The Company
10.2 Board structures
10.2.2 The unitary board
the financial statements to both the management and the supervisory boards.
(v) The remuneration
The Dutch Corporate Governance Code provides specific rules pursu- ant to the remuneration of the management board and the supervisory board.
Management board remuneration
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The remuneration structure, including severance pay, shall be simple and transparent. It shall promote the interests of the company in the medium- and long-term. The supervisory board monitors the board of management level of remuneration. The level and structure of the remuneration shall be determined by reference to, inter alia, the results achieved, the share price performance and non-financial indicators that are relevant to the company’s long-term value creation.
Supervisory board remuneration
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The remuneration of the supervisory board’s members is determined by the shareholders, and is not dependent on the results of the company.
Italian joint stock companies opting for the Rhenish style can have a dual management body, which consists of a board of directors and a supervisory committee. While the functions of the board of direc- tors have remained unchanged under the 2003 Law, the supervisory committee assumes functions performed by the board of auditors and some other duties that the assembly of shareholders may assign to it and consultancy functions as well. Conversely, those joint stock com- panies opting for the Anglo-Saxon corporate governance model style, have a board of directors coupled with a control body appointed by the board of directors. Despite the Italian lawmakers’ effort to innovate with a control body, such a body would not be effective as it emanated from the board of directors. It has been argued that the attribution of managerial and supervisory functions to a single body would facilitate the supervisory function, but the argument is somewhat specious given the conflict of interest between the controlled and the controller. 6 The supervisory body lacks independence and Italy would need to revisit its approach.
Spain
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Contrary to many continental European countries which have embraced corporate governance since the last century, Spain’s first serious corporate governance efforts can be traced back to 2003 with the Aldama Report revised and completed in late 2006. The Spanish code is closer to the Italian model prior to the 2003 reform in Italy.
France
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In France, corporate governance laws are organized in: (i) the Financial Market Regulation, (ii) Company Law, and (iii) Labor Law. France’s
Italian Corporate Governance Structure Prior to 2003 Shareholders
Board of Auditors
Executive Committee
Board of Directors
Board Members
Figure 10.1 Italian corporate governance structure prior to 2003
corporate governance is characterized by a highest concentration of own- ership in the hands of a few families. 7
More, the French state ‘quasi-dirigiste’ role in the economy has also a significant role in the country’s corporate governance structure. Even listed companies are under state influence: banks and insurance compa- nies are state-owned and/or controlled, and represent the major capital providers to private companies in France. 8 Contrary to the ‘Anglo-Saxon’
model which seeks to maximize shareholders’ profits, in France, the main aim of a company is the pursuit of ‘intérêt social’, which incorporates a wider range of actors outside shareholders and managers. 9 The company interest is distinct from the mere interests of its shareholders. It is a confluence of different interests to be counterbalanced. 10 However, con- trary to Germany, French workers and their representatives have strong information rights without veto power. They lack sufficient power to influence the board on key issues such as merger and acquisitions. The system enables majority shareholders to have the final say in company affairs, while minority shareholders are marginalized. The structure of the French company is somewhat different. Only 25 percent of large companies have opted for a two-tiered board structure, where a board of directors coexists with a board of surveillance. The board of directors is managed by a ‘Président Directeur Général’ or (PDG), reminiscent of the Vichy Regime. Further, when the employees’ stake in the com- pany reaches 3 percent (via an Employees Share Ownership Plan (ESOP) or similar plan) the employees are entitled to nominate one or more directors.
Scandinavia
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The Scandinavian corporate governance model is different from the Anglo-Saxon model (i.e. US/UK) and the Rhenish model (i.e. Germany, Austria). The model known as ‘one-string structure’ is in operation in all the five Nordic countries: Denmark, Finland, Iceland, Norway, and Sweden). The Scandinavian corporate governance has a dual executive system: (i) the board of directors, and (ii) the management. It is different from the two-tier corporate governance model in Germany and to some extent in Italy. Scandinavian corporate governance allows great power to the shareholders, while the managerial power is split between the upper- level executive body and a lower-level executive body.
Shareholders’ power
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The Scandinavian corporate governance model is designed to ensure that shareholders hold ultimate power over the company. 11 Shareholders
can take any decisions within their general assembly. That is if the majority of shareholders are displeased with the management, they can replace it as they see fit. Given the tradition of dominant shareholders in Scandinavia, the general assembly is often dominated by the domi- nant shareholder(s). Ownership of even listed companies remains in the hands of the dominant shareholders. Scandinavian law does not allow cumulative voting.
The board of directors (upper-level executive)
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The board implements the decisions of the shareholders. It acts and signs on behalf of the company. Directors can be removed by the majority of shareholders at any time, regardless of the election term. There is no such defensive tactic as staggered board.
The management (lower-level executive)
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The management’s presence on the board of directors is very limited, most often to that of the CEO. In Denmark for instance, the code states:
‘We cannot recommend that managers of the company are also directors of the company.’
Scandinavian Corporate Governance Structure
Unlike German corporate laws, the Scandinavian corporate law is designed to ensure that the dominant shareholder controls the company.
But with power comes responsibility. Some have argued that such a con- centrated ownership may have implications for the firm’s risk manage- ment decisions, since the dominant shareholder may turn down projects just because of the increased level of risk entailed. 12 Though the concern is a genuine one, Scandinavian corporate governance comprises the five
Board of Directors
Management Lower-Level Executive Upper-Level Executive Shareholders
Figure 10.2 Scandinavian corporate governance structure
Scandinavian countries which have produced great wealth and provided a fair society with no corruption.
Further, the majority shareholders are more committed to the company as shown under the graph below, with highest attendance at the board meetings.