Heading into a fresh, New Year! A Glance into Corporate Governance in Europe
So here we are, in January 2017, the start of a new year that promises to bring much change and undoubtedly new sets of challenges. Corporate finance is one field that will not be left untouched, with entirely new leadership at the SEC on its way. But we would like to remind you, as well as ourselves, that amidst so much transformation, looking carefully at recent evolution gives us a both a point of reference for navigating future change and continuing to drive progress.
The 14th edition of our Governance Overview report with EY on European corporate governance practices from 2016 serves as a guide to your corporate board’s approach to the New Year. Drawing on the expertise of professionals working with regulatory authorities as well as the OECD, in addition to EY and Labrador experience, we use this analysis of 2016 practices to draw up some important suggestions for corporate boards in 2017.
Mapping the board’s expertise
While your board of directors serves as a whole and should certainly be considered as one entity, it is important to clearly show how the diverse parts fit together to fit corporate strategy. We recommend transparency on this front: mapping out the expertise and diversity of the board illustrates how it is equipped to handle the wide range of risks the company faces.
At nearly a quarter (23%) of large, listed French companies, the head of the audit committee drafts an annual report and presents it at the shareholder meeting. This is a significant increase from 16% the previous year. There is also an increase in transparency related to individual director attendance rates, 100% in the UK, 55% in France, 17% in Germany and 33% in Italy.
We see progress, too, with another key indicator of transparency: the issue of succession. Communicating clearly to shareholders that your board has succession plans for future executives is an important tool for reassuring investors about the company’s prospects.
The boards of 45% of large French companies and 25% of small French companies reviewed succession plans for executive corporate officers.
Assessing board work
There is a clear movement towards bolstering tools for evaluating board work. With this evolution comes clearer transparency. We applaud such progress, for it serves both the board and shareholders, leading the drive for improvement by all. However, there remains room to increase the role of independent evaluation.
In the UK and France, most large companies regularly conduct self-assessment of the work of boards of directors:
90% in the UK, 83% in France.
More large caps in the UK than in France called upon outside firms to assess board work at least once every three years:
55% in the UK, 39% in France.
CSR is here to stay
No matter how the regulatory environment evolves, CSR has gained traction in recent times and will undoubtedly continue to do so. In France, more than half of the boards at large cap companies are discussing CSR topics, a figure that remains lower among a broader survey that includes smaller companies. As we have noted in the past, often the larger companies, equipped with more resources and under scrutiny from a broader audience, set the trends for the rest of the market. Over a quarter of the boards of both large and small cap companies in France even had a committee fully dedicated to sustainability issues.
Large caps: 55% Smaller companies: 37%
These are just a few examples to consider as we head into a New Year.