Board Models in Europe - Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy
Klaus J. Hopt
Max Planck Institute for Comparative and International Private Law; European Corporate Governance Institute (ECGI)
Patrick C. Leyens
Max Planck Institute for Comparative and International Private Law
ECGI - Law Working Paper No. 18/2004
European Company and Financial Law Review, pp. 135-168, 2004
Company & Securities Law Review, Vol. 1, pp. 217-245, 2005
VOC 1602-2004: 400 YEARS OF COMPANY LAW, Ella Gepken-Jager, Gerard van Solinge, Levinus Timmerman, eds., Deventer (Kluwer), 2005
The struggle for efficient internal management control is the centre of the corporate governance debate in Europe since the incorporation of the Dutch Verenigde Oostindische Compagnie in 1602. Recent developments in Europe illustrate a trend towards specialised rules for listed companies and indicate growing convergence of internal control mechanisms independent of board structure.
The revised Combined Code in the United Kingdom and also the French revised Principles of Corporate Governance, both of 2003, strengthen the presence of independent directors on one-tier boards in Europe. Another systemic break-through for the two-tier board model is the growing tendency to separate the positions of CEO and board chairman. For the German two-tier structure, the strengthening of the strategic role of the supervisory board (Aufsichtsrat) by the new German Corporate Governance Code of 2002 means an attempt to incorporate a key advantage of the one-tier model. Similarly, the control duties of the Italian internal auditing committee (collegio sindacale) were extended by the Testo Unico of 1998 and bring the Italian second board closer to the German supervisory board.
The common trend to stricter standards of independence is challenged in Germany by its rigid concept of co-determination and, to a lesser extent, by the more flexible model of labour participation in France. Director's duties and liabilities and also derivative actions are a focus of the reform debate in Germany since 1998 and are currently under review in the United Kingdom. After the Enron debacle the interplay between internal control devices and independent external auditing has become a major focus of interest in all countries considered. Driven by Anglo-Saxon codes of conduct audit committees today serve as a common denominator for good corporate governance.
Though formal convergence is strong company organs in each country take on their own specific garment. Path dependent system development especially depends on shareholder structures and banking systems. The trend to greater structural flexibility on board level is strongly triggered by the introduction of a threefold board model choice under the French Loi Nouvelle Regulations Economique of 2001 and under the Italian Vietti-Reform that is in force since January 2004.
Number of Pages in PDF File: 30
Keywords: Auditing, Aufsichtsrat, banking system, board models, comply or explain, Corporate Governance Codes, directors' duties and liabilities, directors' independence, Higgs Report, internal control, labour co-determination, management and control, path dependency, shareholder activism, supervisory board
JEL Classification: G3, K22
Date posted: January 20, 2004