European companies still have a long way to go to improve their corporate governance practices, but reforms are under way.
Corporate governance practices are a mishmash across Europe. In Germany, banks play a major role in supervisory boards; in France, the power of the president-directeur general - a combination of the chief executive and chairman - is virtually supreme; in Holland, separate foundations for each company control the vast majority of voting shares.
Countries and corporations will need to change their ways to obtain foreign institutional capital, according to officials of Deminor, a Brussels-based consultant that aids minority shareholders.
Major reforms are being contemplated in France and Holland, while industry groups in Great Britain are discussing refinement of their governance policies.
A new survey by Deminor confirms these trends. The consultant attempted to rank blue-chip companies in five European countries on how they treat shareholders. All told, it rated 140 companies in the United Kingdom, France, Germany, the Netherlands and Belgium.
Not surprisingly, Great Britain, with its long tradition of equity investments and recent adoption of governance principles, came out on top with a score of 215 out of a possible 400 points.
France ranked second at 125, followed by Germany, 114; Belgium, 105; and Holland, 99.
However, there is little evidence that corporate governance practices affect companies' financial performance. Only a slight correlation exists in Britain, suggesting it might take some time before adoption of corporate governance practices are recognized by the financial community, the survey said.
Holland was dragged down by its strong anti-takeover measures, lack of adequate board committees and the role of foundations in controlling proxy votes. But efforts to revise the anti-takeover rules and recent adoption of Cadbury code-type guidelines by the Amsterdam Stock Exchange should improve its score in the future.
Some issues are neglected in all of the countries surveyed.
Disclosure standards in particular were found wanting. Deminor consultants criticized companies for failing to provide information on the independence of the directors, or to describe the inner workings of the corporate board. While some internal board issues might be very sensitive, many European companies don't even mention how many times a year the board meets or the attendance record for directors.
Britain excelled in certain areas, primarily because of its codes of best practice affecting corporate governance and executive pay.
While the Greenbury Committee's code led to extensive disclosure on executive pay in Britain, much less information is available in other European countries. Similarly, British, and to a lesser extent, French companies have established specialized committees of the board dealing with pay, selection of directors and auditing of financial information.
In addition, only Britain, Germany and Belgium abide by the "one-share, one-vote" principle, Deminor said. Multiple voting rights are much more common in France and the Netherlands.
Voting shares and filing resolutions are a big problem in most countries, the survey said. Proxy voting also can be very difficult for foreign institutional investors: only a minority of companies automatically send proxy forms to all of their shareholders. Often, forms must be returned in a few days.
The Deminor report said companies can get rid of many obstacles to good governance, such as anti-takeover provisions, on their own. Adoption of national codes of conduct and legal changes that would permit introduction of corporate governance standards and reinforce minority shareholder rights also would help, the report said.
"The objective is that the board is working properly, in terms of procedures, organization and composition," said Eric Coppieters, founder of Deminor.
Some countries already are moving toward improving their corporate governance practices. For example, Sen. Philippe Marini recently introduced legislation in the French Parliament that would enhance shareholder rights. The bill would improve disclosure to shareholders by providing full listings of registered shareholders for listed companies, allowing proxy voting by independent parties and eliminating restrictions on rights limits.
The bill also would change corporate management rules, giving more power to corporate auditors, enhancing the role of board committees and limiting the number of boards on which a director could sit. The bill is expected to be voted on before Christmas.
In Britain, a new report published by the London-based Institute of Chartered Secretaries and Administrators called for revitalizing the annual meeting as a key vehicle for better communications between companies and their shareholders.
The report, which is backed by individual shareholder group ProShare, the Association of British Insurers and the National Association of Pension Funds, stems from an April request from the Department of Trade and Industry to reform annual meeting practices. The guide lists 24 elements of best practices, ranging from advance notice of the meeting to proxy voting procedures to shareholder resolutions.
Separately, the NAPF issued a policy document endorsing the need for regular dialogue between shareholders and corporate management. The document said, however, "public recriminations" should serve only as a last resort when management is not responsive.
The focus of corporate governance activities should be on "improving the performance of U.K. companies over the long term. We must not allow it to become a box-ticking exercise," said Ann Robinson, the NAPF's director general, in a release.