The European Commission has published a speech by Charlie McCreevy (European Commissioner for Internal Market) at the Transatlantic Corporate Governance Dialogue 2008.
Mr McCreevy starts his speech by stating that whilst the Commission will soon be presenting proposals to strengthen the existing prudential framework the proposals should not be seen as a substitute for proper corporate governance.
He then discusses:
- Risk management. Here Mr McCreevy states that financial institutions will have to examine their internal governance framework with a view to embracing risk management. Risk management should be part of the strategy of the firm and the culture of the organisation. The senior management in a financial institution have a duty to address this issue and the role of the board is to oversee this.
- Market transparency. Here Mr McCreevy states that there is a need to improve transparency for investors, markets and regulators, by making sure that they are provided with proper information. Mr McCreevy states that whilst recent initiatives are welcome industry needs to do more to ensure meaningful disclosures about risk exposures, risk management and accounting policies.
- Remuneration. Here Mr McCreevy states that up to now, there have been far too many perverse incentives in place. Incentives need to be aligned with shareholder interest and long term, firm wide profitability. Mr McCreevy states that in the first instance, responsibility for addressing perverse incentives rests with industry and the financial institutions themselves. Mr McCreevy also states that Member States should ensure that shareholders can vote on the remuneration criteria applying to board members. According to Mr McCreevy this would go a long way towards increasing or restoring shareholder confidence.
- Role of regulators and legislators. Here Mr McCreevy states that the Commission needs to look at the role of supervisors. He further states that EU regulators need to cooperate more and this is why the European Commission is preparing to revise its decisions establishing the EU supervisory networks. Key points will include a revised decision making process, better financing and setting certain work priorities at the EU level. Mr McCreevy also mentions that he will soon propose some significant changes to the implementation of Basel 2.
View EC speech - Transatlantic Corporate Governance Dialogue 2008, 9 September 2008