|
|
 |
|
| Industry |
Europe’s Harmonic Discord
Karel Lannoo
01/01/2004
|
It is difficult to prove if harmonization matters in corporate governance: Company regulation is one of the least harmonized areas of EU law. Although the European Commission has attempted to advance harmonization for two decades, the effort has mostly failed thus far.
One barrier to progress in the area of corporate governance is the difficulty in arguing a sound case for harmonization. Such governance touches upon securities and company law regimes as well as enforcement mechanisms. Nevertheless, differences in corporate governance rules seem not to be a great burden to market integration in Europe. (The United States does not have a harmonized company-law framework either.) Moreover, the EU is promoting more competition between regimes by adopting the European Company Statute, which comes into effect this year, allowing companies to do business all over Europe with a single incorporation.
In the aftermath of Enron, the EU should have been more assertive in promoting corporate governance the European way. Corporate governance codes are more broadly developed and better implemented in Europe than they are in the United States. Splitting the roles of chairman and CEO, for example, is a standard accepted among the numerous national codes in Europe. Executive remuneration has never spiraled as it has in the United States, and stock options are much less developed. On average, CEOs of European-listed companies earned about 20 times more than the average pay of a manufacturing worker. In the United States, by contrast, the magnitude of the ratio of CEO pay to manufacturing worker pay is dramatic. It peaked at 1,046 in 1999 and then dropped to 531 and 411 in 2000 and 2001 respectively.
In sum, in the securities markets field, greater harmonizing measures allow a more integrated market to emerge while preserving a healthy degree of competition between jurisdictions. In the area of company law, by contrast, less harmonization can promote healthy competition. As in the United States, some jurisdictions may come out as preferred places of incorporation. The EU should ensure that its current Financial Markets Action Plan is well implemented and enforced, yet should abstain from its ambition to further harmonize company law and corporate governance.
A policy brief by the author on EU Corporate Governance Reform is available on the CEPS website: www.ceps.be | Karel Lannoo, chief executive officer of
the Centre for European Policy Studies
in Brussels, is a specialist in European
financial markets, regulation and
corporate governance. |
|
|
|
|
|
|
|
