1. European Corporate Governance: What are the current issues? European Union Corporate Governance Standards - Working Group Meeting December 17, 2013 Brussels

2. In December 2012 the Action Plan on EU company law and corporate governance was adopted. It sets the framework for EU Commission's initiatives in the field of corporate governance and company law for this and next year. It is a careful comprehensive rethinking of past lessons, stakeholders views and studies 2

3. OBJECTIVES I: Encourage shareholder engagement II: Enhance transparency between companies and investors Facilitate cross-border operations of European undertakings More competitive and more sustainable companies in the long term Long term oriented sustainable growth Increase long term, growth oriented investment 3

4. I:Engaging shareholders - Better oversight of remuneration policy - Better oversight of related party transactions - Regulating proxy advisors - Clarification of the concept of „acting in concert“ - Employee share ownership Main issues: 4

5. Remuneration policy - Improve transparency on remuneration policies (annual disclosure) and individual remuneration of directors (ex-ante/ex-post). - Grant shareholders the right to vote. - Possibility to introduce a template in order to make remuneration comparable cross-border for all shareholders. - Companies benefit from remuneration policies which stipulate long-term value creation and genuinely link pay to performance. - Exercise better oversight of remuneration policies. - Make remuneration reports homogeneous across the EU Objectives 5

6. Related party transactions -Transaction above a certain threshold should be subject to improve transparency requirement. - Most substantial transactions should be approved by shareholders. - Require a fairness opinion by an independent advisor. -Dealings where the company contracts with its directors or controlling shareholders, may cause prejudice to the company and its minority shareholders. -Safeguards for the protection of shareholders` interest are of great importance. Objectives 6

7. Proxy advisors - Improving the transparency concerning methodology and conflict of interest framework applicable to proxy advisors. -Address the lack of transparency in methods used for the preparation of advice. -Prevent conflicts of interest when proxy advisor also act as consultant to investee company. Objectives 7

8. Employee share ownership - Employees` interest in the sustainability of their company is an element that can contribute to improving the governance framework. - Increase ratio of long-term shareholders and reinforces ownership of companies. - Increase engagement, motivation and productivity of employees. An external study has been commissioned. The research aims at describe the current situation and at define the most appropriate methodology to enhance knowledge of employee share ownership schemes and help reduce the cost of designing them. The study 8

9. II: Enhancing transparency - Disclosure of diversity policy and non-financial reporting - Improving corporate governance reporting - Shareholder identification - Alignment of incentives of institutional investors Main issues: 9

10. I: Disclosure of diversity policy and non- financial reporting Commission Proposal COM(2013) 207 final (April 2013) Objectives: - Extending the reporting requirements with regard to non-financial parameters - Strengthen the disclosure requirements with regard to the companies` board diversity policy - Provide concise, useful information for companies, investors and society at large. 10

11. II: Disclosure of diversity policy and non- financial reporting At least the following matters will be disclosed in the non- financial statement : - Diversity policy in the board of directors - Environmental aspects - Social and employee-related aspects, - Respect for human rights - Anti-corruption and bribery Will be applied on a comply or explain mode to all large (more than 500 employees) companies, both listed and non-listed. 11

12. III: Disclosure of diversity policy and non-financial reporting Companies can rely on standards from different international frameworks like: - UN Global Compact, - UN Guiding Principles on Business and Human Rights, - OECD Guidelines for Multinational Enterprises - ISO 26000, - ILO Tripartite Declaration of principles concerning multinational enterprises and social policy, - Global Reporting Initiative (GRI). 12

13. Improving corporate governance reporting - Communication on: Improving the quality of corporate governance reports, and in particular the quality of explanations. -Corporate governance codes are cornerstones of the EU corporate governance system. They are applied on a ”comply or explain“ basis. -Clear explanation when departing from a given code is needed for shareholders to understand the situation in companies. Objectives 13

14. Shareholder identification and cross-border share voting - Companies will be able to identify their shareholders. - Communication across the investment chain will be enhanced. - Voting cross-border will be facilitated. - Additional information on who owns shares can improve the corporate governance dialogue between the company and its shareholders. - Remove barrier to effective shareholders voting rights is essential to boost shareholder engagement. Objectives 14

15. Alignment of incentives of institutional investors - Increase the transparency of voting and engagement policies adopted by institutional investors and asset management firms. - Align institutional investors investment and engagement strategies with the long-term interests of companies in which they invest. - Align the incentives in the equity chain (asset managers, asset owners and ultimate beneficiaries). Improving the disclosure of voting and engagement policies of institutional investors. What to do 15

16. Which disclosure in the investment chain? - Institutional investors and asset managers: voting and engagement policies. - Asset manager: some elements of their management mandates (portfolio concentration, portfolio turnover, actual and estimated cost of portfolio turnover). - Proxy advisors: disclosure of the methodology applied and transparency rules. 16

17. Some challenges for the future… - Coherent implementation of new requirements; - Ensure that different disclosure requirements under different Directives are coherent and complementary; - Correct application, corporate governance has also a cultural dimension, buying into the spirit of the rules. 17