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The Guardian: Europe adapts to globalisation and investor unrest

The Guardian (UK): Europe adapts to globalisation and investor unrest

David Gow

Tuesday May 3, 2005

Corporate governance reforms along British lines are being forced on companies throughout Europe by governments and investors to make them adapt to the growing international convergence of capital markets, accounting standards and ethical codes.

It follows shareholder unrest at companies such as Deutsche Börse, Carrefour and the Swiss food group Nestlé, where almost two-fifths of shareholders voted against board proposals to give Peter Brabeck a dual mandate as chairman and chief executive.

Deutsche Börse, forced by rebel shareholders to abandon a bid for its London rival, will face a ferocious battle with the same investors at this month’s annual meeting over their demands for the removal of up to 11 of its 14-strong supervisory board.

It could buy some breathing space with its first quarter results released last night. Operating profits rose 18% to €177m (£120m) and it said it would pay €1.5bn to shareholders by May 2007 in an attempt to placate investors.

In France, Thierry Breton, the new finance minister, is drawing up legislation to enable shareholders to vote on directors’ remuneration after the row over the reported €38m “golden parachute” for Daniel Bernard, chairman of retail group Carrefour.

Stung by the response, including strikes by employees seeking a €50 a month pay rise, Bernard told Le Figaro his real package was worth three years’ salary (€9.9m) if he kept out of the retail sector for four years plus a pension worth €7.5m over 25 years.

Criticising the proposed law as based on “a false polemic”, he said: “A CEO is not someone who lives off the back of a firm but carries it on his back to bring it as far forward as possible.”

The German government says it will press ahead with legislation to force companies to adhere to the voluntary Cromme code by publishing UK-style remuneration reports and has appointed a commission into reforms of the rules giving employee representatives half the seats on supervisory boards under 50-year-old “co-determination” laws.

In Belgium, home to the European commission which is promoting law changes to improve corporate governance, the government is being urged by business to endorse a voluntary code while MPs consider legal rules.

Maurice Lippens, president of the Belgian-Dutch Fortis Bank and author of the code, said it had drawn heavily on the City’s combined code and the Swiss code of 2002 but had tried to go one better. Based on the same “comply and explain” principles behind the City code, the Belgian code takes account of the fact that 70 of its 80 listed companies are dominated by family shareholdings. Unlike Holland, where the Calvinistic culture has produced a legally binding code as strict as the US Sarbanes-Oxley act, the Belgian code gives greater self-regulating powers to directors and, above all, the chairman. Fortis is governed by both but primarily by the Lippens code.

Count Lippens told the Guardian: “We have been more open in letting directors take their own responsibilities.” His code allows the chairman to lead the nomination process whereas in Britain, after the Higgs report, companies have a nominations committee of non-executive directors.

Similarly, where Higgs proposes non-executives serve two three-year terms at most, Lippens argues that they should be allowed to stay for 12 years, and maybe longer.

He insisted that even the most stringent rules would not prevent scandals.

“In the US we have just seen the scandal at insurer AIG and it was Sarb-Ox compliant. We will still have the WorldComs or Enrons or Parmalats or Aholds even when laws exist with codes on top.”

Count Lippens, one of Belgium’s highest paid executives, earning €300,000 a month, said the EU should avoid imposing a single code on European companies.

“Harmonisation is a very Stalinistic concept … In Belgium you should not own shares in the company if you sit on the board but it’s different elsewhere. In Holland, where they told me they didn’t like our one-tier board, companies like Shell and Unilever are adopting this system and giving up the two-tier system. People are moving with the flow.”

http://www.guardian.co.uk/business/story/0,,1475049,00.html

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