Liz Murrall, director of corporate governance at the IMA, wrote a letter to the EC in response to its publication of a Green Paper on the EU corporate governance framework. With the paper, the EC is aiming to address a number of issues it said were highlighted by the recent financial crisis.
The EC said certain weaknesses in governance came to light which, while not the direct cause of the crisis, need to be addressed. In particular, it said there is a need for improvement in board diversity, disclosure of director’s remuneration and companies’ risk appetite, shareholder rights across Europe, transparency of proxy voting advisers and common principles on related party transactions. In addition, the EC suggests giving better guidance on the application of the takeover and acquisitions directives.
The IMA agreed that there is a need for improvement in these areas, but said that many of the shortcomings exposed by the financial crisis were largely failures in execution rather than of the current regulations and guidelines. The IMA added: “Thus they necessitate a fine tuning of the existing framework to improve its effectiveness rather than additional regulations.”
In her letter, Murrall said, while there are a number of areas where the IMA would welcome a European approach, “effective governance and engagement are essentially local disciplines where each market requires a distinctive approach such that an EU wide “one size fits all” that does not allow diversity would not be effective.”
The EC has also raised concerns about the outlook for financial markets becoming too short-term in recent years. The IMA said it does agree there has been a growth of new players such as hedge fund managers and high frequency traders, but said it does not agree that there has been any fundamental change in the way in which assets of long term investors are managed. The IMA added that, in view of this, it did not believe new measures need to be introduced to address this, either by modifying existing rules or in respective of the incentive structures.
