‘Wise man’ opposed to governance rules

Date: 28/02/02

By Peter Chapman

THE EU's chief company law 'wise man' says he opposes setting pan-European rules for corporate governance despite the Enron disaster and the furore over the €100 million pay-out to former ABB chairman Percy Barnevik.

Jaap Winter leads a panel, set up by European Commission financial services chief Frits Bolkestein, that will consider corporate governance.

The term describes the checks and balances in place within a company to ensure it is well run. This follows the panel's issuing of a blueprint for a new directive on takeovers.

The headline-grabbing Enron and ABB stories have raised questions about the structures in place to control how boards operate, such as their relations with shareholders and pay levels.

In the case of Enron, board members allegedly oversaw the downfall of the company whilst auditors, analysts and investors were oblivious.

In the case of Barnevik, shareholders were furious to learn that the former chairman had been given a golden parachute behind their backs.

But Winter told European Voice his group would be 'very hesitant to recommend' new EU standards for harmonising the various national corporate governance systems currently in place, including one announced this week by Germany.

Instead, he said he would prefer to allow 'best practice' to spread naturally, largely through increased pressure from investors who are now more prepared to pay a premium for shares in well-run firms.

He said legislation could not keep up with a moving target - constantly evolving and adapting itself in response to ongoing changes in the way EU firms do business.

'The world is changing,' Winter said. 'There is only so much that you can lay down in rules. We have to be careful not to embark on new legislation because of accidents [such as Enron and ABB].

'We have to look carefully at what went wrong. But you can't make rules so that no accidents will happen any more. People will always find a way to break the rules.'

Nevertheless Winter, who splits his working week between advising Anglo-Dutch consumer products giant Unilever and teaching at Rotterdam's Erasmus University, said the EU could try to iron-out often conflicting requirements that stock exchanges and securities market regulators impose on firms.

In these areas, companies often face legal sanctions for failing to comply - especially challenging for those traded on more than one EU market.

But he still says the problem could be addressed without the need for EU-level laws.

'It might be that there is a reason to at least coordinate these codes - at least ones that have some legal sanctions, such as listing rules,' said Winter.

He said the 'wise men' would launch a public consultation on the issue in late March, before including conclusions on corporate governance in a broader report on company law reform, due in the summer.

Winter also said he was not ready to jump on the anti-US bandwagon in the wake of the Enron scandal.

Frits Bolkestein recently attacked the US accounting system and claimed it proved the need for a switch to international standards.

'People are saying Enron could only have happened in the US. But I am not sure that it [Enron's bankruptcy] has proven that the US are in any way inferior,' he said.

The EU's chief company law 'wise man' says he opposes setting pan-European rules for corporate governance despite the Enron disaster and the furore over the €100 million pay-out to former ABB chairman Percy Barnevik.