No more corporate governance rules, Ferma tells EC

In its response to a consultative EC green paper on corporate governance, the risk management association also said it is opposed to the suggestion that companies should publish yet more information on risk appetite.

Commenting on the paper Ferma said that any future corporate governance measures should take into account the size of a company, be voluntary for unlisted companies and enforce a ‘comply or explain’ system for listed companies.

The federation told the EC that it should start with ‘implementation and robust enforcement’ of existing EU corporate governance rules on risk management, which were recently boosted by the introduction of the 8th EU Company Law Directive.

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The Directive, which deals with a board’s risk management and risk disclosure duties, has not been applied equally across the EU, said Ferma. This should be the EC’s priority, it added.

“Member States’ implementation should be further analysed before the Commission takes any further action to regulate this duty,” argued the federation.

The representative body is also against any moves to increase risk appetite disclosure. “FERMA does not support the position to disclose more information about risk appetite, because it may harm companies’ competitive position, will not improve their risk management culture and will not provide more assurance to stakeholders that risks are under control.”

It believes that listed companies already disclose a great deal of risk-related information, and that a certain level of confidentiality is essential.

In response to the EC’s green paper, the federation also said that the principles of good corporate governance should apply to all companies, but because of factors such as a company’s size, complexity and risk profile proportionality should be applied.

EU corporate governance measures should be voluntary for unlisted companies, it continued. “Disclosure requirements should be different for companies that do not raise capital on the stock markets.”

And, according to Ferma, those listed companies that do not comply with relevant governance codes should explain the reasons for their divergence.

The CEA has also responded to the Green Paper. It pointed out that the new Solvency II regulatory regime will already introduce new requirements for corporate governance in the insurance sector.

“These requirements will be a key part of the new risk-based system to ensure that capital adequacy and control systems are sufficiently robust,” said the CEA.

The CEA also stressed that, while the Green Paper considers corporate governance from a more macro-economic level, the over-arching framework should be aligned with the individual requirements of the current sectoral legislation in EU member states and future EU legislation, such as Solvency II.

Whilst against a further set of changes to corporate governance rules, Ferma welcomed and supports the principles of the 8th Directive.

It agrees that risk management should be used as a ‘real’ tool for decision making within companies, rather than just an additional element of internal control and that the board should ensure proper oversight of the risk management process and set company-wide risk policy. But Ferma believes that this is achievable without the introduction of new rules.

“Businesses should not be afraid of the 8th European Company Law Directive. The systems of control and risk management that it mandates will not act as a brake on entrepreneurial activity but underpin it, if they are effectively embedded in an organisation,” said FERMA in a statement that announced a guide on the Directive last year.

The joint FERMA and European Confederation of Institutes of Internal Auditing (ECIIA) guidance paper on the 8th Directive is available here.