Manifest very much welcomes CFA’s entry into the shareholder rights debate. For too many years the European Commission has  treated vote plumbing as side issue for a narrow special interest group. We hope that the Commission will now recognise the importance of cross-border voting rights as a necessary pre-condition to rebuilding trust in global capital markets. Voting rights are core to company law and all too often have been blocked by vested commercial interests. Manifest would be extremely concerned to see share ownership rights further sacrificed to capital markets efficiencies which have little or no place in long-term investment. Unfortunately Shareholder Rights Direct II is woefully inadequate for realising the vision of open access cross-border voting”.

More Reading

EU-wide obligations for custodians? (2009)

EU-wide obligations for custodians?

Europe’s in chains (2009)

Europe’s in chains

Shareholder Rights Directive (2007)


Giovannini Barriers (2001, 2003)


What do you think?