The Role of the Shareholder in Internal Corporate Governance: Enabling Shareholders to Make Better-Informed Decisions

Abstract

Europe has historically lagged behind the United States in viewing the primary role of company law as being to facilitate the operation of businesses in corporate form. In this respect, the report of the High Level Group of Company Law Experts (HLG) to the European Commission of November 2002 marks a distinct break with the past. In facilitative corporate law systems, disclosure is a key mechanism for the regulation of corporate governance agency problems. This paper questions the merits of singling out directors' disqualification as a pan-European sanction for the enforcement of corporate governance disclosure requirements. It argues that a more effective strategy for promoting consistency in enforcement could be to pay closer attention to the institutional allocation of regulatory responsibilities for corporate governance disclosure. It suggests a model in which responsibility for the monitoring and enforcement of corporate governance disclosure is located with securities regulators. Making securities regulators the primary regulators of corporate governance disclosure would promote pan-European consistency in monitoring and enforcement. Looking beyond disclosure to the actual exercise of internal control by shareholders, this paper also casts a sceptical eye over the HLG's views on the need for urgent EC intervention to address the problem of investor disenfranchisement. British market participants have made ingenious use of proxy mechanisms to ensure that underlying investors retain control over the exercise of voting rights attached to shares held on their behalf by nominees. This evidence suggests that the case for EC company law intervention to address problems that the market has proved unable to solve is weak. While the situation may be different in other Member States, the existence of such differences militates against top-down EC intervention.