Board Models in Europe - Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy

30 Pages Posted: 20 Jan 2004

See all articles by Klaus J. Hopt

Klaus J. Hopt

Max Planck Institute for Comparative and International Private Law; European Corporate Governance Institute (ECGI)

Patrick C. Leyens

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics; Karl Franzens University of Graz (KFU) - Institute of Corporate and International Commercial Law; European Corporate Governance Institute (ECGI)

Abstract

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.

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

Suggested Citation

Hopt, Klaus J. and Leyens, Patrick C., Board Models in Europe - Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy. ECGI - Law Working Paper No. 18/2004, Available at SSRN: https://ssrn.com/abstract=487944 or http://dx.doi.org/10.2139/ssrn.487944

Klaus J. Hopt

Max Planck Institute for Comparative and International Private Law ( email )

Mittelweg 187
D-20148 Hamburg
Germany
+49 40 41 90 02 05 (Phone)
+49 40 41 90 03 02 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Patrick C. Leyens (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics ( email )

Burgemeester Oudlaan 50
PO box 1738
Rotterdam, 3000 DR
Netherlands

Karl Franzens University of Graz (KFU) - Institute of Corporate and International Commercial Law ( email )

Universitaetplatz 3
Graz
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
Brussels
Belgium

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