1. Luca Enriques University of Bologna & ECGI
EC Reforms of Corporate Governance and Capital Markets Regulation: How Do They Affect Outside Investors?
Luca Enriques
University of Bologna & ECGI

2. Overview
A lot is happening in Europe in terms of corporate governance and capital markets reforms, both at the state level and at the EC level.
My focus:
Recent and current EC corporate and securities law initiatives and their impact on corporate governance:
The implementation of the Financial Services Action Plan
Post-scandals reaction
Modernization of EC and EU company laws
Evaluation

3. But before I start, a disclaimer is required: Enriques (WP, 2005a):
“EC company law directives and regulations are trivial for EU companies’ governance and management.”
Enriques (WP, 2005b) and Enriques & Gatti (WP, 2006a):
“The EC should have almost no role in corporate law making.”
Can I provide an unbiased overview of recent EC attempts to centrally regulate company and securities laws?
I’ll do my best.

4. The FSAP and its output The Financial Services Action Plan
Integration of EU Capital Markets through uniform law
Main provisions relating to corp. governance and capital markets:
IAS/IFRS Regulation
Market Abuse Directive
Prospectus Directive
Takeover Bid Directive
Transparency Directive

5. Relevant innovations (1/2)
IAS/IFRS
Fair Value
IAS 24
The Market Abuse Directive:
More emphasis on enforcement (investigations, sanctions etc.). But enforcement remains local
Very timid with trading disclosure obligations by blockholders
How will the prohibition on tipping be construed?

6. Relevant innovations (2/2)
The takeover bid directive
Mandatory bid rule (no effective harmonization; already there almost everywhere)
Board neutrality rule: optional for Member States
Might well lead Member States already adopting it to reconsider it
especially after Mittal Steel’s audacious bid for Arcelor

7. Post scandal initiatives
Three “recommendations”
on auditor independence
on directors’ remuneration
on the role of non-executive directors
Two directives close to adoption
on statutory auditors
on corporate governance

8. The two directives Audits: Mandates PCAOBs
Introduces independence requirements
Adopts ISAs
Mandates audit committees
Corporate governance:
Mandates corporate governance statement
With mild SOA “Section 404” requirement
Imposes collective board responsibility for annual accounts

9. Initiatives to modernize EC and EU company laws
Reform of legal capital directive
Over-ambitious project on dual-class shares and pyramids
Proposal to facilitate exercise of voting rights
Cross-border merger directive (facilitating restructurings)

10. Evaluation (1/2)
These are busy times in Brussels for company law policy makers...
IFRS (IAS 24) can be important to tackle self-dealing (“sunlight...”)
MAD is requiring on managers and condescendant with large shareholders
But, if the prohibition on tipping is strictly construed, it also may make life more difficult for dominant shareholders

11. Evaluation (2/2)
Takeover bid directive: if Member States opt out of the board neutrality rule (in reaction to Mittal Steel’s bid), it may lead to more dispersed ownership
But the poison pill technology is still missing
Post-scandal reforms as “me too reforms” (Hertig)?
Stricter regulation of audits: or over-regulation?
Cost-benefit balance far from clear
Nothing else on self-dealing (hence very little)
Rightly so.
Any lesson for India?