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Corporate Governance Standards i n the European Union. About EuropeanIssuers. EU trade association - we aim: To represent to EU policymakers the common interests of EU quoted companies as users of financial markets

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Corporate Governance Standards i n the European Union

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about europeanissuers
About EuropeanIssuers
  • EU trade association - we aim:
  • To represent to EU policymakers the common interests of EU quoted companies as users of financial markets
  • To ensure that the EU creates a regulatory environment in which these companies can raise market capital and deliver growth
what will speak about
What will speak about
  • Emerging equity gap & changes global economy
  • Kay Report UK equity markets and implications
  • EU corporate governance - definition, content, other relevant areas
  • Legislative & industry developments  
  • What are we trying to achieve?
the emerging equity gap
The emerging equity gap
  • McKinsey Report - Growth and Stability in the new investor landscape
  • Share of equity in global financial markets could fall from 28% to 22% by 2020
  • Costs of equity will rise while banks have rising needs for equity (and implicit guarantees) 
  • Ageing in Europe means increased need for savings and investments but dislike of risk
  • Governments likely to push risk of savings onto companies and individual savers
the emerging equity gap1
The emerging equity gap
  • OECD reports:
  • The world is producing only one third of the IPOs as 20 years ago (over 2000 in early 1990s to less than 750 in 2012)
  • US markets have experienced 15 years of consecutive listing losses
  • EU IPOs are also badly hit. Over 2008-2012, only 6 out of the top 26 IPO markets were in the EU 
  • Asian markets produced 7 times as many IPOs in the same period
kay review of uk equity markets
Kay Review of UK Equity Markets
  • "Equity markets today should primarily be seen as a means of getting money out of companies rather than putting it in"
  • New equity issuance has been negative over the last decade and obtaining a listing is no longer a natural step in the development of a new business 
  • smaller, mostly newer businesses have found it particularly dıfficult to access funding since the financial crisis - public offerings are rarely the exit route of choice for investors (6% IPOs v 50% trade sales)  
kay review of uk equity markets1
Kay Review of UK Equity Markets
  • Costs of equity are high by historical standards and in absolute terms
  • Regulators tend to measure the wrong things e.g. the breakdown of costs of trading an individual share but not the costs of buying and holding the same share  
  • Length and complexity of the chain means more complexity and less understanding
  • Active ownership is discouraged by current market structures
relevant implications
Relevant implications
  • Securities markets are expensive
  • They do not work well for smaller companies on whom Europe depends for growth and jobs
  • Some standardisation of documentation may help reduce costs, if done well  
  • Beware standardisation at highest common denominator as benefits tend to flow to largest companies
  • EU small-cap funds on market invest in companies under c.€3bn
corporate governance eu
Corporate Governance EU
  • System by which companies are directed and controlled
  • Role and responsibilities of board and management
  • Rights and responsibilities of shareholders
  • Interests of other stakeholders
  • Ethics
  • Disclosure / transparency
eu corporate governance
EU corporate governance
  • Company Law & Corporate Governance Action Plan mid 2000s
  • Shareholder rights directive implemented 2009
  • Financial crisis 2009
  • Green Paper corporate governance of banks and other financial institutions
  • Green Paper non-financial companies
  • Action Plan December 2012
eu action plan 2012
EU Action Plan 2012
  • Revision shareholder rights directive
  • Related party transactions, acting in concert
  • Comply or explain recommendation
  • Proxy advisers code of conduct  
  • Boardroom diversity
  • Non-financial information  
  • Company law codification
not directly in action plan
Not directly in Action Plan
  • Securities law treated separately from company law and shareholder rights
  • Securities law legislation
  • Industry General Meeting and Corporate Actions standards
  • Shareholder identification
  • Green Paper long-term financing of EU economy  
cross border voting
Cross-border voting
  • Long chain of intermediaries
  • Company law, securities law, industry standards
  • Clarify different expectations for who does what by when:
    • Issuers
    • CSDs & exchanges
    • Custodian & sub-custodian banks
    • Investors

Standardised information along the investment chain

enable communication
Enable communication
  • Implement shareholder rights
  • Help issuer needs
  • Ensure information about meeting sent down chain
  • Ensure entitlement communicated along chain
  • Notification of attendance and votes sent back up chain  
  • Shareholders know whether and how votes are cast on their behalf
  • Dialogue between companies and investors  - key goal of EU corporate governance
need for clearer overview
Need for clearer overview
  • Policymakers too buried in details - lack strategic overview how all fits together and what we want markets to do
  • Clear strategy / direction, not shopping list
    • e.g. Europe needs to move from being economy 70% based on bank finance to 50% bank / 50% market finance by 2020 / 2025
what we need
What we need
  • Then need provide environment for debt and equity finance to flourish:
    • costs target eg listing costs 15% too high  
    • standardised documentation,
    • different market segments with different standards of corporate governance for newly listed companies, etc
    • additional rules on securities law
what lessons can others learn
What lessons can others learn
  • Look at problems trying to fix as to whether applicable to other markets - don't just copy blindly  
  • Look at whether implementation effective, not just legislation on paper
  • Don't try to harmonise corporate governance rules for boards
  • Think about financial markets as means of communication and whether securities law can help by clarifying responsibilities cross-border    
further information
Further information
  • EU industry standards