Abstract
The research on Corporate Governance (CG) has evolved over the last three decades. However, board composition and its effectiveness, as well as compensation policy, remain at the centre of policy debates and CG research.
Until the financial crisis national governance systems in Europe were dominated by informal institutions, in which voluntary compliance with codes of conduct prevailed with reference to governance activities, and the legislative framework did not specify rules governing corporate governance mechanisms. However, corporate scandals during the crisis period raised serious doubts about the effectiveness of the CG policies developed by companies.
Focusing on Spain, different voluntary-compliance good governance codes have emerged since 1998: the Olivencia Code (1998), Aldama Code (2003), Conthe or Unified Code (2006), the updated Unified Code (2013), and the Good Governance Code passed by the CNMV [(Comisión Nacional del Mercado de Valores) is the Spanish Securities Exchange Commission.] board in 2015. However, examples like the 4.4% increase in director compensation in 2012, while IBEX 35 (The Ibex 35 is a Spanish stock index comprised of the exchange’s largest 35 companies in terms of market capitalization.) companies lost 30% of their value from 2007 through 2011, illustrate the need to legislate over some governance matters.
There still remains much to do. This paper takes into account the differences in CG across Europe, considering 33 variables that measure policies related to corporate governance, including the areas of board structure and functioning, committees, compensation policy, anti-takeover-devices, shareholder rights and Corporate Social Responsibility. The analysis focuses on Spain but also considers Europe’s three main economies, using a sample of 206 enterprises that belong to the main Stock Indexes of Spain (IBEX 35), France (DAX), Germany (CAC-40) and the United Kingdom (FTSE-100). The results show country-based CG differences in 25 variables, and pre- and post-crisis differences in 11 variables for Spain, 10 for Germany, 17 for the United Kingdom, and 18 for France. Thus, the crisis affected corporate governance in both common law countries and in civil law ones.
A better understanding in each country of how businesses are developing and implementing CG, and whether CG policies are different between countries, is needed in order to make CG-related proposals in the future.
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Notes
- 1.
According to the Doing Business classification, Germany ranks below Spain and France in investor protection, contrary to the conclusion drawn by La Porta et al. (1997), who considered Germany to provide better legal protection.
- 2.
The CEO simultaneously being the Chairman of the Board.
- 3.
The German Code establishes that Management Board members may not become members of the Supervisory Board of the company within 2 years after the end of their appointment unless they are appointed upon a motion presented by shareholders holding more than 25% of the voting rights in the company.
- 4.
Audit and Compensation committees are compulsory by law in Spain since the passing of Law 31/2014.
- 5.
Since the 31/2014 Law the General Meeting of Shareholders is responsible for setting board of director compensation every 3 years in Spain.
- 6.
The French Governance Code establishes that terms should be staggered so as to avoid the replacement of the entire board and to favour a smooth replacement of directors.
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Acknowledgments
This paper is part of the research project entitled “Governance, incentives, and risk management in global Banks” (APIE Num. 2/2015-2017), funded by the Santander Financial Institute (SANFI) with the sponsorship of Banco Santander, awarded by public call of the University of Cantabria (Official Bulletin of Cantabria. BOC Number 236, 9 December 2014).
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Annex: Description of the Variables
Annex: Description of the Variables
Name | Description | Type of variable |
|---|---|---|
Board Structure/Functioning | ||
Board size | Size of board (The total number of board members at the end of the fiscal year) | C |
Non executive directors (%) | Percentage of non-executive board members | C |
CEO duality | Does the CEO simultaneously chair the board? | D |
Chairman experience as CEO | Has the chairman of the board been the CEO of the company? | D |
Director tenure | Average number of years each board member has been on the board | C |
Meetings per year | The number of board meetings during the year | C |
Meetings attendance | The average overall attendance percentage of board meetings as reported by the company | C |
Comittees | ||
Corporate governance committee | Does the company have a corporate governance committee? | D |
Audit Committee | Does the company have an audit committee with at least three members and at least one "financial expert" within the meaning of Sarbanes-Oxley? | D |
Compensation Committee | Does the company have a compensation committee? | D |
Compensation policy | ||
CEO equity-based pay | Is the CEO’s compensation linked to total shareholder return (TSR)? | D |
Performance-based compensation policy | Does the company have a performance oriented compensation policy? | D |
ESG related compensation policy | Does the company have an ESG related compensation policy? | D |
Compensation Policy attract/retain executives | Does the company have a compensation policy to attract and retain executives? | D |
Say on pay (executive compensation) | Do the company's shareholders have the right to vote on executive compensation? | D |
Say on pay (stock based compensation) | Does the company require that shareholder approval is obtained prior to the adoption of any stock based compensation plans? | D |
Anti-takeover devices | ||
Policy limiting anti-takeover devices | Does the company have a policy limiting the use of anti-takeover devices? | D |
Golden parachutes | Does the company have a golden parachute or other restrictive clauses related to changes of control (compensation plan for accelerated pay-out)? | D |
Staggered Board | Does the company have a staggered board structure? | D |
Supermajority vote requirement | Does the company have a supermajority vote requirement or qualified majority (for amendments of charters and bylaws or lock-in provisions)? | D |
Veto power | Does the biggest owner (by voting power) hold the veto power or own golden shares? | D |
Shareholders rights | ||
Limited rights to call special meetings | Has the company limited the rights of shareholders to call special meetings? | D |
Majority vote for board members election | Are the company’s board members elected by a majority vote? | D |
Minimum shares to vote | Has the company set requirements for a minimum number of shares to vote? | D |
Director liability limitation | Does the company have a limitation of director liability? | D |
Shares with different rights | Does the company have shares with different rights like priority shares or transfer limitations? | D |
Shareholder engagement/activism | Does the company have a policy to facilitate shareholder engagement, resolutions or proposals? | D |
CSR | ||
CSR committee | Does the company have a CSR committee or team? | D |
Sustainability report | Does the company publish a separate sustainability report or publish a section in its annual report on sustainability? | D |
External auditor for sustainability report | Does the company have an external auditor of its sustainability report? | D |
Sustainability index | Does the company report on belonging to a specific sustainability index? | D |
GRI guidelines | Is the company's sustainability report published in accordance with the GRI guidelines? | D |
UN global compact | Has the company signed the UN Global Compact? | D |
Stakeholder engagement | Does the company explain how it engages with its stakeholders? | D |
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Díaz Díaz, B., García Ramos, R., Baraibar Díez, E. (2017). Corporate Governance in Europe: Has the Crisis Affected Corporate Governance Policies?. In: Aluchna, M., Idowu, S. (eds) Responsible Corporate Governance. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-55206-4_5
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