The Core of Corporate Governance: Implications of the Takeover Directive for Corporate Governance in Europe

Abstract

Corporate governance as a term encompasses the governance of companies and, as such, covers a broad area. The current mainstream corporate governance debate tends primarily to address the relationship between the company and the shareholders and, more specifically, the election, dismissal and functioning of the board and top management. This paper uses corporate governance in the broader sense. The governance of companies, these all-important components of our market economies, is crucial to the further development of our economies and to the achievement of our societal goals. In the broader sense of corporate governance, the function of the board (and top management) is a highly significant issue, as is their relationship with the employees. Together they are the essence of the company and those parties on which the performance of the company most crucially depends.

The board has a unique role and position in balancing the involved interests – and promoting the interests of the company. Accordingly, the interests of the company form the guideline in accordance with which the board is meant to govern the company. The concept of the ‘interests of the company’– or just the ‘company interest’, as it is known in Continental Europe – has traditionally been viewed quite differently in the various jurisdictions, with Germany and the UK generally being perceived as occupying opposite ends of the spectrum. The possible effect of the Takeover Directive on the development of the concept of the company interest and on the functioning of the board constitutes the core of this paper's analysis of the implications of the Takeover Directive on corporate governance in Europe.

JEL Classification: K22