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What Are the General Characteristics of European Corporate Governance?

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  • Written By: Jo Dunaway
  • Edited By: S. Pike
  • Last Modified Date: 11 November 2016
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Corporate governance is the policy and methodology by which a company or corporation is directed, controlled and moved toward growth and profits. Since the European Union's (EU) inception, EU countries have moved closer to their collective objectives of creating a better environment for businesses to start up, expand and reach their markets without the inequities of national boundaries. The common or general characteristics of European corporate governance have changed somewhat as shareholders, employees, and stakeholders in businesses have adjusted to the changes in laws and regulations. It is now possible for a company created in one European country to conduct its business in other European countries without separate record-keeping and administration costs for each additional country in which branches or subsidiary companies have established offices and conduct business.

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Some of the ruling elements in European corporate governance are structured by EU corporate laws. Boards of directors are accountable for annual reports and accounts to the company in all of the member states of EU. Auditing committees oversee these reports and monitor effectiveness of risk management systems, internal controls, and the independence of all consolidated audits. European corporate governance has protections of shareholder rights, including required notices of all general meetings, the removal of prohibitions against electronic attendance at meetings, allowed shareholder voting by correspondence, and questions from shareholders being allowed at any general meeting. European companies can incorporate in one country and proceed to merge, form holding companies, and joint subsidiaries, without legal constraints from 27 different countries causing exorbitant legal fees and administration costs.

The Organization of Economic Cooperation and Developments (OECD) in the late 1990s published a paper of principles of corporate governance that most of the European countries have either referred to or passed into corporate law for their business communities. The basic principles of this paper included that effective corporate governance frameworks should foster transparent markets, have consistency in rule of law, and delineate a clear responsibility among all of the supervisory, regulatory and enforcement authorities. Additionally, all shareholders’ rights and key ownership rights should be protected by governance frameworks and there should be an equality expressed to all shareholders, including any minority or foreign shareholders, among other provisions.

European corporate governance principles are espoused in most countries, including recognitions that ethical decision making is not only good for public relations, but is good risk management practice and cuts down on lawsuits and damages. Codes of conduct are developed for governance best practices by directors, and all management personnel and compliance provisions are strictly enforced. Boards of directors are responsible for year-end reports in clear and understandable language of company positions and near future prospects as well.

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