Snapshot 19 EU Corporate Governance & CSR initiatives

22 June 2011
This FD Blueprint Snapshot outlines some upcoming and current EU initiatives regarding corporate governance and CSR. Companies should be aware that they will be affected in a variety of ways: Legislation which would result in further disclosure of financial and non-financial information is to be expected. Non-legislative initiatives could tilt the playing field in favour of companies which implement the desired policies, e.g. through new public procurement rules. By raising these issues, the EU is giving companies the opportunity to profile themselves in a positive light with policymakers in Brussels, as well as with citizens. Companies will have to show that their CSR/corporate governance initiatives are effective and should avoid being seen to engage in reputational white-washing.

Background In the last decade, the EU has shown a growing interest in corporate governance and CSR. At a summit meeting in 2000, EU heads of government made a special appeal to companies sense of social responsibility regarding best practices in lifelong learning, work organisation, equal opportunities, social inclusion and sustainable development. This was followed by two European Commission policy papers and the establishment of a multi-stakeholder forum regarding CSR. Similarly, since 2004, the EU has been setting standards for corporate governance, both through legislation and non-legislative recommendations.
The financial crisis, the changing assumptions underlying CSR and the failure of some European companies to fulfil expectations have prompted the Commission to draw up a number of new initiatives.

Country-by-country reporting Country-by-country reporting would require multinational companies to disclose financial information on their operations in third countries in their annual financial statements. The Commissions DG Internal Market (DG MARKT) ran a consultation on this until January 2011, asking for views on such disclosure for the purposes of: giving more information to investors enhancing transparency for tax purposes
It also raised the idea of specific rules for extractive industries companies. The Commission is now exploring the policy options following the consultation: it expects to announce a resulting initiative in the autumn.

Corporate governance In April 2011, DG MARKT published a Green Paper and launched a consultation on corporate governance. It covers: Board of directors diversity of members, availability and time commitment, evaluation, pay, risk management Shareholder involvement short-termism, institutional investors, proxy advisors, minority shareholder protection, employee share ownership Monitoring and implementation of national codes
The consultation is open until 22 July, and the Commission will decide in the autumn whether it needs to follow up with legislative proposals.

Gender diversity on boards Since March 2011, the EUs Justice and Fundamental Rights Commissioner Viviane Reding has been campaigning for European companies to sign the Women on the Board Pledge for Europe, i.e. commitment to increase female board representation to: 30% by 2015 40% by 2020
This mirrors mandatory quotas already or soon to be in place in other European countries, such as Norway, France and Spain. In March 2012, the Commission will assess whether business selfregulation on female board participation has worked, and may propose its own regulatory initiatives.

Disclosure of non-financial information Last winter, DG MARKT held a consultation on disclosure of non-financial information, i.e. on social, environmental, human rights and sustainable development aspects of corporate activity. The Commission is now working on an impact assessment, likely to be published by November, which should be followed by a legislative proposal during the first half of 2012. Public procurement The Commission has launched an initiative to update EU public procurement requirements. In its consultation earlier in 2011, it floated the idea that public procurement could be used to promote EU policy goals such as responsible sourcing, gender diversity and responsible employment practices. Some NGOs are very actively campaigning for the Commissions forthcoming legislative proposal to impose clear and binding targets. As public procurement represents 17% of the EUs GDP, the new legislation would have a major impact on European business. CSR Communication The Commission plans to publish a Communication on CSR this September. Although there is already an EU policy dedicated to CSR, the Commission feels that many EU companies fail to make it an integral part of their strategy and operations and that some Member States lag behind in promoting it. Although the Communication will be non-legislative, it is expected to look at how CSR can be mainstreamed into other EU policies, thereby incentivising European companies to actively engage in corporate citizenship. For further information
Kerstin Duhme, Managing Director: +32 2 289 09 31; kerstin.duhme@fdblueprint.eu