Our response to the EU Corporate Governance Green Paper

The green paper on EU Corporate Governance is helpful as far as it goes, but it skips over or ignores two key issues.

The first is the position of stakeholders other than shareholders in listed (and other) companies). This is mentioned in the preface, but there are no proposals for how their position may be improved.

The second is the problem that much information about listed (and other) companies is available only either for a fee, or with restrictions on reuse, meaning it is impossible to combine the data with other datasets, and so get a rounded view of companies, restricting the ability of to understand and monitor companies.

On the first point, the preface says, “Corporate governance is traditionally defined as the system by which companies are directed and controlled and as a set of relationships between a company’s management, its board, its shareholders and its other stakeholders” . Later on the paper states that “some companies may face risks that significantly affect society as a whole: risks related to climate change, to the environment (e.g. the numerous dramatic oil spills witnessed in recent decades), health, safety,  human rights, etc.

However, despite this, there are no suggestions for how to improve the position of the other stakeholders, particularly with respect to the core problem of being able to monitor and understand such companies. Whether you live in the shadow of an oil refinery, work for a company that may be in financial difficulties, or a small business trading with a company that is ultimately owned in another jurisdiction, your ability to understand and monitor the corporate body that affects your life is severely restricted, requiring you to subscribe to multiple expensive services, visit websites on a daily basis, and be able to pull together strands of information from multiple sources.

Compare this with institutional investors, and short-term professional share traders, who have the time and money to access information, and it is clear that there is a serious and damaging information asymmetry, and also one that favours those with a short-term perspective. Finally, some of the proposals in the green paper, for example disclosure of remuneration policy or risk appetite (Q 10 & 11), while in theory admirable, may actually increase these asymmetries, as they would in practice be only easily accessible and comparable for those with easy access to the data, with the result that there may be a greater short-term focus and reduced social responsibility.

On the second point, as Commissioner Neelie Kroes recently stated. “Data and information fuel innovation. Getting out the data should be seen as an investment.” She was specifically talking about ‘open data’ – public data that is licensed for reuse to allow it to be combined with other data without restrictions.

This is particularly relevant to information about companies, which have increasingly complex structures and multiple interactions with the world, and in multiple jurisdictions too. In addition, most large companies, especially listed companies, are often just one part of a group of companies, or have multiple subsidiaries, and occasionally multiple parents too.

This makes the job of good corporate governance almost impossible, and many of the financial crises and failures of corporate governance of recent times were down to the opacity this complexity brings (sometimes the opacity is part of the appeal of a complex corporate structure). An additional problem is that the data behind this complexity is ‘owned’ by several different bodies, in multiple jurisdictions, and with the exception of the US Federal government and increasingly the UK government, none of them has a policy that encourages it to be brought together.

If there is to be good corporate governance it is essential that this complexity can be made sense of, particularly by combining multiple datasets together, to understand, for example, the corporate structure of Europe’s biggest companies, to see whether the work they are doing in one jurisdiction contradicts the claims made in another, and to bring together multiple sets of accounts to understand how solvent a company is.

Ironically, most of the data is often collected by public bodies (company registries, regulators), or as part of a statutory framework (e.g. filings of listed companies), yet almost without exception it is not made available in a form or with a licence that allows for reuse, still less encourages it. Sometimes even the basic information about a company — its legal name, registration number, and status — is hidden behind paywalls, depute it being collected and published by public bodies for the public benefit.

In addition, company accounts, and information about the chief officers and controlling shareholders are almost never published as data, either by the companies or the public bodies that oversee them. Although the UK is moving towards XBRL to represent company accounts, this is the exception rather than the rule, meaning that access to this information is highly problematic, either not being collected as data (for even quite large companies), or being done in a labour-intensive way, increasing the cost of collection to a level that it is priced out of the reach of all stakeholders except professional and institutional investors.

Finally, one of the core tenets of an open and free market is equal access to information. As far as corporate information goes, this exists neither for shareholders, other stakeholders, nor for competitors, leading to multiple failures in corporate governance at all levels.