Abstract
The financial crisis revealed the lack of effectiveness of corporate governance (CG) principles in the financial services sector. During recent years, several aspects of corporate governance have been subject to hard law regulation in the European Union for the benefit of shareholders, such as remuneration (Directive 2010/76/EU), shareholder rights (Directive 2007/36/EC) and transparency/nonfinancial information disclosure (Directive 2014/95/EU). However, some questions remain unanswered. Are governance structures the same in financial and non-financial firms? Are the same CG recommendations applicable to both sectors? Has the crisis changed the way financial and non-financial firms are governed? Without a deep knowledge of these issues, governance policies cannot be fully developed. This paper considers the differences in CG across Europe, analysing 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. Our analysis focuses on a sample of 206 enterprises that belong to the main stock market indexes of Spain (IBEX 35), France (DAX), Germany (CAC-40) and the United Kingdom (FTSE-100), dividing the sample into financial and non-financial firms and considering the pre- and postcrisis period. The results show sector-based differences in CG in six variables in 2007 and in eight variables in 2013 for the full sample. Therefore, financial firms were not worse governed than non-financial firms before the crisis, and since the crisis financial firms have also been similarly governed to non-financial firms. The crisis has affected almost half of the CG variables analysed in financial firms. There were also country-based differences in CG in 19 variables in financial firms. These differences between countries show the difficulty in developing common governance recommendations for all European countries without considering their own specific characteristics.
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Notes
- 1.
After the passing of this Royal Decree-Law, it has been modified several times: Law 1/2013 of 14 May 2013, Law 8/2013 of 26 de June and Royal Decree-Law 1/2015 of 27 February.
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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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Appendix: Description of the Variables
Appendix: 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 |
Chairperson Experience as CEO | Has the chairperson 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 |
Committees | ||
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. (2018). Is Corporate Governance Different in Financial Firms than in Non-Financial Firms? Evidence for the Pre- and Post-Crisis Period in Europe. In: Díaz Díaz, B., Idowu, S., Molyneux, P. (eds) Corporate Governance in Banking and Investor Protection. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-70007-6_3
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